Document:

EXHIBIT
10.7B

Schedules
and Exhibits to the

Credit Sleeve and Reimbursement Agreement

dated September 24, 2006

(Portions
of this Exhibit have been omitted

pursuant to a request for confidential treatment)

	
  SCHEDULE 1.01(a)

  	
  -

  	
  Risk Management
  Policy Violations

  
	
  SCHEDULE 1.01(b)

  	
  -

  	
  Calculations
  Relating to Exchange Traded Contracts

  
	
  SCHEDULE 1.01(c)

  	
  -

  	
  Determination of
  K and VaR

  
	
  SCHEDULE 1.01(f)

  	
  -

  	
  Delegation of
  Authority and Credit Limit Approval Guidelines

  
	
  SCHEDULE 3.04

  	
  -

  	
  Calculation and
  Settlement of Monthly Sleeve Fee

  
	
  SCHEDULE 3.05

  	
  -

  	
  Calculation of
  Make-whole Payment

  
	
  SCHEDULE 3.07(a)

  	
  -

  	
  Merrill Account

  
	
  SCHEDULE 5.13

  	
  -

  	
  List of
  Subsidiaries

  
	
  SCHEDULE 7.13

  	
  -

  	
  List of Retail
  Services

  
	
  SCHEDULE 12.13

  	
  -

  	
  List of
  Calculation Agents

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A1

  	
  —

  	
  Form of ML
  Guarantee for Accepted Counterparties

  
	
  EXHIBIT A2

  	
  —

  	
  Form of ML
  Guarantee for C&I Customers

  
	
  EXHIBIT B

  	
  —

  	
  List of Accepted
  Counterparties

  
	
  EXHIBIT C1

  	
  —

  	
  Form of EEI
  Power Purchase and Hedging Contract

  
	
  EXHIBIT C2

  	
  —

  	
  Form of ISDA
  Power Purchase and Hedging Contract

  
	
  EXHIBIT D1

  	
  —

  	
  Form of EEI
  Collateral Annex

  
	
  EXHIBIT D2

  	
  —

  	
  Form of ISDA
  Credit Support Annex

  
	
  EXHIBIT E1

  	
  —

  	
  Reliant Energy –
  Retail Risk Policy

  
	
  EXHIBIT E2

  	
  —

  	
  Wholesale Risk
  Control Policy

  
	
  EXHIBIT F

  	
  —

  	
  ERCOT Asset List

  

 

 

Schedule 1.01(a)

To Credit Sleeve
and Reimbursement Agreement

Risk Management Policy
Violations

[***]

	
  ***

  	
  The content of
  this Schedule 1.01(a) (consisting of 2 pages) has been omitted and filed
  separately with the Securities and Exchange Commission. Confidential
  treatment has been requested with respect to the omitted portions.

  

 

Schedule 1.01(b)

To Credit Sleeve and
Reimbursement Agreement

Calculations Relating to
Exchange Traded Contracts

 

Adjusted Volume:

 

For Exchange Traded Contracts with the following delivery periods and
volume quantities,

 

	
  Period (Month)

  	
   

  	
  ETC Commodity

  Quantities

  	
   

  
	
  0

  	
   

  	
   

  	
  Q0

  	
   

  
	
  1

  	
   

  	
   

  	
  Q1

  	
   

  
	
  2

  	
   

  	
   

  	
  Q2

  	
   

  
	
  3

  	
   

  	
   

  	
  Q3

  	
   

  
	
  ...

  	
   

  	
   

  	
  ...

  	
   

  
	
  ...

  	
   

  	
   

  	
  ...

  	
   

  
	
  N

  	
   

  	
   

  	
  QN

  	
   

  

 

the “Adjusted Volume” of the Mirror OTC Contracts to be entered
into between REPS and the Sleeve Provider as part of the (EFS Transaction or
ICE Block Transaction) under the Credit Sleeve and Reimbursement Agreement will
be computed as follow:

 

	
  Period (Month)

  	
   

  	
  Adjusted Volume

  	
   

  
	
  0

  	
   

  	
   

  	
  Q0 / AZP0

  	
   

  
	
  1

  	
   

  	
   

  	
  Q1 / AZP1

  	
   

  
	
  2

  	
   

  	
   

  	
  Q2 / AZP2

  	
   

  
	
  3

  	
   

  	
   

  	
  Q3 / AZP3

  	
   

  
	
  ...

  	
   

  	
   

  	
  ...

  	
   

  
	
  ...

  	
   

  	
   

  	
  ...

  	
   

  
	
  N

  	
   

  	
   

  	
  QN / AZPN

  	
   

  

 

“AZP” shall be the
Adjusted Zero Prices that corresponds to the date on the Adjusted Zero Curve
which is defined below.

The Adjusted Volume will
be rounded off to the nearest full unit (mmbtu or mwh).

 

Calculation of Adjusted Zero Curve:

 

The Credit Sleeve Provider will calculate an adjusted LIBOR forward
curve (the “Adjusted LIBOR Forward Curve”) each day by adding the
marginal cost of capital adder (the “MCC Adder”) to the inputs used to
calculate the Merrill Lynch & Co. standard LIBOR curve (the “Merrill
LIBOR Curve”).  

 

 

 

 

“MCC Adder” shall
be:

 

(a) [***]; for purposes
of calculating the Adjusted Volume of Mirror OTC Contracts executed in
connection with (EFS Transactions or ICE Block Transactions) that are Effective
Date Transactions described in Section 2.03(a) of the Credit Sleeve
Reimbursement Agreement; and 

 

(b) the marginal cost of
capital relative to LIBOR that all Merrill Lynch & Co.'s trading desks are
charged for the use of funds by Merrill Lynch & Co. (as of the date of such
EFS Transaction or ICE Block Transaction), which amount is relative to LIBOR
that is the average cost of capital for Merrill Lynch & Co. across all
maturities (such MCC Adder can be positive or negative); for purposes of
calculating the Adjusted Volume of Mirror OTC Contracts executed in connection
with EFS Transactions or ICE Block Transactions that are Ongoing Transactions
described in Section 2.03(b) of the Credit Sleeve Reimbursement Agreement  

 

As of the Effective Date,
the MCC Adder described in subsection (b) above is [***]; however, such amount
may change in accordance with changes to Merrill Lynch & Co.'s marginal
cost of capital as described above.

 

“Merrill
LIBOR Curve” shall be the LIBOR curve used by Merrill Lynch & Co. and
its subsidiaries in their U.S. and world wide swap and futures operations and
business and used to mark its interest rate position to
market.   It is understood that Merrill Lynch &
Co. may modify the inputs for how it determines this curve; however, it will
continue to use the same curve for the Merrill LIBOR Curve as used in this
Schedule and for its other operations as described in the foregoing
sentence. 

 

Using the Adjusted LIBOR Forward Curve the Sleeve Provider will
calculate a corresponding zero curve (the “Adjusted Zero Curve”), and
provide such Adjusted Zero Curve to REPS on each Business Day, no later than
10:00 a.m. CST, and such curve shall be applicable to the (EFS Transactions and
ICE Block Transactions) that are executed on that day.  The Adjusted Zero Curve will be a strip of
monthly Adjusted Zero Prices, which represent the present value of $1.00 dollar
received on a specific date in the future, assuming the Adjusted LIBOR Forward
Curve for discounting purposes with discounting being computed utilizing the
continuously compounding methodology. 
The Adjusted Zero Curve provided will have 5 places after the decimal
point.

 

The term of the Adjusted LIBOR Forward Curve and the corresponding
Adjusted Zero Curve will be 72 months, including the then current month;
provided, however, that to the extent REPS currently has or in the future
obtains an Exchange Traded Contract for a longer period, then the Sleeve
Provider will extend the Adjusted LIBOR Forward Curve and the Adjusted Zero
Curve to match such longer period. 
Adjusted Zero Prices that correspond to dates that are between the
Monthly Dates in the table below will be 

 

	
  ***

  	
  Certain
  information on this page has been omitted and filed separately with the
  Securities and Exchange Commission. Confidential treatment has been requested
  with respect to the omitted portions.

  

 

 2
 

 

calculated using linear interpolation. 
The format utilized by the Sleeve Provider in providing this information
will include at a minimum the following attributes:

 

	
  Period (Month)

  	
   

  	
  Monthly Date

  	
   

  	
  Adjusted LIBOR

  Forward Curve

  	
   

  	
  Adjusted Zero 

  Curve

  	
   

  
	
  0

  	
   

  	
   

  	
   

  	
   

  	
  AL0 = 0

  	
   

  	
  AZP0 = 1

  	
   

  
	
  1

  	
   

  	
   

  	
   

  	
   

  	
  AL1

  	
   

  	
  AZP1

  	
   

  
	
  2

  	
   

  	
   

  	
   

  	
   

  	
  AL2

  	
   

  	
  AZP2

  	
   

  
	
  3

  	
   

  	
   

  	
   

  	
   

  	
  AL3

  	
   

  	
  AZP3

  	
   

  
	
  ...

  	
   

  	
   

  	
   

  	
   

  	
  ...

  	
   

  	
  ...

  	
   

  
	
  ...

  	
   

  	
   

  	
   

  	
   

  	
  ...

  	
   

  	
  ...

  	
   

  
	
  ...

  	
   

  	
   

  	
   

  	
   

  	
  ...

  	
   

  	
  ...

  	
   

  
	
  N

  	
   

  	
   

  	
   

  	
   

  	
  ALN

  	
   

  	
  AZPN

  	
   

  

 

Treatment for Options:

 

For purposes of clarification the Parties agree that no adjustment will
be made to the volumes of options transactions which are transferred pursuant to
EOO Transactions under the Credit Sleeve Reimbursement Agreement, or in other
words the Adjusted Volume of any Mirror OTC Contract that is an option will be
the exact same volume as the volume of the corresponding Exchange Traded
Contract.

 

Physical Exposure Management Fee:

 

For Exchange Traded Contracts that provide for physical delivery, (both
futures contracts and options that provide for physical delivery futures
contracts) and are transferred to the Sleeve Provider pursuant to an EFS or EOO
Transaction, the following will apply: 
The Mirror OTC Transaction's confirm will specify that REPS agrees to
pay to Sleeve Provider (or Sleeve Provider agrees to pay to REPS) a fee (the “Physical
Exposure Management Fee” or “PhEM”) equal to: either (i) the actual
EFS or EOO Transaction premium paid or received by Sleeve Provider to liquidate
the physical exposure or (ii) if Sleeve Provider takes the position in its own
book, the average of two broker quotes on the day Sleeve Provider takes the
position (which quotes shall be of the applicable buy or sell side from the
Sleeve Provider’s perspective of the premium for the EFS or EOO of the same
product and delivery month), multiplied by the volume in the EFS or EOO
Transaction.  Sleeve Provider will
provide REPS notice of the PhEM amount within 2 Business Days of either
liquidating the physical exposure with a third party or taking the position on
the Sleeve Provider’s own book.  REPS may
request that the Sleeve Provider provide deal tickets as evidence of the actual
premium paid or received by Sleeve Provider or instant messaging prints of
broker quotes.  PhEM shall be due and
payable by the applicable Party at the time of settlement of the Mirror OTC
Transaction associated with such EOO or EFS Transaction. 

 3

 

Schedule 1.01(c)

To Credit Sleeve
and Reimbursement Agreement

Determination of K and
VaR

[***]

	
  ***

  	
  The content of
  this Schedule 1.01(c) (consisting of 71 pages) has been omitted and filed
  separately with the Securities and Exchange Commission. Confidential
  treatment has been requested with respect to the omitted portions.

  

 

Schedule 1.01(f)

To Credit Sleeve and Reimbursement Agreement

Delegation of Authority and Credit Limit Approval Guidelines

[***]

	
  ***

  	
  The content of
  this Schedule 1.01(f) (consisting of 1 page) has been omitted and filed
  separately with the Securities and Exchange Commission. Confidential
  treatment has been requested with respect to the omitted portions.

  

 

 

Schedule 3.04

To Credit Sleeve and Reimbursement Agreement
Calculation and Settlement of Monthly
Sleeve Fee

(a)           For the period from the Effective
Date through the Unwind Start Date, on each Monthly Payment Date, REPS shall
pay to the Sleeve Provider a monthly fee in arrears equal to the Sleeve Fee
Factor as in effect from time to time for each MWh that the Reliant Retail
Obligors deliver to their C&I Customers, Residential Mass Customers and
Business Services Mass Customers (excluding any load provided to Equistar
Chemicals, LP in connection with the Channelview Services Agreement), in each
case, in connection with the Retail Energy Business during such period, as
determined by the Sleeve Provider based on settled load data provided from
ERCOT (such MWHs, the “ERCOT MWHs” and such monthly fee as adjusted from
time to time, the “Sleeve Fee”). 
Payments of the Sleeve Fee will be determined and made in accordance
with the procedures set forth below.

As
used in this Schedule 3.04, the term “Sleeve Fee Factor” means $0.40 per
MWh provided that such amount shall be
adjusted from time to time as follows: (a) under the circumstances, in the
amount, at the times and for the periods set forth in Annex A hereto and (b) in
the event that the Merrill Parties receive an indemnity contemplated by Section
9.03(a) of the CSRA, by an additional $0.40 per MWh during the period while
such indemnity is in effect (cumulative with the effect of any adjustment
referred to in clause (a)(if any) from time to time), commencing with first day
of the month following the month during which such indemnity was received and
ending on the last day of the month during which such indemnity is terminated
or expires.

(b)           REPS shall deliver to the Sleeve
Provider for each delivery month the following information and associated data
relating to the Sleeve Fee as follows:

(i)            Monthly Initial Settlement
Calculation:

(A)          The settlement ERCOT MWHs shall be
based on the ERCOT Initial Statement as defined by Section 9.2.3 of the ERCOT
protocols issued on or about the 10th calendar day of the month following delivery;

(B)           REPS shall provide to the Sleeve
Provider a summary of the ERCOT MWHs from the ERCOT Initial Statement by the 15th calendar day of the month following delivery
or, if such date is not a Business Day, the immediately succeeding Business
Day.  In the event that data provided by
ERCOT is omitted or incomplete for any day(s) of the subject month REPS shall
provide an Omission Estimate for each day to be used for settlement calculation
subject to review and approval by the Sleeve Provider.  The Sleeve Provider shall be notified of any
Omission Estimate as an explicit notation included as part of the summary of
volumes;

(C)           The “Initial Monthly Sleeve Fee
Amount” for each delivery month shall be the ERCOT MWHs per Schedule
3.04(b)(i)(B) for such month multiplied 

 

by the Sleeve Fee Factor in effect for such month; and

(D)          Payment of the Initial Monthly Sleeve
Fee Amount for each delivery month under Schedule 3.04(b)(i)(C) shall be due on
the next Monthly Payment Date.

(ii)           Monthly Final Settlement
Calculation:

(A)          The settlement ERCOT MWHs shall be
based on the ERCOT Final Statement as defined by Section 9.2.4 of the ERCOT
protocols issued on or about the 59th calendar day of the month following delivery;

(B)           REPS shall provide to the Sleeve
Provider a summary of ERCOT MWHs from the ERCOT Final Statement by the 15th calendar day of the third month following
delivery (i.e. January 2007 shall be due by April 15, 2007) or, if such date is
not a Business Day, the immediately succeeding Business Day.  In the event that data provided by ERCOT is
omitted or incomplete for any day(s) of the subject month REPS shall provide an
Omission Estimate for each day to be used for settlement calculation subject to
review and approval by the Sleeve Provider. 
The Sleeve Provider shall be notified of any Omission Estimate as an
explicit notation included as part of the summary of volumes;

(C)           The “Monthly Sleeve Fee Amount”
for each delivery month shall be the difference between (i) the ERCOT MWHs per
Schedule 3.04(b)(ii)(B) for such month multiplied by the Sleeve Fee Factor in
effect for such month less (ii) the Initial Monthly Sleeve Amount in accordance
with Schedule 3.04(b)(i) for such month. 
If the difference is positive an amount equal to the difference shall be
due to the Sleeve Provider.  If the
difference is negative an amount equal to the absolute value of the difference
shall be due to REPS; and

(D)          Payment of the Monthly Sleeve Fee Amount
for each delivery month under Schedule 3.04(b)(ii)(C) shall be due on the next
Monthly Payment Date.

(iii)          Monthly True-Up Statement
Calculation:

(A)          REPS shall provide to the Sleeve
Provider a summary of the ERCOT MWHs from the ERCOT True-Up Statement as
defined by Section 9.2.6 of the ERCOT protocols that have been received by REPS
for each delivery month by the 15th calendar day of the month during which such
information is received or, if such date is not a Business Day, the immediately
succeeding Business Day;

(B)           The “True-Up Sleeve Fee Amount”
for each delivery month shall be equal to the product of (i) the ERCOT MWHs per
the ERCOT True-Up Statement provided per Schedule 3.04(b)(iii)(A) for such
delivery month minus 

 

the ERCOT MWHs per the ERCOT Final Statement per
Schedule 3.04(b)(ii)(B) for such delivery month multiplied by (ii) the Sleeve
Fee Factor in effect for such month.  If
the product is positive an amount equal to the product shall be due to the Sleeve
Provider.  If the product is negative an
amount equal to the absolute value of the product shall be due to REPS; and

(C)           Payment of the True-Up Sleeve Fee
Amount for each delivery month under Schedule 3.04(b)(iii)(B) shall be due on
the next Monthly Payment Date.

(iv)          Monthly Invoice:  The Sleeve Provider shall provide an invoice
to REPS within two Business Days of the receipt from REPS of the summary of
ERCOT MWhs in accordance with Schedule 3.04(b)(i), (ii) and (iii) with respect
to each relevant delivery month; provided that
if REPS does not furnish such information in a timely manner, such invoice may
be prepared on the basis of reasonable estimates of such information prepared
by the Sleeve Provider.  The invoice
shall include the following if applicable for each delivery month:  (A) the Initial Monthly Sleeve Fee Amount per
Schedule 3.04(b)(i), (B) the Monthly Sleeve Fee Amount per Schedule 3.04(b)(ii)
and (C) the True-Up Sleeve Fee Amount per Schedule 3.04(b)(iii).  The Sleeve Provider will be the invoicing
party regardless of whether the invoice amount is a receivable or payable
amount with respect to the Sleeve Provider

(c)           During the Unwind Period, until the
take-out of the Sleeve Provider in accordance with Section 10.01(a)(i), (ii),
(iv) or (v) of the CSRA (the date of such take-out, the “Take-Out Date”)
or the Unwind Conclusion Date, REPS shall pay to the Sleeve Provider a monthly
fee in arrears equal to the Sleeve Fee Factor in effect from time to time for
each ERCOT MWh that the Reliant Retail Obligors:

(i)            deliver to their C&I Customers
starting on the Unwind Start Date in connection with the Retail Energy Business
during such period, to the extent such deliveries are under contractual
delivery commitments in effect on the Unwind Start Date, as determined and
invoiced by the Sleeve Provider based on contracted load data provided by REPS;
and

(ii)           are projected, with those projections
being those in effect on the Unwind Start Date, to deliver to their Residential
Mass Customers and Business Services Mass Customers starting on the Unwind
Start Date in connection with the Retail Energy Business during such period, to
the extent the supply for such MWHs was hedged under the CSRA on the Unwind
Start Date, as determined and invoiced by the Sleeve Provider based on monthly
projected load data provided by REPS consistent with the data provided in the
daily reporting, as adjusted by the following:

(A)          for Residential Mass Customers, to the
extent there is a greater than 10% migration between current customer count and
customer count as projected on the Unwind Start Date for the current period (as
determined by ESID count), the projected load data (in effect on the Unwind
Start Date) will be 

 

adjusted on a pro-rata basis from the start of the
month during which such migration threshold occurred and going forward to
reflect the customers that have migrated; and

(B)           for Business Services Mass Customers
load, to the extent there is a greater than 10% migration between Business
Services Mass Customers load and Business Services Mass Customers load as
projected on the Unwind Start Date for the current period (as determined by
annualized volume (adjusted for seasonality)), the projected load data (in
effect on the Unwind Start Date) will be adjusted on a pro-rata basis from the
start of the month during which such migration threshold occurred and going
forward to reflect the customers that have migrated;

(such monthly fee
as adjusted from time to time, the “Unwind Sleeve Fee”).

(d)           REPS shall provide the Sleeve
Provider a summary of volumes in MWhs as defined in Schedule 3.04(c)(i) and
(ii) and any other data and computations including ESID counts and annualized
load (adjusted for seasonality) needed by the Sleeve Provider by the 15th calendar day of each month following each
delivery month or, if such day is not a Business Day, the immediately
succeeding Business Day.  The Sleeve
Provider shall provide an invoice with respect to the Unwind Sleeve Fee to REPS
within two Business Days of the receipt from REPS of the summary of volumes in
accordance with Schedule 3.04(c) (i) and (ii); provided
that if REPS does not furnish such information in a timely manner, such invoice
may be prepared on the basis of reasonable estimates of such information
prepared by the Sleeve Provider.  The
Sleeve Provider will be the invoicing party regardless of whether the invoice
amount is a receivable or payable amount with respect to the Sleeve
Provider.  Payment with respect to the
Unwind Sleeve Fee shall be due and payable in arrears for each delivery month
on the next Monthly Payment Date after invoicing and on the Take-Out Date and
the Unwind Conclusion Date.

 

Annex A to

Schedule 3.04

To Credit Sleeve and Reimbursement Agreement

Certain Adjustments to the Sleeve Fee Factor

Sleeve
Fee Increase Zones

Zone 1.  If there shall occur 1, but not more than 1,
Level III Violation during any 60 consecutive month period beginning after the
Effective Date the Sleeve Fee or Unwind Sleeve Fee, as applicable, shall be
increased by $0.10 per MWh beginning on the 1st day of the month following the month during
which the Level III Violation occurs through the earlier to occur of (a) the
last day of the 6th month during which no Level III Violations
have occurred, (b) an increase in the Sleeve Fee or Unwind Sleeve Fee under
either Zone 2 or Zone 3 below applies, or (c) the Credit Sleeve Termination
Date.

 

Zone 2.  If there shall occur 2, but not more than 2,
Level III Violations during any 60 consecutive month period beginning after the
Effective Date the Sleeve Fee or Unwind Sleeve Fee, as applicable, shall be
increased by $0.20 per MWh beginning on the 1st day of the month following the month during
which the second Level III Violation occurs through the earlier to occur of (a)
the last day of the 12th month during which no Level III Violations have
occurred, (b) an increase in the Sleeve Fee or Unwind Sleeve Fee under Zone 3
below applies, or (c) the Credit Sleeve Termination Date.

 

Zone 3.  If there shall occur 3 or more Level III
Violations during any 60 consecutive month period beginning after the Effective
Date the Sleeve Fee or Unwind Sleeve Fee, as applicable, shall be increased by
$0.30 per MWh beginning on the 1st day of the month following the month during
which the third Level III Violation occurs through the Credit Sleeve
Termination Date.

 

Schedule 3.05

To Credit Sleeve and Reimbursement Agreement
Calculation of Make-whole Payment

“Make-whole
Payment” means, as of any date of determination, an amount equal to the greater of (i) $50
million less the sum of (A) the Structuring Fee (as defined in Section 3.06 of
the CSRA) and (B) the aggregate amounts of the Monthly Sleeve Fees that have
been paid to the Sleeve Provider as of such date and (ii) $0, determined
by the Sleeve Provider on such date.

 

Schedule 3.07(a)

To Credit Sleeve and Reimbursement Agreement
Merrill Account

JP Morgan Chase

ABA 021000021

Account Number# [***]

Account Name Merrill Lynch
Commodities, Inc.

	
  ***

  	
  Certain information on this page has been omitted
  and filed separately with the Securities and Exchange Commission.
  Confidential treatment has been requested with respect to the omitted
  portions.

  

 

 

Schedule 5.13

To Credit Sleeve and Reimbursement Agreement
List of Subsidiaries

Equity investment

1.               RERH Holdings,
LLC’s ownership of 1,000 units of the membership interest of Reliant Energy
Retail Holdings, LLC

2.               Reliant Energy
Retail Holdings, LLC’s ownership of

a.               1,000 units of the
membership interest of Reliant Energy Retail Services, LLC

b.              1,000 units of the
membership interest of Reliant Energy Power Supply, LLC

3.               Reliant Energy
Retail Services, LLC’s ownership of 1,000 units of the membership interest of
RE Retail Receivables, LLC

	
   

  	
   

  	
  Jurisdiction of

  Organization

  	
   

  	
  Organizational/Taxpayer

  Identification Number

  
	
  RERH Holdings, LLC

  	
   

  	
  Delaware

  	
   

  	
  4191623/20-5222227

  
	
  Reliant Energy Retail Holdings, LLC

  	
   

  	
  Delaware

  	
   

  	
  3279845/76-0655580

  
	
  Reliant Energy Retail Services, LLC

  	
   

  	
  Delaware

  	
   

  	
  3279840/76-0655567

  
	
  R E Retail Receivables, LLC

  	
   

  	
  Delaware

  	
   

  	
  3531400/41-2046596

  
	
  Reliant Energy Power Supply, LLC

  	
   

  	
  Delaware

  	
   

  	
  4142914/20-4823108

  

 

Address of
principal place of business for all of the above:

1000 Main Street

Houston, Texas  77002

 

Schedule 7.13

To Credit Sleeve and Reimbursement Agreement
List of Retail Services

[***]

	
  ***

  	
  The content of this Schedule 7.13 (consisting of 1
  page) has been omitted and filed separately with the Securities and Exchange
  Commission. Confidential treatment has been requested with respect to the
  omitted portions.

  

 

 

Schedule 12.13

To Credit Sleeve and Reimbursement Agreement
List of Calculation Agents

[***]

	
  ***

  	
  The content of this Schedule 12.13 (consisting of 1
  page) has been omitted and filed separately with the Securities and Exchange
  Commission. Confidential treatment has been requested with respect to the
  omitted portions.

  

 

 

Exhibit A1

To Credit Sleeve and Reimbursement Agreement

Form of ML Guarantee for Accepted Counterparties

GUARANTEE OF MERRILL LYNCH
& CO., INC.

WHEREAS,
Reliant Energy Power Supply, LLC, a Delaware limited liability company
(“REPS”), and certain of its affiliates have entered into an agreement with
Merrill Lynch Commodities, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (“MLCI”), and its parent, Merrill Lynch
& Co., Inc., a corporation duly organized and existing under the laws of
the State of Delaware (“ML & CO.”), related to an enhanced credit structure
for the retail electric business of REPS and its affiliates;

WHEREAS,
as part of the consideration for the above described agreement, ML & Co.
has agreed to issue this Guarantee, guarantying the obligations of REPS under
the Agreement described below, consistent with the terms and conditions set
forth below.

FOR
VALUE RECEIVED, receipt of which is hereby acknowledged, ML & CO. hereby
unconditionally guarantees to [                              ] (the “Company”), the due and
punctual payment of any and all amounts payable by REPS, its successors and
permitted assigns, to the extent such successors or permitted assigns are
direct or indirect subsidiaries of RERH Holdings, LLC, a Delaware limited
liability company, under the terms of the [EEI/ISDA]  Master Agreement between the Company and
REPS, dated as of [                ],
2006 (the “Agreement”), including, in case of default, interest on any amount
due, when and as the same shall become due and payable, whether on the
scheduled payment dates, at maturity, upon declaration of termination or
otherwise, according to the terms thereof. 
In case of the failure of REPS punctually to make any such payment, ML
& Co. hereby agrees to make such payment, or cause such payment to be made,
promptly upon demand made by the Company to ML & Co.; provided, however
that delay by the Company in giving such demand shall in no event affect ML
& Co.’s obligations under this Guarantee. 
This Guarantee shall remain in full force and effect or shall be
reinstated (as the case may be) if at any time any payment guaranteed
hereunder, in whole or in part, is rescinded or must otherwise be returned by
the Company upon the insolvency, bankruptcy or reorganization of REPS or
otherwise, all as though such payment had not been made.

ML & Co. hereby
agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Agreement; the absence of any
action to enforce the same; any waiver or consent by the Company concerning any
provisions thereof; the rendering of any judgment against REPS or any action to
enforce the same; or any other circumstances that might otherwise constitute a
legal or equitable discharge of a guarantor or a defense of a guarantor.  ML & Co. covenants that this guarantee
will not be discharged except by complete payment of the amounts payable under
the Agreement.  This Guarantee shall
continue to be effective if REPS merges or consolidates with or into another
entity, loses its separate legal identity or ceases to exist.

ML
& Co. hereby waives diligence; presentment; protest; notice of protest,
acceleration, and dishonor; filing of claims with a court in the event of
insolvency or bankruptcy of REPS; all demands whatsoever, except as noted in
the first paragraph hereof; and any right to require a proceeding first against
REPS.

ML &
Co. hereby certifies and warrants that this Guarantee constitutes the valid
obligation of ML & Co. and complies with all applicable laws.  This Guarantee guarantees only payment
obligations of REPS and does not guarantee the performance of any other obligations
of, including, but not limited to, physical delivery or, to the extent
applicable, reporting obligations of REPS. 
This Guarantee constitutes a guarantee of payment and not of collection.

This
Guarantee shall be governed by, and construed in accordance with, the law of
the State of New York.

 

This
Guarantee may be terminated at any time by notice by ML & Co. to the
Company given in accordance with the notice provisions of the Agreement,
effective upon receipt of such notice by the Company or such later date as may
be specified in such notice; provided, however, that this Guarantee shall
continue in full force and effect, and shall be irrevocable, with respect to
any payment obligation of REPS arising under any Transaction under and as
defined in the Agreement entered into prior to the effectiveness of such notice
of termination.

This
Guarantee becomes effective upon written notice to such effect from ML &
Co., or MLCI on its behalf, to the Company given in accordance with the notice
provisions of the Agreement making specific reference to this Guarantee and the
Agreement.

IN
WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its
corporate name by its duly authorized representative.

	
  

  	
  MERRILL LYNCH & CO., INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  

 

 

Exhibit
A2

To Credit Sleeve and Reimbursement Agreement

Form of ML Guarantee for C&I Customers

GUARANTEE OF MERRILL LYNCH
& CO., INC.

WHEREAS,
Reliant Energy Retail Services, LLC, a Delaware limited liability company
(“RERS”), and certain of its affiliates have entered into an agreement with
Merrill Lynch Commodities, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (“MLCI”), and its parent, Merrill Lynch
& Co., Inc., a corporation duly organized and existing under the laws of
the State of Delaware (“ML & CO.”), related to an enhanced credit structure
for the retail electric business of RERS and its affiliates;

WHEREAS,
as part of the consideration for the above described agreement, ML & Co.
has agreed to issue this Guarantee, guarantying the obligations of RERS under
the Agreement described below, consistent with the terms and conditions set
forth below.

FOR
VALUE RECEIVED, receipt of which is hereby acknowledged, ML & CO. hereby
unconditionally guarantees to [                              ] (the “Company”), the due and
punctual payment of any and all amounts payable by RERS, its successors and
permitted assigns, to the extent such successors or permitted assigns are direct
or indirect subsidiaries of RERH Holdings, LLC, a Delaware limited liability
company, under the terms of the [Contract] between
the Company and RERS, dated as of [                ],
2006 (the “Agreement”), including, in case of default, interest on any amount
due, when and as the same shall become due and payable, whether on the
scheduled payment dates, at maturity, upon declaration of termination or
otherwise, according to the terms thereof. 
In case of the failure of RERS punctually to make any such payment, ML
& Co. hereby agrees to make such payment, or cause such payment to be made,
promptly upon demand made by the Company to ML & Co.; provided, however
that delay by the Company in giving such demand shall in no event affect ML
& Co.’s obligations under this Guarantee. 
This Guarantee shall remain in full force and effect or shall be
reinstated (as the case may be) if at any time any payment guaranteed
hereunder, in whole or in part, is rescinded or must otherwise be returned by
the Company upon the insolvency, bankruptcy or reorganization of RERS or
otherwise, all as though such payment had not been made.

ML & Co. hereby
agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Agreement; the absence of any
action to enforce the same; any waiver or consent by the Company concerning any
provisions thereof; the rendering of any judgment against RERS or any action to
enforce the same; or any other circumstances that might otherwise constitute a
legal or equitable discharge of a guarantor or a defense of a guarantor.  ML & Co. covenants that this guarantee
will not be discharged except by complete payment of the amounts payable under
the Agreement.  This Guarantee shall
continue to be effective if REPS merges or consolidates with or into another
entity, loses its separate legal identity or ceases to exist.

ML
& Co. hereby waives diligence; presentment; protest; notice of protest,
acceleration, and dishonor; filing of claims with a court in the event of
insolvency or bankruptcy of RERS; all demands whatsoever, except as noted in
the first paragraph hereof; and any right to require a proceeding first against
RERS.

ML
& Co. hereby certifies and warrants that this Guarantee constitutes the valid
obligation of ML & Co. and complies with all applicable laws.  This Guarantee guarantees only payment
obligations of RERS and does not guarantee the performance of any other
obligations of, including, but not limited to, physical delivery or, to the extent
applicable, reporting obligations of RERS. 
This Guarantee constitutes a guarantee of payment and not of collection.

This
Guarantee shall be governed by, and construed in accordance with, the law of
the State of New York.

 

This
Guarantee becomes effective upon written notice to such effect from ML &
Co., or MLCI on its behalf, to the Company (which notice may be given by
e-mail) making specific reference to this Guarantee and the Agreement.

IN
WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its
corporate name by its duly authorized representative.

	
   

  	
  MERRILL LYNCH & CO., INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  

 

 

Exhibit B

To Credit Sleeve and
Reimbursement Agreement

List of Accepted
Counterparties

[***]

	
  ***

  	
  The content of this Exhibit B (consisting of 6
  pages) has been omitted and filed separately with the Securities and Exchange
  Commission. Confidential treatment has been requested with respect to the
  omitted portions.

  

 

 

Exhibit C1

To Credit Sleeve and Reimbursement Agreement

Form of EEI Power Purchase and Hedging Contract

DRAFT
FOR DISCUSSION PURPOSES ONLY

MASTER POWER PURCHASE AND SALE AGREEMENT

COVER
SHEET

This Master Power
Purchase and Sale Agreement (“Master Agreement”)
dated                   
shall not become effective until the date on which the Guaranty issued by
Merrill Lynch & Co., Inc. becomes effective (“Effective Date”).  The Master Agreement,
together with the exhibits, schedules and any written supplements hereto, the
Party A Tariff, if any, the Party B Tariff, if any, any designated collateral,
credit support or margin agreement or similar arrangement between the Parties
and all Transactions (including any confirmations accepted in accordance with
Section 2.3 hereto) shall be referred to as the “Agreement.”  The Parties to this Master
Agreement are the following:

	
  Name:Reliant
  Energy Power Supply, LLC (“REPS” or 

  	
   

  	
  Name:

  	
   

  	
  (“

  	
   

  	
  ” or “Party B”)

  
	
  “Party A”)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  All Notices:

  	
   

  	
  All Notices:

  
	
  Street: 1000 Main St.,
  Suite 1100, Houston, 77002

  	
   

  	
  Street:

  	
   

  
	
  P. O. Box 4455 

  	
   

  	
  City:

  	
   

  	
  Zip:

  	
   

  
	
  City:Houston,
  TX         Zip: 77210-4455

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attn: Contract
  Administration 

  	
   

  	
  Attn: Contract
  Administration 

  
	
  Phone: (713) 497-5855
  or 4138 

  	
   

  	
  Phone:

  	
   

  
	
  Facsimile: (713)
  497-9562 

  	
   

  	
  Facsimile:

  	
   

  
	
  Duns: 623988644 

  	
   

  	
  Duns:

  	
   

  
	
  Federal Tax ID Number:
  204823108

  	
   

  	
  Federal Tax ID Number:

  	
   

  
														

 

With a copy to:

 

Merrill Lynch Commodities, Inc.

20 East Greenway Plaza, 7th Floor

Houston, Texas 77253-3327

Attn: 
Legal

Phone:
713-544-4975

Facsimile: 
713-544-5551

 

	
  Invoices: 

  	
  Invoices: 

  
	
  Attn: ERCOT Settlement Accounting, 11th Floor 

  	
  Attn: 

  	
   

  
	
  Phone: (713) 497-4402 

  	
  Phone: 

  	
   

  
	
  Facsimile: (713) 497-0098

  	
  Facsimile:

  	
   

  
	
   

  	
   

  	
   

  
	
  Scheduling: 

  	
  Scheduling: 

  
	
  Attn: ERCOT 24 Hour Scheduling 

  	
  Attn: 

  	
   

  
	
  Phone: (713) 497-1144 

  	
  Phone: 

  	
   

  
	
  Facsimile: (713) 497-0098

  	
  Facsimile:

  	
   

  
	
   

  	
   

  	
   

  
	
  Payments: 

  	
  Payments: 

  
	
  Attn:ERCOT Settlement Accounting, 11th Floor 

  	
  Attn: 

  	
   

  
	
  Phone:(713) 497-4402 

  	
  Phone: 

  	
   

  
	
  Facsimile: (713) 497-0098

  	
  Facsimile:

  	
   

  
									

 

 1
 

 

 

	
  Wire Transfer:

  	
   

  	
  Wire Transfer:

  
	
  BNK:

  	
   

  	
  BNK:

  	
   

  
	
  ABA: 
    [Insert Collateral
  Account Info]

  	
   

  	
  ABA:

  	
   

  
	
  ACCT:

  	
   

  	
  ACCT:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Credit and Collections:

  	
   

  	
  Credit and Collections:

  
	
  Attn: Credit Risk Management

  	
   

  	
  Attn:

  	
   

  
	
  Phone: (713) 497-1052

  	
   

  	
  Phone:

  	
   

  
	
  Facsimile: (713) 497-1058

  	
   

  	
  Facsimile:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  With additional Notices of an
  Event of Default or Potential Event of Default to:

  	
   

  	
  With additional Notices of an
  Event of Default or Potential Event of Default to:

  
	
  Attn: Vice
  President and General Counsel – Trading, 

  	
   

  	
  Attn:

  	
   

  
	
  Suite 2100

  	
   

  	
  Phone:

  	
   

  
	
  Phone: (713) 497-5361

  	
   

  	
  Facsimile:

  	
   

  
	
  Facsimile: (713) 537-7063

  	
   

  	
   

  	
   

  
										

 

The Parties hereby agree
that the General Terms and Conditions are incorporated herein, and to the
following provisions as provided for in the General Terms and Conditions:

	
  Party A Tariff: [TO BE
  SUPPLIED]

  	
  Dated 

  	
   

  	
  Docket Number 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party B
  Tariff:  Tariff

  	
   

  	
   

  	
  Dated

  	
   

  	
  Docket Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Article Two

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Transaction Terms and
  Conditions

  	
  x
  Optional provision in Section 2.4.If not checked, inapplicable.

  
	
   

  	
   

  
	
  Article Four

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Remedies for Failure to
  Deliver or Receive

  	
  x
  Accelerated Payment of Damages. If not checked, inapplicable.

  
	
   

  	
   

  
	
  Article Five

  	
  x
  Cross Default for Party A:

  	
   

  
	
   

  	
   

  	
   

  
	
  Events of Default;
  Remedies

  	
  o
  Party A:

  	
   

  	
   

  	
  Cross Default Amount $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  x
  Other Entity: Merrill Lynch & Co., Inc.

  	
  Cross Default Amount
  $100,000,000

  
	
   

  	
   

  	
   

  
	
   

  	
  o
  Cross Default for Party B:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  o
  Party B:

  	
   

  	
   

  	
  Cross Default Amount $

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  o
  Other Entity:

  	
   

  	
   

  	
  Cross Default Amount $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6
  Closeout Setoff

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  x

  	
  Option A (Applicable if
  no other selection is made.) As amended in Paragraph 10. 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  o

  	
  Option B – Affiliates
  shall have the meaning set forth in the 

  
	
   

  	
   

  	
   

  	
  Agreement unless
  otherwise specified as follows: With respect to 

  
											

 

 2
 

 

 

	
  

  	
   

  	
   

  	
  Party A,

  	
   

  	
  ; with respect to Party
  B,

  	
   

  	
  .

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  o

  	
  Option C (No Setoff)

  
	
   

  	
   

  	
   

  
	
  Article 8

  	
  8.1 

  	
  Party A Credit
  Protection:

  
	
   

  	
   

  	
   

  
	
  Credit and Collateral
  Requirements

  	
   

  	
  (a)
  Financial Information:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  o  Option
  A 

  
	
   

  	
   

  	
   

  	
  o  Option
  B Specify:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  o  Option
  C Specify: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  So long as such
  Financial Information is publicly available through the Securities Exchange
  Commission’s EDGAR database or such similar database maintained by the
  Securities Exchange Commission, Party B shall not be required to deliver such
  Financial Information directly to Party A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)
  Credit Assurances:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  x  Not
  Applicable 

  
	
   

  	
   

  	
   

  	
  o  Applicable

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)
  Collateral Threshold: See Attached Collateral Annex

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  o  Not
  Applicable 

  
	
   

  	
   

  	
   

  	
  x  Applicable

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (d)
  Downgrade Event:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  x  Not
  Applicable 

  
	
   

  	
   

  	
  o  Applicable

  
	
   

  	
   

  	
   

  
	
   

  	
  (e)
  Guarantor for Party B:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Guarantee Amount:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Party B Credit
  Protection:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)
  Financial Information:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  o  Option
  A 

  
	
   

  	
   

  	
   

  	
  x  Option
  BSpecify: Merrill Lynch & Co., Inc. 

  
	
   

  	
   

  	
   

  	
  o  Option
  CSpecify: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  So long as such
  Financial Information is publicly available through the Securities Exchange
  Commission’s EDGAR database or such similar database maintained by the
  Securities Exchange Commission, Party A shall not be required to deliver such
  Financial Information directly to Party B.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)
  Credit Assurances:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  x  Not
  Applicable 

  
	
   

  	
   

  	
   

  	
  o  Applicable

  
																		

 

 3
 

 

 

	
  

  	
   

  	
  (c)
  Collateral Threshold: See attached Collateral Annex

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  o  Not
  Applicable 

  
	
   

  	
   

  	
   

  	
  x  Applicable

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (d)
  Downgrade Event:

  
	
   

  	
   

  
	
   

  	
   

  	
  x  Not
  Applicable 

  
	
   

  	
   

  	
  o  Applicable

  
	
   

  	
   

  
	
   

  	
  (e)
  Guarantor for Party A: Merrill Lynch & Co., Inc.

  
	
   

  	
   

  
	
   

  	
  Guarantee Amount:$

  	
   

  	
  , as amended from time to time

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 10

  	
   

  
	
  Confidentiality

  	
  x  Confidentiality
  Applicable

  	
  If not checked,
  inapplicable.

  
	
   

  	
   

  
	
  Schedule M

  	
   

  
	
   

  	
  o
  Party A is a Governmental Entity or Public Power System

  
	
   

  	
  o
  Party B is a Governmental Entity or Public Power System

  
	
   

  	
  o
  Add Section 3.6. If not checked, inapplicable

  
	
   

  	
  o
  Add Section 8.6. If not checked, inapplicable

  
								

 

Other
Changes:   Yes

 

Article
One:  General Definitions

Section 1.12, “Credit Rating” shall be deleted.  “Credit Rating” shall have the meaning given
in the Collateral Annex.

The following definitions are amended as set forth below:

1. Section 1.1 is
revised to add the following at the end of such section: Notwithstanding the
foregoing, “Affiliate” means, with respect to Party A, Reliant Energy Retail
Holdings, LLC, and any subsidiary thereof, including Reliant Energy Retail
Services, LLC, and Reliant Energy Retail Receivables, LLC,  and with respect to Party B,                                         
[if we know fill in blank and if not use “Affiliate” shall have the meaning
given in the first two sentences of this definition.]

2.  Section 1.50 is amended to delete the
reference to Section “2.4” and add “2.5”.

3.  Section 1.51 is amended to add the phrase “for
delivery” immediately before the phrase “at the Delivery Point” in the second
line.

4.  Section 1.53 is amended to (i) delete the
phrase “at the Delivery Point” from the second line and (ii) insert after the
phrase “commercially reasonable manner” in the sixth line, the following phrase
“; provided, however if the Seller is unable after using commercially
reasonable efforts to resell all or a portion of the Product not received by
Buyer, the Sales Price with respect to such unsold Product shall be deemed
equal to zero (0)”.

The following shall be
added as a new definition:

““1.62  Merger Event” means, with respect to a Party
or its Guarantor, as applicable, that such Party or its Guarantor
consolidates or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, or reorganizes, reincorporates or reconstitutes
into or as, another entity and, at the time of such consolidation,
amalgamation, merger, transfer, reorganization, reincorporation or
reconstitution:

(l)    the resulting, surviving or transferee
entity fails to assume all the obligations of such Party or its Guarantor under
this Agreement to which it or its predecessor was a party; or

 4
 

 

(2)   the
benefits of any Guaranty fails to extend (without the consent of the other
party) to the performance by such resulting, surviving or transferee entity of
its obligations under this Agreement.”

Article Two:  Transaction Terms and Conditions

Section 2.4 is amended by
deleting the words “either orally or” after the words “agreed to” in line
seven.

Section 2.5 is amended by adding the words “regarding any Transaction
and the terms thereof” after the word “Parties” in line three.

Article
Four:  Remedies for Failure to
Deliver/Receive

The following is added as
a new Section 4.3:

“4.3   Suspension of Performance.  Notwithstanding, and in addition to the
remedies provided pursuant to Sections 4.1 and 4.2, if Seller or Buyer fails to
schedule and/or deliver/receive all or part of the Product pursuant to a
Transaction, and such failure is not excused under the terms of the Product or
by the other Party’s failure to perform, then upon one (1) Business Day prior
notice, and for so long as the non-performing Party fails to perform, the
performing Party shall have the right to suspend its performance under any or
all Transactions.”

Article Five:  Events of Default; Remedies

Section 5.1(e) is amended by deleting “hereof;” and replacing it with
the following: “and the Collateral Annex if such failure is not remedied within
two (2) Business Days after written notice”.

Section 5.1(f) is amended in its entirety as follows:  “a Merger Event occurs with respect to such
Party or its Guarantor;”.

Section 5.1(h)(ii) is
amended to delete the following phrase from the third and fourth line
thereof:  “and such failure shall not be
remedied within three (3) Business Days after written notice”.

The following is added as an additional Event of Default under Section
5.1:

“Section
5.1(i) an event of default occurs (howsoever determined) with respect to such
Party under any agreement between Party A and Party B under any forward
contract, swap agreement or commodities contract (whether financially or
physically settled) (collectively a “Specified Transaction”), in each case as
defined in the United States Bankruptcy Code, and after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation of,
an acceleration of obligations under, or an early termination of that Specified
Transaction.”

Section 5.2 is amended to
(i) reverse the placement of “(i)” and “to” in line three, (ii) delete the
following phrase from lines eleven and twelve “are commercially impracticable
to liquidate and terminate or” and (iii) delete the following phrase from lines
thirteen and fourteen “under applicable law on the Early Termination Date, as
soon thereafter as is reasonably practicable).” 
The following shall be added to the end of Section 5.2: “under
applicable law on the Early Termination Date, then each such Transaction
(individually, an “Excluded Transaction” and collectively, the “Excluded
Transactions”) shall be terminated as soon thereafter as reasonably
practicable), and upon termination shall be deemed to be a Terminated
Transaction and the Termination Payment payable in connection with all such
Transactions shall be calculated in accordance with Section 5.3 below.  The Gains and Losses for each Terminated
Transaction shall be determined by calculating the amount that would be
incurred or realized to replace or to provide the economic equivalent of the
remaining payments or deliveries in respect of that Terminated Transaction.  The Non-Defaulting Party (or its agent) may
determine its Gains and Losses by reference to information either available to
it internally or supplied by one or more third parties including, without
limitation, quotations (either firm or indicative) of relevant rates, prices,
yields, yield curves, volatilities, spreads or other relevant market data in
the relevant markets.  Third parties
supplying such information may include, without limitation, dealers in the
relevant markets, information vendors and other sources of market information.”

The following shall be
added to the end of Section 5.4: “To secure its obligations under this
Agreement, each Party hereby grants to the other Party a present and continuing
security interest in, lien on, and right to setoff against, its payment
obligations to the other Party under this Agreement.  Each Party acknowledges and agrees that the
pledge of 

 5
 

 

its payment obligations
to the other Party under this Agreement shall serve to “margin,” “guaranty” or “secure”
such obligations within the meaning of the Bankruptcy Code, as defined in
Section 10.2 herein.”

Article
Seven:  Limitations

Section 7.1 shall be
amended by: (a) deleting “Except as set forth herein” from the first sentence
and “Unless expressly herein provided” from the fifth sentence, (b) adding “Notwithstanding
anything in this Agreement to the contrary” to the beginning of the fifth
sentence, and “set forth in this Agreement” after “indemnity provision” and
before “or otherwise”, also in the fifth sentence, and (c) adding the following
language after the word “Equity” in the fourth sentence: “(except for the
remedies provided by the Uniform Commercial Code for claims of anticipatory
repudiation)”.

Article Ten: 
Miscellaneous

Section 10.2 (vi) is
amended to add the phrase “except as disclosed in each parties’ or its
Guarantor’s, as applicable, SEC filing” at the end of the sentence in Section
10.2.

Section 10.2 (ix) is
amended to read in its entirety as follows:

“(ix) it acknowledges and agrees that (A)
Transaction(s) constitute “forward contracts” within the meaning of title 11 of
the United States Code (the “Bankruptcy
Code”); (B) each of Party A and Party B is a “forward contract
merchant” within the meaning of the Bankruptcy Code with respect to any
Transactions that constitute “forward contracts”; (C) all payments made or to
be made by one Party to the other Party pursuant to this Agreement constitute “settlement
payments” within the meaning of the Bankruptcy Code; (D) all transfers of
Performance Assurance by one Party to the other Party under this Agreement
constitute “margin payments” within the meaning of the Bankruptcy Code; (E)
each Party’s rights under Section 5.2, “Declaration of an Early Termination
Date and Calculation of Settlement Amounts”, of this Agreement constitutes a “contractual
right to liquidate” the Transactions within the meaning of the Bankruptcy Code;
and (F) the other party is not a “utility” as such term is used in Section 366
of the Bankruptcy Code, and each party agrees to waive and not to assert the
applicability of the provisions of Section 366 in any bankruptcy proceeding
wherein such Party is a debtor. In any such proceeding, each party further
agrees to waive the right to assert that the other party is a provider of last
resort;”

Section 10.4 is amended
to add the phrase “unless a Claim is due to such Party’s gross negligence,
willful misconduct or bad faith” at the end of the first sentence of Section
10.4.

Section 10.5 is amended to
(i) add the words “shall not be unreasonably withheld or delayed” after
the words “which consent” in the second line; (ii) delete the words “may be
withheld in the exercise of its sole discretion” in the second and third line;
(iii) delete subparagraphs (i) and (ii) in their entirety from the fourth
through sixth lines; and (iv) delete “or (iii)” from the eighth line.”

Section 10.8 is amended
to delete the following sentence on line twenty “Any provision declared or
rendered unlawful by any applicable court of law ......Parties.” and replace with
the following sentence “If performance of this Agreement is declared or
rendered unlawful by any applicable court or law or regulatory agency or deemed
unlawful because of a statutory change (individually or collectively, such
events being referred to herein as a “Regulatory Event”), such Regulatory Event
will not otherwise affect the remaining lawful obligations that arise under
this Agreement; and provided, further, that if a Regulatory Event occurs, the
Parties shall use their best efforts to reform this Agreement in order to give
effect to the original intention of the Parties.”

Section 10.11 is amended to (i) add the following word
“Guarantor,” after the word “Party’s” in line three;  (ii) add the following phrase after the word “lenders”:
“and their counsel and advisors”; and (iii) add the following to the end of the
paragraph:  “The Parties hereby acknowledge that the
disclosure of price data only without counterparty name does not contravene
this Section 10 so long as the data is disclosed to an index publisher that
publishes the data in aggregated form and does not identify the Parties.”

The
following shall be added as a new Section 10.12:

“10.12  With respect to any suit, action or
proceedings relating to this Agreement, each Party irrevocably submits to the
non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the borough of Manhattan in New York
City and waives any objection it may have at any time to the laying of venue of

 6
 

 

any such proceedings
brought in any such court, waives any claim that such proceedings have been
brought in any inconvenient forum and further waives the right to object, with
respect to such proceedings, that such court does not have any jurisdiction
over such Party.  EACH PARTY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION, CLAIM OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY CREDIT SUPPORT DOCUMENT.”

The following shall be added as a new Section 10.13:

“10.13  From the date of entering into a Transaction
under this Master Agreement and throughout the term of such Transaction, the
Parties each warrant and covenant as follows:

(a)     Absent the agreement of all Parties to the
proposed change, the standard of review for changes to any section of this
Master Agreement (including all Transactions and/or Confirmations) specifying
the rate(s) or other material economic terms and conditions agreed to by the
Parties herein, whether proposed by a Party, a non-party or FERC acting sua
sponte, shall be the “public interest” standard of review set forth in United
Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956) and Federal
Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956)( the “Mobile-Sierra”
doctrine).

(b)     The
Parties, for themselves and their successors and assigns, (i) agree that this “public
interest” standard shall apply to any proposed changes in any other documents,
instruments or other agreements executed or entered into by the Parties in connection
with this Master Agreement and (ii) hereby expressly and irrevocably waive any
rights they can or may have to the application of any other standard of review,
including the “just and reasonable” standard.”

The following shall be added as a new Section
10:14:

“10.14 
Credit Sleeve Provisions:

(a)     Consent to
Assignment.  Party B hereby
consents to the assignment by Party A to Merrill Lynch Commodities, Inc. and
Merrill Lynch & Co., Inc (together, the “Merrill Parties”) of all of Party A’s
rights under this Agreement, including all rights to receive payments from
Party B under this Agreement (any such payment, a “Receivable”),
as collateral security for Party A’s obligations to the Merrill Parties in
connection with an enhanced credit structure for Party A’s retail electric
business provided by the Merrill Parties (the “Collateral Assignment”).

(b)     Collateral Account.  Party A hereby unconditionally and
irrevocably authorizes and directs Party B to make, and, unless and until
otherwise required by law or this agreement is terminated, Party B hereby
agrees to make, any and all payments in respect of Receivables directly by wire
transfer to the account specified in this Cover Sheet (the “Collateral Account”).  All such payments by Party B to the
Collateral Account shall be free and clear of any deduction, set-off, netting
arrangements or counterclaim, except as expressly provided in this Agreement.

(c)     Notice & Right
to Cure Events of Default.  As set
forth above, the Merrill Parties shall be provided with all notices under this
Agreement, including notices of any Potential Event of Default or Event of
Default hereunder.  In the event of a
Potential Event of Default or Event of Default in which Party A is, or may
become, the Defaulting Party, the Merrill Parties shall be permitted, at their
option, to cure such default or termination event,
[(if such event of default or termination event is capable of being cured by
either Merrill Party [TO BE USED AS FALLBACK])] within any grace period
applicable to Party A for such
Potential Event of Default or Event of Default.”

Additional Provisions:

The
following provisions shall be added to Schedule P: Products and Related
Definitions:

“1.  Other Products and Service Levels.

If the Parties agree to a service level defined by a
different agreement (i.e., the WSPP agreement, the ERCOT agreement, etc.) for a
particular Transaction, then, unless the Parties expressly state and agree that
all the terms and conditions of such other agreement will apply, such reference
to a service level/product defined by such other 

 7
 

 

agreement means that the service level for that
Transaction is subject to the applicable regional reliability requirements and
guidelines as well as the excuses for performance, Force Majeure,
Uncontrollable Forces, or other such excuses applicable to performance under
such other agreement, to the extent inconsistent with the terms of this
Agreement, but all other terms and conditions of this Agreement remain
applicable including, without limitation, Section 2.2.

 2.   Index Transactions. If the
Contract Price for a Transaction is determined by reference to a third-party
information source, then the following provisions shall be applicable to such
Transaction.

(a)   Market Disruption. If a Market
Disruption Event occurs during a Determination Period, the Floating Price for
the affected Trading Day(s) shall be the fallback reference price specified by
the Parties if the Parties have specified such a fallback reference price.  If the Parties did not specify a fallback
reference price the Floating Price shall be determined by reference to the
Floating Price specified in the Transaction for the first Trading Day
thereafter on which no Market Disruption Event exists; provided, however, if
the Floating Price is not so determined within three (3) Business Days after
the first Trading Day on which the Market Disruption Event occurred or existed,
then the Parties shall negotiate in good faith to agree on a Floating Price (or
a method for determining a Floating Price), and if the Parties have not so
agreed on or before the twelfth Business Day following the first Trading Day on
which the Market Disruption Event occurred or existed, then the Floating Price
shall be determined in good faith by taking the average of two dealer quotes obtained
from dealers of the highest credit standing which satisfy all the criteria that
the Seller applies generally at the time in deciding to offer or to make an
extension of credit.

“Determination
Period” means each calendar month a part or all of which is within the
Delivery Period of a Transaction.

“Exchange”
means, in respect of a Transaction, the exchange or principal trading market
specified in the relevant Transaction.

“Floating
Price” means a Contract Price specified in a Transaction that is based upon
a Price Source.

“Market
Disruption Event” means, with respect to any Price Source,
any of the following events: (a) the failure of the Price Source to announce or
publish the specified Floating Price or information necessary for determining
the Floating price; (b) the failure of trading to commence or the permanent
discontinuation or material suspension of trading in the relevant options
contract or commodity on the Exchange or in the market specified for
determining a Floating Price; (c) the temporary or permanent discontinuance or
unavailability of the Price Source; (d) the temporary or permanent closing of
any Exchange specified for determining a Floating Price; or (e) a material
change in the formula for or the method of determining the Floating Price.

“Price
Source” means, in respect of a Transaction, the publication (or such other
origin of reference, including an Exchange) containing (or reporting) the
specified price (or prices from which the specified price is calculated)
specified in the relevant Transaction.

“Trading
Day” means a day in respect of which the relevant Price Source published
the Floating Price.

(b)   Corrections to Published Prices.  For purposes of determining a Floating Price
for any day, if the price published or announced on a given day and used or to
be used to determine a relevant price is subsequently corrected and the
correction is published or announced by the person responsible for that
publication or announcement within two (2) years of the original publication or
announcement, either Party may notify the other Party of (i) that correction
and (ii) the amount (if any) that is payable as a result of that
correction.  If, not later than thirty
(30) days after publication or announcement of that correction, a Party gives
notice that an amount is so payable, the Party that originally either received
or retained such amount will, not later than three (3) Business Days after the
effectiveness of that notice, pay, subject to any applicable conditions
precedent, to the other Party that amount, together with interest at the
Interest Rate for the period from and including the day on which payment
originally was (or was not) made to but excluding the day of payment of the
refund or payment resulting from that correction.

(c)   Calculation of Floating Price.  For the purposes of the calculation of a
Floating Price, all numbers shall be rounded to three (3) decimal places.  If the fourth (4th) decimal number is five (5) or greater,
then the third (3rd)
decimal number shall be increased by one (1), and if the fourth (4th) decimal number is less than five (5),
then the third (3rd)
decimal number shall remain unchanged.”

 8
 

 

IN WITNESS WHEREOF, the
Parties have caused this Master Agreement to be duly executed as of the date
first above written.

	
  RELIANT ENERGY POWER SUPPLY, LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
											

 

DISCLAIMER: 
This Master Power Purchase and Sale Agreement was prepared by a
committee of representatives of Edison Electric Institute (“EEI”) and National
Energy Marketers Association (“NEM”) member companies to facilitate orderly
trading in and development of wholesale power markets.  Neither EEI nor NEM nor any member company
nor any of their agents, representatives or attorneys shall be responsible for
its use, or any damages resulting therefrom. 
By providing this Agreement EEI and NEM do not offer legal advice and
all users are urged to consult their own legal counsel to ensure that their
commercial objectives will be achieved and their legal interests are adequately
protected.

 9

Exhibit C2

To Credit Sleeve and
Reimbursement Agreement

Form
of ISDA Power Purchase and Hedging Contract

DRAFT For discussion purposes only

ISDA®

International
Swaps and Derivatives Association, Inc.

SCHEDULE

to the

2002
Master Agreement

dated as of        
T.B.D.          

between

RELIANT ENERGY
POWER SUPPLY, LLC (“Party A”)

and

                                        
(“Party B”)

Part 1

TERMINATION
PROVISIONS

In this Agreement:

(a)           “Specified
Entity” means in relation to Party A for the purpose of:

Section 5(a)(v):                                     Not
Applicable

Section 5(a)(vi):                                    Not
Applicable

Section 5(a)(vii):                                   Not
Applicable

Section 5(b)(v):                                     Not Applicable

in relation to
Party B for the purpose of:

Section 5(a)(v):                                     Not
Applicable

Section 5(a)(vi):                                    Not
Applicable

Section 5(a)(vii):                                   Not
Applicable

Section 5(b)(v):                                     Not Applicable

(b)                                 The
“Default Under Specified Transaction”
provision of Section 5(a)(v) of this Agreement and the definition of “Specified Transaction” of this
Agreement will apply only to each of Party A, Party B, and Party B’s Credit
Support Provider but will not apply to Party A’s Credit Support Provider.

(c)                                  The
“Cross Default”
provisions of Section 5(a)(vi) of this Agreement will apply to both Party A and
Party B provided, however, that Section 5(a)(vi)(1) shall be amended as
follows:

The words “or other similar condition or event
(however described)” in the first line of the provision are deleted and the
comma in the second line is replaced with “or”.

 1
 

 

“Threshold Amount”
means (i) with respect to Party A, $100,000,000 (or its equivalent in
another currency) and (ii) with respect to Party B, $          
(or its equivalent in another currency).

(d)                                 The
“Automatic Early Termination”
provision of Section 6(a) of this Agreement will not apply.

(e)           “Termination
Currency” means United States Dollars.

(f)                                    “Additional Termination Event(s)”
will not apply.

Part 2

TAX REPRESENTATIONS

(a)                                  Payer Tax Representation.  For the purpose of Section 3(e) of this
Agreement, each of Party A and Party B will make the following representation:

It is not required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of any Tax
from any payment (other than interest under Section 9(h) of this Agreement) to
be made by it to the other party under this Agreement.  In making this representation, it may rely on
(i) the accuracy of any representations made by the other party pursuant to
Section 3(f) of this Agreement, (ii) the satisfaction of the agreement
contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy
and effectiveness of any document provided by the other party pursuant to
Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the
agreement of the other party contained in Section 4(d) of this Agreement;
provided that it shall not be a breach of this representation where reliance is
placed on clause (ii) herein and the other party does not deliver a form or
document under Section 4(a)(iii) by reason of material prejudice to its legal
or commercial position.

(b)                                 Payee Tax Representations.  For
the purpose of Section 3(f) of this Agreement, Party A and Party B make the
representation(s) specified below, if any:

Party A: Party A is a limited
liability company organized under the laws of the State of Delaware and is a
resident of the United States of America for U.S. tax purposes.  Party A’s Federal Tax I.D. number is
20-4823108.

Party B: Party B is a
[corporation] organized under the laws of the State of         
and is a resident of the United States of America for U.S. tax purposes.  Party B’s Federal Tax I.D. number is           .

Part 3

AGREEMENT TO DELIVER DOCUMENTS

For the purpose of Sections 4(a)(i) and (ii) of this
Agreement, each party agrees to deliver the following documents, as applicable:

 2
 

 

 

	
  Party
  Required to 

  Deliver Document

  	
   

  	
  Form/

  Document/

  Certificate

  	
   

  	
  Date By Which

  To Be

  Delivered

  	
   

  	
  Covered By

  Section 3(d)

  Representation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each party and
  its Credit Support Provider, as applicable.

  	
   

  	
  Copies of documents evidencing necessary corporate
  or equivalent authorizations and approvals regarding execution, delivery and
  performance of this Agreement and any Credit Support Document.

  	
   

  	
  Upon request.

  	
   

  	
  Yes.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each party and
  its Credit Support Provider, as applicable.

  	
   

  	
  Certificate of Authority and specimen signatures of
  individuals executing this Agreement and any Credit Support Document.

  	
   

  	
  Upon request.

  	
   

  	
  Yes.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each party.

  	
   

  	
  Specimen signatures or other confirming evidence of
  individuals authorized to execute Confirmations.

  	
   

  	
  Upon request.

  	
   

  	
  Yes.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each party and
  its Credit Support Provider, as applicable.

  	
   

  	
  A duly executed original of the Credit Support
  Annex, and, if specified in Part 4 below, a guarantee in the form specified
  below, executed by such party’s Credit Support Provider specified below.

  	
   

  	
  Upon execution.

  	
   

  	
  Yes.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each party and
  its Credit Support Provider, as applicable.

  	
   

  	
  Audited annual financial statements of such party’s
  Credit Support Provider, or, if no Credit Support Provider, such party for
  each fiscal year prepared in accordance with generally accepted accounting
  principles in the country in which such entity is organized and on a basis
  consistent with that of the audited annual financial statements of such
  entity for its prior fiscal year.

  	
   

  	
  As soon as practicable after demand but no earlier
  than 120 days after the end of each fiscal year of a party’s Credit Support
  Provider if such financial statement is not available on “EDGAR” or its home
  page on the World Wide Web at http://www.ml.com/, with respect to Party A and
  [Insert Counterparty’s Web Address], with respect to Party B.

  	
   

  	
  Yes.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each party and
  its Credit Support Provider, as applicable.

  	
   

  	
  Unaudited financial statements of such party’s Credit
  Support Provider, or, if no Credit Support Provider, such party for each
  quarter prepared in accordance with generally accepted accounting principles
  in the country in which such entity is organized and on a basis consistent
  with that of the annual financial statements of such entity.

  	
   

  	
  As soon as practicable after demand if such
  financial statement is not available on “EDGAR” or its home page on the World
  Wide Web at http://www.ml.com/, with respect to Party A and [Insert
  Counterparty’s Web Address], with respect to Party B.

  	
   

  	
  Yes.

  

 

 3
 

 

Part 4

MISCELLANEOUS

(a)           Address for Notices. 
For the purpose of Section 12(a) of this Agreement:

Address for
notices or communications to Party A:

	
  Street Address:

  	
   

  	
  1000 Main, Houston, TX 77002

  
	
  Mailing Address:

  	
   

  	
  P.O. Box 4455, Houston, TX 77210-4455

  
	
  Attention:

  	
   

  	
  Contract Administration

  
	
  Facsimile No.:

  	
   

  	
  (713) 497-9561

  
	
  Telephone No.:

  	
   

  	
  (713) 497-4138

  
	
  Confirmations:

  	
   

  	
  (713) 497-9562
  (Facsimile)

  

 

With a copy to:

Merrill
Lynch Commodities, Inc.

20
East Greenway Plaza

7th
Floor

Houston,
Texas 77253-3327

Attn:       Legal

Fax:                           713-544-5551

Phone:    713-544-4975

With additional notices of an Event of Default or Potential Event of
Default to:

	
  Street Address:

  	
   

  	
  1000 Main, Houston, TX 77002

  
	
  Attention:

  	
   

  	
  Vice President and General Counsel

  
	
  Facsimile No.:

  	
   

  	
  (713) 497 - 5361

  
	
  Telephone No.:

  	
   

  	
  (713) 537 - 7063

  

 

Address for
notices or communications to Party B:

Address:

Attention:

Facsimile No.:           

Telephone No.:

Confirmations:                                                                                                  (Facsimile)

(b)                                 Process Agent.  For the purpose of Section 13(c) of this
Agreement:

Party A appoints as its
Process Agent: CT Corporation Systems, 111 Eighth Avenue, New York, New York
10011.

Party B appoints as its Process Agent:                                            

(c)                                  Offices.  The provisions of Section 10(a) of this
Agreement will apply to this Agreement.

(d)                                 Multibranch Party.  For the purpose of Section 10(b) neither
Party A nor Party B is a Multibranch Party.

(e)                                  Calculation Agent.  The Calculation Agent is Party A unless
otherwise specified in a Confirmation in relation to the relevant
Transaction.  If Party A is the
Defaulting Party, the Calculation Agent shall be Party B until such time as
Party A is no longer a Defaulting Party. 
All determinations by the Calculation Agent are subject to agreement by
Party A and Party B.  If the Parties are
unable to agree on a calculation made by a 

 4
 

 

particular Calculation
Agent, then the parties shall appoint another mutually acceptable Calculation
Agent that is a recognized dealer in the relevant market.  Each party agrees to submit invoices on a
monthly basis for amounts due from the other party.

(f)            Credit Support Document.

(i)            With
respect to Party A and Party B, the Credit Support Annex attached hereto, which
constitutes a Credit Support Document is incorporated by reference in, and made
part of this Agreement  (unless provided
otherwise in a Confirmation) as set forth in full in this Agreement.

(ii)           With
respect to Party A, a Guaranty executed by Party A’s Credit Support

Provider in the
form of Exhibit A.

(iii)          With
respect to Party B, a Guaranty executed by Party B’s Credit Support

Provider in form
and substance reasonably satisfactory to Party A.

(g)                                 Credit Support Provider.

Credit Support
Provider means in relation to Party A: Merrill Lynch & Co., Inc.

Credit Support
Provider means in relation to Party B:                               

(h)                                 Governing Law.  This Agreement will be governed by and
construed in accordance with the laws of the State of New York (without
reference to choice of law doctrine), as provided in Section 5-1401 of the New
York General Obligations Law.

(i)                                     Jurisdiction.  Section 13(b) of this Agreement is hereby
deleted in its entirety and replaced with the following:

“(b)         Jurisdiction. 
With respect to any suit, action or proceedings relating to this
Agreement (“Proceedings”), each party irrevocably:

submits to the
non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the borough of Manhattan in New York
City in accordance with the provisions of Section 5-1402 of the New York
General Obligations Law.”

(j)                                     Waiver of Jury Trial.  Section 13 of this Agreement is hereby
amended to add the following as a new Section 13(e) of this Agreement:

“(e)         WAIVER OF JURY TRIAL.  EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY SUIT, ACTION, CLAIM OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY CREDIT SUPPORT DOCUMENT AND CLAIM OR RECOVER IN ANY SUCH SUIT, ACTION,
CLAIM OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
EACH PARTY (i) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER
PARTY OR ANY CREDIT SUPPORT PROVIDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH A SUIT, ACTION, CLAIM OR
PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT
AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND PROVIDE
FOR ANY CREDIT SUPPORT DOCUMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.”

 5
 

 

(k)                                  Netting of Payments.  Subparagraph (ii) of Section 2(c) of this
Agreement will not apply and therefore, the Multiple Transaction Payment
Netting specified in Section 2(c) of this Agreement will apply to all
Transactions[, except Power Transactions and Gas Transactions.   Power Transactions and Gas Transactions
shall be netted together in accordance with Parts 7 and 8 of the Schedule.] REVISE ACCORDINGLY, IF USING THE GAS AND/OR POWER
ANNEX

(l)                                     
“Affiliate” with
respect to Party A, will mean Reliant Energy Retail Holdings, LLC, and any
subsidiary thereof, including Reliant Energy Retail Services, LLC, and Reliant
Energy Retail Receivables, LLC, and with respect to Party B, will have the
meaning specified in Section 14 of this Agreement.

(m)                               No Agency.  The provisions of Section 3(g) will apply to
this Agreement.

Part 5

OTHER PROVISIONS

(a)                                  Absence of Litigation.  Section 3(c) of this Agreement is hereby
amended by: (i) adding in the third line thereof after the word, “governmental”
the words “or regulatory”; (ii) adding the words “in any material respect
except as disclosed in each parties’ or its Credit Support Provider’s, as
applicable, SEC filing” immediately prior to the end thereof; and (iii)
deleting “, to its knowledge,” after “or” in the first line and reinserting
such phrase before “pending” in the first line of such section.

(b)                                 Accuracy of Specified
Information.  Section 3(d)
of this Agreement is hereby deleted in its entirety and replaced with the
following:

“All information that is
furnished in writing by or on behalf of it to any of the other parties hereto
is, as of the date of the information, true accurate and complete in every
material respect, or, in the case of audited or unaudited financial statements,
fairly present the financial condition of the relevant entity and have be
prepared in accordance with generally accepted accounting principles,
consistently applied, except as otherwise indicated in the notes of such
financial statements.”

(c)                                  Additional Representations.  Section 3 of this Agreement is hereby
further amended by adding at the end thereof the following subsections (h),
(i), (j), and (k):

“(h)                           Eligible Contract Participant.  It constitutes an “Eligible Commercial
Entity” and an “Eligible Contract Participant” as such terms are defined in
Sections 1a(11) and 1a(12) (respectively) of the Commodity Exchange Act, as
amended (7 U.S.C. §§ 1a (11), 1a (12) (2000).

(i)                                     Standardization,
Creditworthiness, and Transferability.  The economic terms of this Agreement, any
Credit Support Document to which it is a party and each Transaction have been
individually tailored and negotiated by it. 
It has received and reviewed financial information concerning the other
party and has had a reasonable opportunity to ask questions of and receive
answers and information from the other party concerning such other party, this
Agreement, such Credit Support Document, and such Transaction, and the
creditworthiness of the other party was a material consideration in its
entering into or determining the terms of this Agreement, such Credit Support
Document, and such Transaction.  The
transferability of this Agreement, such Credit Support Document, and such
Transaction is restricted as provided herein and therein.

 6
 

 

(j)                                     Line of Business.  Each party has entered into this Agreement
(including each Transaction hereunder) in conjunction with its line of business
(including financial intermediation services) or the financing of its business.

(k)                                  No Reliance.  In connection with the negotiation of,
the entering into, and the confirming of the execution of, this Agreement, any
Credit Support Document to which it is a party, and each Transaction: (i) it is
not relying upon any advice, statements, recommendations or representations
(whether written or oral) of the other party other than the written
representations expressly set forth in this Agreement, in such Credit Support
Document or in the Confirmation of such Transaction; (ii) the other party has
not given to it (directly or indirectly through any other person) any advice,
counsel, assurance, guarantee, or representation whatsoever as to the expected
or projected success, profitability, return, performance, result, effect,
consequence, or benefit (either legal, regulatory, tax, financial, accounting,
or otherwise) of this Agreement, such Credit Support Document, or such
Transaction; (iii) it has consulted with its own legal, regulatory, tax,
business, investment, financial, and accounting advisors to the extent it has
deemed necessary, and it has made its own investment, hedging, and trading
decisions based upon its own judgment and upon any advice from such advisors as
it has deemed necessary, and not upon any view expressed by the other party;
(iv) all trading decisions have been the result of arm’s length negotiations
between the parties and are not intended to preclude either Party (or any of
such party’s Affiliates) from undertaking proprietary trading activities,
including hedging and other transactions relating, directly or indirectly, to
generation capacity owned or controlled by such party or its Affiliates; (v) it
is entering into this Agreement, such Credit Support Document, and such
Transaction with a full understanding of all of the risks hereof and thereof
(economic and otherwise) and it is capable of assuming and willing to assume
(financially and otherwise) those risks and (vi) it has the capacity to
evaluate (internally or through independent professional advice) this
Agreement, any such Credit Support Document and each such Transaction
(including decisions regarding the appropriateness or suitability thereof) and
has made its own decision to enter into this Agreement, such Credit Support Document
and each such Transaction.”

(d)                               Provisions Relating to Bankruptcy Code.

(A)                                Each Party acknowledges and agrees that (i) Power Transaction(s) and
Gas Transaction(s) constitute “forward contracts” within the meaning of title
11 of the United States Code (the “Bankruptcy
Code”); (ii) each of Party A and Party B is a “forward contract
merchant” within the meaning of the Bankruptcy Code with respect to any
Transactions that constitute “forward contracts”; (iii) all payments made or to
be made by one Party to the other Party pursuant to this Agreement constitute “settlement
payments” within the meaning of the Bankruptcy Code; (iv) all transfers of
Credit Support by one Party to the other Party under this Agreement constitute “margin
payments” within the meaning of the Bankruptcy Code; and (v) each Party’s
rights under Section 6, “Early Termination”, of this Agreement constitutes a “contractual
right to liquidate” the Transactions within the meaning of the Bankruptcy Code.

(B)                                  To secure its obligations under this Agreement, each Party hereby
grants the other Party a present and continuing security interest in, lien on,
and right to setoff against, its respective payment obligations to the other
Party under this Agreement.  Each Party
acknowledges and agrees that 

 7
 

 

the pledge of its payment
obligations to the other Party under this Agreement shall serve to “margin,” “guaranty”
or “secure” such obligations within the meaning of the Bankruptcy Code.

(C)                                  Each Party acknowledges and agrees that, for purposes of this
Agreement, the other Party is not a “utility” as such term is used in Section
366 of the Bankruptcy Code, and each Party agrees to waive and not to assert
the applicability of the provisions of Section 366 in any bankruptcy proceeding
wherein such Party is a debtor. In any such proceeding, each Party further
agrees to waive the right to assert that the other Party is a provider of last
resort.

(e)                                  
Accounts.  Payments shall be made in United States
Dollars to the following accounts:

Party A

Pay:                                                                         [INSERT
COLLATERAL ACCOUNT INFO]

Bank:

Fed. ABA No.:

Account No/CHIPS
UID:

Party B

	
  Pay:

  	
   

  	
   

  
	
  Bank:

  	
   

  	
   

  
	
  Fed. ABA No.:

  	
   

  	
   

  
	
  Account No/

  	
   

  	
   

  
	
  CHIPS UID:

  	
   

  	
   

  
	
   

  	
   

  	
   

  

(f)                                    Confirmations.  Section 9(e)(ii) is hereby amended by deleting
in its entirety and replacing with the following:

“(ii) The parties intend
that they are legally bound by the terms of each Transaction from the moment
they agree to those terms (whether orally or otherwise).   Party A shall send to Party B within three
(3) Local Business Days after the Transaction is entered into a Confirmation
setting forth the terms of such Transaction. 
Party B shall execute and return the Confirmation to Party A or request
correction in writing of any error within two (2) Local Business Days of
receipt.  Failure of Party B to respond
within such period shall not affect the validity or enforceability of such
Transaction and shall be deemed to be an affirmation of such terms sent.  If Party A fails to send a Confirmation
within three (3) Local Business Days after the Transaction is entered into, a
Confirmation may be forwarded by Party B to Party A.  If Party A objects to any term(s) of such
Confirmation, Party A shall notify Party B in writing of such objections within
two (2) Local Business Days of Party A’s receipt thereof, failing which Party A
shall be deemed to be an affirmation of such terms sent.  If Party A and Party B each send a
Confirmation and neither party objects to the other party’s Confirmation within
two (2) Local Business Days of receipt, Party A’s Confirmation shall be deemed
to be accepted and shall be the controlling Confirmation, unless (i) Party A’s
Confirmation was sent more than three (3) Local Business Days after the
Transaction was entered into and (ii) Party B’s Confirmation was sent prior to
Party A’s Confirmation, in which case Party B’s Confirmation shall be deemed to
be accepted and shall be the controlling Confirmation.  Failure by either party to send or either
party to return an executed Confirmation or any objection by either party shall
not invalidate the Transaction agreed to by the parties.” However, notwithstanding the prior paragraph,
in the event that any Confirmation for any Transaction contains  provisions not relating to the commercial
terms of the

 8
 

 

Transaction,
which modify or supplement the general terms and conditions of this Agreement,
such provisions shall not be deemed accepted unless agreed to in writing by the
parties. Failure to send or to return an executed Confirmation or any objection
regarding a Confirmation by either party shall not invalidate the Transaction
agreed to by the parties.”

(g)                                 Tax Event.  For purposes of this Agreement, Section
5(b)(iii) is hereby amended to delete the words, “or there is a substantial
likelihood that it will”, as they appear after the word “will” and before the
word “on” in the fourth line thereof.

(h)                                 Severability.  Any provision of this Agreement
(including any Transaction hereunder or any Credit Support Document) which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, such Transaction or
such Credit Support Document or affecting the validity or enforceability of
such provision in any other jurisdiction unless such severance shall
substantially impair the benefits of the remaining portions of this Agreement,
such Transaction or such Credit Support Document or changes the reciprocal obligations
of the parties. The parties hereto shall endeavor in good faith negotiations to
replace the prohibited or unenforceable provision with a valid provision, the
economic effect of which comes as close as possible to that of the prohibited
or unenforceable provision.

(i)                                     Telephone Recording.  Each party to this Agreement acknowledges
and agrees to the taping or electronic recording (“Recording”) of conversations
between the parties regarding any Transaction and the terms thereof to this
Agreement whether by one or the other or both parties, and that any such
Recordings will be retained in confidence, secured from improper access, and
may be submitted as evidence in any suit, action or proceedings relating to
this Agreement or any actual or potential Transaction hereunder.  In the event of any dispute between the
parties relating to an actual or potential Transaction, the parties may use
Recordings and any other “sufficient evidence” (as such term is defined in
Section 5-701(b)(3) of the New York General Obligations Law) that a contract
has been made between the parties as prima facie
evidence of the terms and conditions of such Transaction until such time (if
any) as a written Confirmation has been executed.  Each party waives any further notice of such
monitoring or Recording, and agrees to notify its personnel of such monitoring
or recording and to obtain any necessary consent of such personnel.

(j)                                     Confidentiality.  Unless otherwise agreed, the contents of this Agreement,  the Confirmations, and all Transactions,
hereunder,  as well as all other
documents relating thereto and any information pertaining thereto made
available by either party or its Credit Support Provider(s) to the other party
or its Credit Support Provider(s) is confidential and shall not be disclosed to
any third party (other than the Credit Support Providers), except for such
information (a) as is or may become generally available to the public, (b) as
may be required in response to any regulatory authority or any lawful summons,
subpoena, or otherwise in connection with any litigation or to comply with any
applicable law, order, regulation, ruling, or accounting disclosure rule or
standard, (c) as may be obtained from a non-confidential source that disclosed
such information in a manner that did not, to such party’s knowledge, violate
its obligations to the non-disclosing party or its Credit Support Provider(s)
in making such disclosure, (d) as may be furnished to the disclosing party’s
Affiliates, and to each of such Person’s auditors, attorneys, advisors, lenders
and their counsel and advisors, or prospective purchasers which are required to
keep the information that is disclosed in confidence or that is disclosed in
connection with communications between the parties under the terms of Section
7, (e) regarding price, volume or delivery point(s) of a particular
Transaction(s),  as may be disclosed to
an energy pricing information aggregator, provided that the name or any other
identifying information relating to the other party, including unique
attributes or requirements thereof, is redacted and/or otherwise not disclosed,
or (f) as may have been disclosed prior to the effective date of this
Agreement.

 9
 

 

(k)                                  Transfer.  Section 7 shall be amended by adding “which
consent shall not be unreasonably withheld or delayed” between “of the Party”
and “,except that” in the first sentence of such Section.

(l)                                     Netting.  In the event that any Terminated
Transaction cannot be aggregated and netted against all other Terminated
Transactions under Section 6(e) of the Agreement, such excluded Terminated
Transactions shall be aggregated and netted amongst themselves to the fullest
extent permitted by law.

(m)                               Limitation of
Liability.  UNLESS EXPRESSLY HEREIN PROVIDED, NO
PARTY SHALL BE LIABLE UNDER THIS AGREEMENT FOR CONSEQUENTIAL, INCIDENTAL,
PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, INCLUDING CONSEQUENTIAL LOST PROFITS
OR OTHER CONSEQUENTIAL BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR
CONTRACT OR OTHERWISE.  IT IS THE INTENT
OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE
OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING
THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID
HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE
DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY
IS INCONVENIENT, AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION
OF THE HARM OR LOSS.

(n)           Method of Notice. Section 12(a)(ii) of the Agreement is
deleted in its entirety.

Part 6

ADDITIONAL
PROVISIONS FOR

COMMODITY
DERIVATIVE TRANSACTIONS

(a)           Amendments to ISDA
Commodity Definitions

Definitions.  This Agreement and each
Transaction are subject to the 2005 ISDA Commodity Definitions (the “2005
Definitions”), (collectively, the “Definitions”), each as published by the
International Swaps and Derivatives Association, Inc. (“ISDA”), and will be
governed in all respects by the Definitions. 
The Definitions are incorporated herein by reference in and made a part
of, this Agreement as if set forth in full herein.  In the event of any inconsistency between the
provisions of this Master Agreement (including the Schedule) and the
Definitions, this Master Agreement (including the Schedule) will prevail.  In the event of any inconsistency between the
provisions of a Confirmation and this Master Agreement (including the Schedule)
or the Definitions, the Confirmation will prevail for the purpose of such
Transaction.

(b)                                 The “Market Disruption Events” specified in Section 7.4(d)(i) of the
Commodity Definitions shall apply, except as otherwise specifically provided in
a Confirmation.

(c)                                  “Additional Market Disruption
Events”  shall apply only if so specified in the relevant
Confirmation.

 10
 

 

[(d)                             The
following “Disruption Fallback” specified in Section 7.5 of the 2005 ISDA
Commodity Definitions shall be deleted and replaced with the following, except
as otherwise specified in the relevant Confirmation, with respect to Gas
Transactions only:

“Postponement”
means that if there is no single price published for such
location for such day, but there is published a range of prices, then the price
shall be the average of such high and low prices.  If no price or range of prices is published
for such day, then the price shall be the average of the following: (i) the
price for the first day for which a price or range of prices is published that
next precedes the relevant day; and (ii) the price for the first day for which
a price or range of prices is published that next follows the relevant day.”] [DELETE IF NOT USING THE GAS ANNEX]

Part 7

Physically Settled Power Transactions

Pursuant to
ARTICLE XIV of the 2005 ISDA Commodity Definitions, Sub-Annex F (“Power Annex”)
is incorporated into, the Agreement as a new Part 7 to the Agreement; provided,
however, that the following elections set forth in “(j) Elective Provisions”
and “(k) Other Provisions” below shall be applicable to such Part 7.  All references to “Part[6]” in Sub-Annex F shall be replaced with “Part
7.”

(j)            Elective Provisions

1.                                       (a)(i)      
Applicability of Part 7 to Outstanding Power Transactions.  If not checked, not applicable. [IF REPS TRANSACTIONS GOING UNDER THIS CONTRACT CHECK BOX AND ADD THE
FOLLOWING LANGUAGE: “For the avoidance of doubt, this Agreement
shall govern all Outstanding Power Transactions entered into under the Master
Power Purchase and Sale Agreement dated [insert date] in accordance with Part
7(a)(ii).”  ALSO, DELETE “IF NOT CHECKED,
NOT APPLICABLE” LANGUAGE ABOVE IF BOX CHECKED.]

2.                                       (a)(ii) o
Applicability of Outstanding Credit Support held by a party in connection with
Outstanding Power Transactions.  If not
checked, not applicable.

3.                                       (c) x 
Accelerated Payment Damages.  If
not checked, not applicable.

4.                                       (d)(ii): 
Timeliness of Payment

o Option A

o Option B[CHECK THIS BOX IF NOT USING GAS
ANNEX]

x  See Gas Annex[DELETE THIS BOX IF NOT USING
GAS ANNEX]

If neither is checked, Option B shall be deemed to
apply.

5.                                       (h)(i):  
Wholesale Power Tariffs

x  Party A Electric Tariff.  [TO BE
SUPPLIED]

o Party B Electric Tariff.  [Tariff/Date/Docket]  

If not checked, not applicable.

6.             (h)(ii) x Applicability of Severability
provision.  If not checked, not
applicable.

7.                                       (h)(iii)
x
Applicability of FERC Standard of Review and Certain Covenants and
Waivers.  If not checked, not applicable.

(k)                                  Other Provisions. Notwithstanding
anything in the Agreement to the contrary, including the Power Annex hereby
incorporated as Part 7 to the Agreement and the Schedule to the 

 11
 

 

Master
Agreement, the following provisions shall be deemed to amend and/or supplement
the provisions of the ISDA Power Annex set forth as a new Part 7 to the
Agreement:

(i)                                     Part 7(b)(iii) Force
Majeure is amended by deleting the last sentence of that
provision and replacing it with the following:

“If the pre-printed form portion of this Agreement is
the 2002 ISDA Master Agreement form, Section 5(b)(ii) of this Agreement and the
concept of “Force Majeure Event” as used elsewhere in this Agreement shall not
apply to any Power Transaction.”

(ii)                                  Part 7(c)(iii) Limitation
on Condition Precedent is amended by deleting the section in
inverted commas and replacing it with the following:

“(provided, however, that in relation to any
Transaction that is a Power Transaction, the Non-Defaulting Party may suspend
performance of any or all Power Transactions only after providing written
notice to the Defaulting Party and provided further that if an Event of Default
or a Potential Event of Default has occurred and is continuing for longer than
ten (10) NERC Business Days without an Early Termination Date being designated,
then the condition specified in this clause (1) shall cease to be a condition
precedent to the obligations under Section 2(a)(i)).”

(iii)                               Part 7(c)(iv) Suspension
of Performance shall be added as a new section as follows:

“(iv) Suspension of Performance.  Notwithstanding, and in addition to the
remedies provided pursuant to Part 7(c)(i) and 7(c)(ii), if Seller or Buyer
fails to schedule and/or deliver/receive all or part of the Product pursuant to
a Transaction, and such failure is not excused under the terms of the Product
or by the other party’s failure to perform, then upon one (1) Local Business
Day prior notice, and for so long as the non-performing party fails to perform,
the performing party shall have the right to suspend its performance under any
or all Transactions.”

(iv)                              Part 7(d)(v) Disputes
and Adjustments of Invoices shall be added as a new
section as follows:

“(v) Disputes and Adjustments of
Invoices.  With
respect to any Power Transaction, a party may, in good faith, dispute the correctness of
any invoice or any adjustment to an invoice, rendered under this Agreement or
adjust any invoice for any arithmetic or computational error within twelve (12)
months of the date the invoice, or adjustment to an invoice, was rendered.  In the event an invoice or portion thereof,
or any other claim or adjustment arising hereunder, is disputed, payment of the
undisputed portion of the invoice shall be required to be made when due, with
notice of the objection given to the other party.  Any invoice dispute or invoice adjustment
shall be in writing and shall state the basis for the dispute or
adjustment.  Payment of the disputed
amount shall not be required until the dispute is resolved.  Upon resolution of the dispute, any required
payment shall be made within two (2) Business Days of such resolution along
with interest accrued at the Interest Rate from and including the due date to
but excluding the date paid.  Inadvertent
overpayments shall be returned upon request or deducted by the party receiving
such overpayment from subsequent payments, with interest accrued at the
Interest Rate from and including the date of such overpayment to but excluding
the date repaid or deducted by the party receiving such overpayment.  Any dispute with respect to an invoice is
waived unless the other party is notified in accordance with this section within
twelve (12) months after the invoice is rendered or any specific adjustment to
the invoice is made.  If an invoice is
not rendered within twelve (12) months after the close of the month during
which performance of a Transaction occurred, the right to 

 12
 

 

payment for such performance is waived.”

(iv)                              Part 7(h)(ii) Severability is amended by deleting the
first sentence of that provision and replacing it with the following:

“If elected under
clause (j) as being applicable with respect to Power Transactions only, if
performance of this Agreement is declared or rendered unlawful by any
applicable court or law or regulatory agency or deemed unlawful because of a
statutory change (individually or collectively, such events being referred to
herein as a “Regulatory Event”), such Regulatory Event will not otherwise
affect the remaining lawful obligations that arise under this Agreement.”

(v)           Part 7(i)(ii)(B) shall be deleted and
replaced with the following:

“(B) With respect to all
Power Transactions, the words “(or to deliver or receive the Product, the exclusive
remedy for which is provided in clause (c) of Part 7 of the Schedule)” are
hereby added at the end of the parenthetical of Section 5(a)(ii)(1) of this
Agreement.”

(vi)                              Part 7(i)(iv) Definitions is
amended by adding the following definitions:

 “Claims” means
all third party claims or actions, threatened or filed and, whether groundless,
false, fraudulent or otherwise, that directly or indirectly relate to the
subject matter of an indemnity, and the resulting losses, damages, expenses,
attorney’s fees and court costs whether incurred by settlement or otherwise,
and whether such claims or actions are threatened or filed prior to or after
the termination of this Agreement.

  “WSPP
Agreement” means the Western Systems Power Pool Agreement as amended from time
to time.

(vii)                           Part 7(i) Certain Modifications to this Agreement is
amended by inserting the following as new subparagraphs:

 (v)          Tax Event: 
Section 5(b)(iii).  With respect to any Power Transaction,
Section 5(b)(iii) is hereby deleted, and the concept of “Tax Event” as used
elsewhere in this Agreement shall not apply to any Power Transactions.

(vi)          Miscellaneous:  Section 9.  Section 9 of this Agreement is hereby amended
by adding the following as a new subsection:

“ (i)         Other
Products and Service Levels.

If
the Parties agree to a service level defined by a different agreement (i.e.,
the WSPP agreement, the ERCOT agreement, etc.) for a particular Transaction,
then, unless the Parties expressly state and agree that all the terms and
conditions of such other agreement will apply, such reference to a service
level/product defined by such other agreement means that the service level for
that Transaction is subject to the applicable regional reliability requirements
and guidelines as well as the excuses for performance, Force Majeure,
Uncontrollable Forces, or other such excuses applicable to performance under
such other agreement, to the extent inconsistent with the terms of this
Agreement, but all other terms and conditions of this Agreement remain applicable.”

[Delete if not using Gas Annex]Part 8

Physically Settled Natural Gas Transactions

Pursuant to ARTICLE XIII of the 2005 ISDA Commodity Definitions,
Sub-Annex E (“Gas 

 13
 

 

Annex”) is hereby deemed to be part of, and incorporated into, the
Agreement as a new Part 8 to the Agreement; provided, however, that the
following elections set forth in “(l) Elective Provisions” “(m) Notices for Gas
Transactions” and “(n) “Other Provisions/Modifications to this Gas Annex”.  All references to “Part [6]” in Sub-Annex E
shall be replaced with “Part 8”.

(l)            Elective Provisions

1. (a)(ii) - Outstanding Gas Transactions. This Gas Annex shall apply to the
following pre-existing Gas Transactions pursuant to clause (a)(ii):

o  Option
A: All Gas Transactions outstanding between the parties as of the date this Gas
Annex becomes effective.

o  Option B: The Gas Transactions listed in
Schedule 1 to this Gas Annex.

o Option C: None of the Gas Transactions
between the parties that were executed prior to the date this Gas Annex becomes
effective.

x Option D: Not applicable.

If none of the above options
is selected, Option A shall apply.

2. (a)(iii)
– Outstanding Gas Credit Support

o Outstanding Gas Credit Support held by a
party in connection with Outstanding Gas Transactions shall be deemed to have
been delivered under and in connection with this Agreement pursuant to clause
(a)(iii).

If not checked, not applicable.

3. (b)(ii) –
Performance Obligation (remedy
for breach of Firm obligation)

x Option
A: Cover Standard

o  Option B: Spot Price Standard

If neither option is
selected, Option A shall apply.

4. (e) –
Taxes

x  Option A: Buyer Pays At and After Delivery
Point

o  Option B: Seller Pays Before and At Deliver
Point

If neither option is
selected, Option A shall apply.

5. (f)(ii) –
Payment Date

o Option A: the later of the 25th Day of Month
following Month of delivery or 10 Days after receipt of the invoice by Buyer
(provided that if the Payment Date is not a Local Business Day, payment is due
on the next Local Business Day following that date).

o Option B: the later of the         
Day of Month following Month of delivery or 10 Days after receipt of the
invoice by Buyer (provided that if the Payment Date is not a Local Business
Day, payment is due on the next Local Business Day following that date).

o Option C: Notwithstanding anything to the
contrary in the Schedule, payments with respect to both Gas Transactions and
Power Transactions (as defined separately in the Schedule) will be netted and
payable on or before the later of the 20th Day of Month 

 14
 

 

following Month of delivery or 10 Days after receipt
of the invoice by Buyer (provided that if the Payment Date is not a Local
Business Day, payment is due on the next Local Business Day following that
date).

x Option D: Notwithstanding anything to the
contrary in the Schedule, payments with respect to both Gas Transactions and
Power Transactions (as defined separately in the Schedule) will be netted and
payable on or before the later of the 25th Day of Month following Month of
delivery or 10 Days after receipt of the invoice by Buyer (provided that if the
Payment Date is not a Local Business Day, payment is due on the next Local
Business Day following that date).

If none of the above options
is selected, Option A shall apply.

6. (k)(xxii) – Alternative to Spot
Price Index. The
parties have selected the following alternative index as the Spot Price Index:                          .
If no index is specified, the Spot Price Index specified in clause (l)(xxi)
applies.

(m)          Notices for Gas Transactions

	
  PARTY A

  	
   

  	
  PARTY B

  
	
  Invoices:

  	
   

  	
  Invoices:

  
	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  	
   

  	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  
	
  Attn: Gas Accounting

  	
   

  	
  Attn:

  
	
  Phone: 713-497-4143

  	
   

  	
  Phone:

  
	
  Facsimile: 713-497-9663

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
   

  
	
  Nominations:

  	
   

  	
  Nominations:

  
	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  	
   

  	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  
	
  Attn:

  	
   

  	
  Attn:

  
	
  Phone:

  	
   

  	
  Phone:

  
	
  Facsimile:

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
   

  
	
  Confirmations:

  	
   

  	
  Confirmations:

  
	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  	
   

  	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  
	
  Attn: Contract Administration

  	
   

  	
  Attn:

  
	
  Phone: 713-497-3639

  	
   

  	
  Phone:

  
	
  Facsimile: 713-497-9562

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
   

  
	
  Option Exercise:

  	
   

  	
  Option Exercise:

  
	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  	
   

  	
  As set forth in Part 4 of the Schedule unless
  otherwise set forth below:

  
	
  Attn:

  	
   

  	
  Attn:

  
	
  Phone:

  	
   

  	
  Phone:

  
	
  Facsimile:

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
   

  
	
  oWire Transfer - or - oACH
  (check one box):

  	
   

  	
  oWire Transfer - or - oACH
  (check one box):

  
	
  Bank:

  	
   

  	
   

  	
   

  	
  Bank:

  	
   

  	
   

  
	
  ABA:

  	
   

  	
   

  	
   

  	
  ABA:

  	
   

  	
   

  
	
  Account:

  	
   

  	
   

  	
   

  	
  Account: 

  	
   

  	
   

  
	
  Other Details:

  	
   

  	
   

  	
   

  	
  Other Details:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 15
 

 

(n)           Other
Provisions/Modifications to this Gas Annex.

(i)                                     Part
8(b)(ii) Option A Cover Standard is amended by adding the following phrase
after the phrase   “and no such
replacement or sale is available”: “or the non-breaching party elects, at its
sole option not to replace Gas or sell Gas”.

(ii)                                  Part
8(b)(iv) Fixed Price
Contracts shall be added as a new section:

“(iv)                        Fixed Price
Contracts.  From time-to-time the parties may agree to
fix the Contract Price paid for a certain Contract Quantity under a transaction
(“Fixed Price Contract”).  A Fixed Price
Contract shall mean any transaction with a Firm performance obligation in which
the agreed price (per unit volume) for the delivery of the Contract Quantity is
expressed either as: (i) a flat dollar amount, or (ii) a range of dollar
amounts, which is limited either at the lowest value or the highest value, or
both.  For any Fixed Price Contract, the
Contract Quantity must be nominated by Buyer and shall be deemed to be the
first Gas purchased at the Delivery Point. 
If more than one Fixed Price Contract is applicable between the parties
at the same Delivery Point for any period, then the first Gas purchased during
such period shall be attributed to the Fixed Price Contract that was executed
earliest, followed by any additional Contract Quantities in chronological order
of Fixed Price Contract execution.

In consideration of the foregoing premises, the
parties agree that, should performance of a Fixed Price Contract be interrupted
or reduced due to Force Majeure or for any other reason which excuses
performance of a “Firm” obligation for more than three (3) consecutive Days or
for five (5) Days in any Month, then the party which has received the Force
Majeure or other non-performance notice may, at its sole discretion, elect to
terminate the Fixed Price Contract for the remainder of the term of the Fixed
Price Contract for the termination payment provisions of the Master Agreement
shall apply to such remaining term of the terminated transaction.  Such termination right may be exercised
within the ten (10) Business Days immediately following the interruption or
reduction by delivery of a written termination notice.”

(iii)                               Part
8(b)(v) Limitation on
Condition Precedent shall be added as a new section.

“(iv)        Limitation on Condition Precedent.  Section 2(a)(iii) of this Agreement is hereby
amended by adding the following phrase at the end of clause (1) immediately
before the last comma of such phrase:

“(provided, however, that
in relation to any Transaction that is a Gas Transaction, if an Event of
Default or a Potential Event of Default has occurred and is continuing for
longer than ten (10) Business Days without an Early Termination Date being
designated, then the condition specified in this clause (1) shall cease to be a
condition precedent to the obligations under Section 2(a)(i).”

(iv)                              Part
8(f)(vi) shall be added as a new section.

 16
 

 

“(vi)  In addition, for so long as non-performance
under Part 8(b) is continuing, the performing party may, upon one (1) Local
Business Day notice, suspend its performance under any or all transactions
between the parties for the purchase and sale of Gas.”

(v)                           Part 8(g)(i) shall be amended
by adding the words “at and” after the word “Gas” in line three.

(vi)                              Part
8 (j) shall be amended by adding the following as new provisions:

“(iv)  Tax Event: Section 5(b)(iii).  With respect to any Gas Transaction, Section
5(b)(iii) is hereby deleted, and the concept of “Tax Event” as used elsewhere
in this Agreement shall not apply to any Gas Transactions.”

Part 9[change to Part 8 if not using Gas
Annex]

(a)                                  Notwithstanding anything to the contrary,
this Agreement shall not become effective until the date on which the
Guaranty issued by Merrill Lynch & Co., Inc. becomes effective.

(b)                                 Consent to Assignment.  Party B hereby consents to the assignment by
Party A to Merrill Lynch Commodities, Inc. and Merrill Lynch & Co., Inc
(together, the “Merrill Parties”) of all of
Party A’s rights under this Agreement, including all rights to receive payments
from Party B under this Agreement (any such payment, including payments under
Section 2 and Section 6 of the Agreement, a “Receivable”),
as collateral security for Party A’s obligations to the Merrill Parties in
connection with an enhanced credit structure for Party A’s retail electric
business provided by the Merrill Parties (the “Collateral Assignment”).

(c)                                  Collateral Account.  Party A hereby unconditionally and
irrevocably authorizes and directs Party B to make, and, unless and until
otherwise required by law or this agreement is terminated, Party B hereby
agrees to make, any and all payments in respect of Receivables directly by wire
transfer to the account specified in Part 5(e) of this Schedule (the “Collateral Account”).  All such payments by Party B to the
Collateral Account shall be free and clear of any deduction, set-off, netting
arrangements or counterclaim, except as expressly provided pursuant to this
Agreement.

(d)                                 Notice & Right to Cure Events of Default.  Pursuant to Part 4(a) of this Schedule, the
Merrill Parties shall be provided with all notices under this Agreement,
including notices of any Potential Event of Default, Event of Default or
Termination Event hereunder.  In the
event of a Potential Event of Default or Event of Default in which Party A is,
or may become, the Defaulting Party, or a Termination in respect of which Party
A is the Affected Party, the Merrill Parties shall be permitted, at their
option, to cure such default or termination event,
[(if such event of default or termination event is capable of being cured by
either Merrill Party [TO BE USED AS FALLBACK])] within any grace period
applicable to Party A for such
Potential Event of Default, Event of Default or Termination Event.

 17
 

 

SIGNATURE PAGE

OF THE

SCHEDULE

TO THE

2002 MASTER AGREEMENT

BETWEEN

RELIANT ENERGY POWER SUPPLY, LLC
(“PARTY A”)

AND

                                                    
(“PARTY B”)

IN WITNESS WHEREOF, the parties hereto have
executed this document as of the date specified on the first page hereof.

	
   Reliant Energy Power Supply,
  LLC

  	
   

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
													

 

 18

 

Exhibit D1

To Credit Sleeve and Reimbursement Agreement

Form of EEI Collateral Annex

Notice:  This proposed draft of the Collateral Annex
has been modified from

the version posted on the EEI Website as of January 1, 2005
as marked below.

PARAGRAPH 10 

to the

COLLATERAL ANNEX

to the 

EEI MASTER POWER PURCHASE AND SALE AGREEMENT

CREDIT ELECTIONS COVER SHEET

DATED AS
OF

[   T.B.D.    
]

BETWEEN

RELIANT
ENERGY POWER SUPPLY, LLC (“Party A”)

AND

	
  

  	
   

  	
  (“Party B”)

  

 

AND

MERRILL
LYNCH COMMODITIES, INC. (“MLCI”)

Paragraph
10.    Elections and Variables

I.              Collateral
Threshold.

A.            Party A Collateral
Threshold.

o    $              (the
“Threshold Amount”); provided, however, that the Collateral Threshold
for Party A shall be zero upon the occurrence and during the continuance of an
Event of Default or a Potential Event of Default with respect to Party A; and
provided further that, in the event that, and on the date that, Party A
cures the Potential Event of Default on or prior to the date that Party A is
required to post Performance Assurance to Party B pursuant to a demand made by
Party B pursuant to the provisions of the Collateral Annex on or after the
occurrence of such Potential Event of Default, (i) the Collateral Threshold for
Party A shall automatically increase from zero to the Threshold Amount and (ii)
Party A shall be relieved of its obligation to post Performance Assurance
pursuant to such demand.

 1
 

 

o    The amount (the “Threshold Amount”) equal to
the lower of (i) the maximum amount payable under the guaranty provided by
Party A’s Guarantor guaranteeing Party A’s payment obligations hereunder, if
any, and (ii) the amount set forth below under the heading “Party A Collateral
Threshold” opposite the Credit Rating for Party A’s Guarantor on the relevant
date of determination, and if Party A’s Guarantor’s Credit Ratings shall not be
equivalent, the [lower/higher] Credit Rating shall govern; provided, however,
that the Collateral Threshold for Party A shall be zero if (i) on the relevant
date of determination Party A’s Guarantor does not have a Credit Rating from
any rating agency specified below or (ii) an Event of Default or a Potential
Event of Default with respect to Party A has occurred and is continuing; and provided
further that, in the event that, and on the date that, Party A cures the
Potential Event of Default on or prior to the date that Party A is required to
post Performance Assurance to Party B pursuant to a demand made by Party B
pursuant to the provisions of the Collateral Annex on or after the occurrence
of such Potential Event of Default, (i) the Collateral Threshold for Party A
shall automatically increase from zero to the Threshold Amount and (ii) Party A
shall be relieved of its obligation to post Performance Assurance pursuant to
such demand.

	
  Party A

  Collateral Threshold

  	
   

  	
  S&P Credit Rating

  	
   

  	
  Moody’s_Credit Rating

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
      

  	
   

  	
  AA- (or above)

  	
   

  	
  Aa3 (or above)

  
	
  $

  	
      

  	
   

  	
  A+ thru A-

  	
   

  	
  A1 thru A3

  
	
  $

  	
      

  	
   

  	
  BBB+

  	
   

  	
  Baa1

  
	
  $

  	
      

  	
   

  	
  BBB

  	
   

  	
  Baa2

  
	
  $

  	
      

  	
   

  	
  BBB-

  	
   

  	
  Baa3

  
	
  $

  	
      

  	
   

  	
  BB+

  	
   

  	
  Ba1

  
	
  $

  	
      

  	
   

  	
  BB

  	
   

  	
  Ba2

  
	
  $

  	
      

  	
   

  	
  BB-

  	
   

  	
  Ba3

  
	
  $

  	
      

  	
   

  	
  B+

  	
   

  	
  B1

  
	
  $

  	
      

  	
   

  	
  B

  	
   

  	
  B2

  
	
  $

  	
      

  	
   

  	
  Below B

  	
   

  	
  Below B2

  
	
  $

  	
      

  	
   

  	
  Unrated

  	
   

  	
  Unrated

  

 

o    The
amount (the “Threshold Amount”)  set
forth below under the heading “Party A Collateral Threshold” opposite the
Credit Rating for [Party A][Party A’s Guarantor] on the relevant date of
determination, and if [Party A’s][Party A’s Guarantor’s] Credit Ratings shall
not be equivalent, the lower Credit Rating shall govern or (b) zero if on the
relevant date of determination [Party A][its Guarantor] does not have a Credit
Rating from the rating agency(ies) specified below or an Event of Default or a
Potential Event of Default with respect to Party A has occurred and is
continuing; provided, however, in the event that, and on the date that,
Party A cures the Potential Event of Default on or prior to the date that Party
A is required to post Performance Assurance to Party B pursuant to a demand
made by Party B pursuant to the provisions of the Collateral Annex on or after
the occurrence of such Potential Event of Default, (i) the Collateral Threshold
for Party A shall automatically increase from zero to the Threshold Amount and
(ii) Party A shall be relieved of its obligation to post Performance Assurance
pursuant to such demand.

	
  Party A

  Collateral Threshold

  	
   

  	
  Credit Rating

  	
   

  	
  Credit Rating

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
       

  	
   

  	
       
  (or above)

  	
   

  	
  (or above)

  	
   

  
	
  $

  	
       

  	
   

  	
       

  	
   

  	
       

  	
   

  
	
  $

  	
       

  	
   

  	
       

  	
   

  	
       

  	
   

  
	
  $

  	
       

  	
   

  	
       

  	
   

  	
       

  	
   

  
	
  $

  	
       

  	
   

  	
  Below      

  	
   

  	
  Below      

  	
   

  

 

o    The amount of the Guaranty
Agreement dated        from        ,
as amended from time to time but in no event shall Party A’s Collateral
Threshold be greater than $       .

 2
 

 

o    Other – see attached threshold terms  

B.            Party B Collateral Threshold.

o    $                  (the
“Threshold Amount”); provided, however, that the Collateral Threshold
for Party B shall be zero upon the occurrence and during the continuance of an
Event of Default or a Potential Event of Default with respect to Party B; and
provided further that, in the event that, and on the date that, Party B
cures the Potential Event of Default on or prior to the date that Party B is
required to post Performance Assurance to Party A pursuant to a demand made by
Party A pursuant to the provisions of the Collateral Annex on or after the
occurrence of such Potential Event of Default, (i) the Collateral Threshold for
Party B shall automatically increase from zero to the Threshold Amount and (ii)
Party B shall be relieved of its obligation to post Performance Assurance
pursuant to such demand.

o    The amount (the “Threshold
Amount”) equal to the lower of (i) the maximum amount payable under the
guaranty provided by Party B’s Guarantor guaranteeing Party B’s payment obligations
hereunder, if any and (ii) the amount set forth below under the heading “Party
B Collateral Threshold” opposite the Credit Rating for Party B[‘s Guarantor] on
the relevant date of determination, and if Party B’s [Guarantor’s] Credit
Ratings shall not be equivalent, the [lower/higher] Credit Rating shall govern
provided, however, that the Collateral Threshold for Party B shall be zero if
(i) on the relevant date of determination Party B[‘s Guarantor] does not have a
Credit Rating from any rating agency specified below or (ii) an Event of
Default or a Potential Event of Default with respect to Party B has occurred
and is continuing; and provided, further that, in the event that, and on
the date that, Party B cures the Potential Event of Default on or prior to the
date that Party B is required to post Performance Assurance to Party A pursuant
to a demand made by Party A pursuant to the provisions of the Collateral Annex
on or after the occurrence of such Potential Event of Default, (i) the
Collateral Threshold for Party B shall automatically increase from zero to the
Threshold Amount and (ii) Party B shall be relieved of its obligation to post
Performance Assurance pursuant to such demand.

	
  Party B

  Collateral Threshold

  	
   

  	
        Credit
  Rating

  	
   

  	
       Credit Rating

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
      

  	
   

  	
  AA- (or above)

  	
   

  	
  Aa3 (or above)

  
	
  $

  	
      

  	
   

  	
  A+ thru A-

  	
   

  	
  A1 thru A3

  
	
  $

  	
      

  	
   

  	
  BBB+

  	
   

  	
  Baa1

  
	
  $

  	
      

  	
   

  	
  BBB

  	
   

  	
  Baa2

  
	
  $

  	
      

  	
   

  	
  BBB-

  	
   

  	
  Baa3

  
	
  $

  	
      

  	
   

  	
  BB+

  	
   

  	
  Ba1

  
	
  $

  	
      

  	
   

  	
  BB

  	
   

  	
  Ba2

  
	
  $

  	
      

  	
   

  	
  BB-

  	
   

  	
  Ba3

  
	
  $

  	
      

  	
   

  	
  B+

  	
   

  	
  B1

  
	
  $

  	
      

  	
   

  	
  B

  	
   

  	
  B2

  
	
  $

  	
      

  	
   

  	
  Below B

  	
   

  	
  Below B2

  
	
  $

  	
      

  	
   

  	
  Unrated

  	
   

  	
  Unrated

  

 

o    The amount (the “Threshold
Amount”) set forth below under the heading “Party B Collateral Threshold”
opposite the Credit Rating for [Party B][Party B’s Guarantor] on the relevant
date of determination, and if [Party B’s][Party B’s Guarantor’s] Credit Ratings
shall not be equivalent, the lower Credit Rating shall govern or (b) zero if on
the relevant date of determination [Party B][its Guarantor] does not have a
Credit Rating from the rating agency(ies) specified below or an Event of
Default or a Potential Event of Default with respect to Party B has occurred
and is continuing; provided, however, in the event that, and on the date
that, Party B cures the Potential Event of Default on or prior to the date that
Party B is required to post Performance Assurance to Party A pursuant to a
demand made by Party A pursuant to the provisions of the Collateral Annex on or
after the occurrence of such Potential Event of Default, (i) the Collateral
Threshold for Party B shall 

 3
 

 

automatically increase from zero to the Threshold Amount and (ii) Party
B shall be relieved of its obligation to post Performance Assurance pursuant to
such demand:

	
  Party B

  Collateral Threshold

  	
   

  	
       Credit Rating

  	
   

  	
       Credit Rating

  
	
   

  	
   

  	
      
  (or above)

  	
   

  	
      
  (or above)

  
	
  $

  	
      

  	
   

  	
      

  	
   

  	
      

  
	
  $

  	
      

  	
   

  	
      

  	
   

  	
      

  
	
  $

  	
      

  	
   

  	
      

  	
   

  	
      

  
	
  $

  	
      

  	
   

  	
  Below     

  	
   

  	
  Below     

  

 

o    The amount of the Guaranty
Agreement dated         from        ,
as amended from time to time but in no event shall Party B’s Collateral
Threshold be greater than $        .

o    Other – see attached threshold terms.

II.            Eligible Collateral
and Valuation Percentage.

The
following items will qualify as “Eligible Collateral” for the Party specified:

	
  

  	
   

  	
  MLCI

  (on behalf of Party

  A and itself)

  	
   

  	
  Party B

  	
   

  	
  Valuation

  %

  	
   

  
	
  (A) Cash

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  100

  	
  %

  
	
  (B) Letters of Credit. 100% of the
  undrawn portion of such Letter of Credit unless either (i) a Letter of Credit
  Default shall have occurred and be continuing with respect to such Letter of
  Credit, or (ii) twenty (20) or fewer Business Days remain prior to the
  expiration of such Letter of Credit, in which cases the Valuation Percentage
  shall be zero (0).

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  100

  	
  %

  
	
  (C) Negotiable debt obligations
  issued by the U.S. Treasury Department having an original maturity at
  issuance of not more than one year (“Treasury Bills”)

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  99

  	
  %

  
	
  (D) Negotiable debt obligations
  issued by the U.S. Treasury Department having an original maturity at
  issuance of more than one year but not more than ten years (“Treasury Notes”)

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  98

  	
  %

  
	
  (E) Negotiable debt obligations
  issued by the U.S. Treasury Department having an original maturity at
  issuance of more than ten years (“Treasury Bonds”)

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  95

  	
  %

  

 

III.           Independent Amount.  (NOT APPLICABLE)

A.            Party A Independent
Amount.     (NOT APPLICABLE)

o    Party A shall have a Fixed Independent Amount of $             .  If the Fixed Independent Amount option is
selected for Party A, then Party A (which shall be a Pledging Party with
respect to the Fixed IA Performance Assurance) will be required to Transfer or
cause to be Transferred to Party B (which shall be a Secured Party with respect
to the Fixed IA Performance Assurance) Performance Assurance with a Collateral
Value 

 4
 

 

equal to the amount of such Independent Amount (the “Fixed IA
Performance Assurance”).   The Fixed IA
Performance Assurance shall not be reduced for so long as there are any
outstanding obligations between the Parties as a result of the Agreement, and
shall not be taken into account when calculating Party A’s Collateral
Requirement pursuant to the Collateral Annex. 
Except as expressly set forth above, the Fixed IA Performance Assurance
shall be held and maintained in accordance with, and otherwise be subject to,
Paragraphs 2, 5(b), 5(c), 6, 7 and 9 of the Collateral Annex.

o    Party A shall have a Full Floating Independent Amount of $           .  If the Full Floating Independent Amount
option is selected for Party A, then for purposes of calculating Party A’s
Collateral Requirement pursuant to Paragraph 3 of the Collateral Annex, such
Full Floating Independent Amount for Party A shall be added by Party B to its
Exposure Amount for purposes of determining Net Exposure pursuant to Paragraph
3(a) of the Collateral Annex.

 

o    Party A shall have a Partial Floating Independent Amount of $              .  If the Partial Floating Independent Amount
option is selected for Party A, then Party A will be required to Transfer or
cause to be Transferred to Party B Performance Assurance with a Collateral
Value equal to the amount of such Independent Amount (the “Partial Floating IA
Performance Assurance”) if at any time Party A otherwise has a Collateral
Requirement (not taking into consideration the Partial Floating Independent
Amount) pursuant to Paragraph 3 of the Collateral Annex.   The
Partial Floating IA Performance Assurance shall not be reduced so long as Party
A has a Collateral Requirement (not taking into consideration the Partial
Floating Independent Amount).   The
Partial Floating Independent Amount shall not be taken into account when
calculating a Party’s Collateral Requirements pursuant to the Collateral
Annex.  Except as expressly set forth
above, the Partial Floating Independent Amount shall be held and maintained in
accordance with, and otherwise be subject to, the Collateral Annex.

B.            Party B Independent
Amount.   [ (NOT APPLICABLE)  ]

o    Party B shall have a Fixed Independent Amount of $            .  If the Fixed Independent Amount Option is
selected for Party B, then Party B (which shall be a Pledging Party with respect
to the Fixed IA Performance Assurance) will be required to Transfer or cause to
be Transferred to Party A (which shall be a Secured Party with respect to the
Fixed IA Performance Assurance) Performance Assurance with a Collateral Value
equal to the amount of such Independent Amount (the “Fixed IA Performance
Assurance”).   The Fixed IA Performance
Assurance shall not be reduced for so long as there are any outstanding
obligations between the Parties as a result of the Agreement, and shall not be
taken into account when calculating Party B’s Collateral Requirement pursuant
to the Collateral Annex.  Except as
expressly set forth above, the Fixed IA Performance Assurance shall be held and
maintained in accordance with, and otherwise be subject to, Paragraphs 2, 5(b),
5(c), 6, 7 and 9 of the Collateral Annex.

 

o    Party B shall have a Full Floating Independent Amount of $               .  If the Full Floating Independent Amount
Option is selected for Party B then for purposes of calculating Party B’s
Collateral Requirement pursuant to Paragraph 3 of the Collateral Annex, such
Full Floating Independent Amount for Party B shall be added by Party A to its
Exposure Amount for purposes of determining Net Exposure pursuant to Paragraph
3(a) of the Collateral Annex.

 

o    Party B shall have a Partial Floating Independent Amount of $               .
 If the Partial Floating Independent
Amount option is selected for Party B, then Party B will be required to
Transfer or cause to be Transferred to Party A Performance Assurance with a
Collateral Value equal to the amount of such Independent Amount (the “Partial
Floating IA Performance Assurance”) if at any time Party B otherwise has a
Collateral Requirement (not taking into consideration the Partial Floating
Independent Amount) pursuant to Paragraph 3 of the Collateral Annex.   The Partial Floating IA Performance
Assurance shall not be reduced for so long as Party B has a Collateral
Requirement (not taking into consideration the Partial Floating Independent
Amount).   The Partial Floating
Independent 

 5
 

 

 

Amount shall not be taken into account when calculating a Party’s
Collateral Requirements pursuant to the Collateral Annex.   Except as expressly set forth above, the
Partial Floating Independent Amount shall be held and maintained in accordance
with, and otherwise be subject to, the Collateral Annex.

IV.           Minimum Transfer
Amount.

	
  A.

  	
  Party A Minimum Transfer Amount:

  	
   

  	
  $

  	
  1

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
  Party B Minimum Transfer Amount:

  	
   

  	
  $

  	
  1

  	
   

  

 

V.            Rounding Amount.

	
  A.

  	
  Party A Rounding Amount:

  	
   

  	
  $

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
  Party B Rounding Amount:

  	
   

  	
  $

  	
  250,000

  	
   

  

 

VI.           Administration of
Cash Collateral.

A.            Party A Eligibility
to Hold Cash.

o    Party A shall not be entitled to hold Performance Assurance in the form
of Cash.   Performance Assurance in the
form of Cash shall be held in a Qualified Institution in accordance with the
provisions of Paragraph 6(a)(ii)(B) of the Collateral Annex.  Party A shall pay to Party B in accordance
with the terms of the Collateral Annex the amount of interest it receives from
the Qualified Institution on any Performance Assurance in the form of Cash
posted by Party B.

x   MLCI and its Custodian shall be entitled to hold (and, for the
avoidance of doubt, use in accordance with Paragraph 6(a)(ii)) Performance
Assurance in the form of Cash on behalf of Party A and the Merrill Parties provided
that the following conditions are satisfied: 
(1) it is not a Defaulting Party and (2) Cash shall be held only in any
jurisdiction within the United States.   
To the extent Party A is entitled to hold Cash, the Interest Rate
payable to Party B on Cash shall be as selected below:

Party A
Interest Rate.

x   The “Interest Rate”
will be at a rate per annum equal to the one month London Interbank Offered
Rate for Dollar deposits as may from time to time be in effect as reported in
The Wall Street Journal.  Such interest
shall be calculated on the basis of the actual number of days elapsed and on
the basis of a year of 360 days.

o            Other -            

B.            Party B Eligibility to Hold Cash.

o    Party B shall not be entitled to hold Performance Assurance in the form
of Cash.  Performance Assurance in the
form of Cash shall be held in a Qualified Institution in accordance with the
provisions of Paragraph 6(a)(ii)(B) of the Collateral Annex.  Party B shall pay to Party A in accordance
with the terms of the Collateral Annex the amount of interest it receives from
the Qualified Institution on any Performance Assurance in the form of Cash
posted by Party A.

 6
 

 

x   Party B shall be entitled to hold Performance Assurance in the form of
Cash provided that the following conditions are satisfied:  (1) it is not a Defaulting Party and (2) Cash
shall be held only in any jurisdiction
within the United States.    To the
extent Party B is entitled to hold Cash, the Interest Rate payable to Party A
on Cash shall be as selected below:

Party B
Interest Rate.

x   The “Interest
Rate” will be at a rate per annum equal to the one month London
Interbank Offered Rate for Dollar deposits as may from time to time be in
effect as reported in The Wall Street Journal. 
Such interest shall be calculated on the basis of the actual number of
days elapsed and on the basis of a year of 360 days.

o    Other -            

C.            Notwithstanding
the foregoing Party A Eligibility to Hold Cash or Party B Eligibility to Hold
Cash, MLCI, Party A and Party B hereby covenant and agree that, except at such
times as, in the case of Party A, MLCI or ML&Co., or, in the case of Party
B, it or its Guarantor, as the case may be, has a Credit Rating of at least
Baa2 (Moody’s) or BBB (S&P), in the case of Party A, MLCI, and in the case
of Party B, Party B will cause all Performance Assurance received from the
other Party to be entered in one or more accounts (each, a “CA Collateral
Account”) with a Qualified Institution, each of which accounts may include
property of other parties, but will bear a title indicating the Pledging Party’s
interest in said account and the Performance Assurance in said account.  In the event the Credit Ratings shall not be
equivalent, the lower Credit Rating shall govern.  In addition, the Secured Party may direct the
Pledging Party to deliver Eligible Collateral directly into the Secured Party’s
CA Collateral Account(s).  The Secured
Party may move the CA Collateral Accounts from one Qualified Institution to
another upon reasonable notice to the Pledging Party.  The Secured Party shall cause statements
concerning the Performance Assurance to be sent to the Pledging Party on
request, which may not be made more frequently than once in each calendar
month.

VII.         Notification Time.

x           Other – 12:00 p.m.
Central Standard Time

VIII.        General.

With respect to the Collateral Threshold,
Independent Amount, Minimum Transfer Amount and Rounding Amount, if no
selection is made in this Cover Sheet with respect to a Party, then the
applicable amount in each case for such Party shall be zero (0).  In addition, with respect to the “Administration
of Cash Collateral” section of this Paragraph 10, if no selection is made with
respect to a Party, then such Party shall not be entitled to hold Performance
Assurance in the form of Cash and such Cash, if any, shall be held in a
Qualified Institution pursuant to Paragraph 6(a)(ii)(B) of the Collateral
Annex.    If a Party is eligible to hold
Cash pursuant to a selection in this Paragraph 10 but no Interest Rate is
selected, then the Interest Rate for such Party shall be the Federal Funds
Effective Rate as defined in Section VI of this Paragraph 10. 

IX.           Additional
Amendments to Collateral Annex.

Introductory Paragraph.

Delete “Paragraph 10 Elections” in the first
introductory paragraph and replace it with “Paragraph 10 Cover Sheet”.

Paragraph 1.  
Definitions.

The following definitions are amended as set
forth below:

The definition of “Letter of Credit” is deleted in its entirety
and replaced with the following: 

 7
 

 

“Letter
of Credit” shall mean an irrevocable,
transferable, standby Letter of Credit, issued by a Qualified Institution, with
such changes to the terms in a form as the issuing bank may require and which
is acceptable to the Party in whose favor the Letter of Credit is issued.

The
definition of “Notification Time” is amended to add “a.m.” after “11:00”.

The
definition of “Performance Assurance” is amended by replacing “6(a)(iv)”
with 6(a)(iii)”.

The
definition of “Qualified Institution” is deleted in its entirety and
replaced with the following:

“Qualified Institution” means
a major U.S. commercial bank or a
foreign bank that is not an affiliate of any Party to this Agreement with a
U.S. branch office which is not the Pledgor (or a subsidiary or Affiliate of
the Pledgor) and with a Credit Rating of at least “A-” by S&P and “A3” by
Moody’s.

The definition of “Reference
Market-maker” is deleted in its entirety and replaced with the following:

“Reference Market-maker” means a leading
broker, dealer or published index in the relevant market selected by a Party
determining its Exposure in a commercially reasonable manner.  Such leading dealers shall not be parties to
this Agreement or Affiliates of a Party to this Agreement.

The definition of “Secured
Party” is amended by replacing “3(b)” with “3(a)”.

Paragraph
5.  Reduction and Substitution of
Performance Assurance.

Subparagraph
5(a) shall be amended by adding the word “Local” before the words “Business Day
in line eighteen.

Paragraph
6.   Administration of Performance
Assurance.

Paragraphs 6(a)(i),
6(a)(ii)(A), and 6(a)(ii)(B) are amended by deleting such paragraphs in their
entirety.

Paragraph 6(a)(ii) is
amended by deleting the last sentence of such section with the words beginning “provided
however” and ending “then:” and replacing such words with a period.

The following
subparagraph 6(a)(iv) shall be added following subparagraph 6(a)(iii):

(iv)          Distributions.  So long as no Event of Default or  Potential Event of Default with respect to
the Pledging Party has occurred and is continuing, and no Early Termination
Date for which any unsatisfied payment Obligations of the Pledging Party exist
has occurred or been designated as the result of an Event of Default with
respect to the Pledging Party, and to the extent that an obligation to Transfer
Performance Assurance would not be created or increased by the Transfer, in the
event that the Secured Party or its Custodian is holding Treasury Bills,
Treasury Notes, or Treasury Bonds (“Treasury PA”) and Secured Party receives or
is deemed to receive Distributions on a Local Business Day, the Secured Party
will Transfer (or caused to be Transferred) to the Pledging Party such
Distributions not later than the following Local Business Day.  On or after the occurrence of a Potential
Event of Default or an Event of Default with respect to the Pledging Party or
an Early Termination Date as a result of an Event of Default with respect to
the Pledging Party, the Secured Party or its Custodian shall retain any such
Distributions as additional Performance Assurance hereunder until the
obligations of the Pledging Party under the Agreement have been satisfied in
the case of an Early Termination Date or for so long as such Event of Default
is continuing in the case of an Event of Default. For purposes of this
paragraph, “Distributions” means with respect to Treasury PA, all principal,
interest and other payments and distributions of cash or other property with
respect thereto, regardless of whether the Secured Party has disposed of that
Treasury PA under Paragraph 6(ii). 
Distributions will not include any item of property acquired by the
Secured Party upon any disposition or liquidation of Treasury PA.

Subparagraph 6(b)(iii) is
amended by deleting the words “occurrence thereof” and replacing them with the
words “Pledging Party’s receipt of notice hereunder” in the fourth line.

Subparagraph 6(c) shall be deleted in its entirety and
replaced with the following:

 8
 

 

“(c) Without limiting the
Secured Party’s rights under Paragraph 6(c), the Secured Party will exercise
reasonable care to assure the safe custody of all Performance Assurance to the
extent required by applicable law, and in any event the Secured Party will be
deemed to have exercised reasonable care if it exercises at least the same
degree of care as it would exercise with respect to its own property.  Except as specified in the preceding
sentence, the Secured Party will have no duty with respect to Performance
Assurance, or enforce or preserve any rights pertaining thereto.”

“SCHEDULE 1 to Collateral Annex” shall be deleted in its entirety.

Demands and Notices.  All demands, specifications and notices under
this Annex will be made pursuant to the Notices Section of this Agreement,
unless otherwise specified here:

	
  Party A:

  	
   

  	
  Attn: Credit Risk Management

  	
   

  	
  Telephone:

  Facsimile:

  	
   

  	
  (713) 497-1052

  (713) 497-1058

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Street Address:

  1000 Main St., 11th Floor

  Houston, TX 77002

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Mailing Address:

  P O Box 4455

  Houston, TX 77210-4455

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to (other than copies of notices in
  respect of demands under Paragraphs 4 and 5):

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Merrill Lynch Commodities, Inc.

  20 East Greenway Plaza, 7th Floor

  Houston, Texas 77253-3327

  Attn:       Legal

  	
   

  	
  Telephone:

  Facsimile:

  	
   

  	
  (713) 544-4975

  (713) 544-5551

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party B:

  	
   

  	
   

  	
   

  	
  Telephone:

  Facsimile:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Addresses
  for Transfers.

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party A:

  U. S. Dollars

  	
   

  	
  Payment to:

  

  For Account of:

  Account #:

  Federal ABA#:

  	
   

  	
  JP Morgan Chase Bank,

  New York, NY

  Merrill Lynch Commodities, Inc.

  323009980

  021000021

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party B:

  U.S. Dollars

  	
   

  	
  Payment to:

  For Account of:

  Account #:

  Federal ABA#:

  	
   

  	
   

  	
   

  	
   

  

 

Other
Provisions. 

UCC.  Each Party agrees that the
provisions of this Agreement supersede and replace in their entirety any
requirements of law relating to adequate assurance of future performance,
including without limitation Article 2 of the Uniform Commercial Code.  This Collateral Annex is a Security Agreement
under the provisions of the Uniform Commercial Code of the State of New York.

 9
 

 

Credit Sleeve Provisions.  

(i)            In connection with the
Collateral Assignment described in “Credit Sleeve Provisions” on the Cover
Sheet, Party A, Party B and MLCI agree that: 

(A)          Party
B shall Transfer all Eligible Collateral required to be Transferred hereunder
by Party B directly to the account provided above (“Addresses for Transfer”)
for Party A and, any such Transfer, to the extent thereof, shall satisfy Party
B’s obligations to make Transfers to Party A hereunder;

(B)           MLCI
shall Transfer all Eligible Collateral required to be Transferred hereunder by
Party A directly to the account provided above (“Addresses for Transfer”) for
Party B and, any such Transfer, to the extent thereof, shall satisfy Party A’s
obligations to make Transfers to Party B hereunder;

(C)           Party
A hereby unconditionally and irrevocably authorizes and directs MLCI to make
and receive, on behalf of Party A and the Merrill Parties, and MLCI hereby
unconditionally agrees to make and receive, on behalf of Party A and the
Merrill Parties, the Transfers described in clauses (A) and (B) above;

(D)          Party
A has pledged and assigned to the Merrill Parties its rights under this Collateral
Annex to receive, hold and use the Eligible Collateral transferred to MLCI
hereunder in accordance with the terms of this Collateral Annex on behalf of
Party A and on behalf of the Merrill Parties in connection with the Collateral
Assignment;

(E)           Party
A and Party B consent to the Collateral Assignment, and agree to perform their
obligations, under the Cover Sheet, “Credit Sleeve Provisions”, for the benefit
of the Merrill Parties; and

(F)           Any
amendment, supplement, waiver or other modification of, or any forbearance from
exercising any rights with respect to the terms or provisions contained in this
Collateral Annex requires the express written consent of Party A, Party B and
MLCI.

(ii)           MLCI agrees to comply
with the confidentiality obligations set forth in Section 10.11, as amended. 

(iii)          All information that is
furnished in writing by or on behalf of it to any of the other Parties hereto
is, as of the date of the information, true, accurate and complete in every
material respect, or, in the case of audited or unaudited financial statements,
fairly present the financial condition of the relevant entity and have been
prepared in accordance with generally accepted accounting principles,
consistently applied, except as otherwise indicated in the notes of such
financial statements.

(iv)          Paragraph 5.6 of the
Agreement shall be deleted in its entirety and replaced with the
following:  “Party B shall make each
payment due under this Agreement without deduction, set-off or counterclaim,
except (A) as specifically provided in Article 6 of the Agreement, and (B) that
Party B, if it is the Non-defaulting Party shall be entitled to set off the
Termination Payment owed by Party B to Party A under this Agreement (whether
pursuant to Article 6 or under any other provision under this Agreement)
against amounts owed by Party A to Party B under this Agreement (whether
pursuant to Article 6 or under any other provision under this Agreement).  Party A, or MLCI on its behalf, shall make
each payment due under this Agreement without deduction, set-off counterclaim,
except (A) as specifically provided in Article 6 of the Agreement, and (B) that
Party A, or MLCI on its behalf, if Party A is the Non-defaulting Party shall be
entitled to set off the Termination Payment owed by Party A to Party B under
this Agreement (whether pursuant to Article 6 or under any other provision
under this Agreement) against amounts owed by Party B to Party A under this
Agreement (whether pursuant to Article 6 or under any other provision under
this Agreement).  For the avoidance of
doubt:

(A)          the
term “Party A” means Reliant Energy Power Supply, LLC (and any other Person
that succeeds to all of the rights and obligations of Reliant Energy Power
Supply, LLC under this Agreement in accordance with its terms), and Party A and
shall in no event include any of its affiliates or any other Person except as
stated above; and

 10
 

 

(B)           the
term “Party B” means [insert legal name of Party B] (and any other Person that
succeeds to all of the rights and obligations of [insert legal name of Party B]
under this Agreement in accordance with its terms), and Party B and shall in no
event include any of its affiliates or any other Person except as stated above.

(v)           Except as provided in
the Cover Sheet under “Credit Sleeve Provisions”, the only rights, covenants
and obligations in the Agreement that shall be applicable to MLCI are those
that are set forth in provisions that either specifically refer to MLCI by
name, or that specifically refer to “each of the three parties”.  All of the other provisions in the Agreement
that refer to: “Pledging Party”, “Secured Party”, “Defaulting Party”, “Affected
Party”, “a Party”, “appropriate party”, “other party”, “the parties”, “both
parties”, “each Party”, “either Party” or “neither Party” shall not be
interpreted as references to MLCI, but shall be interpreted as references to:
Party A; Party B; both Party A and Party B; each of Party A and Party B; either
Party A or Party B; or neither Party A nor Party B as is indicated by the
context.  

(vi)          MLCI Termination Right.  Each of MLCI’s rights and obligations
hereunder, including its rights and obligations to Transfer and receive
Performance Assurance, may be terminated at any time by notice by MLCI to Party
A and Party B given in accordance with the notice provisions of the Agreement,
effective upon receipt of such notice by Party A and Party B or such later date
as may be specified in such notice; provided that MLCI’s rights and obligations
hereunder shall continue in full force and effect, and shall be irrevocable,
with respect to any obligation, including its rights and obligations to
Transfer and receive Performance Assurance, arising under any Transaction under
and as defined in the Agreement entered into prior to the effectiveness of such
notice of termination. 

IN WITNESS WHEREOF, the parties hereto have executed this document as
of the date specified on the first page hereof.

 

	
  RELIANT ENERGY POWER SUPPLY, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MERRILL LYNCH COMMODITIES, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
									

 11

 

 

Exhibit
D2

To
Credit Sleeve and Reimbursement Agreement

Form of ISDA Credit Support Annex 

ISDA CREDIT Support Annex

(Subject to New York Law
Only)

PARAGRAPH 13

OF THE

CREDIT SUPPORT ANNEX

DATED AS OF

[   T.B.D.    
] 

BETWEEN

RELIANT ENERGY POWER SUPPLY, LLC
(“Party A”)

AND

	
  

  	
   

  	
  (“Party B”)

  

 

AND

MERRILL LYNCH COMMODITIES, INC. (“MLCI”)

Paragraph 13. 
Elections and Variables

(a)           Security Interest.  The term “Obligations” as
used in this Annex includes the following additional obligations:

With respect to Party
A:  None

With
respect to Party B:  None

(b)           Credit Support Obligations.

(i)            Delivery
Amount, Return Amount and Credit Support Amount.

(A)          “Delivery Amount” has the meaning specified in Paragraph
3(a).

(B)           “Return Amount” has the meaning specified in
Paragraph 3(b).

(C)           “Credit Support Amount” has the meaning specified
in Paragraph 3.

(ii)           Eligible
Collateral. The following items will qualify as “Eligible Collateral” for the
party specified:

 1
 

 

 

	
  

  	
   

  	
  MLCI

  (on behalf of Party A and

  itself)

  	
   

  	
  Party B

  	
   

  	
  Valuation

  %

  	
   

  
	
  (A) Cash

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (B) Negotiable debt obligations
  issued by the U.S. Treasury Department having an original maturity at
  issuance of not more than one year (“Treasury Bills”)

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (C) Negotiable debt obligations
  issued by the U.S. Treasury Department having an original maturity at
  issuance of more than one year but not more than ten years (“Treasury Notes”)

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  98

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (D) Negotiable debt obligations
  issued by the U.S. Treasury Department having an original maturity at
  issuance of more than ten years (“Treasury Bonds”)

  	
   

  	
  x

  	
   

  	
  x

  	
   

  	
  95

  	
  %

  

 

(iii)          Other Eligible Support. The following
items will qualify as “Other
Eligible Support” for the party specified:

	
  

  	
   

  	
  Party A

  	
   

  	
  Party B

  	
   

  
	
  Letter of Credit
  (as defined in Paragraph 13(j))

  	
   

  	
  x

  	
   

  	
  x

  	
   

  

 

The
Valuation Percentage shall be 100% of the Value of the Other Eligible Support
unless (i) a Letter of Credit Default shall apply with respect to such Letter
of Credit, or (ii) twenty (20) or fewer Business Days remain prior to the
expiration of such Letter of Credit, in either of which case the Valuation
Percentage shall be zero (0).

(iv)          Thresholds.

(A)          “Independent Amount” means with respect to Party
A:             None

“Independent Amount” means with respect to Party
B:              None

 

(B)           “Threshold”

 

For Party A, “Threshold”
shall mean the amount (the “Credit Amount”) equal to the lower of (i) the
maximum amount payable under guaranty provided by Party A’s Credit Support
Provider guaranteeing Party A’s payment obligations hereunder, if any, and (ii)
the amount set forth below under the heading “Party A Threshold” opposite the
Credit Rating for Party A’s Credit Support Provider on the relevant date of
determination, and if Party A’s Credit Support Provider’s Credit Ratings shall
not be equivalent,

 2
 

 

the [lower/higher] Credit Rating shall govern;
provided, however, that the Threshold for Party A shall be zero if (i) on the
relevant date of determination Party A’s Credit Support Provider does not have
a Credit Rating from any rating agency specified below or (ii) an Event of
Default, Potential Event of Default with respect to Party A has occurred and is
continuing; and provided further that, in the event that, and on the
date that, Party A cures the Potential Event of Default on or prior to the date
that Party A is required to post a Credit Support Amount to Party B pursuant to
a demand made by Party B pursuant to the provisions of the Credit Support Annex
on or after the occurrence of such Potential Event of Default, (i) the
Threshold for Party A shall automatically increase from zero to the Credit
Amount and (ii) Party A shall be relieved of its obligation to post the Credit
Support Amount pursuant to such demand.

	
  Party A

  Threshold

  	
   

  	
  S&P Credit Rating

  	
   

  	
  Moody’s Credit

  Rating

  
	
   

  	
   

  	
  AA- (or above)

  	
   

  	
  Aa3 (or above)

  
	
   

  	
   

  	
  A+ thru A-

  	
   

  	
  A1 thru A3

  
	
   

  	
   

  	
  BBB+

  	
   

  	
  Baa1

  
	
   

  	
   

  	
  BBB

  	
   

  	
  Baa2

  
	
   

  	
   

  	
  BBB-

  	
   

  	
  Baa3

  
	
   

  	
   

  	
  BB+

  	
   

  	
  Ba1

  
	
   

  	
   

  	
  BB

  	
   

  	
  Ba2

  
	
   

  	
   

  	
  BB-

  	
   

  	
  Ba3

  
	
   

  	
   

  	
  B+

  	
   

  	
  B1

  
	
   

  	
   

  	
  B

  	
   

  	
  B2

  
	
   

  	
   

  	
  Below B

  	
   

  	
  Below B2

  
	
   

  	
   

  	
  Unrated

  	
   

  	
  Unrated

  

 

For Party B, “Threshold”
shall mean the amount (the “Credit Amount”) equal to the lower of (i) the
maximum amount payable under guaranty provided by Party B’s Credit Support
Provider guaranteeing Party B’s payment obligations hereunder, if any, and (ii)
the amount set forth below under the heading “Party B Threshold” opposite the
Credit Rating for Party B’s Credit Support Provider on the relevant date of
determination, and if Party B’s Credit Support Provider’s Credit Ratings shall
not be equivalent, the [lower/higher] Credit Rating shall govern; provided,
however, that the Threshold for Party B shall be zero if (i) on the relevant
date of determination Party B’s Credit Support Provider does not have a Credit
Rating from any rating agency specified below or (ii) an Event of Default,
Potential Event of Default with respect to Party B has occurred and is
continuing; and provided further that, in the event that, and on the
date that, Party B cures the Potential Event of Default on or prior to the date
that Party B is required to post a Credit Support Amount to Party A pursuant to
a demand made by Party A pursuant to the provisions of the Credit Support Annex
on or after the occurrence of such Potential Event of Default, (i) the
Threshold for Party B shall automatically increase from zero to the Credit
Amount and (ii) Party B

 3
 

 

shall be relieved of its obligation to post the Credit
Support Amount pursuant to such demand.

	
  Party B

  Threshold

  	
   

  	
  S&P Credit Rating

  	
   

  	
  Moody’s Credit

  Rating

  
	
   

  	
   

  	
  AA- (or above)

  	
   

  	
  Aa3 (or above)

  
	
   

  	
   

  	
  A+ thru A-

  	
   

  	
  A1 thru A3

  
	
   

  	
   

  	
  BBB+

  	
   

  	
  Baa1

  
	
   

  	
   

  	
  BBB

  	
   

  	
  Baa2

  
	
   

  	
   

  	
  BBB-

  	
   

  	
  Baa3

  
	
   

  	
   

  	
  BB+

  	
   

  	
  Ba1

  
	
   

  	
   

  	
  BB

  	
   

  	
  Ba2

  
	
   

  	
   

  	
  BB-

  	
   

  	
  Ba3

  
	
   

  	
   

  	
  B+

  	
   

  	
  B1

  
	
   

  	
   

  	
  B

  	
   

  	
  B2

  
	
   

  	
   

  	
  Below B

  	
   

  	
  Below B2

  
	
   

  	
   

  	
  Unrated

  	
   

  	
  Unrated

  

 

(C)           “Minimum Transfer Amount” means with respect to
Party A: $1

“Minimum Transfer Amount”
means with respect to Party B: $1

(D)          “Rounding”. The Delivery Amount will be rounded
up, and the Return Amount will be rounded down, in each case to the nearest
integral multiple of $250,000.

(c)           Valuation and Timing.

(i)            “Valuation
Agent” means , for purposes of Paragraphs 3 and 5, the party
making the demand under Paragraph 3; for purposes of Paragraph 4(d), the
Secured Party for purposes of calculating the Value of the Substitute Credit
Support and Posted Credit Support involved in the substitution; and for
purposes of Paragraph 6(d), the Secured Party receiving or deemed to receive
the Distributions or the Interest Amount, as applicable; provided that in all
cases, if an Event of Default or Potential Event of Default has occurred and is
continuing with respect to the party designated as the Valuation Agent, then in
such case, and for so long as the Event of Default or Potential Event of
Default continues, the other party shall be the Valuation Agent

(ii)           “Valuation Date” means each day which is a Local
Business Day for Party A, Party B and MLCI.

(iii)          “Valuation Time” means the close of business on
the Local Business Day before the Valuation Date or date of calculation, as
applicable; provided that the calculations of Value and Exposure will be made
as of approximately the same time on the same date.

(iv)          “Notification Time” means 12:00 p.m., Central
time, on a Local Business Day.

 4
 

 

(d)           Conditions Precedent and Secured Party’s
Rights and Remedies. There shall be no “Specified Condition” with
respect to Party A or Party B. 

(e)           Substitution.

(i)            “Substitution Date” has the meaning specified in
Paragraph 4(d)(ii).

(ii)           “Consent”. If specified here as applicable, then
the Pledgor must obtain the Secured Party’s consent for any substitution
pursuant to Paragraph 4(d): Applicable, unless Eligible Credit Support is being
substituted.

(f)            Dispute Resolution.

(i)            “Resolution Time” means 12:00 p.m., Central time,
on second Local Business Day following the date on which the notice is given
that gives rise to a dispute under Paragraph 5.

(ii)           “Value”. 
For the purpose of Paragraphs 5(i)(C) and 5(ii), the Value of Posted
Credit Support will be calculated as follows: (i) in the case of Cash, the face
amount thereof; (ii) in the case of Letters of Credit, the undrawn
currently-available amount thereunder, unless a Letter of Credit Default exists
with respect to such Letter of Credit, in which case the Value of such Letter
of Credit shall be zero.

(iii)          “Alternative”. 
The provisions of Paragraph 5 will apply, except that (i)(B) shall be
deleted and the following substituted therefor:

(B) calculating the Exposure for the
Transaction(s) in dispute by each party seeking quotations at mid-market from
four Reference Market-makers.  Each party
shall disregard the “highest” and the “lowest” quotations obtained and take the
arithmetic average of the remaining two, to come up with an average “Market
Price” for the disputed Transaction(s). Each party’s average Market Price shall
then be averaged to obtain an “Average Market Price” which shall be the price
used to calculate the Exposure related to the disputed Transaction(s). If less
than four (but at least one) quotations are available to a party with respect
to a disputed Transaction(s), then such party shall take the arithmetic average
of the obtained quotations to calculate such party’s average Market Price. If
no quotations are available for a particular Transaction(s), then the Valuation
Agent’s original calculations will be used for such Transaction(s);

(g)           Holding and Using Posted Collateral.

(i)            “Eligibility to Hold Posted Collateral; Custodians”.

MLCI and its
Custodian (if any) will be entitled to hold Posted Collateral pursuant to
Paragraph 6(b) on behalf of Party A and the Merrill Parties; provided that the
following conditions applicable to it are satisfied:

(A)          Party A is not a
Defaulting Party.

(B)           Posted Collateral may
be held only in the United States.

Party B and its
Custodian (if any) will be entitled to hold Posted Collateral pursuant to
Paragraph 6(b); provided that the following conditions applicable to it are
satisfied: 

(A)          Party B is not a
Defaulting Party.

 5
 

 

(B)           Posted Collateral may
be held only in the United States.

Notwithstanding
the foregoing, MLCI, Party A and Party B hereby covenant and agree that, except
at such times as, in the case of Party A, MLCI or ML&Co., or, in the case
of Party B, it or its Credit Support Provider, as the case may be, has a Credit
Rating of at least Baa2 (Moody’s) or BBB (S&P), in the case of Party A,
MLCI, and in the case of Party B, Party B will cause all Posted Collateral
received from the other party to be entered in one or more accounts (each, a “CSA
Collateral Account”) with a Qualified Institution, each of which accounts may
include property of other parties, but will bear a title indicating the Pledgor’s
interest in said account and the Posted Collateral in said account.  In the event the Credit Ratings shall not be
equivalent, the lower Credit Rating shall govern.  In addition, the Secured Party may direct the
Pledgor to deliver Eligible Collateral directly into the Secured Party’s CSA
Collateral Account(s).  The Secured Party
may move the CSA Collateral Accounts from one Qualified Institution to another
upon reasonable notice to the Pledgor. 
The Secured Party shall cause statements concerning the Posted
Collateral to be sent to the Pledgor on request, which may not be made more
frequently than once in each calendar month. 

(ii)           “Use of Posted Collateral”. Unless Posted
Collateral is required to be held in a CSA Collateral Account pursuant to
clause (i) above, the provisions of Paragraph 6(c) will apply to (A) MLCI as “Secured
Party” on behalf of Party A and the Merrill Parties and (B) Party B.

(h)           Distributions and Interest Amount.

(i)            “Interest Rate”. 
The “Interest Rate” will be at a
rate per annum equal to the one month London Interbank Offered Rate for Dollar
deposits as may from time to time be in effect as reported in The Wall Street
Journal.  Such interest shall be
calculated on the basis of the actual number of days elapsed and on the basis
of a year of 360 days.

(ii)           “Transfer
of Interest Amount”. The Transfer of the Interest Amount will be
made on the second Local Business Day following each calendar month, and on any
Local Business Day that Posted Collateral in the form of Cash is transferred to
the Pledgor pursuant to Paragraph 3(b), upon receipt of an invoice.

(iii)          Alternative to Interest Amount.  The
provisions of Paragraph 6(d)(ii) will apply.

(i)            Additional Representation(s).  Each party represents to the other in
accordance with Paragraph 9 that it is not and will not become a party to or
otherwise be bound by any agreement, other than this Agreement, or any Master
Netting Agreement or similar Agreement thereto (to which the three parties
hereto are parties thereto), which restricts in any manner the rights of any
present or future holder of any of the Posted Collateral with respect hereto. 

(j)            Other Eligible Support and Other Posted
Support.

(i)            “Value” with respect to Other
Eligible Support and Other Posted Support means the stated amount (undrawn
portion) of any Letter of Credit maintained by the Pledgor (or its Credit
Support Provider) for the benefit of the Secured Party, unless a Letter of
Credit Default exists with respect to such Letter of Credit, in which case the
Value of such Letter of Credit shall be zero.

 6
 

 

(ii)           “Transfer” with respect to
Other Eligible Support and Other Posted Support means:

(A)          For
purposes of Paragraph 3(a), delivery of the Letter of Credit by the Pledgor or
issuer of the Letter of Credit to the Secured Party at the address of the
Secured Party specified in the Notices Section of this Agreement, or delivery
of an executed amendment to such Letter of Credit (extending the term or
increasing the amount available to the Secured Party thereunder) by the Pledgor
or the issuer of the Letter of Credit to the Secured Party at the address of
the Secured Party specified in the Notices Section of this Agreement; and,

(B)           For
purposes of Paragraph 3(b), by the return of an outstanding Letter of Credit by
the Secured Party to the Pledgor, at the address of the Pledgor specified in
the Notices Section of this Agreement, or delivery of an executed amendment to
the Letter of Credit in form and substance satisfactory to the Pledgor
(reducing the amount available to the Secured Party thereunder) by the Pledgor
or the issuer of the Letter of Credit to the Secured Party at the Secured Party’s
address specified in the Notices Section of this Agreement. If a Transfer is to
be effected by a reduction in the amount of an outstanding Letter of Credit
previously issued for the benefit of the Secured Party, the Secured Party shall
not unreasonably withhold its consent to a commensurate reduction in the amount
of such Letter of Credit and shall take such action as is reasonably necessary
to effectuate such reduction.

(iii)          “Letter of
Credit Provisions”.

Other
Eligible Support and Other Posted Support in the form of a Letter of Credit
shall be subject to the following provisions:

(A)          Unless otherwise agreed
in writing by the parties, each Letter of Credit shall be Transferred in
accordance with the provisions of this Annex, and the Secured Party shall be
the named beneficiary under each Letter of Credit.  The Pledgor shall (i) cause the renewal
of each Transferred Letter of Credit on a timely basis as provided in the
relevant Letter of Credit in order to maintain the then-applicable Credit
Support Amount requirements, (ii) if the issuer of a Letter of Credit
previously Transferred to the Secured Party has indicated its intent not to
renew such Letter of Credit, Transfer a substitute Letter of Credit or other
Eligible Collateral having the same Value, and (iii) if the issuer of a Letter
of Credit shall commit a Letter of Credit Default of the type specified in
clause (ii) or (iii) of the definition thereof (including but not limited to
such issuer’s failure to honor the Secured Party’s properly documented request
to draw thereon), Transfer for the benefit of the Secured Party Eligible
Collateral within one (1) Local Business Day after the Pledgor receives notice
of such dishonor, provided that, at the time the Pledgor is required to perform
in accordance with (i), (ii), or (iii) above, the Delivery Amount applicable to
the Pledgor equals or exceeds the Pledgor’s Minimum Transfer Amount.

(B)           The Pledgor may, at its
option, Transfer a Letter of Credit by (A) causing the issuing bank to
execute an amendment increasing the outstanding amount available for drawing
under a previously Transferred Letter of Credit or (B) establishing one or more
additional Letters of Credit.  If
(i) the Pledgor shall fail to cause the issuing bank to renew, substitute,
or sufficiently increase the amount of a Transferred Letter of Credit, Transfer
one or more additional Letters of Credit, or otherwise Transfer sufficient
Eligible Credit Support and 

 7
 

 

(ii) the Delivery Amount applicable to the
Pledgor equals or exceeds the Pledgor’s Minimum Transfer Amount as a result of
such failure, then the Secured Party may draw on the entire, undrawn portion of
any Transferred Letter of Credit upon submission to the bank issuing such
Letter of Credit an L/C Certificate specifying the amounts due and owing to the
Secured Party in accordance with the stated requirements of the Letter of
Credit. The Pledgor shall remain liable for any amounts due and owing to the
Secured Party and remaining unpaid after the application of the amounts so
drawn by the Secured Party.

(C)           Upon the occurrence of
a Letter of Credit Default solely of the type specified in clause (i) of the
definition thereof, the Pledgor agrees to deliver a substitute Letter of Credit
or other Eligible Credit Support to the Secured Party in an amount at least
equal to that of the Letter of Credit to be substituted on or before the first
(1st) Business Day after written demand by the Secured Party.

(D)          Notwithstanding
Paragraph 10, in all cases, the costs and expenses (including but not limited
to the reasonable costs, expenses, and external attorney’s fees of the Secured
Party) of (i) causing an issuing bank to establish, renew, substitute,
cancel, increase or reduce the amount available for drawing under (as the case
may be) one or more Letters of Credit or (ii) the Secured Party in
exercising any of its rights, powers or obligations under Paragraph 13(m) shall
be borne by the Pledgor.

(iv)          “Certain Rights and Remedies”.

Secured Party’s Rights and Remedies. For purposes
of Paragraph 8(a)(ii), the Secured Party may draw on any Transferred Letter of
Credit in an aggregate amount equal to any amounts payable by the Pledgor with
respect to any Obligations and hold or apply the proceeds thereof in accordance
with the Agreement.

(v)           “Additional
Definitions”.  As used in
this Annex:

“Credit Rating”
shall mean, with respect to a party or entity on any date of determination, the
respective rating then assigned to such party’s or entity’s unsecured, senior
long-term debt or deposit obligations (not supported by third-party credit
enhancement) by S&P or Moody’s, as applicable; and if
no rating is assigned to such party’s or entity’s unsecured, senior, long-term
debt or deposit obligations by any of S&P or Moody’s, the general issuer
credit rating or long-term issuer rating, as applicable, assigned by such
rating agencies to such party or entity.

“Letter of Credit”
shall mean an irrevocable, transferable, standby Letter of Credit, issued by a
Qualified Institution, with such changes to the terms in a form as the issuing
bank may require and which is acceptable to the party in whose favor the Letter
of Credit is issued.

“Letter of Credit Default” shall mean with
respect to an outstanding Letter of Credit, the occurrence of any of the following
events: (i) the issuer of such Letter of Credit shall fail to maintain a Credit
Rating of at least “A-” by S&P or “A3” by Moody’s; (ii) the issuer of the
Letter of Credit shall fail to comply with or perform its obligations under
such Letter of Credit if such failure shall be continuing after the lapse of
any applicable grace period; (iii) the issuer of such Letter of Credit shall
disaffirm, disclaim, repudiate or reject, in whole or in part, or challenge the
validity of, such Letter of Credit; (iv) such Letter of Credit shall expire or
terminate, or shall fail or cease to be in full force and effect, prior to the
stated expiration date on the Letter of Credit; or (v) any event analogous to
an event specified in Section 5(a)(vii) 

 8
 

 

of this Agreement
shall occur with respect to the issuer of such Letter of Credit provided,
however, that no Letter of Credit Default shall occur in any event with
respect to a Letter of Credit after the time such Letter of Credit is required
to be canceled or returned to the Pledgor in accordance with the terms of this
Annex.

“Moody’s” means Moody’s Investors
Services, Inc. or its successor.

“Qualified
Institution” means a major
U.S. commercial bank or a foreign bank that is not an affiliate of any party to
this Agreement with a U.S. branch office which is not the Pledgor (or a
subsidiary or Affiliate of the Pledgor) and with a Credit Rating of at least “A-”
by S&P or “A3” by Moody’s.

“Reference Market-maker” means a
leading broker, dealer or published index in the relevant market selected by a
party determining its Exposure in a commercially reasonable manner.  Such leading dealers shall not be parties to
this Agreement or Affiliates of a party to this Agreement.

“Security
Agreement” shall mean an agreement which creates or
provides for a security interest.

“S&P” means the Standard &
Poor’s Rating Services, a Division of The McGraw-Hill Companies, Inc., or its
successor.

(k)           Demands and Notices. All demands,
specifications and notices under this Annex will be made pursuant to the
Notices Section of this Agreement, unless otherwise specified here:

 

	
  Party A:

  	
   

  	
  Attn: Credit Risk Management

  	
   

  	
  Telephone:

  Facsimile:

  	
   

  	
  (713) 497-1052

  (713) 497-1058

  
	
   

  	
   

  	
  Street Address:

  1000 Main St., 11th Floor

  Houston, TX 77002

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Mailing Address:

  P O Box 4455

  Houston, TX 77210-4455

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to (other than copies of notices in
  respect of demands under Paragraph 3):

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Merrill Lynch Commodities, Inc.

  20 East Greenway Plaza, 7th Floor

  Houston, Texas 77253-3327

  Attn: Legal

  Fax: 713-544-5551

  Phone: 713-544-4975

  	
   

  	
  Telephone:

  Facsimile:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party B:

  	
   

  	
   

  	
   

  	
  Telephone: 

  Facsimile:

  	
   

  	
   

  

 

 9
 

 

(l)            Addresses for Transfers.

 

	
  Party A:

  U. S. Dollars

  	
   

  	
  Payment to:

  For Account of:

  Account #:

  Federal ABA#:

  	
   

  	
  JP Morgan Chase Bank,

  New York, NY

  Merrill Lynch Commodities, Inc.

  323009980

  021000021

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party B:

  U.S. Dollars

  	
   

  	
  Payment to:

  For Account of:

  Account #:

  Federal ABA#:

  	
   

  	
   

  

 

(m)          Other Provisions. 

(i)           Paragraph 6(d)(i)is
hereby amended by adding the following sentence:

“Subject to Paragraph
4(a) and only to the extent contemplated in the previous sentence, if a Secured
Party receives or is deemed to receive Distributions on a day that is not a
Local Business Day, or after its close of business on a Local Business Day, it
will Transfer Distributions to the Pledgor on the second following Local
Business Day.”

(ii)          Paragraph 7 is
amended as follows: In clause (i), the words “and/or Other Eligible Support”
are inserted on line 1 after the words “of Eligible Collateral”. 

(iii)         This Credit Support Annex
is a Security Agreement under the provisions of the Uniform Commercial Code of
the State of New York.

(iv)         Power of
Attorney.   If the Pledgor
fails (i) to execute and deliver to the Secured Party such financing
statements, specific assignments, or other documents as provided in Paragraph
11(b) or (ii) to do such other things relating to any Posted Collateral as the
Secured Party may reasonably request in order to protect and maintain its
security interest in such Posted Collateral and to protect, preserve, and
realize upon such Posted Collateral, then the Secured Party is hereby
authorized (but not required) by the Pledgor to complete and execute such
financing statements, specific assignments, and other documents as the Secured
Party deems necessary or appropriate for such purposes. The Pledgor hereby
appoints the Secured Party, during the term of this Agreement, as the Pledgor’s
agent and attorney-in-fact to complete and execute such financing statements,
specific assignments and other documents and to perform all other acts which the
Secured Party may deem necessary or appropriate to protect and maintain its
security interest in any Posted Collateral and to protect, preserve, and
realize upon such Posted Collateral. The power-of-attorney granted herein to
the Secured Party is coupled with an interest and is irrevocable during the
term of this Agreement.

(v)           UCC.  Each party agrees that the provisions of
this Agreement supersede and replace in their entirety any requirements of law
relating to adequate assurance of future performance, including without
limitation Article 2 of the Uniform Commercial Code.

(vi)         References throughout
this Credit Support Annex to “Swap Transactions” are deleted.

 10
 

 

(vii)        The definition of “Exposure”
in Paragraph 12 of the Annex is hereby amended to read in its entirety as
follows:  

‘Exposure’
means for any Valuation Date or other date for which Exposure is calculated and
subject to Paragraph 5 in the case of a dispute, the amount, if any, that
would be payable to a party that is the Secured Party by the other party
(expressed as a positive number) or by a party that is the Secured Party to the
other party (expressed as a negative number) pursuant to Section 6(e)(ii)(1) of
this Agreement if all Transactions were being terminated as of the relevant
Valuation Time, on the basis that (i) that party is not the Affected Party and
(ii) United States Dollars is the Termination Currency; provided
that for purposes of
determining Exposure, the Close-out
Amount will be determined by the Valuation Agent on behalf of that party using
its estimates at mid-market of the amounts that would be paid for transactions
providing the economic equivalent of (x) the material terms of the
Transactions, including the payments and deliveries by the parties under
Section 2(a)(i) in respect of the Transactions that would, but for the
occurrence of the relevant Early Termination Date, have been required after
that date (assuming satisfaction of the conditions precedent in Section
2(a)(iii)); and (y) the option rights of the parties in respect of the
Transactions.

(n)           Credit Sleeve
Provisions.  

(i)            In
connection with the enhanced credit structure provided by MLCI and Merrill Lynch & Co., Inc (together with MLCI, the “Merrill Parties”) to Party A described
in Part 9 of the Schedule, Party A, Party B and MLCI agree that: 

(A)          Party
B shall Transfer all Eligible Credit Support required to be Transferred
hereunder by Party B directly to the account provided in paragraph 13(l) for
Party A and, any such Transfer, to the extent thereof, shall satisfy Party B’s
obligations to make Transfers to Party A hereunder;

(B)           MLCI
shall Transfer all Eligible Credit Support required to be Transferred hereunder
by Party A directly to the account provided in paragraph 13(l) for Party B and,
any such Transfer, to the extent thereof, shall satisfy Party A’s obligations
to make Transfers to Party B hereunder;

(C)           Party
A hereby unconditionally and irrevocably authorizes and directs MLCI to make
and receive, on behalf of Party A and the Merrill Parties, and MLCI hereby unconditionally
agrees to make and receive, on behalf of Party A and the Merrill Parties, the
Transfers described in clauses (A) and (B) above;

(D)          Party
A has pledged and assigned to the Merrill Parties its rights under this Credit
Support Annex to receive, hold and use the Eligible Credit Support transferred
to MLCI hereunder in accordance with the terms of this Credit Support Annex on
behalf of Party A and on behalf of the Merrill Parties in connection with the
Collateral Assignment;

(E)           Party
A and Party B consent to the Collateral Assignment, and agree to perform their
obligations, under Part 9 of the Schedule for the benefit of the Merrill
Parties;

(F)           Any
amendment, supplement, waiver or other modification of, or any forbearance from
exercising any rights with respect to the terms or provisions contained in this
Credit Support Annex requires the express written consent of Party A, Party B
and MLCI; and

 11
 

 

(G)           Each
of MLCI and Party B makes the representations to the other party set forth in
Paragraph 9 of this Credit Support Annex.

(ii)           MLCI
agrees to comply with the confidentiality obligations described in Part 5(j) of
the Schedule. 

(iii)         All information that is furnished in writing
by or on behalf of it to any of the other parties hereto is, as of the date of
the information, true, accurate and complete in every material respect, or, in
the case of audited or unaudited financial statements, fairly present the
financial condition of the relevant entity and have been prepared in accordance
with generally accepted accounting principles, consistently applied, except as
otherwise indicated in the notes of such financial statements. [Note: This
provisions should be consistent with Section 3(d) of the ISDA Master Agreement
as modified by the Schedule.] 

(iv)          Set-off.  Paragraph 6(f) of the Agreement shall be
deleted in its entirety and replaced with the following: “Party B shall make
each payment due under this Agreement without deduction, set-off or
counterclaim, except (A) as specifically provided in Section 2 of the
Agreement, and (B) that Party B, if it is the Non-defaulting or Non-affected
Party, shall be entitled to set off the Early Termination Amount owed by Party
B to Party A under this Agreement (whether pursuant to Section 6 or under any
other provision under this Agreement) against amounts owed by Party A to Party
B under this Agreement (whether pursuant to Section 6 or under any other
provision under this Agreement).  Party
A, or MLCI on its behalf, shall make each payment due under this Agreement without
deduction, set-off or counterclaim, except (A) as specifically provided in
Section 2 of the Agreement, and (B) that Party A, or MLCI on its behalf, if
Party A is the Non-defaulting or Non-affected Party, shall be entitled to set
off the Early Termination Amount owed by Party A to Party B under this
Agreement (whether pursuant Section 6 or under any other provision under this
Agreement) against amounts owed by Party B to Party A  under this Agreement (whether pursuant to
Section 6 or under any other provision under this Agreement).  For the avoidance of doubt:

(A)          the
term “Party A” means Reliant Energy Power Supply, LLC (and any other Person
that succeeds to all of the rights and obligations of Reliant Energy Power
Supply, LLC under this Agreement in accordance with its terms), and ‘Party A’
and shall in no event include any of its affiliates or any other Person except
as stated above; and 

(B)           the
term “Party B” means [insert legal name of Party B] (and any other Person that
succeeds to all of the rights and obligations of [insert legal name of Party B]
under this Agreement in accordance with its terms), and ‘Party B’ and shall in
no event include any of its affiliates or any other Person except as stated
above.

(v)           Except
as provided in Part 9(a) of the Schedule, the only rights, covenants and
obligations in the Agreement that shall be applicable to MLCI are those that
are set forth in provisions that either specifically refer to MLCI by name, or
that specifically refer to “each of the three parties”.  All of the other provisions in the Agreement
that refer to: “Pledgor”, “Secured Party”, “Valuation Agent”, “Defaulting Party”,
“Affected Party”, “Disputing Party”, “a party”, “appropriate party”, “other
party”, “the parties”, “both parties”, “each party”, “either party” or “neither
party” shall not be interpreted as references to MLCI, but shall be interpreted
as references to: Party A;

 12
 

 

Party B; both Party A and
Party B; each of Party A and Party B; either Party A or Party B; or neither
Party A nor Party B as is indicated by the context.  

(vi)          MLCI
Termination Right.  Each
of MLCI’s rights and obligations hereunder, including its rights and
obligations to Transfer and receive Eligible Credit Support, may be terminated
at any time by notice by MLCI to Party A and Party B given in accordance with
the notice provisions of the Agreement, effective upon receipt of such notice
by MLCI or such later date as may be specified in such notice; provided that
MLCI’s rights and obligations hereunder shall continue in full force and
effect, and shall be irrevocable, with respect to any obligation, including its rights and obligations to Transfer and receive
Eligible Credit Support, arising under any Transaction under and as defined in
the Agreement entered into prior to the effectiveness of such notice of
termination.

 13
 

 

SIGNATURE
PAGE

TO

PARAGRAPH
13

OF THE

CREDIT
SUPPORT ANNEX

AMONG

RELIANT
ENERGY POWER SUPPLY, LLC (PARTY
“A”)

AND

	
  

  	
   

  	
  (PARTY “B”)

  

 

AND

MERRILL
LYNCH COMMODITIES, INC. (“Merrill”)

IN
WITNESS WHEREOF, the parties hereto have executed this document as of the date
specified on the first page hereof.

	
  RELIANT ENERGY POWER SUPPLY, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MERRILL LYNCH COMMODITIES, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
										

 

 14
 

 

Exhibit E1

To Credit Sleeve and
Reimbursement Agreement

Reliant
Energy — Retail Risk Policy

[***]

***    The content of this Exhibit E1
(consisting of 13 pages) has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

 15
 

 

Exhibit E2

To Credit Sleeve and
Reimbursement Agreement

Wholesale
Risk Control Policy

[***]

***    The content of this Exhibit E2
(consisting of 31 pages) has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

 16
 

 

Exhibit F

To Credit Sleeve and
Reimbursement Agreement

ERCOT
Asset List

[***]

***    The content of this Exhibit F
(consisting of 1 page) has been omitted and filed separately with the Securities
and Exchange Commission. Confidential treatment has been requested with respect
to the omitted portions.

 17Exhibit
10.4

ACME
PACKET, INC.

INCENTIVE STOCK
OPTION AGREEMENT

(Form of Incentive Stock Option Agreement)

This INCENTIVE
STOCK OPTION AGREEMENT, dated as of <date> (this “Agreement”), is
between ACME PACKET, INC., a Delaware corporation (the “Company”), and
<Employee Name> (the “Optionee”). 
Capitalized terms used herein without definition shall have the meaning
ascribed to such terms in the Company’s 2006 Equity Incentive Plan, a copy of
which is attached hereto as Exhibit A (the “Plan”).

1.             Grant  of  Option.  Pursuant to the Plan, the Company grants to
the Optionee an option (the “Option”) to purchase from the Company all
or any number of an aggregate of <Number of Shares> shares, subject to
adjustment pursuant to Section 8 of the Plan (the “Option  Shares”),
of the Company’s common stock, $.001 par value per share, at a price of
$<price> per share.  The Option is
granted as of <Date of Grant> (the “Grant  Date”).

2.             Character  of  Option.  The Option is intended to be treated as an “incentive
stock option” within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”).

3.             Duration  of  Option.  Unless subject to earlier expiration or
termination pursuant to the terms of the Plan, the Option shall expire on the
ten year anniversary of the Grant Date.

4.             Exercise  of  Option.

(a)           Vesting Schedule.  The
Option may be exercised, at any time and from time to time until its expiration
or termination, for any or all of those Option Shares in respect of which the
Option shall have become exercisable, in accordance with the provisions set
forth below in this Section 4, on or at any time prior to the date of any such
exercise.  Subject to the provisions of
the Plan (including, without limitation, the provisions of Section 7.1(e) of
the Plan), the Option shall become exercisable for (i) 25% of the Option Shares
on [____________] (the “First  Vesting  Date”), and (ii) for
the remaining Option Shares in a series of twelve (12) quarterly installments
thereafter, with each installment being as nearly equal as practicable (as
determined by the Company in its reasonable discretion), with the first of such
quarterly installments becoming exercisable on the first day of the first
calendar quarter after the First Vesting Date and an additional of such quarterly
installments becoming exercisable on the first day of each calendar quarter
thereafter (other than the last of such quarterly installments which shall
become exercisable on the third anniversary of the First Vesting Date if such
third anniversary is later than the first day of the calendar quarter in which
such last 

 

 

installment would have been
otherwise exercisable) until the Option shall have become exercisable for all
of the Option Shares(1).  Notwithstanding
anything expressed or implied to the contrary in the foregoing provisions of
this Section 4(a), (A) the exercisability of the Option shall, as provided in
Section 4(b) below, be automatically Accelerated under certain circumstances
and (B) the exercisability of the Option may, as provided in Section 7.1(d) of
the Plan, at any time be Accelerated in the discretion of the Committee.

(b)           Acceleration of Vesting.  Notwithstanding
anything in Section 4(a) above to the contrary but subject to the provisions of
Section 4(c) below, in the event that (A) a Change of Control occurs prior to
the time that the Option is exercisable in full for all of the Option Shares,
(B) the Optionee is an employee of the Company immediately prior to such Change
of Control and (C) (i) the Optionee suffers any material adverse change in authorities, duties or responsibilities, (ii) the
Optionee voluntarily terminates his employment with the Company following any
relocation of the Optionee (without his written consent) by the Company to a
location that increases Optionee’s commute prior to such relocation by more
than fifty (50) miles or (iii) the Company terminates the Optionee’s employment
with the Company for any reason or no reason (other than Cause, as such term is
defined in Section 4(c) below), in the case of any of the foregoing clauses
(i), (ii) or (iii) at any time within 365 days after the occurrence of such
Change of Control, then the exercisability of the Option shall be automatically
Accelerated such that the Option shall become exercisable for an additional number
of Option Shares equal to fifty percent (50%) of the then Unvested Option
Shares (as defined below in Section 4(c) below).  The foregoing provisions of this Section 4(b)
shall be implemented ratably across all Unvested Option Shares that are subject
to the Option immediately prior to automatic Acceleration pursuant to this
Section 4(b) regardless of when the Option would have otherwise become
exercisable for such Unvested Option Shares pursuant to Section 4(a) above.
Notwithstanding anything express or implied to the contrary in the foregoing
provisions of this Section 4(b), the Option may, as provided in Section 7.1(d)
of the Plan, at any time be further accelerated at the discretion of the
Committee.

(c)           Continuation of Employment by
Successor.  If the Optionee is an
employee of the Company immediately prior to a Change of Control, then
employment of the Optionee following such Change of Control by any person or
entity that is the successor or acquiror of the Company as a result of such
Change of Control or that is the parent company or affiliate of such successor
or acquiror (in either case, the “Successor  Employer”) shall be
treated under this Agreement as if the Optionee continued to be employed by the
Company, and in such context any reference in this Agreement to the Company
shall be deemed to be a reference to the Successor Employer.

(1)             The
specific vesting schedule of each option granted under the Plan is determined
at the discretion of the Committee on a case-by-case basis at the time of
grant.

 2
 

 

 

(d)           Definitions.

“Cause” shall mean (i) if the
Optionee is convicted of, or pleads guilty or no contest to, a felony or any
crime involving moral turpitude, deceit, dishonesty or fraud; (ii) any act of
embezzlement, theft, sexual harassment, discrimination, fraud or other acts of
a criminal nature by the Optionee in his dealings with the Company or its
employees or representatives, as determined by the Board of Directors of the
Company; (iii) the breach by the Optionee of any material term of an agreement
with the Company or any of its subsidiaries, including covenants not to compete
and provisions relating to confidential information and intellectual property
rights; or (iv) any failure by the Optionee to comply with a specific directive
given by the Company’s executive officers or Board of Directors which failure
has not been cured within 30 days after written notice from the Company.

“Unvested  Option  Shares” shall mean, at the
relevant time of reference thereto, those Option Shares for which the Option has
not yet become exercisable at such time pursuant to Section 4(a) and without
giving effect to the provisions of Section 4(b) above.

5.             Transfer  of  Option.  Other than as expressly permitted by the
provisions of Section 7.1(f) of the Plan, the Option may not be transferred
except by will or the laws of descent and distribution and, during the lifetime
of the Optionee, may be exercised only by the Optionee.

6.             Incorporation  of  Plan
Terms.  The Option is granted
subject to all of the applicable terms and provisions of the Plan, including,
but not limited to, the limitations on the Company’s obligation to deliver
Option Shares upon exercise set forth in Section 9.1 (Violation of Law),
Section 9.2 (Corporate Restrictions on Rights in Stock), Section 9.3 (Investment
Representations) and Section 9.7 (Tax Withholding).

7.             Miscellaneous.  This Agreement shall be construed and
enforced in accordance with the internal, substantive laws of The Commonwealth
of Massachusetts and shall be binding upon and inure to the benefit of any
successor or assign of the Company and any executor, administrator, trustee,
guardian, or other legal representative of the Optionee.

[The
remainder of this page is intentionally left blank.]

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IN WITNESS
WHEREOF, the parties have executed this Incentive Stock Option Agreement as a
sealed instrument as of the date first above written.

 

	
  ACME PACKET, INC.

  	
   

  	
  OPTIONEE

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Optionee’s Address:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 4

 

 

Exhibit A

2006 EQUITY INCENTIVE
PLAN

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