Document:

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                                                                  DRAFT  1/25/02

                                                                   EXHIBIT 10.27

                 ASSIGNMENT, CONVEYANCE AND ASSUMPTION AGREEMENT
                                   (OPERATING)

         This Assignment, Conveyance and Assumption Agreement, dated as of
February 4 2002, is entered into by and among U.S. PROPANE, L.P., a Delaware
limited partnership (the "Partnership") and HERITAGE HOLDINGS, INC., a Delaware
corporation (the "Company").

                                    RECITALS

         WHEREAS, the Company was heretofore the general partner of each of
Heritage Propane Partners, L.P. ("HPP") and Heritage Operating, L.P. ("HOP"),
both Delaware limited partnerships (HPP and HOP are collectively the "Limited
Partnerships") and the Partnership is the new general partner of the Limited
Partnerships pursuant to Amendment No. 4 to the Amended and Restated Agreement
of Limited Partnership of HPP and Amendment No. 2 to the Amended and Restated
Agreement of Limited Partnership of HOP; and

         WHEREAS, pursuant to the terms hereof the Company has agreed to assign
and transfer to the Partnership all of the Contracts in accordance with the
terms hereof.

         NOW THEREFORE, in consideration of their mutual undertakings and
agreements hereunder; the parties to this Agreement undertake and agree as
follows:

                                    ARTICLE I
                                   DEFINITIONS

         The following capitalized terms shall have the meanings given below.

         "Agreement" means this Assignment, Conveyance and Assumption Agreement.

         "Contracts" means all of the contracts, permits, understandings,
relationships, and other agreements entered into by the Company in its capacity
as the general partner of the Limited Partnerships or for the benefit of the
Limited Partnerships for the operation and support of the

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Business, of every kind, character and description, whether written or oral,
whether accrued or contingent, and however evidenced or memorialized, including,
but not limited to:

                  (a) all rights in real property or personal property arising
         under leases, easements or other contracts or arrangements;

                  (b) all agreements for, or relating to, storage tanks, motor
         vehicles, trailers, tanks, railcars, and related equipment, whether
         owned or leased;

                  (c) every contract, agreement, arrangement, grant, trust or
         other arrangement or understanding of any kind;

                  (d) any and all right, claims and causes of action that the
         Company may have under warranties, insurance policies or otherwise
         against any person or property, whether known or unknown, accrued or
         contingent, and whether or not reflected on the books and records of
         the Company insofar as any of the same relate to the Business;

                  (e) every right to sell or distribute any product or service;

                  (f) all know-how, every trade secret, every customer list and
         all other confidential information of every kind;

                  (g) every customer relationship, employee relationship,
         supplier relationship and other relationship of any kind;

                  (h) every business conducted prior to the Effective Time;

                  (i) every other proprietary right of any kind;

                  (j) all governmental licenses, permits and authorizations of
         every kind;

                  (k) copies of all of the books, records, papers and
         instruments of the Company relating to the Business, of whatever nature
         and wherever located, including without limitation, accounting and
         financial records, documentation related to the Business,

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         customer correspondence, sales records, credit reports and other data
         relating to the Business;

                  (l) any and all monies, rents, revenues, accounts receivable
         or other proceeds receivable or owing to the Company as it relates to
         the Business;

                  (m) all deposits, prepayments and prepaid expenses;

                  (n) all unbilled receivables;

                  (o) all stock, partnership or other equity interests in any
         entity as the same relates to the Business;

                  (p) all trade names, trademarks, service marks, logos, marks
         and symbols of any kind, together with all goodwill associated
         therewith and all other trade names, trademarks and service marks;

                  (q) all rights, benefits, privileges and appurtenances
         pertaining to any of the foregoing; excluding however, any of such
         assets that constitute Excluded Assets.

         "Assumed Liabilities" means all of the Company's liabilities arising
from or relating to the Business arising under the Contracts, as of the
Effective Time, of every kind, character and description, whether known or
unknown, accrued or contingent, and whether or not reflected on the books and
records of the Company as of the Effective Time, excluding, however, any of such
liabilities that constitute Excluded Liabilities.

         "Business" means the operations conducted by the Company as the general
partner of Heritage Operating, L.P.

         "Company" has the meaning assigned to such term in the opening
paragraph of this Agreement.

         "Effective Time" means the time that the Partnership becomes the
general partner of the Limited Partnerships.

         "Excluded Assets" means those assets of the Company described on
Schedule 1 hereto.

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         "Excluded Liabilities" means all of the liabilities described on
Schedule 2 hereto.

         "Restriction" has the meaning assigned to such term in Section 9.2.

         "Restriction-Asset" has the meaning assigned to such term in
Section 9.2.

         "Specific Conveyances" has the meaning assigned to such term in
Section 2.2.

                                   ARTICLE II
                          ASSIGNMENT TO THE PARTNERSHIP

         2.1 Assignment. The Company, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby grants,
assigns, transfers and conveys to the Partnership, its successors and assigns,
subject to the terms of this Agreement, for its and their own use forever, all
right, title and interest in and to the Contracts. The Partnership hereby
accepts the Contracts, TO HAVE AND TO HOLD the Contracts unto the Partnership,
its successors and assigns, subject, however, to the terms and conditions stated
in this Agreement, forever.

         2.2 Specific Transfers. To further evidence this assignment and more
fully and effectively convey record title with respect to any real property
included in the Contracts (if any), the Company will execute and deliver to the
Partnership such other documents as may be necessary to effect the purposes of
this Agreement (a "Specific Conveyance"). Any Specific Conveyance is not
intended to modify, and shall not modify, any of the terms, covenants and
conditions herein set forth and is not intended to create, and shall not create,
any additional covenants or warranties of or by the Company.

                                   ARTICLE III
                                    [OMITTED]

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                                   ARTICLE IV
                        ASSUMPTION OF CERTAIN LIABILITIES

         4.1. Assumption of Certain Liabilities by the Partnership. In
connection with the assumption and transfer of the Contracts to the Partnership
by the Company, the Partnership hereby assumes and agrees to duly and timely
pay, perform and discharge the Assumed Liabilities, to the full extent that the
Company has been heretofore or would have been in the future were it not for the
execution and delivery of this Agreement obligated to pay, perform and discharge
the Assumed Liabilities; provided, however, that said assumption and agreement
to duly and timely pay, perform and discharge the Assumed Obligations shall not
increase the obligation of HOP with respect to the Assumed Liabilities beyond
that of the Company, waive any valid defense that was available to the Company
with respect to the Assumed Liabilities or enlarge any rights or remedies of any
third party under any of the Assumed Liabilities.

                                    ARTICLE V
                                 INDEMNIFICATION

         5.1 Indemnification With Respect to Excluded Liabilities. The Company
shall indemnify, defend and hold harmless the Partnership, its their respective
officers and directors and their respective successors and assigns, from and
against any and all claims, demands, costs, liabilities (including, without
limitation, liabilities arising by way of active or passive negligence) and
expenses (including court costs and reasonable attorneys' fees) of every kind,
character and description, whether known or unknown, accrued or contingent, and
whether or not reflected on the books and records of the Company as of the
Effective Time, arising from or relating to the Excluded Liabilities.

         5.2 Indemnification With Respect to Assumed Liabilities. The
Partnership shall indemnify, defend and hold harmless the Company, its officers
and directors, its successors and assigns from and against any and all claims,
demands, costs, liabilities (including, without

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limitation, liabilities arising by way of active or passive negligence) and
expenses (including court costs and reasonable attorneys' fees) of every kind,
character and description, whether known or unknown, accrued or contingent, and
whether or not reflected on the books and records of the Company as of the
Effective Time, arising from or relating to the Assumed Liabilities.

                                   ARTICLE VI
                               STATUS OF CONTRACTS

         6.1 Encumbrances. The assignment of the Contracts made under Section
2.1 is made expressly subject to (a) all recorded and unrecorded liens,
encumbrances, agreements, defects, restrictions, adverse claims and all laws,
rules, regulations, ordinances, judgments and orders of governmental authorities
or tribunals having or asserting jurisdiction over the Contracts of the business
and operations conducted thereon or therewith, in each case to the extent the
same are valid, enforceable and affect the Contracts, including, without
limitation, the Assumed Liabilities and (b) all matters contained in any
Specific Conveyance.

         6.2 Disclaimer of Warranties; Subrogation.

                  (a) THE COMPANY IS CONVEYING THE CONTRACTS "AS IS" WITHOUT
         REPRESENTATION OR WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY (ALL
         OF WHICH THE COMPANY HEREBY DISCLAIMS), AS TO (i) TITLE, (ii) FITNESS
         FOR ANY PARTICULAR PURPOSE OR MERCHANTABILITY OR DESIGN OR QUALITY, OR
         (iii) ANY OTHER MATTER WHATSOEVER. THE PROVISIONS OF THIS SECTION 6.2
         HAVE BEEN NEGOTIATED BY THE PARTNERSHIP AND THE COMPANY AFTER DUE
         CONSIDERATION AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION
         OF ANY REPRESENTATIONS OR WARRANTIES OF THE COMPANY, WHETHER EXPRESS,
         IMPLIED OR STATUTORY, WITH RESPECT TO THE

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         ASSETS THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT,
         OR OTHERWISE, EXCEPT AS EXPRESSLY SET FORTH HEREIN.

                  (b) The assignment of the Contracts made under Section 2.1 is
         made with full rights of substitution and subrogation of the
         Partnership, and all persons claiming by, through and under the
         Partnership, to the extent assignable, in and to all covenants and
         warranties by the predecessors-in-title of the Company, and with full
         subrogation of all rights accruing under applicable statutes of
         limitation and all rights of action of warranty against all former
         owners of the Contracts.

                  (c) The Company and the Partnership agree that the disclaimers
         contained in this Section 6.2 are "conspicuous" disclaimers. Any
         covenants implied by statute or law by the use of the words "grant,"
         "convey," "bargain," "sell," "assign," "transfer," "deliver," or "set
         over" or any of them or any other words used in this Agreement are
         hereby expressly disclaimed, waived and negated.

                                   ARTICLE VII
                               FURTHER ASSURANCES

         7.1 Company Assurances. From time to time after the date hereof, and
without any further consideration, the Company shall execute, acknowledge and
deliver all such additional assignments, bills of sale, conveyances,
instruments, notices, releases, acquittances and other documents, and will do
all such other acts and things, all in accordance with applicable law, as may be
necessary or appropriate to more fully assure the Partnership, its successors
and assigns, all of the properties, rights, interests, estates, remedies, powers
and privileges by this Agreement granted to the Partnership or intend so to be.

         7.2 Partnership Assurances. From time to time after the date hereof,
and without any further consideration, the Partnership shall execute,
acknowledge and deliver all such additional

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instruments, notices and other documents, and will do all such other acts and
things, all in accordance with applicable law, as may be necessary or
appropriate to more fully and effectively carry out the purposes and intent of
this Agreement.

                                  ARTICLE VIII
                                POWER OF ATTORNEY

         The Company hereby constitutes and appoints the Partnership, its
successors and assigns, its true and lawful attorney-in-fact with full power of
substitution for it and in its name, place and stead or otherwise on behalf of
the Company, its successors and assigns, and for the benefit of the Partnership,
its successors and assigns, to demand and receive from time to time the
Contracts and to execute in the name of the Company and its successors and
assigns instruments of conveyance, instruments of further assurance and to give
receipts and releases in respect of the same, and from time to time to institute
and prosecute in the name of the Partnership or the Company for the benefit of
the Partnership, HPP or HOP, as may be appropriate, any and all proceedings at
law, in equity or otherwise which the Partnership, its successors and assigns
may deem proper in order to collect, assert or enforce any claims, rights or
titles of any kind in and to the Contracts, and to defend and compromise any and
all actions, suits or proceedings in respect of any of the Contracts and to do
any and all such acts and things in furtherance of this Agreement as the
Partnership, its successors or assigns shall deem advisable. The Company hereby
declares that the appointment hereby made and the powers hereby granted are
coupled with an interest and are and shall be irrevocable and perpetual and
shall not be terminated by any act of the Company, its successors or assigns or
by operation of law.

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                                   ARTICLE IX
                                  MISCELLANEOUS

         9.1 Effective Time. The assignment of the Contracts to the Partnership
shall be effective for all purposes as of the Effective Time.

         9.2 Consents; Restriction on Assignment. If there are prohibitions
against or conditions to the assignment of one or more portions of the Contracts
without the prior written consent of third parties, including, without
limitation, governmental agencies (other than consents of a ministerial nature
which are normally granted in the ordinary course of business), which is not
satisfied would result in a breach of such prohibitions or conditions or would
give an outside party the right to terminate the Partnership's rights with
respect to such portion of the Contracts (herein called a "Restriction"), then
any provision contained in this Agreement to the contrary notwithstanding, the
transfer of title to or interest in each such portion of the Contracts (herein
called the "Restriction-Asset") pursuant to this Agreement shall not become
effective unless and until such Restriction is satisfied, waived or no longer
applies. When and if such a Restriction if so satisfied, waived or no longer
applies, to the extent permitted by applicable law and any applicable
contractual provisions, the assignment of the Restriction-Asset subject thereto
shall become effective automatically as of the Effective Time, without further
action on the part of the Partnership or the Company. The Company and the
Partnership agree to use their best efforts to obtain satisfaction of any
Restriction on a timely basis. The description of any portion of the Contracts
as a Restriction-Asset shall not be construed as an admission that any
Restriction exists with respect to the transfer of such portion of the
Contracts. In the event that any Restriction-Asset exists, the Company agrees to
hold such Restriction-Asset in trust for the exclusive benefit of the
Partnership and to otherwise use its best efforts to provide the Partnership
with the benefits thereof, and the Company will enter into other agreements, or
take such other action as it deems necessary,

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in order to help ensure that the Partnership has the agreements and concomitant
rights necessary to enable it to operate under the Contracts assigned to the
Partnership in all material respects as they were operated prior to the
Effective Time.

         9.3 Costs. The Partnership, at the expense of HOP, shall pay all sales,
use and similar taxes arising out of the assignments, conveyances and deliveries
to be made hereunder, and shall pay all documentary, filing, recording,
transfer, deed, and conveyance taxes and fees required in connection therewith.
In addition, the Partnership shall be responsible for all costs, liabilities and
expenses (including court costs and reasonable attorneys' fees) incurred in
connection with the satisfaction or waiver of any Restriction pursuant to
Section 9.2.

         9.4 Headings; References; Interpretation. All Article and Section
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
The words "hereof," "herein," and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole, including,
without limitation, all Schedules and Exhibits attached hereto and not to any
particular provision of this Agreement. All references herein to Articles,
Sections, Schedules and Exhibits shall, unless the context requires a different
construction, be deemed to be references to the Articles and Sections of this
Agreement and the Schedules and Exhibits attached hereto, and all such Schedules
and Exhibits attached hereto are hereby incorporated herein and made a part
hereof for all purposes. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders, and the singular shall include the plural and vice versa. The use
herein of the word "including" following any general statement, term or matter
shall not be construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to similar items
or matters, whether or not non-limited language (such as "without limitation,"
"but not limited to," or words or similar import) is

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used with reference thereto, but rather shall be deemed to refer to all other
items or matters that could reasonably fall within the broadest possible scope
of such general statement, term or matter.

         9.5 Successors and Assigns. The Agreement shall be binding upon and
inure to the benefit of the parties signatory hereto and their respective
successors and assigns.

         9.6 No Third Party Rights. The provisions of this Agreement are
intended to bind the parties signatory hereto as to each other and are not
intended to and do not create rights in any other person or confer upon any
other person any benefits, rights or remedies and no person is or is intended to
be a third party beneficiary of any of the provisions of this Agreement.

         9.7 Counterparts. This Agreement may be executed in any number of
counterparts, in all which together shall constitute one agreement binding on
the parties hereto.

         9.8 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Oklahoma applicable to contracts
made and to be performed wholly within such state without giving effect to
conflict of law principles thereof, except to the extent that it is mandatory
that the law of such other jurisdiction, wherein the Assets are located, shall
apply.

         9.9 Severability. If any of the provisions of this Agreement are held
by any court of competent jurisdiction to contravene, or to be invalid under,
the laws of any political body having jurisdiction over the subject matter
hereof, such contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provisions or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provisions added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.

         9.10. Deed; Bill of Sale; Assignment. To the extent required by
applicable law, this Agreement shall also constitute a "deed," "bill of sale" or
"assignment" of the Assets.

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         9.11. Amendment or Modification. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto. Each such instrument shall be reduced to writing and shall be designated
on its face an "Amendment" to this Agreement.

         9.12. Integration. This Agreement supersedes all previous
understandings or agreements between the parties, whether oral or written, with
respect to its subject matter. This document is an integrated agreement that
contains the entire understanding of the parties. No understanding,
representation, promise or agreement, whether oral or written, is intended to be
or shall be included in or form part of this Agreement unless it is contained in
a written amendment hereto executed by the parties hereto after the date of this
Agreement.

         IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.

                                     HERITAGE HOLDINGS, INC.

                                     By:
                                        -------------------------------------

                                     Name:
                                          -----------------------------------

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

                                     U.S. PROPANE, L.P.

                                     By U.S. Propane, L.L.C., General Partner

                                     By:
                                        -------------------------------------

                                     Title:            Vice President
                                           ----------------------------------

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                                   SCHEDULE 1

                                 Excluded Assets

1.    All ownership interests in 4,426,916 Common Units of Heritage Propane
      Partners, L.P.

2.    The Company's rights in that certain Indemnification Agreement dated
      August 10, 2000, with U.S. Propane, L.P.

3.    The Company's rights in that certain Indemnification Agreement dated
      February 4, 2002 with U.S. Propane, L.P.

<PAGE>
                                   SCHEDULE 2

                              Excluded Liabilities

1.    The Company's liabilities, if any, arising under the Indemnification
      Agreement dated August 10, 2000 with U.S. Propane, L.P.

2.    The Company's liabilities arising under the Indemnification Agreement
      dated February 4, 2002 with U.S. Propane, L.P.<PAGE>
                                                                    EXHIBIT 10.9

                             RELIANT RESOURCES, INC.
                       ANNUAL INCENTIVE COMPENSATION PLAN

                   (As Established Effective January 1, 2001)

                                    RECITALS

                  Reliant Resources, Inc., a Delaware corporation (the
"Company"), with its principal place of business in Houston, Harris County,
Texas, hereby establishes the Reliant Resources, Inc. Annual Incentive
Compensation Plan (the "Plan"), for the benefit of its eligible employees as
follows:

         1. PURPOSE: The purpose of the Plan is to encourage a high level of
corporate performance through the establishment of predetermined corporate,
Subsidiary or business unit and/or individual goals, the attainment of which
will require a high degree of competence and diligence on the part of those
Employees (including officers) of the Company or of its participating
Subsidiaries selected to participate in the Plan, and which will be beneficial
to the owners and customers of the Company.

         2. DEFINITIONS: Unless the context otherwise clearly requires, the
following definitions are applicable to the Plan:

                  AWARD: An incentive compensation award payable in cash granted
         to a Participant with respect to a particular Plan Year pursuant to any
         applicable terms, conditions and limitations as the Committee may
         establish in order to fulfill the objectives of the Plan.

                  BOARD OF DIRECTORS or BOARD: The Board of Directors of the
         Company.

                  CODE: The Internal Revenue Code of 1986, as amended from time
         to time.

                  COMMITTEE: The Compensation Committee of the Board of
         Directors.

                  COMPANY: Reliant Resources, Inc., or any successor thereto.

                  COMPENSATION: The annual base salary paid to the Participant.
         Overtime is not included in Compensation for exempt Employees, but
         overtime pay for non-exempt Employees is adjusted based on Awards under
         this Plan in a manner consistent with the requirements of applicable
         labor law. Notwithstanding the foregoing, any Participant covered by
         the terms of a collective bargaining agreement shall have his
         Compensation calculated in the manner specified in the collective
         bargaining agreement.

                  EMPLOYEE: An employee of the Company or any of its
         Subsidiaries who is a regular full or part-time employee and who
         regularly works at least 20 hours per week.

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                  EMPLOYER: The Company and each Subsidiary which is designated
         by the Committee as an Employer under this Plan.

                  PARTICIPANT: An Employee who is selected to participate in the
         Plan.

                  PERFORMANCE AWARD: An Award made to a Participant pursuant to
         this Plan that is subject to the attainment of one or more Performance
         Goals.

                  PERFORMANCE GOALS: The performance objectives of the Company,
         its Subsidiaries or its business units and/or individual Participants
         established for the purpose of determining the level of Awards, if any,
         earned during a Plan Year.

                  PLAN: This Reliant Resources, Inc. Annual Incentive
         Compensation Plan, as amended from time to time.

                  PLAN YEAR: The calendar year.

                  SAVINGS PLAN: The Reliant Energy, Incorporated Savings Plan,
         as amended and restated effective April 1, 1999 and as thereafter
         amended, and any successor thereto contributed to by the Company.

                  SUBSIDIARY: A subsidiary corporation with respect to the
         Company as defined in Section 424(f) of the Code.

                  A pronoun or adjective in the masculine gender includes the
feminine gender, and the singular includes the plural, unless the context
clearly indicates otherwise.

         3. PARTICIPATION: The Committee (or its appropriately designated
delegate) shall select the Employees who will be Participants for each Plan
Year. Only Employees who are employed at least 90 days during the Plan Year and
are employed on the last day of the Plan Year are eligible for the payment of an
Award under the Plan, except as provided in Section 7(c). No Employee shall at
any time have the right (a) to be selected as a Participant in the Plan for any
Plan Year, (b) if so selected, to be entitled to an Award, or (c) if selected as
a Participant in one Plan Year, to be selected as a Participant in any
subsequent Plan Year.

                  The terms and conditions under which a Participant may
participate in the Plan shall be determined by the Committee (or its
appropriately designated delegate) in its sole discretion.

         4. PLAN ADMINISTRATION: The Plan shall be administered by the
Committee. All decisions of the Committee shall be binding and conclusive on the
Participants. The Committee, on behalf of the Participants, shall enforce this
Plan in accordance with its terms and shall have all powers necessary for the
accomplishment of that purpose, including, but not by way of limitation, the
following powers:

                  (a) To select the Participants;

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                  (b) To interpret, construe, approve and adjust all terms,
         provisions, conditions and limitations of this Plan;

                  (c) To decide any questions arising as to the interpretation
         or application of any provision of the Plan;

                  (d) To prescribe forms and procedures to be followed by
         Employees for participation in the Plan, or for other occurrences in
         the administration of the Plan;

                  (e) To establish the terms and conditions of any Agreement
         under which an Award may be earned and paid; and

                  (f) In addition to all other powers granted herein, the
         Committee shall make and enforce such rules and regulations for the
         administration of the Plan as are not inconsistent with the terms set
         forth herein.

                  No member of the Committee or officer of the Company to whom
the Committee has delegated authority in accordance with the provisions of
Section 5 of this Plan shall be liable for anything done or omitted to be done
by him, by any member of the Committee or by any officer of the Company in
connection with the performance of any duties under this Plan, except for his
own willful misconduct or as expressly provided by statute.

         5. DELEGATION OF AUTHORITY: The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan (including, but not limited to, its authority to select Participants)
pursuant to such conditions or limitations as the Committee may establish.

         6. AWARDS: The Committee shall determine the terms and conditions of
Awards to be made under this Plan and shall designate from time to time the
individuals who are to be the recipients of Awards. Awards may also be made in
combination or in tandem with, in replacement of, or as alternative to, grants
or rights under this Plan or any other employee plan of the Company or any of
its Subsidiaries, including the plan of any acquired entity. An Award may
provide for the grant or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events. All or part of an Award may be
subject to conditions established by the Committee, which may include, but are
not limited to, continuous service with the Company and its Subsidiaries,
achievement of specific individual and/or business objectives, increases in
specified indices, attainment of specified growth rates and other comparable
measurements of performance. Unless specified otherwise by the Committee, the
amount payable pursuant to an Award shall be based on a percentage of the
Participant's Compensation.

                  An Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable solely on
account of the attainment of one or more pre-established, objective Performance
Goals established by the Committee prior to the earlier to occur of (x) 90 days
after the commencement of such period of service to which the Performance Goal
relates and (y) the lapse of 25% of such period of service (as scheduled in good
faith at the time the goal is established), and in any event while the outcome
is substantially uncertain. A Performance Goal is objective if a third party
having knowledge of the relevant facts could

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determine whether the goal is met. Such a Performance Goal may be based on one
or more business criteria that apply to the individual, one or more business
units of the Company, or the Company as a whole. Performance Goals shall be
based upon targets established by the Committee with respect to one or more of
the following financial factors, as applied to the Company or a business unit,
as applicable: earnings per share, earnings per share growth, total shareholder
return, economic value added, cash return on capitalization, increased revenue,
revenue ratios (per employee or per customer), net income, stock price, return
on equity, return on assets, return on capital, return on capital compared to
cost of capital, return on capital employed, return on invested capital,
shareholder value, net cash flow, operating income, earnings before interest and
taxes, earnings before interest, taxes, depreciation and amortization, cash
flow, cash flow from operations, cost reductions, cost ratios (per employee or
per customer), proceeds from dispositions, project completion time and budget
goals, net cash flow before financing activities, customer growth and total
market value. Unless otherwise stated, a Performance Goal need not be based upon
an increase or positive result under a particular business criterion and could
include, for example, maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business criteria), and may
also be based on performance relative to a designated peer group. Prior to the
payment of any compensation based on the achievement of Performance Goals, the
Committee must certify in writing that applicable Performance Goals and any of
the material terms thereof were, in fact, satisfied. The Committee in its sole
discretion may decrease the amount payable pursuant to a Performance Award, but
in no event shall the Committee have discretion to increase the amount payable
pursuant to a Performance Award in a manner inconsistent with the requirements
for qualified performance-based compensation under Code Section 162(m). In
interpreting Plan provisions applicable to Performance Goals and Performance
Awards, it is the intent of the Plan to conform with the standards of Code
Section 162(m) applicable to qualified performance-based compensation, and the
Committee in establishing such Performance Goals and interpreting the Plan shall
be guided by such provisions. Subject to the foregoing provisions, the terms,
conditions and limitations applicable to any Performance Awards pursuant to this
Plan shall be determined by the Committee. No Participant may be granted
Performance Awards which will result in the payment of more than $3,500,000 per
Plan Year.

         7. PAYMENT OF AWARDS: The Committee has sole and absolute authority and
discretion to determine the time and manner in which Awards, if any, shall be
paid under this Plan. Generally, however, the following provisions may apply:

                  (a) FORM OF PAYMENT: Payment of Awards shall be made in cash
         and may be subject to such restrictions as the Committee shall
         determine.

                  (b) DATE OF PAYMENT: Payment of Awards shall be made as soon
         as practicable (as determined by the Committee) following the close of
         the Plan Year (the "Payment Date"), unless otherwise provided in
         Section 7(c).

                  (c) EMPLOYMENT REQUIRED: Except as provided below,
         Participants must be Employees on the Payment Date in order to receive
         payment of an Award.

                           (1) Retirement, Death or Disability: If, prior to the
                  Payment Date, a Participant retires on or after age 55 with 5
                  years

                                       4
<PAGE>

                  of service, dies or terminates employment under circumstances
                  establishing eligibility for disability benefits under the
                  Company's long-term disability plan, then the Participant
                  shall nonetheless receive payment of the Award the Participant
                  would have received had the goals with respect to the
                  Participant's Award been met at the target level based on his
                  Compensation as of the Participant's date of retirement, death
                  or disability, prorated for the number of days the Participant
                  was employed during the Plan Year. Payments under this Section
                  7(c)(1) shall be made as soon as practicable following the
                  date of the Participant's retirement, death or disability, but
                  no later than 30 days after the date of the Participant's
                  retirement, death or disability. If a Participant who
                  terminates due to retirement or disability resumes employment
                  during the same Plan Year in a position qualifying the
                  Participant to resume participation in the Plan, any
                  additional payment for the Plan Year received on the Payment
                  Date will be prorated based on days worked during the Plan
                  Year subsequent to the Participant's return to work.

                           (2) Termination After Last Day of the Plan Year: If a
                  Participant is an Employee on the last day of the Plan Year
                  and was employed at least 90 days during the Plan Year, but is
                  not an Employee on the Payment Date, then the Participant may
                  receive on the Payment Date, an Award (if any) upon
                  management's recommendation and approval by the Committee.

         8. ASSIGNABILITY: Unless otherwise determined by the Committee and
provided in the Agreement, no Award or any other benefit under this Plan shall
be assignable or otherwise transferable, except by will or the laws of descent
and distribution. Any attempted assignment of an Award or any other benefit
under this Plan in violation of this Section 8 shall be null and void.

         9. TAX WITHHOLDING: The Company shall have the right to withhold
applicable taxes from any Award payment and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes.

         10. FINALITY OF DETERMINATIONS: Any determination by the Committee in
carrying out or administering this Plan shall be final and binding for all
purposes and upon all interested persons and their heirs, successors, and
personal representatives.

         11. EMPLOYEE RIGHTS UNDER THE PLAN: No Employee or other person shall
have any claim or right to be granted an Award under this Plan. Neither the Plan
nor any action taken thereunder shall be construed as giving an Employee any
right to be retained in the employ of the Company or an Employer. No Participant
shall have any lien on any assets of the Company or an Employer by reason of any
Award made under this Plan.

         12. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION: The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or

                                       5
<PAGE>

alteration that would adversely affect the rights of any Participant under any
Award previously granted to such Participant shall be made without the consent
of such Participant and (ii) no amendment or alteration shall be effective prior
to its approval by the stockholders of the Company; however clause (ii) shall
only apply if, and to the extent, such approval is required by applicable legal
requirements.

         13. OTHER PLANS: The Award payments under this Plan shall be considered
compensation under the Savings Plan.

         14. GOVERNING LAW: This Plan and all determinations made and actions
taken pursuant hereto, shall be governed by and construed in accordance with the
laws of the State of Texas.

         IN WITNESS WHEREOF, the Company has executed this Plan this 1st day of
May, 2001, but effective as of January 1, 2001.

                                        RELIANT RESOURCES, INC.

                                        By /s/ R. S. LETBETTER
                                          ------------------------------------
                                          R. S. Letbetter
                                          Chairman and Chief Executive Officer

ATTEST:

/s/ Lynne Harkel-Rumford
---------------------------------

                                       6

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