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                                                                    EXHIBIT 10.5







                           EMPLOYEE MATTERS AGREEMENT

                                     BETWEEN

                          RELIANT ENERGY, INCORPORATED

                                       AND

                             RELIANT RESOURCES, INC.

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                                TABLE OF CONTENTS

<TABLE>

<S>                                                                          <C>
ARTICLE I. DEFINITIONS.......................................................1
         1.01         ACTION.................................................2
         1.02         AFFILIATES.............................................2
         1.03         AGREEMENT..............................................2
         1.04         AICP...................................................2
         1.05         ANCILLARY AGREEMENTS...................................2
         1.06         ASO CONTRACTS..........................................2
         1.07         BENEFIT RESTORATION PLAN...............................2
         1.08         COBRA..................................................2
         1.09         CODE...................................................2
         1.10         COMMON STOCK...........................................2
         1.11         DEFERRED COMPENSATION PLAN.............................2
         1.12         DISTRIBUTION...........................................3
         1.13         DISTRIBUTION DATE......................................3
         1.14         DISTRIBUTION RATIO.....................................3
         1.15         DOL....................................................3
         1.16         EMPLOYMENT LIABILITIES.................................3
         1.17         ERISA..................................................3
         1.18         ESOP...................................................3
         1.19         EXECUTIVE PLANS........................................3
         1.20         FLEXIBLE BENEFITS PLAN.................................4
         1.21         FMLA...................................................4
         1.22         FOREIGN PLAN...........................................4
         1.23         FRINGE BENEFITS........................................4
         1.24         GOVERNMENTAL AUTHORITY.................................4
         1.25         GROUP INSURANCE POLICIES...............................4
         1.26         HCFA...................................................4
         1.27         HEALTH AND WELFARE PLANS...............................4
         1.28         HEALTH PLANS...........................................4
         1.29         HMO....................................................5
         1.30         HMO AGREEMENTS.........................................5
         1.31         IPO....................................................5
         1.32         IPO CLOSING DATE.......................................5
         1.33         IRS....................................................5
         1.34         LEAVE OF ABSENCE PROGRAMS..............................5
         1.35         LIABILITIES............................................5
         1.36         LICP...................................................5
         1.37         LTIP...................................................5
         1.38         NEW REI OPTION.........................................5
         1.39         NORAM RABBI TRUSTS.....................................5
         1.40         OPTION.................................................6
         1.41         OUTSOURCE..............................................6
         1.42         PARTICIPATING COMPANY..................................6
</TABLE>

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<TABLE>
<S>                   <C>                                                                      <C>
         1.43         PBGC........................................................................6
         1.44         PERSON......................................................................6
         1.45         PLAN........................................................................6
         1.46         QDRO........................................................................6
         1.47         QMCSO.......................................................................6
         1.48         RECORD DATE.................................................................6
         1.49         REI.........................................................................6
         1.50         REI EMPLOYEE................................................................7
         1.51         REI GROUP...................................................................7
         1.52         REI STOCK VALUE.............................................................7
         1.53         REI TERMINATED EMPLOYEE.....................................................7
         1.54         REI WCP.....................................................................7
         1.55         RESOURCES...................................................................7
         1.56         RESOURCES EMPLOYEE..........................................................7
         1.57         RESOURCES GROUP.............................................................7
         1.58         RESOURCES RETIRED EMPLOYEE..................................................7
         1.59         RESOURCES STOCK VALUE.......................................................8
         1.60         RESOURCES TERMINATED EMPLOYEE...............................................8
         1.61         RESOURCES UNION EMPLOYEES...................................................8
         1.62         RESOURCES WCP CLAIMS........................................................8
         1.63         RETIREMENT PLAN.............................................................8
         1.64         SAVINGS PLAN................................................................8
         1.65         SAVINGS RESTORATION PLAN....................................................8
         1.66         SEC.........................................................................8
         1.67         SEPARATION..................................................................9
         1.68         SEPARATION AGREEMENT........................................................9
         1.69         SEPARATION DATE.............................................................9
         1.70         SEVERANCE PLANS.............................................................9
         1.71         STOCK PLAN..................................................................9
         1.72         STOCK PURCHASE PLAN.........................................................9
         1.73         SUBSIDIARY..................................................................9
         1.74         TAX ALLOCATION AGREEMENT....................................................9
         1.75         UNION PLANS.................................................................9

ARTICLE II. GENERAL PRINCIPLES....................................................................9
         2.01         ASSUMPTION OF RESOURCES LIABILITIES.........................................9
         2.02         EMPLOYMENT LIABILITIES INDEMNIFICATION.....................................10
         2.03         ESTABLISHMENT OF RESOURCES PLANS...........................................12
         2.04         RESOURCES'S PARTICIPATION IN REI PLANS.....................................13
         2.05         TERMS OF PARTICIPATION BY RESOURCES EMPLOYEES IN RESOURCES PLANS...........15
         2.06         FOREIGN PLANS..............................................................15
         2.07         UNION PLANS................................................................15
         2.08         RELIANT ENERGY TEGCO, INC. EMPLOYEES.......................................16
         2.09         VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS..............................16
</TABLE>

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<TABLE>

<S>                   <C>                                                                        <C>
ARTICLE III. DEFINED BENEFIT PLAN................................................................16
         3.01         RESOURCES EMPLOYEES' PARTICIPATION IN RETIREMENT PLAN......................16

ARTICLE IV. DEFINED CONTRIBUTION PLAN............................................................17
         4.01         RESOURCES SAVINGS PLAN.....................................................17
         4.02         ESOP.......................................................................17
         4.03         REMA SAVINGS PLAN..........................................................17
         4.04         RESOURCES RETIRED EMPLOYEES................................................18

ARTICLE V. EXECUTIVE AND OTHER PLANS.............................................................18
         5.01         EXECUTIVE PLANS............................................................18
         5.02         DEFERRED COMPENSATION PLAN.................................................18
         5.03         BENEFIT AND SAVINGS RESTORATION PLANS......................................19
         5.04         RABBI TRUSTS...............................................................20
         5.05         SEVERANCE PLANS............................................................20

ARTICLE VI. HEALTH AND WELFARE PLANS.............................................................20
         6.01         ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES..........................20
         6.02         CLAIMS FOR HEALTH AND WELFARE PLANS........................................21
         6.03         POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS................................22
         6.04         VENDOR AND INSURANCE ARRANGEMENTS..........................................23
         6.05         COBRA AND HIPPA............................................................23
         6.06         LEAVE OF ABSENCE PROGRAMS AND FMLA.........................................24
         6.07         REI WORKERS' COMPENSATION PROGRAM..........................................24

ARTICLE VII. EQUITY AND OTHER COMPENSATION.......................................................26
         7.01         REI OPTIONS................................................................26
         7.02         REI RESTRICTED SHARES......................................................27
         7.03         STOCK PURCHASE PLAN........................................................27
         7.04         RESOURCES LONG-TERM INCENTIVE PLAN.........................................27
         7.05         RESOURCES ANNUAL INCENTIVE COMPENSATION PLAN...............................28

ARTICLE VIII. FRINGE AND OTHER BENEFITS..........................................................28
         8.01         FRINGE BENEFITS............................................................28
         8.02         APPLIANCE LOANS............................................................28
         8.03         CHAIRMAN'S SCHOLARSHIP FUNDS...............................................28
         8.04         REI FOUNDATION.............................................................28
         8.05         OTHER BENEFITS.............................................................28

ARTICLE IX.......................................................................................29
         9.01         TRANSITION SERVICES AGREEMENT..............................................29
         9.02         PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS..................29
         9.03         SHARING OF PARTICIPANT INFORMATION.........................................29
</TABLE>

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<TABLE>

<S>                   <C>                                                                        <C>
         9.04         REPORTING AND DISCLOSURE COMMUNICATIONS TO PARTICIPANTS....................29
         9.05         AUDITS REGARDING VENDOR CONTRACTS..........................................30
         9.06         BENEFICIARY DESIGNATIONS...................................................30
         9.07         REQUESTS FOR IRS AND DOL OPINIONS..........................................30
         9.08         FIDUCIARY MATTERS..........................................................30
         9.09         CONSENT OF THIRD PARTIES...................................................30
         9.10         TAX COOPERATION............................................................31
         9.11         PLAN RETURNS...............................................................31

ARTICLE X. EMPLOYMENT-RELATED MATTERS............................................................31
         10.01        TERMS OF RESOURCES EMPLOYMENT..............................................31
         10.02        HR DATA SUPPORT SYSTEMS....................................................31
         10.03        EMPLOYMENT OF EMPLOYEES WITH U.S. WORK VISAS...............................31
         10.04        CONFIDENTIALITY AND PROPRIETARY INFORMATION................................31
         10.05        ACCRUED PAYROLL, BONUSES, PROFIT SHARING AND COMMISSIONS...................36
         10.06        PAYROLL AND WITHHOLDING....................................................36
         10.07        PERSONNEL AND PAY RECORDS..................................................37
         10.08        NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES................37

ARTICLE XI. GENERAL PROVISIONS...................................................................37
         11.01        EFFECT IF IPO AND/OR DISTRIBUTION DOES NOT OCCUR...........................37
         11.02        RELATIONSHIP OF PARTIES....................................................37
         11.03        AFFILIATED COMPANIES.......................................................37
         11.04        INCORPORATION OF SEPARATION AGREEMENT PROVISIONS...........................38
         11.05        GOVERNING LAW..............................................................38
         11.06        SEVERABILITY...............................................................38
         11.07        AMENDMENT..................................................................38
         11.08        TERMINATION................................................................38
         11.09        CONFLICT...................................................................39
         11.10        COUNTERPARTS...............................................................39
</TABLE>

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                           EMPLOYEE MATTERS AGREEMENT

                  This EMPLOYEE MATTERS AGREEMENT (this "Agreement") is entered
into as of December 31, 2000, between Reliant Energy, Incorporated, a Texas
corporation ("REI"), and Reliant Resources, Inc., a Delaware corporation
("Resources"). Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in Article I hereof.

                                    RECITALS

                  WHEREAS, the Board of Directors of REI and Resources have each
determined that it would be appropriate and desirable for REI to separate the
Resources Group from the REI Group;

                  WHEREAS, REI and Resources currently contemplate that
Resources will make an initial public offering ("IPO") of an amount of its
common stock pursuant to a registration statement on Form S-1 filed pursuant to
the Securities Act of 1933, as amended, that will reduce REI's ownership of
Resources by less than 20%;

                  WHEREAS, REI currently contemplates that, following the IPO,
REI's successor holding company will distribute to the holders of its common
stock, by means of a pro rata distribution, all of the shares of Resources
common stock it then owns (the "Distribution");

                  WHEREAS, in furtherance of the foregoing, REI and Resources
have agreed to enter into this Agreement to allocate between them assets,
liabilities and responsibilities with respect to certain employee compensation,
benefit plans and programs, and certain employment matters; and

                  NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements set forth below, the parties hereto agree as follows:

                                   ARTICLE I.

                                   DEFINITIONS

                  Wherever used in this Agreement, the following terms shall
have the meanings indicated below, unless a different meaning is plainly
required by the context. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Separation Agreement. The
singular shall include the plural, unless the context indicates otherwise.
Headings of sections are used for convenience of reference only, and in case of
conflict, the text of this Agreement, rather than such headings, shall control:


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                  1.01 ACTION. "Action" means any demand, action, suit,
countersuit, arbitration, inquiry, proceeding or investigation by or before any
federal, state, local, foreign or international Governmental Authority or any
arbitration or mediation tribunal.

                  1.02 AFFILIATES. "Affiliates" shall have the meaning set forth
in the Separation Agreement.

                  1.03 AGREEMENT. "Agreement" means this Employee Matters
Agreement, including all the Addenda, Schedules and Exhibits hereto, and all
amendments made hereto from time to time.

                  1.04 AICP. "AICP," when immediately preceded by "REI," means
the Reliant Energy, Incorporated Annual Incentive Compensation Plan, as amended
and restated effective January 1, 1999. When immediately preceded by
"Resources," "AICP" means the annual incentive compensation plan to be
established by Resources pursuant to Sections 2.03 and 7.05.

                  1.05 ANCILLARY AGREEMENTS. "Ancillary Agreements" shall have
the meaning set forth in the Separation Agreement.

                  1.06 ASO CONTRACTS. "ASO Contracts" is defined in Subsection
6.04(a) and Schedule 6.04(a).

                  1.07 BENEFIT RESTORATION PLAN. "Benefit Restoration Plan,"
when immediately preceded by "REI," means the Reliant Energy, Incorporated
Benefit Restoration Plan, as established effective June 1, 1985 and thereafter
amended from time to time. When immediately preceded by "Resources," "Benefit
Restoration Plan" means the frozen Resources Benefit Restoration Plan to be
established by Resources pursuant to Sections 2.03 and 5.03.

                  1.08 COBRA. "COBRA" means the continuation coverage
requirements for "group health plans" under Title X of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended from time to time, and as codified
in Code Section 4980B and ERISA Sections 601 through 608.

                  1.09 CODE. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.

                  1.10 COMMON STOCK. "Common Stock," when immediately preceded
by "REI," means the common stock, without par value of REI. When immediately
preceded by "Resources," "Common Stock" means the common stock, par value $.001
per share, of Resources.

                  1.11 DEFERRED COMPENSATION PLAN. "Deferred Compensation Plan,"
when immediately preceded by "REI," means the Reliant Energy, Incorporated
Deferred Compensation Plan, as established effective September 1, 1985, the
Reliant Energy, Incorporated Deferred Compensation Plan, as amended and restated
effective January 1, 1989, and the Reliant Energy, Incorporated Deferred
Compensation Plan, as amended and restated effective January 1, 1991, each such
plan as thereafter amended from time to time. Depending on the context, "REI


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Deferred Compensation Plan" shall mean all of such plans or a particular one of
such plans. When immediately preceded by "Resources," "Deferred Compensation
Plan" means the deferred compensation plan to be established by Resources
pursuant to Sections 2.03 and 5.02 that corresponds to the REI Deferred
Compensation Plan.

                  1.12 DISTRIBUTION. "Distribution" has the meaning set forth in
the Recitals hereof, as the same is further described in the Separation
Agreement.

                  1.13 DISTRIBUTION DATE. "Distribution Date" shall have the
meaning set forth in the Separation Agreement.

                  1.14 DISTRIBUTION RATIO. "Distribution Ratio" means the number
of shares of Resources Common Stock each holder of REI Common Stock on the
Record Date (or such holder's designated transferee or transferees) will be
entitled to receive in the Distribution determined by multiplying the number of
shares of REI Common Stock held by such holder on the Record Date by a fraction,
the numerator of which is the number of shares of Resources Common Stock
beneficially owned by REI on the Record Date and the denominator of which is the
number of shares of REI Common Stock outstanding on the Record Date.

                  1.15 DOL. "DOL" means the United States Department of Labor.

                  1.16 EMPLOYMENT LIABILITIES. "Employment Liabilities" means
all claims, causes of action, demands, liabilities, debts or damages (known or
unknown) related to all employment matters addressed in this Agreement,
including but not limited to claims arising under federal, state or local
statute (including, without limitation, Title VII of the Civil Rights Act of
1964, as amended ("Title VII"); the Age Discrimination in Employment Act of
1967, including the Older Workers Benefit Protection Act of 1990 ("ADEA"); the
Civil Rights Act of 1866, as amended, the Civil Rights Act of 1991, the
Americans with Disabilities Act of 1990 ("ADA"), the Energy Reorganization Act,
as amended, 42 U.S.C. Section 5851; the Workers Adjustment and Retraining
Notification Act of 1988; the Pregnancy Discrimination Act of 1978; ERISA; FMLA;
the Fair Labor Standards Act; the Occupational Safety and Health Act; the Equal
Pay Act); claims in connection with workers' compensation or "whistle blower"
statutes and/or contract, tort, defamation, slander, wrongful termination or any
other state or federal regulatory, statutory or common law or local ordinance.

                  1.17 ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.

                  1.18 ESOP "ESOP" means the employee stock ownership plan
portion of the REI Savings Plan.

                  1.19 EXECUTIVE PLANS. "Executive Plans," when immediately
preceded by "REI," means the Houston Industries Incorporated Executive Life
Insurance Plan and the Houston Industries Incorporated Executive Benefits Plan.
When immediately preceded by "Resources," "Executive Plans" means the Resources
executive plans to be established pursuant to Sections 2.03 and 5.01 that
correspond to the respective REI Executive Plans.


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<PAGE>   9


                  1.20 FLEXIBLE BENEFITS PLAN. "Flexible Benefits Plan," when
immediately preceded by "REI," means the Reliant Energy, Incorporated Flexible
Benefits Plan. When immediately preceded by "Resources," Flexible Benefits Plan
means the flexible benefits plan to be established by Resources pursuant to
Section 2.03 and Article VI that corresponds to the REI Flexible Benefits Plan.

                  1.21 FMLA. "FMLA" means the Family and Medical Leave Act of
1993, as amended from time to time.

                  1.22 FOREIGN PLAN. "Foreign Plan" means those Resources Plans
maintained by Resources for the benefit of its non-expatriate employees outside
the U.S.

                  1.23 FRINGE BENEFITS. "Fringe Benefits," when immediately
preceded by "REI," means the REI fringe benefits, plans, programs and
arrangements sponsored and maintained by REI (as set forth in Article VIII).
When immediately preceded by "Resources," "Fringe Benefits" means the fringe
benefits, plans, programs and arrangements established or to be established by
Resources pursuant to Section 2.03 and Article VIII that correspond to the
respective REI Fringe Benefits.

                  1.24 GOVERNMENTAL AUTHORITY. "Governmental Authority" shall
mean any federal, state, local, foreign or international court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority.

                  1.25 GROUP INSURANCE POLICIES. "Group Insurance Policies" is
defined in Subsection 6.04(b) and the Schedule thereto.

                  1.26 HCFA. "HCFA" means the United States Health Care
Financing Administration.

                  1.27 HEALTH AND WELFARE PLANS. "Health and Welfare Plans,"
when immediately preceded by "REI," means the REI Health Plans, the REI Flexible
Benefits Plan, and the health and welfare plans listed on Schedule 1.27
established and maintained by REI for the benefit of employees and retirees of
any member of the REI Group, and such other welfare plans or programs as may
apply to such employees and retirees as of the Distribution Date. When
immediately preceded by "Resources," "Health and Welfare Plans" means the
Resources Health Plans, the Resources Flexible Benefits Plan, and the health and
welfare plans to be established by Resources pursuant to Section 2.03 and
Article VI that correspond to the respective REI Health and Welfare Plans.

                  1.28 HEALTH PLANS. "Health Plans," when immediately preceded
by "REI," means the Plans set forth on Schedule 1.28, and any similar or
successor plans, programs or arrangements. When immediately preceded by
"Resources," "Health Plans" means the health plans, programs and arrangements to
be established by Resources pursuant to Section 2.03 and Article VI that
correspond to the respective REI Health Plans.


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                  1.29 HMO. "HMO" means a health maintenance organization that
provides benefits under the REI Health Plans or the Resources Health Plans.

                  1.30 HMO AGREEMENTS. "HMO Agreements" is defined in Subsection
6.04(c) and Schedule 6.04(c).

                  1.31 IPO. "IPO" has the meaning set forth in the Recitals
hereof, as the same is further described in the Separation Agreement.

                  1.32 IPO CLOSING DATE. "IPO Closing Date" means the first date
on which the proceeds of any sale of Resources Common Stock to the underwriters
in the IPO are received.

                  1.33 IRS. "IRS" means the United States Internal Revenue
Service.

                  1.34 LEAVE OF ABSENCE PROGRAMS. "Leave of Absence Programs,"
when immediately preceded by "REI," means the personal, medical, military and
FMLA leave offered from time to time under the personnel policies and practices
of REI. When immediately preceded by "Resources," "Leave of Absence Programs"
means the leave of absence programs established and maintained by Resources.

                  1.35 LIABILITIES. "Liabilities" shall mean any and all
Indebtedness (as such term is defined in the Separation Agreement), 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.

                  1.36 LICP. "LICP" means the 1994 Houston Industries
Incorporated Long-Term Incentive Compensation Plan and the Houston Industries
Incorporated Long-Term Incentive Compensation Plan (Established Effective as of
January 1, 1989), each such plan as thereafter amended from time to time.

                  1.37 LTIP. "LTIP" means the Long-Term Incentive Plan of
Reliant Resources, Inc. as described in Section 7.04.

                  1.38 NEW REI OPTION. "New REI Option" shall have the meaning
set forth in Section 7.01.

                  1.39 NORAM RABBI TRUSTS. "NorAm Rabbi Trusts" means that
certain trust agreement dated as of August 8, 1989 by and between Arkla, Inc.
and Boatmen's Trust Company (also referred to as "Trust Agreement No. 1"), that
certain trust agreement dated as of August 8, 1989 by and between Arkla, Inc.
and Boatmen's Trust Company (also referred to as "Trust Agreement No. 2") and
that certain trust agreement dated as of August 8, 1989 by and between Arkla,
Inc. and Boatmen's Trust Company (also referred to as "Trust Agreement No. 3").


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                  1.40 OPTION. "Option," when immediately preceded by "REI,"
means an option to purchase REI common stock pursuant to a Stock Plan. When
immediately preceded by "Resources," "Option" means an option to purchase
Resources common stock pursuant to a plan providing such benefits to be
established by Resources pursuant to Section 2.03 and Article VII.

                  1.41 OUTSOURCE. "Outsource" is defined in Subsection 6.02(b).

                  1.42 PARTICIPATING COMPANY. "Participating Company" means: (a)
REI; (b) any Person (other than an individual) that REI has approved for
participation in, has accepted participation in, and which is participating in,
a Plan sponsored by REI; or (c) any Person (other than an individual) which, by
the terms of such a Plan, participates in such a Plan sponsored by REI or any
employees of which, by the terms of such a Plan, participate in or are covered
by such a Plan.

                  1.43 PBGC. "PBGC" means the Pension Benefit Guaranty
Corporation.

                  1.44 PERSON. "Person" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.

                  1.45 PLAN. "Plan," depending on the context, may mean any
plan, policy, program, payroll practice, arrangement, contract, trust, insurance
policy, or any agreement or funding vehicle providing compensation or benefits
to employees, former employees or directors of REI or Resources.

                  1.46 QDRO. "QDRO" means a domestic relations order which
qualifies under Code Section 414(p) and ERISA Section 206(d) and which creates
or recognizes an alternate payee's right to, or assigns to an alternate payee,
all or a portion of the benefits payable to a participant under the REI Savings
Plan or the Retirement Plan.

                  1.47 QMCSO. "QMCSO" means a medical child support order which
qualifies under ERISA Section 609(a) and which creates or recognizes the
existence of an alternate recipient's right to, or assigns to an alternate
recipient the right to, receive benefits for which a participant or beneficiary
is eligible under any of the Health Plans.

                  1.48 RECORD DATE. "Record Date" means the close of business on
the date to be determined by the Board of Directors of REI as the record date
for determining the shareholders of REI entitled to receive shares of Resources
Common Stock in the Distribution.

                  1.49 REI. "REI" means Reliant Energy, Incorporated a Texas
corporation. In all such instances in which REI is referred to in this
Agreement, it shall also be deemed to include a reference to each member of the
REI Group, unless it specifically provides otherwise; REI shall be solely
responsible to Resources for ensuring that each member of the REI Group complies
with the applicable terms of this Agreement.


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<PAGE>   12


                  1.50 REI EMPLOYEE. "REI Employee" means an individual who, on
the Distribution Date, is or was employed with any member of the REI Group and
is not a Resources Employee.

                  1.51 REI GROUP. "REI Group" shall have the meaning set forth
in the Separation Agreement.

                  1.52 REI STOCK VALUE. "REI Stock Value" means the average over
the five trading days immediately preceding the Distribution Date of the high
and low sales price (with dividend) of a share of REI Common Stock on the New
York Stock Exchange - Composite Transactions reporting system, as reported in
The Wall Street Journal on each of the five trading days immediately preceding
the Distribution Date.

                  1.53 REI TERMINATED EMPLOYEE. "REI Terminated Employee" means
any individual who is a former employee of any member of the REI Group and who,
on the Distribution Date, is not a Resources Employee.

                  1.54 REI WCP. "REI WCP" means the REI Workers' Compensation
Program, comprised of the various arrangements established by a member of the
REI Group to comply with the workers' compensation requirements of the states in
which the REI Group conducts business.

                  1.55 RESOURCES. "Resources" means Reliant Resources, Inc., a
Delaware corporation. In all such instances in which Resources is referred to in
this Agreement, it shall also be deemed to include a reference to each member of
the Resources Group, unless it specifically provides otherwise; Resources shall
be solely responsible to REI for ensuring that each member of the Resources
Group complies with the applicable terms of this Agreement.

                  1.56 RESOURCES EMPLOYEE. "Resources Employee" means any
individual who, as of the Distribution Date, is: (a) either actively employed
by, or on a leave of absence from, any member of the Resources Group; (b) a
Resources Terminated Employee; (c) an alternate payee under a QDRO, alternate
recipient under a QMCSO, beneficiary, covered dependent, or qualified
beneficiary (as such term is defined under COBRA), of an employee described in
Subsection (a) or (b) above; or (d) an employee or group of employees designated
by REI and Resources, by mutual agreement, as Resources Employees; but not (e) a
Resources Retired Employee. An employee may be a Resources Employee pursuant to
this Section regardless of whether such employee is, as of the Distribution
Date, alive, actively employed, on a temporary leave of absence from active
employment, on layoff, terminated from employment, retired or on any other type
of employment or post-employment status relative to a REI Plan, and regardless
of whether, as of the Distribution Date, such employee is then receiving any
benefits from a REI Plan.

                  1.57 RESOURCES GROUP. "Resources Group" shall have the meaning
set forth in the Separation Agreement.

                  1.58 RESOURCES RETIRED EMPLOYEE. "Resources Retired Employee"
means any individual who would have qualified as a Resources Employee but who
retired on or


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<PAGE>   13


after January 1, 2001 and on or before the Distribution Date and who is
identified as a Resources Retired Employee by mutual agreement between Resources
and REI on or before the Distribution Date.

                  1.59 RESOURCES STOCK VALUE. "Resources Stock Value" means the
average of the high and low sales price of a share of Resources Common Stock on
the New York Stock Exchange - Composite Transactions reporting system, as
reported in The Wall Street Journal, for each of the five trading days
immediately preceding the Distribution Date.

                  1.60 RESOURCES TERMINATED EMPLOYEE. "Resources Terminated
Employee" means any individual who is a former employee of any member of the REI
Group who was terminated from any member of the Resources Group on or after
January 1, 2001 and on or before the Distribution Date. Notwithstanding the
foregoing, "Resources Terminated Employee" shall not, unless otherwise expressly
provided to the contrary in this Agreement, include: (a) an individual who is a
REI Employee at the Distribution Date; (b) an individual who is otherwise a
Resources Terminated Employee, but who is subsequently employed by any member of
the REI Group on or prior to the Distribution Date; or (c) a Resources Retired
Employee.

                  1.61 RESOURCES UNION EMPLOYEES. "Resources Union Employees"
mean Resources Employees whose employment is covered by the terms of a
collective bargaining agreement.

                  1.62 RESOURCES WCP CLAIMS. "Resources WCP Claims" is defined
in Subsection 6.07(a)(i).

                  1.63 RETIREMENT PLAN. "Retirement Plan" means the Reliant
Energy, Incorporated Retirement Plan, a defined benefit plan.

                  1.64 SAVINGS PLAN. "Savings Plan" when immediately preceded by
"REI," means the Reliant Energy, Incorporated Savings Plan, a defined
contribution plan. When immediately preceded by "Resources," " Savings Plan"
means the savings plan to be established by Resources pursuant to Sections 2.03
and 4.01. When immediately preceded by "REMA," "Savings Plan" means the Reliant
Energy Mid-Atlantic Savings Plan for Non-Union Employees, a defined contribution
plan.

                  1.65 SAVINGS RESTORATION PLAN. "Savings Restoration Plan,"
when immediately preceded by REI, means the Reliant Energy, Incorporated Savings
Restoration Plan, as established effective January 1, 1991 and thereafter
amended from time to time. When immediately preceded by "Resources," "Savings
Restoration Plan" means the plan to be established by Resources pursuant to
Section 5.03(b) which corresponds to the REI Savings Restoration Plan.

                  1.66 SEC. "SEC" means the United States Securities and
Exchange Commission.


                                      -8-
<PAGE>   14


                  1.67 SEPARATION. "Separation" shall have the meaning set forth
in the Separation Agreement.

                  1.68 SEPARATION AGREEMENT. "Separation Agreement" means the
Master Separation Agreement between REI and Resources entered into as of
December 31, 2000 of which this Agreement is an Exhibit.

                  1.69 SEPARATION DATE. "Separation Date" shall have the meaning
set forth in the Separation Agreement.

                  1.70 SEVERANCE PLANS. "Severance Plans," when immediately
preceded by "REI," means the severance pay plans established and maintained by
REI. When immediately preceded by "Resources," "Severance Plans" means the
severance pay plans established and maintained by Resources.

                  1.71 STOCK PLAN. "Stock Plan," when immediately preceded by
"REI," means the LICP, the Houston Industries, Incorporated Stock Plan for
Outside Directors, the Reliant Energy, Incorporated Business Unit Performance
Share Plan, and the Reliant Energy, Incorporated and Subsidiaries Common Stock
Participation Plan for Designated New Employees and Non-Officer Employees.

                  1.72 STOCK PURCHASE PLAN. "Stock Purchase Plan" means the
Reliant Resources, Inc. Employee Stock Purchase Plan as established by Resources
pursuant to Section 7.03.

                  1.73 SUBSIDIARY. "Subsidiary" shall have the meaning set forth
in the Separation Agreement.

                  1.74 TAX ALLOCATION AGREEMENT. "Tax Allocation Agreement"
means the Ancillary Agreement which is attached as an exhibit to the Separation
Agreement.

                  1.75 UNION PLANS. "Union Plans," means all Plans maintained by
REI or Resources for the benefit of certain of their bargaining unit employees.


                                   ARTICLE II.

                               GENERAL PRINCIPLES

                  2.01 ASSUMPTION OF RESOURCES LIABILITIES. Except as specified
otherwise in this Agreement, or as mutually agreed upon by Resources and REI
from time to time, REI hereby assumes and agrees to pay, perform, fulfill and
discharge, in accordance with their respective terms, subject to Section 9.02
and to the indemnification provisions of Section 2.02, all Liabilities to or
relating to Resources Retired Employees, to the extent relating to, arising out
of or resulting from former employment with any member of the REI Group and/or
the Resources Group (including Liabilities arising under or relating to REI
Plans and Resources


                                      -9-
<PAGE>   15


Plans). Except as specified otherwise in this Agreement, or as mutually agreed
upon by Resources and REI from time to time, Resources hereby assumes and agrees
to pay, perform, fulfill and discharge, in accordance with their respective
terms, all of the following: (a) subject to Section 9.02 and to the
indemnification provisions of Section 2.02, all Liabilities to or relating to
Resources Employees, in each case relating to, arising out of or resulting from
employment by any member of the REI Group before the Distribution Date,
(including Liabilities arising under or relating to REI Plans and Resources
Plans); (b) subject to Section 9.02 and to the indemnification provisions of
Section 2.02, all other Liabilities to or relating to employees of any member of
the Resources Group, to the extent relating to, arising out of or resulting from
future, present or former employment with any member of the Resources Group
(including Liabilities arising under or relating to REI Plans and Resources
Plans); (c) subject to Section 9.02 and to the indemnification provisions of
Section 2.02, all Liabilities relating to, arising out of or resulting from any
other actual or alleged employment relationship with any member of the Resources
Group; and (d) subject to Section 9.02 and to the indemnification provisions of
Section 2.02, all other Liabilities relating to, arising out of or resulting
from obligations, liabilities and responsibilities expressly assumed or retained
by any member of the Resources Group or a Resources Plan, pursuant to this
Agreement.

                  2.02 EMPLOYMENT LIABILITIES INDEMNIFICATION

                           (a) Indemnification by Resources. Except as otherwise
provided in this Agreement, including Subsection 2.02(c), Resources shall, for
itself and as agent for each member of the Resources Group, indemnify, defend
(or, where applicable, pay the defense costs for) and hold harmless the REI
Indemnitees (as such term is defined in the Separation Agreement) from and
against any and all Employment Liabilities that any third party seeks to impose
upon the REI Indemnitees, or which are imposed upon the REI Indemnitees, if and
to the extent such Employment Liabilities relate to, arise out of or result from
any of the following items (without duplication):

                                    (i)      any acts or omissions or alleged
                                             acts or omissions by or on behalf
                                             of any member or person employed by
                                             a member of the Resources Group in
                                             the conduct of the Resources
                                             Business;

                                    (ii)     any claim by an officer of any
                                             member of the Resources Group (who
                                             is an officer as of the IPO Closing
                                             Date) against any member or
                                             employee of any member of the REI
                                             Group except with respect to
                                             benefit obligations of Resources
                                             Employees assumed by REI pursuant
                                             to a specific provision of this
                                             Agreement; and

                                    (iii)    any breach by Resources or any
                                             member or person employed by a
                                             member of the


                                      -10-
<PAGE>   16



                                             Resources Group of this Agreement,
                                             the Separation Agreement or any
                                             other Ancillary Agreement.

                  In the event that any member of the Resources Group makes a
payment to the REI Indemnitees hereunder, and the Employment Liability on
account of which such payment was made is subsequently diminished, either
directly or through a third-party recovery, REI will promptly repay (or will
procure a REI Indemnitee to promptly repay) such member of the Resources Group
the amount by which the payment made by such member of the Resources Group
exceeds the actual cost of the associated indemnified Employment Liability.

                           (b) Indemnification by REI. Except as otherwise
provided in this Agreement, including Subsection 2.02(c), REI shall, for itself
and as agent for each member of the REI Group, indemnify, defend (or, where
applicable, pay the defense costs for) and hold harmless the Resources
Indemnitees (as such term is defined in the Separation Agreement) from and
against any and all Employment Liabilities that any third party seeks to impose
upon the Resources Indemnitees, or which are imposed upon the Resources
Indemnitees, if and to the extent such Employment Liabilities relate to, arise
out of or result from any of the following items (without duplication):

                                    (i)      any acts or omissions or alleged
                                             acts or omissions by or on behalf
                                             of any member or person employed by
                                             a member of the REI Group in the
                                             conduct of the REI Business;

                                    (ii)     any claim by an officer of any
                                             member of the REI Group (who is an
                                             officer as of the IPO Closing Date)
                                             against any member or employee of
                                             any member of the Resources Group;
                                             and

                                    (iii)    any breach by REI or any member or
                                             person employed by a member of the
                                             REI Group of this Agreement, the
                                             Separation Agreement or any other
                                             Ancillary Agreement.

                  In the event that any member of the REI Group makes a payment
to the Resources Indemnitees hereunder, and the Employment Liability on account
of which such payment was made is subsequently diminished, either directly or
through a third-party recovery, Resources will promptly repay (or will procure a
Resources Indemnitee to promptly repay) such member of the REI Group the amount
by which the payment made by such member of the REI Group exceeds the actual
cost of the indemnified Employment Liability.

                           (c) Exceptions. In accordance with the current
practice in effect as of the execution of the Agreement, with respect to claims
for benefits or compensation, if an underlying act or omission as contemplated
in Subsections 2.02(a) or 2.02(b) occurs and


                                      -11-
<PAGE>   17


such act or omission constitutes the principal basis for such a claim, then
Subsection 2.02(a) or (b) shall apply, as applicable, to establish
indemnification obligations. If, however, no specific act or omission occurs
that is attributable to REI or Resources and the principal underlying basis for
a claim for benefits or compensation involves plan administration or other
similar systemic type activities related to maintenance of plans,
notwithstanding Subsections 2.02(a) and (b), in accordance with the current
practice in effect as of the execution of the Agreement, Resources and REI shall
be responsible for their pro rata allocated share of costs to defend such claim.
In addition, if a claim relates specifically to the transfer or other movement
of employment between REI and Resources in connection with the Separation and to
the employee benefit changes made in connection therewith, then notwithstanding
Subsections 2.02(a) and (b), in accordance with the current practice in effect
as of the execution of the Agreement, Resources and REI shall be responsible for
their pro rata allocated share of costs to defend such claim.

                           (d) Relationship to Article III of Separation
                  Agreement.

                                    (i)      Unless expressly modified in this
                                             Section 2.02, all other provisions
                                             of Article III of the Separation
                                             Agreement will apply to an
                                             indemnifiable claim.

                                    (ii)     Any claim which is not an
                                             Employment Liability will only be
                                             subject to the provisions of the
                                             Separation Agreement.

                  2.03 ESTABLISHMENT OF RESOURCES PLANS.

                           (a) Health and Welfare Plans and Retiree Medical.
                  Except as specified otherwise in this Agreement, effective as
                  of the Distribution Date or such other date(s) as REI and
                  Resources may mutually agree, Resources shall establish the
                  Resources Health and Welfare Plans. The foregoing Resources
                  Health and Welfare Plans as in effect as of the Distribution
                  Date shall be substantially comparable to the REI Plans as in
                  effect on the Distribution Date; provided, however, that
                  Resources shall not establish a substantially comparable
                  retiree life or retiree medical program (except as may be
                  required for certain, if any, Resources Union Employees) but
                  shall, in its discretion, make available a group insurance
                  arrangement through which eligible retired employees of the
                  members of the Resources Group may purchase retiree medical
                  insurance at group rates.

                           (b) Savings Plan and Fringe Benefits. Except as
                  specified otherwise in this Agreement, effective as of the
                  Distribution Date or such other date(s) as REI and Resources
                  may mutually agree, Resources shall establish the Resources
                  Savings Plan as more fully described in Article IV and the
                  Resources Fringe Benefits as more fully described in Article
                  VIII.


                                      -12-
<PAGE>   18


                           (c) Equity and Other Compensation. Except as
                  specified otherwise in this Agreement, effective as of January
                  1, 2001, or such other date(s) as REI and Resources may
                  mutually agree, Resources shall establish the Resources AICP,
                  the Resources Stock Purchase Plan and the LTIP, and effective
                  as of the Distribution Date or such other date(s) as REI and
                  Resources may mutually agree, Resources shall establish such
                  Plans as may be determined to be appropriate, including,
                  without limitation, the Resources Deferred Compensation Plan,
                  Resources Savings Restoration Plan, Resources Benefit
                  Restoration Plan and Resources Executive Plans. The foregoing
                  Resources Plans shall be substantially comparable to the REI
                  Plans as in effect on the Distribution Date.

                           (d) Resources Under No Obligation to Maintain Plans.
                  Except as specified otherwise in this Agreement, nothing in
                  this Agreement shall preclude Resources, at any time from
                  amending, merging, modifying, terminating, eliminating,
                  reducing, or otherwise altering in any respect any Resources
                  Plan, any benefit under any Resources Plan or any trust,
                  insurance policy or funding vehicle related to any Resources
                  Plan (to the extent permitted by law).

                  2.04 RESOURCES'S PARTICIPATION IN REI PLANS.

                           (a) Participation in REI Plans.

                                    (i)      Except as specified otherwise in
                                             this Agreement, or as REI and
                                             Resources may mutually agree,
                                             Resources shall adopt as a
                                             Participating Company the REI Plans
                                             in effect as of January 1, 2001, to
                                             the extent that Resources has not
                                             yet established substantially
                                             comparable Plans. Effective as of
                                             any date on or after January 1,
                                             2001 and before the Distribution
                                             Date (or such other date as REI and
                                             Resources may mutually agree upon),
                                             any member of the Resources Group
                                             not described in the preceding
                                             sentence may, at its request and
                                             with the consent of REI and
                                             Resources, become a Participating
                                             Company in any or all of the REI
                                             Plans, to the extent that Resources
                                             has not yet established a
                                             substantially comparable Plan.

                                    (ii)     On and after the Distribution Date,
                                             Resources Retired Employees shall
                                             continue to participate in the REI
                                             Plans for which they are eligible
                                             as of the Distribution Date,
                                             including, but not limited to, the
                                             Retirement Plan, REI Savings Plan
                                             and any REI Plan as provided in
                                             Article V.

                           (b) REI's General Obligations as Plan Sponsor.


                                      -13-
<PAGE>   19


                                    (i)      To the extent that Resources is a
                                             Participating Company in any REI
                                             Plan(s), REI shall continue to
                                             administer, or cause to be
                                             administered, in accordance with
                                             their terms and applicable law,
                                             such REI Plan(s), and shall have
                                             the sole and absolute discretion
                                             and authority to interpret the REI
                                             Plan(s), as set forth therein. REI
                                             shall not, without first consulting
                                             with Resources, amend or terminate
                                             any material feature of any REI
                                             Plan in which Resources is a
                                             Participating Company, except to
                                             the extent such amendment or
                                             termination would not affect any
                                             benefits of Resources Employees
                                             under such Plan or as may be
                                             necessary or appropriate to comply
                                             with applicable law.

                                    (ii)     With regard to Resources Retired
                                             Employees participating in REI
                                             Plans after the Distribution Date,
                                             REI shall continue to administer,
                                             or cause to be administered, in
                                             accordance with their terms and
                                             applicable law, such REI Plans, and
                                             shall have sole and absolute
                                             discretion and authority to
                                             interpret such Plans or amend or
                                             terminate such Plans, as set forth
                                             therein.

                           (c) Resources's General Obligations as Participating
                  Company. Resources shall perform with respect to its
                  participation in the REI Plans, the duties of a Participating
                  Company as set forth in each such Plan or any procedures
                  adopted pursuant thereto, including (without limitation): (i)
                  assisting in the administration of claims, to the extent
                  requested by the claims administrator of the applicable REI
                  Plan; (ii) cooperating fully with REI Plan auditors, benefit
                  personnel and benefit vendors; (iii) preserving the
                  confidentiality of all financial arrangements REI has or may
                  have with any vendors, claims administrators, trustees or any
                  other entity or individual with whom REI has entered into an
                  agreement relating to the REI Plans; and (iv) preserving the
                  confidentiality of participant information (including, without
                  limitation, health information in relation to FMLA leaves) to
                  the extent not specified otherwise in this Agreement.

                           (d) Termination of Participating Company Status.
                  Except as specified otherwise in this Agreement or otherwise
                  may be mutually agreed upon by REI and Resources, effective as
                  of the Distribution Date or such other date as Resources
                  establishes a substantially comparable Plan (as specified in
                  Section 2.03 or otherwise in this Agreement), Resources shall
                  automatically cease to be a Participating Company in the
                  corresponding REI Plan.


                                      -14-
<PAGE>   20


                  2.05 TERMS OF PARTICIPATION BY RESOURCES EMPLOYEES IN
RESOURCES PLANS.

                           (a) Non-Duplication of Benefits. As of the
                  Distribution Date or such other date that applies to the
                  particular Resources Plan, the separate Resources Plans shall
                  be, with respect to employees of the Resources Group, in all
                  respects the successors in interest to, and shall not provide
                  benefits that duplicate benefits provided by, the
                  corresponding REI Plans. REI and Resources shall mutually
                  agree, if necessary, on methods and procedures, including
                  amending the respective Plan documents, to prevent employees
                  of the Resources Group from receiving duplicate benefits from
                  the REI Plans and the Resources Plans.

                           (b) Service Credit. Except as specified otherwise in
                  this Agreement, with respect to Resources Employees, each
                  Resources Plan shall provide that all service, all
                  compensation and all other benefit-affecting determinations
                  that, as of the Distribution Date, were recognized under the
                  corresponding REI Plan shall, as of the Distribution Date,
                  receive full recognition and credit and be taken into account
                  under such Resources Plan to the same extent as if such items
                  occurred under such Resources Plan, except to the extent that
                  duplication of benefits would result. The service crediting
                  provisions shall be subject to any respectively applicable
                  "service bridging," "break in service," "employment date," or
                  "eligibility date" rules under the Resources Plans and the REI
                  Plans.

                  2.06 FOREIGN PLANS. Resources intends to maintain all Foreign
Plans in existence as of January 1, 2001 in its discretion in accordance with
the applicable plan documents and applicable laws.

                  2.07 UNION PLANS. REI and/or Resources shall continue to
maintain all Union Plans in existence as of January 1, 2001 up to and after the
Distribution Date as required by the terms of the applicable collective
bargaining agreements and in accordance with the terms of those plans and
subject to collective bargaining. For example, but not by way of limitation,
Resources will establish qualified plans which mirror the Retirement Plan and
REI Savings Plan for the benefit of certain Resources Union Employees, and will
assume the sponsorship of certain other tax qualified plans for the benefit of
certain other Resources Union Employees.


                                      -15-
<PAGE>   21


                  2.08 RELIANT ENERGY TEGCO, INC. EMPLOYEES. Notwithstanding any
provision of this Agreement to the contrary, effective as of January 1, 2001
through the Distribution Date, non-union employees of Reliant Energy Tegco,
Inc., a wholly owned subsidiary of REI, shall participate in all employee
benefit plans sponsored by REI and/or Resources in the same manner and to the
same extent as such employees would participate in such plans if such employees
were employed by a member of the Resources Group rather than a member of the REI
Group.

                  2.09 VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS. REI shall
continue to sponsor and shall assume all assets and Liabilities associated with
and shall retain the Houston Industries Incorporated Group Welfare Benefits
Trust Agreement (as amended and restated effective January 1, 1989), Houston
Lighting and Power Company Union Retirees' Medical and Dental Benefits Trust
Agreement (effective December 1, 1995), Houston Lighting and Power Company
Non-Union Retirees' Medical and Dental Benefits Trust Agreement (effective
December 1, 1995) and the Houston Lighting and Power Company Retirees' Life
Insurance Benefits Trust Agreement (effective December 1, 1995).

                                  ARTICLE III.

                              DEFINED BENEFIT PLAN

                  3.01 RESOURCES EMPLOYEES' PARTICIPATION IN RETIREMENT PLAN.
Effective as of February 5, 2001, REI shall amend the Retirement Plan to provide
that employees who become employed by any member of the Resources Group on or
after February 5, 2001 shall not be eligible to participate in the Retirement
Plan. Effective as of March 1, 2001, REI shall amend the Retirement Plan to
provide that eligible employees of any member of the Resources Group shall be
fully vested in their Cash Balance Accounts (as such term is defined in the
Retirement Plan) under the Retirement Plan and to provide that such employees
shall no longer participate in the Retirement Plan on and after such date. In
addition, the Retirement Plan shall be amended to generally provide a transition
benefit for certain eligible employees of the members of the Resources Group
who, as of December 31, 2000, were participating in the Retirement Plan, were
eligible for a Grandfathered Benefit under Section 7.6(a) of the Retirement Plan
and generally had attained the age of 42 and completed at least five years of
Vesting Service (as such term is defined in the Retirement Plan) under the
Retirement Plan to reflect the loss, if any, of such participants' Grandfathered
Benefit under Section 7.6(a) of the Retirement Plan and the value of such
participants' retiree medical accounts. Such transition benefit, if any, will be
added to each such eligible participant's Cash Balance Account under the
Retirement Plan or the REI Benefit Restoration Plan to the extent the benefit
limitations of the Code prevent such transition benefit from being paid under
the Retirement Plan. Such transition benefit shall not include extra age and/or
service which may be provided under an employment, severance or supplemental
pension agreement with an employee of any member of the Resources Group.
Effective as of the IPO Closing Date, REI shall assume all Liabilities to or
relating to the employees of any member of the Resources Group and the Resources
Retired Employees under the Retirement Plan. Notwithstanding the foregoing to
the contrary, this Section 3.01 shall not apply to Resources Union Employees.


                                      -16-
<PAGE>   22


                                  ARTICLE IV.

                            DEFINED CONTRIBUTION PLAN

                  4.01 RESOURCES SAVINGS PLAN. Effective as of March 1, 2001,
the account balances of the employees of the members of the Resources Group who
participate in the REI Savings Plan shall be fully vested, and Resources, as a
Participating Company in the REI Savings Plan, shall be responsible for
providing in cash and/or Resources Common Stock a fully vested employer matching
contribution on up to 6% of each such employee's eligible covered compensation.
In addition, Resources may provide a fully vested discretionary employer
contribution at the end of each plan year based upon such employees' eligible
covered compensation and/or a fully vested discretionary employer contribution
each payroll period based upon the first $85,000 of each such employee's
eligible covered compensation for the year 2001. Effective as of the
Distribution Date, Resources shall establish, or cause to be established, a
trust, which is intended to be qualified under Code Section 401(a), exempt from
taxation under Code Section 501(a)(1), and forming the separate Resources
Savings Plan. Except as provided in this Article IV, such Resources Savings Plan
shall be substantially comparable to the REI Savings Plan as applicable to
employees of members of the Resources Group immediately prior to the
Distribution Date. As soon as reasonably practicable following the Distribution
Date, REI shall cause to be determined for the REI Savings Plan the amount of
assets to be transferred from the REI Savings Plan to the Resources Savings
Plan. Such amount shall be equal to the greater of (a) the amount required under
Code Section 414(l), or (b) the amount within the sub-account(s) within the
Reliant Energy, Incorporated Savings Trust that has been separately maintained
and accounted for on behalf of employees of the members of the Resources Group
less the amount attributable to Resources Retired Employees. Notwithstanding the
foregoing to the contrary, this Section 4.01 shall not apply to Resources Union
Employees.

                  4.02 ESOP. On and after the Distribution Date, Resources
Employees shall no longer participate in the ESOP, and the Resources Savings
Plan shall not contain an ESOP. Therefore, the ESOP shall continue as a
component of the REI Savings Plan. After the Distribution Date, the ESOP will
hold shares of Resources Common Stock, and applicable law generally prohibits
such plans from holding securities that are not "qualifying employer securities"
within the meaning of Code Section 4975(e)(8) for more than 90 days after the
Distribution Date unless an extension is granted by the IRS. Accordingly, REI
will request that the IRS grant an extension of such 90-day period to such a
time as the REI Savings Plan's independent fiduciary deems prudent and the IRS
deems acceptable to allow the independent fiduciary to dispose of the Resources
Common Stock received by the ESOP on account of the Distribution and to reinvest
in qualifying employer securities in a manner consistent with the best interests
of the ESOP participants. Notwithstanding the foregoing to the contrary, this
Section 4.02 shall not apply to Resources Union Employees who may be eligible to
participate in the ESOP.

                  4.03 REMA SAVINGS PLAN. Effective as of March 1, 2001, REI
shall amend the REMA Savings Plan to provide the same benefit structure for
eligible employees under the REMA Savings Plan as will be provided as of such
date for eligible non-union employees of the members of the Resources Group
participating in the REI Savings Plan (as


                                      -17-
<PAGE>   23

described in Section 4.01). Effective as of the Distribution Date, Resources
shall assume the sponsorship of the REMA Savings Plan and shall merge such plan
into the Resources Savings Plan as soon as practicable following the
Distribution Date.

                  4.04 RESOURCES RETIRED EMPLOYEES. Notwithstanding the above,
account balances of Resources Retired Employees, if any, shall remain in the REI
Savings Plan after the Distribution Date.

                                   ARTICLE V.

                            EXECUTIVE AND OTHER PLANS

                  5.01 EXECUTIVE PLANS.

                           (a) Establishment of Resources Executive Plans.
                  Effective as of the Distribution Date or such other date as
                  REI and Resources may mutually agree, Resources shall
                  establish the Resources Executive Plans which shall be
                  substantially comparable to the REI Executive Plans. As of the
                  Distribution Date, Resources shall assume all Liabilities to
                  or relating to the Resources Employees under the REI Executive
                  Plans, and REI shall transfer the split dollar life insurance
                  policies under the Executive Life Insurance Plan attributable
                  to such Resources Employees to Resources. As of the
                  Distribution Date, REI shall assume all Liabilities to or
                  relating to Resources Retired Employees under the REI
                  Executive Plans.

                           (b) Participation in Executive Plans. Effective as of
                  the Distribution Date or such other date as Resources
                  establishes the Resources Executive Plans, eligible Resources
                  Employees determined in accordance with the terms of the
                  applicable plans shall only be eligible to participate in the
                  Resources Executive Plans.

                  5.02 DEFERRED COMPENSATION PLAN.

                           (a) Establishment of Resources Deferred Compensation
                  Plan. Effective as of the Distribution Date or such other date
                  as REI and Resources may mutually agree, Resources shall
                  establish the Resources Deferred Compensation Plan which shall
                  be substantially comparable to the REI Deferred Compensation
                  Plan. As of January 1, 2001, Resources shall assume all
                  Liabilities to or relating to the Resources Employees under
                  the REI Deferred Compensation Plan; provided, however, that
                  REI shall transfer a cash amount equal to the cost of such
                  Liabilities transferred to Resources as soon as practicable
                  following the Distribution Date or such other date as REI and
                  Resources may mutually agree. As of January 1, 2001, REI shall
                  assume all Liabilities to or relating to Resources Retired
                  Employees, and all corporate owned life insurance policies
                  associated with the REI Deferred Compensation Plan shall
                  remain at REI.


                                      -18-
<PAGE>   24


                           (b) Participation in Deferred Compensation Plan.
                  Resources Employees who consent to an amendment to treat their
                  employment with Resources as continued employment under the
                  REI Deferred Compensation Plan shall not be treated as
                  terminated employees under such Plan(s) as of the Distribution
                  Date. Effective as of the Distribution Date or such other date
                  as Resources establishes the Resources Deferred Compensation
                  Plan, eligible Resources Employees determined in accordance
                  with the terms of the Plan shall only be eligible to
                  participate prospectively in the Resources Deferred
                  Compensation Plan.

                  5.03 BENEFIT AND SAVINGS RESTORATION PLANS.

                           (a) Benefit Restoration Plan. Effective as of March
                  1, 2001, employees of the members of the Resources Group shall
                  no longer accrue benefits under the REI Benefit Restoration
                  Plan. Effective as of March 1, 2001, or such other date as REI
                  and Resources may mutually agree, Resources shall establish a
                  frozen Resources Benefit Restoration Plan which shall be
                  substantially comparable to the REI Benefit Restoration Plan.
                  As of March 1, 2001, Resources shall assume all Liabilities to
                  or relating to the Resources Employees under the REI Benefit
                  Restoration Plan (except Liabilities under the REI Benefit
                  Restoration Plan associated with the transition benefit
                  described in Section 3.01); provided, however, that REI shall
                  transfer a cash amount equal to the cost of such Liabilities
                  transferred to Resources as soon as practicable following the
                  Distribution Date or such other date as REI and Resources may
                  mutually agree. Also, as of March 1, 2001, Resources shall
                  assume all Liabilities under the REI Benefit Restoration Plan
                  associated with the transition benefit described in Section
                  3.01; provided, however, that REI shall transfer a cash amount
                  equal to two-thirds (2/3) of the cost of such Liabilities
                  transferred to Resources as soon as practicable following the
                  Distribution Date or such other date as REI and Resources may
                  mutually agree. As of March 1, 2001, REI shall assume all
                  Liabilities to or relating to the Resources Retired Employees
                  under the REI Benefit Restoration Plan; provided, however that
                  Resources shall irrevocably and unconditionally guarantee, in
                  the event that REI becomes insolvent, the due and punctual
                  payment and satisfaction, when and as due, of all Liabilities
                  relating to the REI Benefit Restoration Plan for all persons
                  who have the status of retirees under the REI Benefit
                  Restoration Plan as of the Distribution Date or such other
                  date as REI and Resources may mutually agree. For purposes of
                  this Section 5.03(a), the Liabilities under the REI Benefit
                  Restoration Plan include any supplemental pension benefits
                  provided under an employment, severance or supplemental
                  pension agreement with (i) an employee of any member of the
                  Resources Group and (ii) any person who has the status of a
                  retiree under the REI Benefit Restoration Plan as of the
                  Distribution Date.

                                      -19-
<PAGE>   25

                           (b) Savings Restoration Plan.

                                    (i)      Establishment of Resources Savings
                                             Restoration Plan. Effective as of
                                             March 1, 2001, or such other date
                                             as REI and Resources may mutually
                                             agree, Resources shall establish
                                             the Resources Savings Restoration
                                             Plan which shall be substantially
                                             comparable to the REI Savings
                                             Restoration Plan. As of March 1,
                                             2001, Resources shall assume all
                                             Liabilities to or relating to the
                                             Resources Employees under the REI
                                             Savings Restoration Plan. As of
                                             March 1, 2001, REI shall assume all
                                             Liabilities to or relating to the
                                             Resources Retired Employees under
                                             the REI Savings Restoration Plan.

                                    (ii)     Participation in the Resources
                                             Savings Restoration Plan. Effective
                                             as of March 1, 2001, or such other
                                             date as Resources establishes the
                                             Resources Savings Restoration Plan,
                                             eligible Resources Employees
                                             determined in accordance with the
                                             terms of the applicable Plan shall
                                             only be eligible to participate in
                                             the Resources Savings Restoration
                                             Plan.

                  5.04 RABBI TRUSTS. Effective as of the Distribution Date, or
such other date as REI and Resources may mutually agree, Resources may establish
a Rabbi Trust, which shall be substantially similar to the Reliant Energy,
Incorporated Executive Deferred Compensation Trust. Effective as of the
Distribution Date, REI shall continue to sponsor and shall assume all assets and
Liabilities relating to the NorAm Rabbi Trusts.

                  5.05 SEVERANCE PLANS. Resources shall establish such severance
plans as it deems necessary in its discretion. The REI Severance Plans shall
provide that no Resources Employee shall become eligible for severance benefits
on account of Resources ceasing to be a Subsidiary of REI as of the Distribution
Date.

                                  ARTICLE VI.

                            HEALTH AND WELFARE PLANS

                  6.01 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES.

                           (a) General - Health and Welfare Plans. Each REI
                  Health and Welfare Plan shall retain all Liabilities incurred
                  through the Distribution Date or


                                      -20-
<PAGE>   26



                  such other date as REI and Resources may mutually agree under
                  each such REI Health and Welfare Plan, whether or not claims
                  are filed before the Distribution Date, by or on behalf of
                  Resources Employees or their spouses or dependents. Resources
                  shall indemnify each such plan against the pre-Distribution
                  Date Liabilities by paying the current cost of coverage
                  associated with such Resources Employees or their spouses or
                  dependents, to the extent not already paid.

                           (b) Substantially Similar Self-Insured Plans. Any
                  Health and Welfare Plan self-insured by REI and substantially
                  similar to any Resources Health and Welfare Plan established
                  as of the Distribution Date, or such other date as agreed upon
                  by REI and Resources, shall cease to be responsible for
                  Liabilities to or relating to Resources Employees under the
                  REI Health and Welfare Plans as of the Distribution Date, and
                  the corresponding Resources Health and Welfare Plans shall
                  assume such Liabilities as of the Distribution Date.

                           (c) Retiree Life and Medical. Effective as of the IPO
                  Closing Date, employees of the members of the Resources Group
                  shall no longer be eligible to participate in REI's retiree
                  life insurance plan and retiree medical plan, and REI shall
                  assume all Liabilities under REI's retiree medical plan for
                  certain eligible employees of the members of the Resources
                  Group who as of such date have generally attained the age of
                  55 with at least 5 years of service after age 50 under such
                  Plan, provided, however, that such employees shall not accrue
                  any additional benefits under such Plan. Except as otherwise
                  expressly provided above, no other employee of any member of
                  the Resources Group shall be entitled to benefits under the
                  REI retiree medical plan. Resources shall make available a
                  non-subsidized group insurance arrangement through which
                  eligible retired employees of the members of the Resources
                  Group may purchase retiree medical insurance at group rates.
                  Notwithstanding the foregoing to the contrary, Resources shall
                  maintain any retiree medical and retiree life insurance for
                  certain Resources Union Employees as may be required pursuant
                  to Section 2.07.

                  6.02 CLAIMS FOR HEALTH AND WELFARE PLANS.

                           (a) Administration of REI Claims. REI shall
                  administer claims incurred under the REI Health and Welfare
                  Plans by Resources Employees before the Distribution Date, but
                  only to the extent that Resources has not, before the
                  Distribution Date, established and assumed administrative
                  responsibility for a comparable Plan. Any determination made
                  or settlements entered into by REI with respect to such claims
                  shall be final and binding.

                           (b) Outsourcing of Claims by REI. REI shall have the
                  right to engage a third party administrator, vendor, or
                  insurance company to administer ("Outsource") claims incurred
                  under the REI Health and Welfare Plans, including claims
                  incurred by employees of the members of the Resources Group
                  before the Distribution Date. REI may determine the manner and
                  extent of such


                                      -21-
<PAGE>   27


                  Outsourcing, including the selection of one or more third
                  party administrators, vendors, or insurance companies and the
                  ability to transfer the liability for such claims to one or
                  more independent insurance companies. REI has Outsourced
                  administration of many REI Health and Welfare Plans, as set
                  forth in Section 6.04 and the Schedule thereto.

                           (c) Outsourcing of Claims by Resources. REI shall use
                  its commercially reasonable best efforts for and on behalf of
                  Resources to negotiate for Outsourcing arrangements with its
                  third party administrators, vendors, or insurance companies
                  with comparable features to each of REI's current Outsourcing
                  arrangements.

                  6.03 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.

                           (a) Continuance of Elections, Co-Payments and Maximum
                  Benefits.

                                    (i) As of the Distribution Date or such
                           other date as REI and Resources may mutually agree,
                           Resources shall cause the Resources Health and
                           Welfare Plans to maintain substantially comparable
                           coverage and contribution elections, if any, made by
                           Resources Employees under the REI Health and Welfare
                           Plans and apply such elections under the Resources
                           Health and Welfare Plans for the remainder of the
                           period or periods, if any, for which such elections
                           are by their terms applicable. The transfer or other
                           movement of employment between REI and Resources in
                           connection with the Distribution shall constitute
                           neither a "status change" under the REI Health and
                           Welfare Plans or the Resources Health and Welfare
                           Plans nor a "qualifying event," as defined under
                           COBRA.

                                    (ii) On and after the Distribution Date,
                           Resources shall cause the Resources Health Plans to
                           recognize and give credit for all benefits paid to
                           Resources Employees under the REI Health Plans for
                           (A) all amounts applied to deductibles, out of pocket
                           maximums, co-payments and other applicable benefit
                           coverage limits with respect to which such expenses
                           have been incurred by Resources Employees under the
                           REI Health Plans for the remainder of the calendar
                           year in which the Distribution Date occurs and (B)
                           all benefits paid to Resources Employees under the
                           REI Health Plans for purposes of determining when
                           such persons have reached their lifetime maximum
                           benefits under the Resources Health Plans.
                           Notwithstanding the above, Resources's obligations
                           under this Subsection 6.03(a)(ii) shall be limited by
                           the market availability of health insurance products
                           or other arrangements satisfying the criteria
                           described above. Resources shall use its


                                      -22-
<PAGE>   28



                           commercially reasonable best efforts to locate and
                           engage the services of a vendor whose policies or
                           other arrangements meet the requirements above.

                           (b) Flexible Benefits Plan. To the extent any
                  Resources Employee contributed to an account under the REI
                  Flexible Benefits Plan during the calendar year that includes
                  the Distribution Date, then effective as of the Distribution
                  Date, REI shall transfer to the Resources Flexible Benefits
                  Plan the account balances of Resources Employees for such
                  calendar year under the REI Flexible Benefits Plan, regardless
                  of whether the account balance is positive or negative.

                           (c) HCFA Administration. As of the Distribution Date,
                  Resources shall assume all Liabilities relating to, arising
                  out of or resulting from claims verified by REI or Resources
                  under the HCFA data match reports that relate to Resources
                  Employees.

                  6.04 VENDOR AND INSURANCE ARRANGEMENTS. REI shall use its
commercially reasonable best efforts for and on behalf of Resources to negotiate
for, effective as of the Distribution Date or such other date as REI and
Resources mutually agree upon: (a) third party ASO Contracts with comparable
features and costs to the ASO Contracts entered into by REI, as set forth in
Schedule 6.04(a) (the "ASO Contracts"); (b) Group Insurance Policies with
comparable features and costs to the Group Insurance Policies entered into by
REI, as set forth in Schedule 6.04(b) (the "Group Insurance Policies"); (c) HMO
Agreements with comparable features and costs to the HMO Agreements entered into
by REI, as set forth in Schedule 6.04(c) (the HMO Agreements"), and (d)
competitive premium rates for all Resources Health and Welfare Plans. In each
case, Resources shall, as of the Distribution Date or such other date as REI and
Resources mutually agree upon, establish, adopt and/or implement acceptable
contracts, agreements or arrangements. In accordance with Section 9.03, REI
shall on or before the Distribution Date provide upon the request of Resources,
copies of such contracts or successor arrangements thereto identified in
Schedules 6.04(a), (b) and (c).

                  6.05 COBRA AND HIPPA. REI shall be responsible, through the
Distribution Date, for compliance with the health care continuation coverage
requirements of COBRA, the portability requirements under the Health Insurance
Portability and Accountability Act of 1996 ("HIPPA") and the REI Health and
Welfare Plans with respect to employees of the members of the Resources Group
and qualified beneficiaries (as such term is defined under COBRA). REI shall
provide all necessary notices, or cause the notices to be provided, as soon as
administratively practical, but in no event later than required under COBRA.
Resources shall be responsible for providing REI or its agents with all
necessary employee change notices and related information for covered
dependents, spouses, qualified beneficiaries (as such term is defined under
COBRA), and alternate recipients pursuant to QMCSO, in accordance with
applicable REI COBRA policies and procedures. As soon as administratively
practicable after the Distribution Date, REI shall provide Resources, through
hard copy, electronic format or such other mechanism as is appropriate under the
circumstances, with a list of all qualified beneficiaries (as such term is
defined under COBRA) that relate to the members of the Resources


                                      -23-
<PAGE>   29


Group and the relevant information pertaining to their coverage elections.
Effective as of the Distribution Date, Resources shall be solely responsible for
compliance with the health care continuation coverage requirements of COBRA and
the portability requirements under HIPPA for the Resources Health and Welfare
Plans for Resources Employees and their qualified beneficiaries (as such term is
defined under COBRA).

                  6.06 LEAVE OF ABSENCE PROGRAMS AND FMLA.

                           (a) Allocation of Responsibilities After Distribution
                  Date. Effective as of the Distribution Date, Resources shall
                  establish the Resources Leave of Absence Programs and FMLA
                  programs and shall be responsible for administering leaves of
                  absence and complying with FMLA with respect to Resources
                  Employees.

                           (b) Disclosure. As soon as administratively
                  practicable after the Distribution Date, REI shall provide to
                  Resources copies of all records pertaining to the leaves of
                  absence and FMLA with respect to all Resources Employees to
                  the extent such records have not been previously provided.

                  6.07 REI WORKERS' COMPENSATION PROGRAM.

                           (a) ADMINISTRATION OF CLAIMS.

                                    (i) Through the Distribution Date or such
                           other date as REI and Resources may mutually agree,
                           REI shall continue to be responsible for the
                           administration of all claims that (A) are, or have
                           been, incurred under the REI WCP before the
                           Distribution Date by employees of the Resources Group
                           ("Resources WCP Claims"), and (B) have been
                           historically administered by REI or its third party
                           administrator. However, REI will advise Resources of
                           and secure approval for any material changes to
                           current policy or practice with respect to the
                           administration of Resources WCP Claims.

                                    (ii) Effective as of the Distribution Date
                           or such other date as REI and Resources may mutually
                           agree, Resources shall be responsible for the
                           administration of all Resources WCP Claims.

                                    (iii) Each party shall fully cooperate with
                           the other with respect to the administration and
                           reporting of Resources WCP Claims, the payment of
                           Resources WCP Claims determined to be payable, and
                           the transfer of the administration of any Resources
                           WCP Claims to the other party.


                                      -24-
<PAGE>   30


                           (b) SELF-INSURANCE STATUS.

                                    REI shall maintain and amend, as necessary,
                  its certificates of self-insurance and any other applicable
                  policies to include Resources until the Distribution Date, and
                  Resources shall fully cooperate with REI in obtaining such
                  amendments. REI shall use its commercially reasonable best
                  efforts to obtain self-insurance status for workers'
                  compensation for Resources effective as of the Distribution
                  Date in those jurisdictions in which Resources conducts
                  business, in which REI is self-insured, and where REI and
                  Resources mutually agree that such status is beneficial to
                  Resources. Resources hereby authorizes REI to take all actions
                  necessary and appropriate on its behalf in order to obtain
                  such self-insurance status. All costs incurred by REI in
                  amending such certificates, including without limitation
                  filing fees, adjustments of security and excess loss policies
                  and amendments of safety programs, shall be shared pro rata by
                  REI and Resources.

                           (c) INSURANCE POLICY.

                                    (i) Effective as of the Distribution Date,
                           in all states other than those states where Resources
                           is to be self-insured pursuant to Subsection 6.07(b)
                           above, REI shall use its commercially reasonable best
                           efforts to negotiate for workers' compensation
                           insurance policies on behalf of Resources from the
                           issuing insurance companies (as set forth in the
                           relevant portion of Schedule 6.04(b)) or different
                           insurance companies which are comparable to the
                           policies previously maintained by REI; provided that
                           the retention under such Resources policies shall be
                           as determined by Resources.

                                    (ii) REI shall use its commercially
                           reasonable best efforts to cause the premium rates
                           for all workers' compensation insurance policies for
                           both REI and Resources in effect for periods through
                           the Distribution Date to be based on the aggregate
                           number of employees covered under the workers'
                           compensation insurance policies of both REI and
                           Resources. Any premiums due under the separate
                           workers' compensation insurance issued to Resources
                           shall be payable by Resources.


                                      -25-
<PAGE>   31


                                  ARTICLE VII.

                          EQUITY AND OTHER COMPENSATION

                  7.01 REI OPTIONS.

                           (a) Option Conversion. Outstanding REI Options
                  granted prior to the year 2001 that are unexercised and
                  unexpired as of the Distribution Date shall be replaced with
                  two options, subject to specific country tax and legal
                  requirements, one a New REI Option and one a Resources Option
                  as follows. In general, a REI Option that qualifies as an
                  incentive stock option under the Code will be replaced with a
                  New REI Option and a Resources Option which will qualify as
                  incentive stock options, provided, however, that in order for
                  incentive stock options to remain qualified and retain their
                  tax benefits under the Code, the adjustment formulas described
                  below may be required to be altered. With respect to each New
                  REI Option, (i) the number of shares of REI Common Stock
                  subject to such New REI Option shall equal the number of
                  shares of REI Common Stock subject to the REI Option
                  immediately before the Distribution Date, and (ii) the
                  per-share exercise price of such New REI Option shall equal
                  the per-share exercise price of the REI Option immediately
                  prior to the Distribution Date multiplied by 1 minus a
                  fraction, the numerator of which is the Distribution Ratio
                  multiplied by the Resources Stock Value and the denominator of
                  which is the REI Stock Value. With respect to each Resources
                  Option, (i) the number of shares of Resources Common Stock
                  subject to such Resources Option, shall equal the number of
                  shares of REI Common Stock subject to the REI Option
                  immediately before the Distribution Date multiplied by the
                  Distribution Ratio, and (ii) the per-share exercise price of
                  such Resources Option shall equal the Resources Stock Value
                  multiplied by a fraction, the numerator of which is the
                  per-share exercise price of the REI Option immediately prior
                  to the Distribution Date and the denominator of which is the
                  REI Stock Value. The exercise price per share of each such New
                  REI Option and Resources Option will be determined such that,
                  immediately following the Distribution Date, the difference
                  between the exercise price of each option and the fair market
                  value of the shares underlying each option approximately
                  equals, in the aggregate, the difference between the exercise
                  price of each REI Option and the fair market value per share
                  of REI Common Stock (with dividend) immediately prior to the
                  Distribution Date. In addition, the ratio of the exercise
                  price of the New REI Options to the fair market value of REI's
                  Common Stock immediately after the Distribution Date, and the
                  ratio of the exercise price of the Resources Options to the
                  fair market value of Resources's Common Stock immediately
                  after the Distribution Date, will both approximately equal the
                  ratio of the exercise price of the REI Options to the fair
                  market value of REI's Common Stock (with dividend) immediately
                  prior to the Distribution Date. Employment with Resources will
                  be treated as employment with REI for purposes of the New REI
                  Options, and employment with REI will be treated as employment
                  with Resources for purposes of the Resources Options. Other
                  than the adjustments described in this Section 7.01(a), all
                  other terms and conditions


                                      -26-
<PAGE>   32


                  applicable to the REI Options (including, but not limited to,
                  the vesting schedule) shall remain applicable to the New REI
                  Options and the Resources Options following the Distribution
                  Date, and the Resources Options shall be issued pursuant to a
                  separate mirror transition option plan adopted specifically
                  for the purpose of issuing the Resources Options described in
                  this Section 7.01.

                           (b) Certain Non-U.S. Optionees. Except as may
                  otherwise be agreed upon by REI and Resources, this Section
                  7.01 shall govern the treatment of REI Options held by
                  Non-U.S. Resources Employees. In the event it is determined
                  that the local law applicable to any Non-U.S. Optionee
                  requires a different treatment, REI and Resources shall take
                  such steps as is required to comply with local law or may
                  cash-out those Options that cannot reasonably be conformed.

                  7.02 REI RESTRICTED SHARES. Performance shares (or bookkeeping
units representing such shares) outstanding under the LICP and the Reliant
Energy, Incorporated Business Unit Performance Share Plan shall vest for the
performance cycle ending December 31, 2000 according to the terms and conditions
of the applicable Plan. Assuming the Distribution Date occurs during the
calendar year 2001, the Plan administrator shall determine, as of the
Distribution Date, the level at which the performance objectives have or would
have been achieved through the end of the performance cycle ending December 31,
2001 and shall vest the outstanding performance shares for such cycle as of the
Distribution Date as though such performance objectives were achieved at that
level. As of the Distribution Date, the Plan administrator shall convert
outstanding performance shares (or bookkeeping units representing such shares)
for the performance cycle ending December 31, 2002 to a number of time-based
restricted shares equal to the number of performance shares that would have
vested if the performance objectives for the performance cycle were achieved at
the maximum level. Such time based restricted shares shall vest if the
participant holding such award remains continuously employed with Resources or
REI through December 31, 2002. Holders of these and other time-based restricted
shares granted prior to the year 2001 that are outstanding on the Distribution
Date shall receive shares of Resources Common Stock (or bookkeeping units
representing such shares) in the same ratio as REI shareholders, but such
Resources Common Stock shall be subject to the same time-based vesting schedule
and the other terms and conditions of the applicable Plan under which they were
granted.

                  7.03 STOCK PURCHASE PLAN. Effective January 1, 2001, Resources
shall establish a Stock Purchase Plan for the benefit of employees of the
members of the Resources Group which shall be comparable to the plan set forth
in Schedule 7.03.

                  7.04 RESOURCES LONG-TERM INCENTIVE PLAN. Effective on or
before January 1, 2001, or such other date as REI and Resources may mutually
agree, Resources shall establish the LTIP for the benefit of employees of the
members of the Resources Group which shall be comparable to the plan set forth
in Schedule 7.04. The LTIP is intended to comply with Code Section 162(m).



                                      -27-
<PAGE>   33


                  7.05 RESOURCES ANNUAL INCENTIVE COMPENSATION PLAN. Effective
on or before January 1, 2001, or such other date as REI and Resources may
mutually agree, Resources shall establish the Resources AICP for the benefit of
employees of the members of the Resources Group which shall be comparable to the
plan set forth in Schedule 7.05. The AICP is intended to comply with Code
Section 162(m).

                                  ARTICLE VIII.

                            FRINGE AND OTHER BENEFITS

                  8.01 FRINGE BENEFITS. Employees of the Resources Group shall
continue to participate in REI's employee assistance program, educational
assistance program, executive financial planning program and relocation program
and shall continue to have access to the credit union, The Employee Association
and the Wellness Activity Center (collectively, the "REI Fringe Benefits")
through the Distribution Date or such other date as REI and Resources may
mutually agree. Effective as of the Distribution Date, Resources shall establish
the Resources Fringe Benefits which Resources deems appropriate in its sole
discretion. Effective as of the Distribution Date, eligible Resources Employees
determined in accordance with the terms of the applicable plans or programs
shall only be eligible to participate in the Resources Fringe Benefits.

                  8.02 APPLIANCE LOANS. Effective as of the Distribution Date,
Resources will purchase or cause to be purchased, for an amount equal to the
outstanding principal amount thereof plus accrued and unpaid interest thereon
through the Distribution Date, all outstanding loans on the Distribution Date
made by REI to Resources Employees under any REI appliance purchase program.
From and after the Distribution Date, REI shall have no further responsibility
for such loans or for the administration of this program with respect to
Resources Employees.

                  8.03 CHAIRMAN'S SCHOLARSHIP FUNDS. The chairman's
scholarship funds shall remain at REI through and after the Distribution Date.

                  8.04 REI FOUNDATION. Effective as of January 1, 2001,
sponsorship of the REI Foundation shall be transferred to Resources.

                  8.05 OTHER BENEFITS. To the extent that REI maintains,
sponsors or provides other fringe benefits for its employees not specifically
identified in Section 8.01, then REI shall, to the extent permitted by law,
continue to make such benefits available to employees of the Resources Group on
substantially similar terms and conditions as are offered to the employees of
any member of the REI Group through the Distribution Date or such other date
upon which Resources and REI mutually agree. Resources and REI agree to make
commercially reasonable best efforts to mutually agree on whether, when, and on
what terms any member of the Resources Group shall maintain, sponsor or offer
fringe benefits.


                                      -28-
<PAGE>   34


                                   ARTICLE IX.


                  9.01 TRANSITION SERVICES AGREEMENT. On or about the date
hereof, REI and Resources shall enter into the Transition Services Agreement
covering the provisions of various services to be provided by REI to Resources.
The provisions of this Agreement shall be subject to the provisions of such
Transition Services Agreement.

                  9.02 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED
MATTERS.

                           (a) Shared Costs. Resources shall pay its share, as
                  determined by REI in good faith, of any contributions made to
                  any trust maintained in connection with a REI Plan while
                  Resources is a Participating Company in any such REI Plan.

                           (b) Contributions to Trusts. With respect to REI
                  Plans to which employees of Resources make contributions, REI
                  shall use reasonable procedures to determine Resources
                  Liabilities associated with such Plans, taking into account
                  such contributions, settlements, refunds and similar payments.

                           (c) Administrative Expenses Not Chargeable to a
                  Trust. To the extent not charged pursuant to this Article IX,
                  and to the extent not otherwise agreed to by REI and
                  Resources, and to the extent not chargeable to a trust
                  established in connection with a REI Plan, Resources shall be
                  responsible, through either direct payment or reimbursement to
                  REI, for its allocable share of expenses incurred by REI in
                  the administration of (i) the REI Plans while Resources
                  participates in such Plans, and (ii) the Resources Plans, to
                  the extent REI administers such Plans. For this purpose,
                  Resources's allocable share of such expenses shall be
                  calculated in accordance with current practice in effect as of
                  the date of this Agreement.

                  9.03 SHARING OF PARTICIPANT INFORMATION. In accordance with
the applicable provisions of the Separation Agreement, REI and Resources shall
share, or cause to be shared, all participant information that is necessary or
appropriate for the efficient and accurate administration of each of the REI
Plans and the Resources Plans during the respective periods applicable to such
Plans as Resources and REI may mutually agree. REI and Resources and their
respective authorized agents shall, subject to applicable laws of
confidentiality and data protection, be given reasonable and timely access to,
and may make copies of, all information relating to the subjects of this
Agreement in the custody of the other party or its agents, to the extent
necessary or appropriate for such administration.

                  9.04 REPORTING AND DISCLOSURE COMMUNICATIONS TO PARTICIPANTS.
While Resources is a Participating Company in the REI Plans, REI shall take, or
cause to be taken, all actions necessary or appropriate to facilitate the
distribution of all REI Plan-related communications and materials to employees,
participants and beneficiaries, including (without limitation) summary plan
descriptions and related summaries of material modification(s), summary annual
reports, investment information, prospectuses, notices and enrollment material
for the REI Plans. Resources shall provide all information needed by REI to


                                      -29-
<PAGE>   35


facilitate such REI Plan-related communications. Resources shall take, or cause
to be taken, all actions necessary or appropriate to facilitate the distribution
of all Resources Plan-related communications and materials to employees,
participants and beneficiaries. Resources shall assist, and Resources shall
cause each other applicable member of the Resources Group to assist, REI in
complying with all reporting and disclosure requirements of ERISA, including the
preparation of Form Series 5500 annual reports, for the REI Plans, where
applicable.

                  9.05 AUDITS REGARDING VENDOR CONTRACTS. From the period
beginning as of the Distribution Date or such other date as REI and Resources
mutually agree upon and ending on such date as REI and Resources may mutually
agree, REI and Resources and their duly authorized representatives shall have
the right to conduct joint audits with respect to any vendor contracts that
relate to both the REI Health and Welfare Plans and the Resources Health and
Welfare Plans. The scope of such audits shall remain consistent with the current
practices and all documents and other information currently made available for
review shall continue to be made available. REI and Resources shall agree on the
performance standards, audit methodology, auditing policy and quality measures,
reporting requirements, and the manner in which costs incurred in connection
with such audits will be shared.

                  9.06 BENEFICIARY DESIGNATIONS. Subject to Section 9.09, all
beneficiary designations made by employees of the Resources Group for the REI
Plans (other than the Retirement Plan, except to the extent Resources may be
required to establish or assume the sponsorship of a retirement plan(s) pursuant
to Section 2.07) shall be transferred to and be in full force and effect under
the corresponding Resources Plans until such time, if ever, any such beneficiary
designations are replaced or revoked by the employees of the Resources Group who
made the beneficiary designations. All beneficiary designations made by
Resources Retired Employees for the Resources Plans shall be transferred to and
be in full force and effect under the corresponding REI Plans until such time,
if ever, any such beneficiary designations are replaced or revoked by the
Resources Retired Employees who made the beneficiary designations.

                  9.07 REQUESTS FOR IRS AND DOL OPINIONS. REI and Resources
shall make such applications to regulatory agencies, including the IRS and DOL,
as may be necessary or appropriate. Resources and REI shall cooperate fully with
one another on any issue relating to the transactions contemplated by this
Agreement for which REI and/or Resources elects to seek a determination letter
or private letter ruling from the IRS or an advisory opinion from the DOL.

                  9.08 FIDUCIARY MATTERS. REI and Resources each acknowledge
that actions contemplated to be taken pursuant to this Agreement may be subject
to fiduciary duties or standards of conduct under ERISA or other applicable law,
and no party shall be deemed to be in violation of this Agreement if such party
fails to comply with any provisions hereof based upon such party's good faith
determination that to do so would violate such a fiduciary duty or standard.

                  9.09 CONSENT OF THIRD PARTIES. If any provision of this
Agreement is dependent on the consent of any third party (such as a vendor) and
such consent is withheld, REI and Resources shall use their commercially
reasonable best efforts to implement the applicable


                                      -30-
<PAGE>   36


provisions of this Agreement. If any provision of this Agreement cannot be
implemented due to the failure of such third party to consent, REI and Resources
shall negotiate in good faith to implement the provision in a mutually
satisfactory manner.

                  9.10 TAX COOPERATION. In connection with the interpretation
and administration of this Agreement, REI and Resources shall take into account
the agreements and policies established pursuant to the Separation Agreement and
the Tax Allocation Agreement.

                  9.11 PLAN RETURNS. Plan Returns shall be filed or caused to be
filed by REI or Resources as the case may be in accordance with the principles
established in the Tax Allocation Agreement. For purposes of this Section 9.11,
"Plan Returns" means any return, report, certificate, form or similar statement
or document required to be filed with a government agency with respect to an
employee benefit plan governed by the ERISA, or a program governed by Section
6039D of the Code.

                                   ARTICLE X.

                           EMPLOYMENT-RELATED MATTERS

                  10.01 TERMS OF RESOURCES EMPLOYMENT. Employees of the
Resources Group shall be required to execute a new agreement regarding
confidential information and proprietary developments in a form approved by
Resources. In addition, nothing in the Separation Agreement, this Agreement, or
any Ancillary Agreement should be construed to change the at-will status of any
of the employees of any member of the REI Group or the Resources Group.

                  10.02 HR DATA SUPPORT SYSTEMS. REI shall provide human
resources data support for employees of the members of the Resources Group in
accordance with the terms of the Transition Services Agreement.

                  10.03 EMPLOYMENT OF EMPLOYEES WITH U.S. WORK VISAS. Resources
will comply with all immigration laws and regulations of the Unites States of
America as such laws and regulations applied to employees of any member of the
REI Group in the United States of America pursuant to a work or training visa
regardless of visa category. Resources expressly assumes all obligations,
liabilities and undertakings arising from or under attestations made in each
certified and effective Labor Condition Application filed by REI. Resources
shall file amended petitions with the Immigration and Naturalization Service, as
may be necessary or appropriate. In such cases, the foreign national employee
will remain employed by a member of the REI Group and continue to participate in
the REI Plans until such amended petitions have been approved.

                  10.04 CONFIDENTIALITY AND PROPRIETARY INFORMATION.

                           (a) No provision of the Separation Agreement or any
                  Ancillary Agreement shall be deemed to release any individual
                  for any violation of the REI non-competition guideline or any
                  agreement or policy pertaining to confidential or proprietary
                  information of any member of the REI Group or Resources Group,


                                      -31-
<PAGE>   37


                  or otherwise relieve any individual of his or her obligations
                  under such non-competition guideline, agreement, or policy.

                           (b) Employee Agreements. As used in this Section
                  10.04(b), "Employee Agreement" means any employment,
                  severance, supplemental pension agreement or confidentiality
                  agreement, and any corresponding agreements executed by REI or
                  Resources employees in connection with their employment.
                  Nothing in this Agreement, the Separation Agreement or any
                  other Ancillary Agreement shall be deemed to supercede any
                  provision regarding the conduct of employees mandated by the
                  Federal Energy Regulatory Commission or any other applicable
                  regulatory authority.

                                    (i) Survival of REI Employee Agreement
                           Obligations and REI's Common Law Rights. The REI
                           Employee Agreements of all Resources Employees and
                           all former REI employees transferred to Resources on
                           or before the Distribution Date shall remain in full
                           force and effect according to their terms, and all
                           Liabilities thereunder shall be assumed by Resources.
                           Notwithstanding the foregoing to the contrary, none
                           of the following acts committed by former REI or
                           Resources employees within the scope of their
                           Resources employment shall constitute a breach of
                           such REI Employee Agreements: (i) the use or
                           disclosure of Confidential Information (as that term
                           is defined in the REI Employee Agreement) for or on
                           behalf of Resources, if such disclosure is consistent
                           with the assignment or license of rights, businesses
                           and assets granted to Resources and restrictions
                           imposed on Resources under the Separation Agreement,
                           any other Ancillary Agreement or any other agreement
                           between the parties, and (ii) the rendering of any
                           services, directly or indirectly, to Resources to the
                           extent such services are consistent with the
                           assignment or license of rights, businesses and
                           assets granted to Resources and the restrictions
                           imposed on Resources under the Separation Agreement,
                           any other Ancillary Agreement or any other agreement
                           between the parties. Further, REI retains any rights
                           it has under statute or common law with respect to
                           actions by its former employees to the extent such
                           actions are inconsistent with the assignment or
                           license of rights, businesses and assets granted to
                           Resources and restrictions imposed on Resources under
                           the Separation Agreement, any other Ancillary
                           Agreement or any other agreement between the parties.

                                    (ii) Survival of Resources's Employee
                           Agreement Obligations and Resources's Common Law
                           Rights. The Resources Employee Agreements of all REI
                           Employees and all former Resources employees
                           transferred to REI on or before the Distribution Date
                           shall remain in full force and effect according to



                                      -32-
<PAGE>   38


                           their terms; provided, however, that none of the
                           following acts committed by former Resources or REI
                           employees within the scope of their REI employment
                           shall constitute a breach of such Resources Employee
                           Agreements: (i) the use or disclosure of Confidential
                           Information (as that term is defined in the REI
                           Employee Agreement) for or on behalf of REI, if such
                           disclosure is consistent with the rights, businesses
                           and assets retained by REI and restrictions imposed
                           on REI under the Separation Agreement, any other
                           Ancillary Agreement or any other agreement between
                           the parties, and (ii) the rendering of any services,
                           directly or indirectly, to REI to the extent such
                           services are consistent with the rights, businesses
                           and assets retained by REI and the restrictions
                           imposed on REI under the Separation Agreement, any
                           other Ancillary Agreement or any other agreement
                           between the parties. Further, Resources retains any
                           rights it has under statute or common law with
                           respect to actions by its former employees to the
                           extent such actions are inconsistent with the rights,
                           businesses and assets retained by REI and
                           restrictions imposed on REI under the Separation
                           Agreement, any other Ancillary Agreement or any other
                           agreement between the parties.

                               (iii) Assignment, Cooperation for Compliance
                           and Enforcement.

                                    (A)(1) REI retains all rights under the REI
                  Employee Agreements of all former REI employees necessary to
                  permit REI to protect the rights and interests of REI, but
                  hereby transfers and assigns to Resources its rights under the
                  REI Employee Agreements of all former REI employees to the
                  extent required to permit Resources to enjoin, restrain,
                  recover damages from or obtain specific performance of the REI
                  Employee Agreements or obtain other remedies against any
                  employee who breaches his or her REI Employee Agreement, and
                  to the extent necessary to permit Resources to protect its
                  rights and interests.

                                    (2) REI and Resources agree, at their own
                  respective cost and expense, to use their reasonable efforts
                  to cooperate as follows: (A) Resources shall advise REI of:
                  (1) any violation(s) of the REI Employee Agreements by
                  Resources or former REI employees, and (2) any violation(s) of
                  the Resources Employee Agreements which affect REI's rights;
                  and (B) REI shall advise Resources of any violation(s) of the
                  REI Employee Agreements by current or former REI employees
                  which affect Resources's rights; provided, however, that the
                  foregoing obligations shall only apply to violation(s) which
                  become known to an attorney within the legal department of the
                  party obligated to provide notice thereof.


                                      -33-
<PAGE>   39


                                    (3) REI and Resources each may separately
                  enforce the REI Employee Agreements of Resources and former
                  REI employees to the extent necessary to reasonably protect
                  their respective interests, provided, however, that (i)
                  Resources shall not commence any litigation relating thereto
                  without first consulting with REI's General Counsel or his or
                  her designee and (ii) REI shall not commence any litigation
                  relating thereto against any former REI employee who is at the
                  time an employee of the Resources Group without first
                  consulting with Resources's General Counsel or his or her
                  designee. If either party, in seeking to enforce any REI
                  Employee Agreement, notifies the other party that it requires,
                  or desires, the other party to join in such action, then the
                  other party shall do so. In addition, if either party
                  commences or becomes a party to any action to enforce a REI
                  Employee Agreement of an employee of the Resources Group or
                  former REI employee, the other party shall, whether or not it
                  becomes a party to the action, cooperate with the other party
                  by making available its files and employees who have
                  information or knowledge relevant to the dispute, subject to
                  appropriate measures to protect the confidentiality of any
                  proprietary or confidential information that may be disclosed
                  in the course of such cooperation or action and subject to any
                  relevant privacy laws and regulations. Any such action shall
                  be conducted at the expense of the party bringing the action
                  and the parties shall agree on a case by case basis on
                  compensation, if any, of the other party for the value of the
                  time of such other party's employees as reasonably required in
                  connection with the action.

                                    (B)(1) Resources retains all rights under
                  the Resources Employee Agreements of all former Resources
                  employees necessary to permit Resources to protect the rights
                  and interests of Resources, but hereby transfers and assigns
                  to REI its rights under the Resources Employee Agreements of
                  all former Resources employees to the extent required to
                  permit REI to enjoin, restrain, recover damages from or obtain
                  specific performance of the Resources Employee Agreements or
                  obtain other remedies against any employee who breaches his or
                  her Resources Employee Agreement, and to the extent necessary
                  to permit REI to protect its rights and interests.

                                    (2) REI and Resources agree, at their own
                  respective cost and expense, to use their reasonable efforts
                  to cooperate as follows: (A) REI shall advise Resources of:
                  (1) any violation(s) of the Resources Employee Agreements by
                  REI or former Resources employees, and (2) any violation(s) of
                  the REI Employee Agreements which affect Resources's rights;
                  and (B) Resources shall advise REI of any violations of the
                  Resources Employee Agreements by current or former Resources
                  employees which affect REI's rights; provided, however, that
                  the foregoing obligations shall only apply to violations which
                  become known


                                      -34-
<PAGE>   40



                  to an attorney within the legal department of the party
                  obligated to provide notice thereof.

                                    (3) REI and Resources each may separately
                  enforce the REI Employee Agreements of REI and former
                  Resources employees to the extent necessary to reasonably
                  protect their respective interests, provided, however, that
                  (i) REI shall not commence any litigation relating thereto
                  without first consulting with Resources's General Counsel or
                  his or her designee and (ii) Resources shall not commence any
                  litigation relating thereto against any former Resources
                  employee who is at the time a REI Employee without first
                  consulting with REI's General Counsel or his or her designee.
                  If either party, in seeking to enforce any Resources Employee
                  Agreement, notifies the other party that it requires, or
                  desires, the other party to join in such action, then the
                  other party shall do so. In addition, if either party
                  commences or becomes a party to any action to enforce a
                  Resources Employee Agreement of a REI Employee or former
                  Resources employee, the other party shall, whether or not it
                  becomes a party to the action, cooperate with the other party
                  by making available its files and employees who have
                  information or knowledge relevant to the dispute, subject to
                  appropriate measures to protect the confidentiality of any
                  proprietary or confidential information that may be disclosed
                  in the course of such cooperation or action and subject to any
                  relevant privacy laws and regulations. Any such action shall
                  be conducted at the expense of the party bringing the action
                  and the parties shall agree on a case by case basis on
                  compensation, if any, of the other party for the value of the
                  time of such other party's employees as reasonably required in
                  connection with the action.

                                    (C) REI and Resources understand and
                  acknowledge that matters relating to the making, performance,
                  enforcement, assignment and termination of employee agreements
                  are typically governed by the laws and regulations of the
                  national, federal, state or local governmental unit where an
                  employee resides, or where an employee's services are
                  rendered, and that such laws and regulations may supersede or
                  limit the applicability or enforceability of this Section
                  10.04. In such circumstances, REI and Resources agree to take
                  action with respect to the employee agreements that best
                  accomplishes the parties' objectives as set forth in this
                  Section 10.04 and that is consistent with applicable law.


                                      -35-
<PAGE>   41


                  10.05 ACCRUED PAYROLL, BONUSES, PROFIT SHARING AND
COMMISSIONS. Except as otherwise specified in an Ancillary Agreement, Resources
shall be responsible for all Liabilities relating to, arising out of, or
attributable to payroll, bonuses, profit sharing and commissions accrued by
employees of Resources through the Distribution Date. REI and Resources shall
agree on the manner and method of payment for all payroll, bonuses, profit
sharing and commissions agreed to on behalf of employees who have been employed
by Resources on or before the Distribution Date. REI shall provide or cause to
be provided to Resources in the same manner as in effect on the date of this
Agreement all payroll services as required in the Transition Services Agreement.

                  10.06 PAYROLL AND WITHHOLDING.

                           (a) Income Reporting, Withholding. REI shall perform
in the same manner as in effect on the date of this Agreement the income
reporting and withholding function under Resources's employer identification
number for employees of the Resources Group and other service providers as
required by the Transition Services Agreement.

                           (b) Delivery of, and Access to, Documents and Other
Information. Concurrently with the Distribution Date, REI shall cause to be
delivered to Resources, the employee information set forth on all IRS Forms W-4
executed by REI Employees designated as Resources Employees as of the
Distribution Date. For the period ending on the Distribution Date (and for such
additional period as REI and Resources may mutually agree), REI shall make
reasonably available to Resources all forms, documents or information, no matter
in what format stored, relating to compensation or payments made to any employee
or service provider of Resources. Such information may include, but is not
limited to, information concerning employee payroll deductions, payroll
adjustments, records of time worked, tax records (e.g., IRS Forms W-2, W-4, 940
and 941), and information concerning garnishment of wages or other payments.

                           (c) Consistency of Tax Positions; Duplication. REI
and Resources shall individually and collectively make commercially reasonable
best efforts to avoid unnecessarily duplicated federal, state or local payroll
taxes, insurance or workers' compensation contributions, or unemployment
contributions arising on or after the Distribution Date. REI and Resources shall
take consistent reporting and withholding positions with respect to any such
taxes or contributions.


                                      -36-
<PAGE>   42


                  10.07 PERSONNEL AND PAY RECORDS. For the period beginning on
the date of this Agreement and ending on the Distribution Date (and for such
additional period as REI and Resources may mutually agree), REI shall make
reasonably available to Resources for review and reproduction, subject to
applicable laws on confidentiality and data protection, all current and historic
forms, documents or information, no matter in what format stored, relating to
pre-Distribution Date personnel and medical records. Such forms, documents or
information may include, but is not limited to: (a) information regarding
ranking or promotions of employees of the Resources Group; (b) the existence and
nature of garnishment orders or other judicial or administrative actions or
orders affecting an employee's or service provider's compensation; and (c)
performance evaluations.

                  10.08 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY
BENEFICIARIES. No provision of this Agreement, the Separation Agreement, or any
Ancillary Agreement shall be construed to create any right, or accelerate
entitlement, to any compensation or benefit whatsoever on the part of any
Resources Employee or other future, present or former employee of REI or
Resources under any REI Plan or Resources Plan or otherwise. Without limiting
the generality of the foregoing: (a) except as otherwise provided in this
agreement or applicable provisions of Plans, neither the Distribution nor the
termination of the Participating Company status of Resources or any member of
the Resources Group shall cause any employee to be deemed to have incurred a
termination of employment; and (b) no transfer of employment between REI and
Resources before the Distribution Date shall be deemed a termination of
employment for any purpose hereunder.

                                   ARTICLE XI.

                               GENERAL PROVISIONS

                  11.01 EFFECT IF IPO AND/OR DISTRIBUTION DOES NOT OCCUR.
Subject to Section 11.08, if the IPO and/or Distribution does not occur, then
all actions and events that are, under this Agreement, to be taken or occur
effective as of the IPO Closing Date, and/or Distribution Date, or otherwise in
connection with the IPO and/or Distribution, shall not be taken or occur except
to the extent specifically agreed by Resources and REI.

                  11.02 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall
be deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, the understanding and agreement being that no provision contained
herein, and no act of the parties, shall be deemed to create any relationship
between the parties other than the relationship set forth herein. This Agreement
shall be binding upon and inure solely to the benefit of and be enforceable by
each party and its respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.

                  11.03 AFFILIATED COMPANIES. Each of REI and Resources shall
cause to be performed, and hereby guarantee the performance of, any and all
actions of any and all members of the REI Group or the Resources Group,
respectively.


                                      -37-
<PAGE>   43


                  11.04 INCORPORATION OF SEPARATION AGREEMENT PROVISIONS. If a
dispute, claim or controversy results from or arises out of or in connection
with this Agreement, the parties agree to use the procedures set forth in
Article IX of the Separation Agreement in lieu of other available remedies, to
resolve same. The provisions of Article IX (Arbitration and Dispute Resolution),
and Sections 5.5 (Issuance of Stock), 10.2 (Further Instruments), 10.5 (Audit
Rights), 10.8 (Governmental Approvals), 11.1 (Limitation of Liability), 11.5
(Notices), 11.7 (Binding Effect; Assignment) and 11.11 (Authority) of the
Separation Agreement are hereby incorporated herein by reference, and unless
otherwise expressly specified herein, such provisions shall apply as if fully
set forth herein (references in this Section 11.04 to an "Article" or "Section"
shall mean Articles or Sections of the Separation Agreement, and, except as
expressly set forth herein, references in the material incorporated herein by
reference shall be references to the Separation Agreement).

                  11.05 GOVERNING LAW. To the extent not preempted by applicable
federal law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Texas, irrespective of the choice of
law principles of the State of Texas, as to all matters, including matters of
validity, construction, effect, performance and remedies.

                  11.06 SEVERABILITY. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to either party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible and in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the fullest possible extent.

                  11.07 AMENDMENT. The Boards of Directors of Resources and REI
may mutually agree to amend the provisions of this Agreement at any time or
times, either prospectively or retroactively, to such extent and in such manner
as the Boards mutually deem advisable. Each Board may delegate its amendment
power, in whole or in part, to one or more Persons or committees as it deems
advisable. Accordingly, each Board hereby gives the chief executive officer of
Resources and the chief executive officer of REI the full power and authority to
mutually adopt an amendment to this Agreement (subject to each of their
authority to amend Plans).

                  11.08 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the IPO Closing Date by REI in its
sole discretion. This Agreement may be terminated at any time after the IPO
Closing Date and before the Distribution Date by mutual consent of REI and
Resources. In the event of termination pursuant to this Section, no party shall
have any liability of any kind under this Agreement to the other party.


                                      -38-
<PAGE>   44


                  11.09 CONFLICT. In the event of any conflict between the
provisions of this Agreement and the Separation Agreement, any Ancillary
Agreement, or Plan, the provisions of this Agreement shall control.

                  11.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same Agreement.



                                      -39-




<PAGE>   45
                  IN WITNESS WHEREOF, each of the parties have caused this
Employee Matters Agreement to be executed on its behalf by its officers
thereunto duly authorized on the day and year first above written.

                                    RELIANT ENERGY, INCORPORATED


                                    By:
                                        ---------------------------------------
                                    Name:

                                             Title:
                                                   --------------------------


                                    RELIANT RESOURCES, INC.

                                    By:
                                        ---------------------------------------
                                    Name:

                                             Title:
                                                   --------------------------





                                      -40-