Document:

Exhibit
10.3

 

 

RELIANT ENERGY, INC.,

as guarantor

PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING
AUTHORITY

EXEMPT FACILITIES REVENUE BONDS

(Reliant Energy Seward, LLC Project)

SERIES 2002B

SECOND SUPPLEMENTAL GUARANTEE AGREEMENT

Dated as of December 1, 2006

to

GUARANTEE AGREEMENT

Dated as of December 22, 2004

The Bank of New York Trust Company, N.A.,

as Trustee

 

 

GUARANTEE
AGREEMENT

SECOND
SUPPLEMENTAL GUARANTEE AGREEMENT dated as of December 1, 2006 (this “Supplemental
Guarantee Agreement”) to the Guarantee Agreement dated as of December 22,
2004 (the “Guarantee Agreement”) by and among Reliant Energy, Inc., a
Delaware corporation (the “Company”), the Subsidiary Guarantors (as
defined therein), and The Bank of New York Trust Company, N.A., as trustee (the
“Trustee”) (as successor to J.P. Morgan Trust Company, National
Association), relating to the Pennsylvania Economic Development Financing
Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project)
Series 2002B, as supplemented by the Supplemental Guarantee Agreement dated as
of September 21, 2006 among the Company, Reliant Energy Power Supply, LLC and
the Trustee.  Capitalized terms used in
this Supplemental Guarantee Agreement, but not defined herein, shall have the
respective meanings given to such terms in the Guarantee Agreement.

WITNESSETH:

WHEREAS, Section
9.02 of the Guarantee Agreement provides, among other things, that the Company
and the Trustee may amend or supplement the Guarantee Agreement with the
consent of the Holders of at least a majority in aggregate principal amount of
the Series 2002B Bonds then Outstanding; and

WHEREAS, the
Company has solicited the consent of the Holders to certain amendments to the
Guarantee Agreement described in the Second Amended and Restated Consent
Solicitation Statement dated November 8, 2006 (the “Consent Solicitation
Statement”) and which have been reflected herein (the “Amendments”);
and

WHEREAS, the
Company has received and filed with the Trustee, in the manner contemplated by
the Guarantee Agreement, evidence of the consent of the Holders of at least a
majority in aggregate principal amount of the outstanding Series 2002B Bonds,
consenting to the Amendments to be effected in the form of this Supplemental
Guarantee Agreement; and

NOW, THEREFORE, in
consideration of the mutual agreements herein set forth, the parties hereto
agree as follows:

1.             Amendments
to the Guarantee Agreement.

The following
amendments are made to the Guarantee Agreement effective as of the date
specified in Section 2 below:

(a)           In
Section 1.01:

(1)           The
definition of “Excluded Securities” is amended in its entirety to read as
follows:

“Excluded
Securities” means debt
or equity securities issued by any Subsidiary of the Company other than RERH
Holdings, LLC, IP Trust, IT Trust, Orion Power Holdings, Inc. and REMA (or
their successors); provided, however, that “Excluded Securities” shall include
beneficial interests in the IP Trust or the IT Trust that are held by RERH
Holdings, LLC or its Subsidiaries.

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(2)           The
definition of “Excluded Subsidiaries” is amended to delete the reference to “RE
Retail Receivables, LLC.”

(3)           The following definition is added:

“IP Trust” means Reliant Energy Trademark Trust, a
Delaware statutory trust.

(4)           The following definition is added:

“IT Trust” means Reliant Energy IT Trust, a Delaware
statutory trust.

(5)           The
definition of “Permitted Liens” is amended:

(i)            to
amend clause (24) in its entirety to read as follows:

(24)         [Reserved];

(ii)           to
delete “and” at the end of clause (33);

(iii)          to add the following new clause (34) after
clause (33):

(34)         Liens
on assets of RERH Holdings, LLC and its Subsidiaries securing obligations of
RERH Holdings, LLC or any of its Subsidiaries under (a) Credit Facilities in an
aggregate principal amount not to exceed $300,000,000 plus all other
obligations due under such Credit Facilities and (b) any agreement for or in
support of the supply or sales of energy or products or services related or
incidental to the supply or sales of energy or any activities related to the
supply or sales of energy or products or services related or incidental to the
supply or sales of energy of RERH Holdings, LLC or any of its Subsidiaries,
including any agreement providing for the reimbursement of guarantees or
collateral postings made on behalf of RERH Holdings, LLC or any of its
Subsidiaries; and

; and

(iv)          to
renumber existing clause “(34)” as clause “(35).”

(6)           The
definition of “Permitted Prior Liens” is amended to substitute “and (33)” with “,
(33) and (34).”

(b)           Section
4.08(b) is amended:

(1)           to delete
“and” at the end of clause (18);

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(2)           to
substitute “; and” for the period at the end of clause (19); and

(3)           to add
the following new clause (20) after clause (19):

(20)         restrictions
on RERH Holdings, LLC or any of its Subsidiaries contained in (a) the Working
Capital Facility dated as of September 24, 2006 among Reliant Energy Power
Supply, LLC (“REPS”), the guarantors party thereto, and Merrill Lynch Capital
Corporation, (b) the Credit Sleeve and Reimbursement Agreement dated as of
September 24, 2006 among REPS, the guarantors party thereto, Merrill Lynch
Commodities, Inc., and Merrill Lynch & Co., Inc., and (c) any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the agreements referred to in the preceding
clauses (a) and (b), provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are not materially more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
those agreements as reasonably determined by the Company.

(c)           The
following Subsection (c) is added to Section 4.08:

(c)           Promptly following the last day of each month
and so long as such payment is permitted under the terms of the agreements
referred to in Section 4.08(b)(20), the Company shall cause RERH Holdings, LLC
to pay cash dividends or distributions to the Company in an amount equal to (i)
the amount which is permitted under the terms of the agreements referred to in
Section 4.08(b)(20) on such day minus (ii)(A) amounts reasonably estimated by
the Company to be due and payable by RERH Holdings, LLC and its Subsidiaries on
or before the 20th day of the month next occurring plus (B) the lesser of (1)
$100,000,000 and (2) the amount permitted under the Credit Agreement on the
date the agreements referred to in Section 4.08(b)(20) become effective.

(d)           In
Section 4.09(b):

(1)           Subsection
(b)(1) of Section 4.09 is amended in its entirety to read as follows:

(1)           the
incurrence (A) by the Company and the guarantee by the Guarantors of additional
Indebtedness and letters of credit under Credit Facilities, (B) by
Securitization Entities of Indebtedness in Qualified Securitization
Transactions, and (C) by RERH Holdings, LLC and its Subsidiaries of additional
Indebtedness and

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letters of credit under
Credit Facilities (including guarantees of such Indebtedness) (provided,
however, that (I) the aggregate principal amount of Indebtedness incurred under
this clause (C) at any one time outstanding shall not exceed $310,000,000, and
(II) the proceeds of Indebtedness incurred under this clause (C) shall be used
only for the repayment of Indebtedness and other Obligations of RERH Holdings,
LLC and its Subsidiaries or to finance working capital needs of RERH Holdings,
LLC and its Subsidiaries, including the payment of sales, general and
administrative, and operations and maintenance expenses (including capital
expenditures) and all other expenses in the ordinary course of business of RERH
Holdings, LLC and its Subsidiaries) in an aggregate principal amount at any one
time outstanding under this clause (1) (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the Company
and its Restricted Subsidiaries thereunder), including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (1), not to exceed $2.5 billion;

(2)           The
following paragraph is added to the end of the section:

Notwithstanding anything in this Section 4.09(b) to
the contrary, the aggregate principal amount of Indebtedness of RERH Holdings,
LLC and its Subsidiaries at any one time outstanding, other than Indebtedness
incurred pursuant to clause (14) of this Section 4.09(b), may not exceed
$310,000,000.

(e)           Section
4.10 is amended in its entirety to read as follows:

Section 4.10  Asset Sale Offers.

(a)            Within five Business
Days after the receipt of any Net Proceeds from an Asset Sale of the Equity
Interests of RERH Holdings, LLC (and its successors), of all or substantially
all of the assets of RERH Holdings, LLC and its Subsidiaries (and their
successors), or of all or substantially all of the assets of the Company and
its Subsidiaries (other than RERH Holdings, LLC and its Subsidiaries (and their
successors)), the Company shall make an Asset Sale Offer to all Holders of each
Series of Bonds and all holders of other Indebtedness (including the 2014
Notes, the Existing 2010 Notes, and the Existing 2013 Notes) that is pari passu
with the Seward Guarantees (other than Credit Agreement Debt) (and so long as
this Guarantee Agreement is Equally and Ratably secured with such other pari
passu Indebtedness) containing provisions similar to those set forth in this
Guarantee Agreement with respect to offers to purchase or redeem with the
proceeds of sales of assets, to purchase (or repay, prepay

 4
 

 

or redeem, as applicable) an aggregate principal
amount of each Series of Bonds and such other pari passu Indebtedness that may
be purchased (or repaid, prepaid or redeemed) equal to the aggregate of such
Net Proceeds multiplied by a fraction, the numerator of which consists of (A)
the aggregate principal amount then outstanding on each Series of Bonds and all
such other pari passu Indebtedness containing such provisions (not including
Credit Agreement Debt) and the denominator of which is (B) the sum of (i) such
aggregate amount in the preceding clause (A) and (ii) the Credit Agreement Debt
then outstanding (an “Asset Sale Offer”). The offer price in any Asset Sale
Offer will be equal to 100% of principal amount plus accrued and unpaid
interest to the date of purchase, and shall be payable in cash.  If any such Net Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Net Proceeds for
any purpose not otherwise prohibited by this Guarantee Agreement.  If the aggregate principal amount of each
Series of Bonds and such other pari passu Indebtedness tendered into such Asset
Sale Offer exceeds the amount of such Net Proceeds, the Company shall select
the Series of Bonds and such other pari passu Indebtedness to be purchased on a
pro rata basis based on the principal amount of Series of Bonds and such other
pari passu Indebtedness tendered.

(b)           In the event that,
pursuant to Section 4.10 hereof, the Company is required to commence an Asset
Sale Offer, it shall follow the procedures specified below.

(c)            The Asset Sale Offer
shall be made to all holders of each Series of Bonds and all holders of other
Parity Secured Debt (other than Credit Agreement Debt) containing provisions
similar to those set forth in this Guarantee Agreement with respect to offers
to purchase or redeem with the proceeds of sales of assets.  The Asset Sale Offer shall remain open for a
period of at least 20 Business Days following its commencement and not more
than 30 Business Days, except to the extent that a longer period is required by
applicable law (the “Offer Period”).  No
later than three Business Days after the termination of the Offer Period (the “Purchase
Date”), the Company shall apply a portion of the Net Proceeds as calculated
pursuant to the first sentence of Section 4.10(a) hereof (the “Offer Amount”) to the purchase of
Notes and such other Parity Secured
Debt (on a pro rata basis, if applicable) or, if less than the Offer
Amount has been tendered, all Series of Bonds and other Indebtedness tendered
in response to the Asset Sale Offer. 
Payment for any bond in a Series of Bonds (each a “Bond”) so purchased
shall be made in the same manner as interest payments are made.

(d)           If the Purchase Date is
on or after an interest record date and on or before the related interest
payment date, any accrued and unpaid interest shall be paid to the Person in
whose name a Bond is registered at the close of business on such record date,
and no additional interest will be payable to Holders who tender Bonds pursuant
to the Asset Sale Offer.

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(e)            Upon the commencement
of an Asset Sale Offer, the Company shall send, by first class mail, a notice
to the Trustee and each of the Holders. 
The notice will contain all instructions and materials necessary to
enable such Holders to tender Bonds pursuant to the Asset Sale Offer.  The notice, which will govern the terms of
the Asset Sale Offer, will state:

(i)            that the Asset Sale
Offer is being made pursuant to Section 4.10 hereof and the length of time the
Asset Sale Offer will remain open;

(ii)           the Offer Amount, the
purchase price and the Purchase Date;

(iii)          that any Bond not
tendered or accepted for payment will continue to accrue interest;

(iv)          that, unless the Company
defaults in making such payment, any Bond accepted for payment pursuant to the
Asset Sale Offer shall cease to accrue interest;

(v)           that Holders electing
to have a Bond purchased pursuant to an Asset Sale Offer may elect to have Bond
purchased in integral multiples of $1,000 only;

(vi)          that Holders electing to
have a Bond purchased pursuant to any Asset Sale Offer shall be required to
surrender the Bond endorsed or assigned as the Trustee may require or transfer
by book-entry transfer, to the Company or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;

(vii)         that Holders shall be
entitled to withdraw their election if the Company or the Paying Agent, as the
case may be, receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Bond the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such Bond
purchased;

(viii)        that, if the aggregate
principal amount of Bonds and other Parity
Secured Debt surrendered in connection with the Asset Sale Offer exceeds
the Offer Amount, the Company shall select the Bonds and other Parity Secured Debt to be purchased
on a pro rata basis based on the principal amount of Bonds and such other Parity Secured Debt surrendered (with
such adjustments as may be deemed appropriate by the Company so that only Bonds
in denominations of $1,000, or integral multiples thereof, will be purchased);
and

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(ix)           that Holders whose
Bonds were purchased only in part will be issued new Bonds equal in principal
amount to the unpurchased portion of the Bonds surrendered (or transferred by
book-entry transfer).

On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Bonds or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Bonds tendered,
and shall deliver to the Trustee an Officer’s Certificate stating that such
Bonds or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 4.10. 
The Company or the Paying Agent, as the case may be, shall promptly (but
in any case not later than five days after the Purchase Date) mail or deliver
to each tendering Holder an amount equal to the purchase price of the Bonds
tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly cause the issuance of a new Bond, and the Trustee, upon
written request from the Company shall authenticate and mail or deliver such
new Bond to such Holder, in a principal amount equal to any unpurchased portion
of the Bond surrendered.  Any Bond not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof.  The Company shall publicly
announce the results of the Asset Sale Offer on or as soon as practicable after
the Purchase Date.

(f)            The foregoing shall be
made in accordance with the terms of the Indenture and, to the extent
inconsistent with any terms of the Indenture, the terms of the Indenture shall
control.

(g)           If a Holder of a bond
in Series of Bonds’ acceptance of any Asset Sale Offer results in the inclusion
of the interest on such Holder’s bonds in the gross income of such Holder for
federal income tax purposes, the Company shall pay such Holder on the date each
interest payment is due for such Holder’s Series of Bonds an amount equal to the
interest then due and payable divided by (1 minus the highest effective federal
tax rate at such time) less the amount of interest otherwise paid to the
Holder.

(f)            Section
4.24 is added to read in its entirety as follows:

Section 4.24  Early Redemption.

The Company and the Subsidiary Guarantors agree that, notwithstanding
the terms of the Series 2002B Bonds, (1) the Company and the Subsidiary
Guarantors will cause the Series 2002B Bonds not to be redeemed before June 1,
2011 and (2) upon any optional redemption of the Series 2002B Bonds during the
period beginning June 1, 2011 and ending May 31, 2014, the Company and the
Subsidiary Guarantors will cause an additional amount to be paid to the Holders
of the Series 2002B Bonds being redeemed such that the aggregate amount
received by such Holders upon redemption is equal to the amounts expressed as a

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percentage of principal amount set forth below (plus
accrued interest, if any, to the redemption date) for a redemption of the
Series 2002B Bonds during the periods set forth below:

	
  Optional Redemption Dates

  	
   

  	
  Redemption Prices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 1, 2011
  through May 31, 2012

  	
   

  	
  103

  	
  %

  
	
  June 1, 2012
  through May 31, 2013

  	
   

  	
  102

  	
  %

  
	
  June 1, 2013 through
  May 31, 2014

  	
   

  	
  101

  	
  %

  

(g)           The
following Subsection (h) is added to Section 10.06:

(h)           Notwithstanding
anything herein to the contrary, the Company agrees that, without the prior
consent of the holders of at least a majority in aggregate principal amount of
the Guarantee Obligations with respect to each Series of Bonds, the Collateral
Trustee’s Liens in the Equity Interests of RERH Holdings, LLC (or its
successor) or, if any, in all or substantially all of the assets of RERH
Holdings, LLC and its Subsidiaries (or their successors) (the “Retail Assets”)
or in all or substantially all of the Company and its Subsidiaries’ (other than
RERH Holdings, LLC and its Subsidiaries’ (or their successors)) assets,
including Equity Interests (the “Wholesale Assets”) may not be released, except
no such consent shall be required (i) in the case of an Asset Sale of the
Equity Interests of RERH Holdings, LLC (or its successor), the Retail Assets or
the Wholesale Assets or (ii) on and after the date on which, as of the last day
of two consecutive Fiscal Quarters, both (A) the Consolidated Leverage Ratio
for the applicable immediately preceding four Fiscal Quarters was 2.75:1 or
less and (B) the Consolidated Interest Coverage Ratio for the applicable
immediately preceding four Fiscal Quarters was 3.25:1 or more (the “Ratio Test”).
 The Company agrees to file a current
report on Form 8-K with the SEC showing the calculation of the Ratio Test
within 60 days (or 90 days if end of the period is also the end of a fiscal
year) (i) after the end of first four-quarter period in which it meets the
Ratio Test and for which it proposes to use the Ratio Test to implement the
foregoing Lien release and (ii) after the end of the second consecutive
four-quarter period in which it meets the Ratio Test and for which it proposes
to use the Ratio Test to implement the foregoing Lien release.  The Company also agrees to promptly notify
the Trustee of the filing of the Form 8-K and to deliver to the Trustee the
calculations of the Ratio Test certified by the Company’s chief financial
officer and that the Company may not implement a Lien release without consent
on account of the Ratio Test without first complying with this sentence and the
immediately preceding sentence.

The following terms shall
have the following meanings when used in this paragraph (h):

“Acquisition”
means any transaction or any series of related transactions by which a Person
(a) acquires any going business (including

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a power generation facility) or all or substantially
all of the assets of any other Person, or division thereof, whether through
purchase of assets, merger, or otherwise or (b) directly or indirectly acquires
greater than 50% of the Voting Stock of any other Person.

“Consolidated EBITDAR”
means, for any period for the Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP, an amount equal to, without any
duplication, (a) net income (before giving effect to the cumulative effect
of changes in accounting principles and discontinued operations and before
income taxes and franchise taxes to the extent based on the income of such
Person and its Subsidiaries) for such period, plus (b) Consolidated Interest
Charges for such period, plus (c) depreciation, depletion, impairment,
abandonment and amortization expense for such period, plus (d) the book accounting
lease expense under the REMA Lease for such period, plus (e) interest and
fees expensed under any receivables monetization or securitization during such
period, plus (f) net unrealized losses related to trading or non-trading energy
derivatives, plus (g) cash dividends or distributions actually received during
such period from an entity which is not a consolidated Subsidiary of such
Person, minus (h) net unrealized gains related to trading or non-trading
energy derivatives; provided, however, for purposes of this definition,
(i) gains and losses on the disposition of assets not in the ordinary
course of business, (ii) any other noncash charge or gain, and (iii) any
extraordinary or other non-recurring item or expense, including severance costs,
shall be excluded to the extent incurred or realized during such period in
accordance with GAAP from the calculation of Consolidated EBITDAR. If during
any period for which Consolidated EBITDAR is being determined, the Company or
any Subsidiary shall have (a) made or consummated any Acquisition for gross
consideration of $3,000,000 or more (including Indebtedness assumed), then
Consolidated EBITDAR shall be determined on a pro forma basis for such period
as if such Acquisition had been made or consummated as of the beginning of the
first day of such period or (b) made or consummated any Asset Sale that is not
fully included in discontinued operations, then Consolidated EBITDAR shall, to
the extent such Asset Sale is not excluded from Consolidated EBITDAR pursuant
to the foregoing proviso, be determined on a pro forma basis for such period as
if such Asset Sale had been made or consummated as of the beginning of the
first day of such period.

“Consolidated Interest
Charges” means, without duplication, for any period for the Company and its
Subsidiaries on a consolidated basis in accordance with GAAP, (a) the total
interest expense for such period, plus (b) the interest expense during such
period attributable to (i) the REMA Lease, (ii) the fees and yield
paid in connection with, or interest expense attributable to, any account
receivables securitization or monetization permitted hereunder, and
(iii) any capitalized interest during such period, plus (c) all cash
dividends and distributions paid on preferred or preference stock, plus
(d) to the extent deducted in determining total interest expense, net
unrealized gains under any agreement described in

 9
 

 

the definition of “Hedging Obligations” permitted
hereunder and existing on or prior to December 22, 2004 (excluding any ongoing
settlement payments in connection with permitted interest rate swap
agreements), minus (e)(i) the total interest income of such Person and its
Subsidiaries, including interest income from any escrow or trust account,
(ii) in all cases whether expensed or amortized, any interest expense
attributable to (A) any makewhole or premium paid in connection with the
repayment of any Debt, (B) any upfront direct or indirect costs, expenses, or
fees incurred in connection with, including those arising out of the
preparation for the maturity of, (1) any Debt, (2) the incurrence of any Debt
after December 22, 2004, or (3) the amendment of any Debt, (C) to the
extent added in determining total interest expense, the upfront cost and net
unrealized losses under any agreement described in the definition of “Hedging
Obligations” permitted hereunder and existing on or prior to December 22, 2004
(excluding ongoing settlement payments in connection with permitted interest
rate swap agreements), and (D) any of the RRI Warrants;
(iii)  all non-recurring interest expense with respect to items not
constituting Indebtedness, and (iv) interest expense attributable to
Indebtedness repaid or required to be repaid under any Indebtedness for which
the Company has notified the Credit Agreement Agent in writing that it agrees
it will not designate the Net Proceeds as Excluded Proceeds, in each case in
connection with an Asset Sale.

“Consolidated Interest
Coverage Ratio” means, as of any date of determination, the ratio of (a)
Consolidated EBITDAR for the period of the four prior Fiscal Quarters ending on
such date to (b) Consolidated Interest Charges for such period.

“Consolidated Leverage
Ratio” means, as of any date of determination, the ratio of (a)
Consolidated Total Debt as of such date to (b) Consolidated EBITDAR for the
period of the four Fiscal Quarters most recently ended.

“Consolidated Total
Debt” means, as of any date of determination, for the Company and its
Subsidiaries on a consolidated basis in accordance with GAAP, (i) all
outstanding Debt of the Company and its Subsidiaries on such date, minus (ii)
without duplication, all (a) cash and short-term investments, in an aggregate
amount not to exceed $300,000,000 at any time, (b) restricted cash, in an
amount not to exceed the aggregate amount of Indebtedness of the Company or any
of its Subsidiaries, the terms of which Indebtedness cause such cash to appear
as restricted cash on the consolidated balance sheet of the Company and its
Subsidiaries, and (c) broker, counterparty, and customer margin/collateral
assets and deposits advanced to or held on behalf of such broker, counterparty
or customer, as each of the foregoing appears on the consolidated balance sheet
of the Company and its Subsidiaries.

“Debt” means, as
of any date of determination with respect to the Company and its Subsidiaries,
without duplication, in accordance with

 10
 

 

GAAP the following: (a) the total amount of
indebtedness, including any fair value adjustments, and other obligations of
the Company and its Subsidiaries for borrowed money (whether by loan or the
issuance of debt securities), including the unreimbursed amount of any drawings
under letters of credit issued for the account of the Company or any of its
Subsidiaries, but excluding the amount of indebtedness for borrowed money that
is either (i) required to be repaid or (ii) for which the Company has notified
the Credit Agreement Agent in writing that it agrees it will not designate the
Net Proceeds as Excluded Proceeds, in each case in connection with an Asset
Sale, (b) all Capital Lease Obligations and, except for the REMA Lease,
Attributable Debt in respect of sale and leaseback transactions or financing
leases, (c) the unpaid balance owed to the certificate holders under the REMA
Lease, (d) obligations under any accounts securitization or monetization
arrangement permitted hereunder and not recorded on the Company balance sheet
for that period, and (e) all guaranties of payment or collection of any
obligations described in clauses (a) through (d) of this definition of any
other Person; provided, however, that Debt shall not include:  (i) any guaranties that may be incurred by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business or similar transactions, (ii) any Obligations or guaranties
of performance of Obligations under performance bonds, (iii) trade accounts
payable in the ordinary course of business, (iv) customer advance payments and
customer deposits arising in the ordinary course of business, (v) the liability
of any Person as a general partner of a partnership for Debt of such
partnership, if the partnership is not a Subsidiary of such Person, and (vi)
any completion or performance guarantees (or similar guarantees that a project
or a Subsidiary perform as planned).  In
determining the outstanding amount of any Debt: 
(a) the amount of money borrowed shall be the outstanding principal
amount thereof, (b) the amount of all unreimbursed letters of credit shall be
the unreimbursed amount thereof, (c) the amount of any accounts monetization or
securitization shall be the amount invested by the investor therein, and (d)
the amount of guaranties shall be the amount of the guaranteed obligations
determined as provided above in this sentence.

“RRI Warrants”
means the warrants issued by the Company and outstanding on December 22, 2004.

(h)           Subsection
(a)(2) of Section 13.01 is amended in its entirety to read as follows:

(2)           the
Seward Subsidiary and the Seward Collateral Trustee shall file a mortgage on
the Seward Collateral substantially in the form of Exhibit B hereto for the
benefit of the present and future holders of the Series 2002B Bonds and any
other Permitted Secured PEDFA Bond Indebtedness on an Equal and Ratable Basis
on or before the date on which the Seward Security Event occurs, and the Series
2002B Bonds will thereafter be secured by Liens upon the Seward Subsidiary’s
rights in the Seward Collateral;

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2.             Effectiveness
of Amendments.

The Amendments
shall become effective on the date of this Supplemental Guarantee Agreement.

3.             Ratification
of Guarantee Agreement.

The Guarantee
Agreement, as supplemented and amended by this Supplemental Guarantee
Agreement, is in all respects ratified and confirmed, and this Supplemental
Guarantee Agreement shall be deemed part of the Guarantee Agreement in the
manner and to the extent herein and therein provided.

4.             Trustee
Not Responsible for Recitals.

The recitals
herein contained are made by the Company and not by the Trustee, and the
Trustee assumes no responsibility for the correctness thereof.  The Trustee makes no representation as to the
validity or sufficiency of this Supplemental Guarantee Agreement.

5.             Governing
Law.

THE INTERNAL LAW
OF THE STATE OF NEW YORK SHALL GOVERN THIS SUPPLEMENTAL GUARANTEE AGREEMENT.

6.             Separability.

In case any one or
more of the provisions contained in this Supplemental Guarantee Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
then, to the extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Supplemental
Guarantee Agreement, but this Supplemental Guarantee Agreement shall be
construed as if such invalid or illegal or unenforceable provision had never
been contained herein.

7.             Counterparts.

This Supplemental
Guarantee Agreement may be executed in any number of counterparts each of which
shall be an original, but such counterparts shall together constitute but one
and the same instrument.

 12
 

 

IN WITNESS
WHEREOF, the parties hereto have caused this Supplemental Guarantee Agreement
to be duly executed by their respective officers thereunto duly authorized, as
of the day and year first above written.

	
   

  	
  RELIANT ENERGY, INC.,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Johannesen

  	
   

  
	
   

  	
  Name:

  	
  Andrew Johannesen

  	
   

  
	
   

  	
  Title: 

  	
  Vice President and Assistant Treasurer

  	
   

  
							

 13
 

 

RELIANT
ENERGY ASSET MANAGEMENT, LLC

RELIANT
ENERGY BROADBAND, INC.

RELIANT
ENERGY CALIFORNIA HOLDINGS, LLC

RELIANT
ENERGY COMMUNICATIONS, INC.

RELIANT
ENERGY COOLWATER, INC.

RELIANT
ENERGY CORPORATE SERVICES, LLC

RELIANT
ENERGY ELLWOOD, INC.

RELIANT
ENERGY ETIWANDA, INC.

RELIANT
ENERGY FLORIDA, LLC

RELIANT
ENERGY KEY/CON FUELS, LLC

RELIANT
ENERGY MANDALAY, INC.

RELIANT
ENERGY NORTHEAST GENERATION, INC.

RELIANT
ENERGY NORTHEAST HOLDINGS, INC.

RELIANT
ENERGY ORMOND BEACH, INC.

RELIANT
ENERGY POWER GENERATION, INC.

RELIANT
ENERGY SABINE (TEXAS), INC.

RELIANT
ENERGY SERVICES DESERT BASIN, LLC

RELIANT
ENERGY SERVICES MID-STREAM, LLC

RELIANT
ENERGY SEWARD, LLC

RELIANT
ENERGY TRADING EXCHANGE, INC.

RELIANT
ENERGY VENTURES, INC.

RELIANT
ENERGY WHOLESALE GENERATION, LLC

	
   

  	
  By:

  	
  /s/ Andrew Johannsen

  	
   

  
	
   

  	
  Name:

  	
  Andrew
  Johannesen

  
	
   

  	
  Title:

  	
  Assistant Treasurer of the corporations and limited

  
	
   

  	
   

  	
  liability
  companies listed above

  
					

 14
 

 

 

	
  

  	
  RELIANT ENERGY
  SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew C.
  Johannesen

  	
   

  
	
   

  	
  Name:

  	
  Andrew C.
  Johannesen

  
	
   

  	
  Title:

  	
  Vice President
  and Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RELIANT ENERGY
  ELECTRIC SOLUTIONS, LLC

  
	
   

  	
  RELIANT
  ENERGY POWER SUPPLY, LLC

  
	
   

  	
  RELIANT ENERGY
  RETAIL SERVICES, LLC

  
	
   

  	
  RELIANT ENERGY
  SOLUTIONS EAST, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lloyd A.
  Whittington

  	
   

  
	
   

  	
  Name:

  	
  Lloyd A.
  Whittington

  
	
   

  	
  Title:

  	
  Vice President and Treasurer of the limited

  
	
   

  	
  liability companies listed above

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RELIANT ENERGY
  RETAIL HOLDINGS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lloyd A.
  Whittington

  	
   

  
	
   

  	
  Name:

  	
  Lloyd A.
  Whittington

  
	
   

  	
  Title: 

  	
  Assistant Treasurer

  
								

 

 15
 

 

 

	
  

  	
  RELIANT ENERGY
  CAPTRADES HOLDING CORP.

  
	
   

  	
  RELIANT ENERGY
  SABINE (DELAWARE), INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia F.
  Genzel

  	
   

  
	
   

  	
  Name:

  	
  Patricia F.
  Genzel

  
	
   

  	
  Title:

  	
  President and
  Secretary

  
						

 16
 

 

 

	
  

  	
  THE BANK OF NEW
  YORK TRUST COMPANY,

  
	
   

  	
  N.A., as Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J.
  Judge

  	
   

  
	
   

  	
   

  	
  Authorized Signatory

  

 

 17Exhibit 10.4

 

RELIANT ENERGY, INC.,

as guarantor

PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING
AUTHORITY

EXEMPT FACILITIES REVENUE BONDS

(Reliant Energy Seward, LLC Project)

SERIES 2003A

 

SECOND SUPPLEMENTAL GUARANTEE AGREEMENT

Dated as of December 1, 2006

to

GUARANTEE AGREEMENT

Dated as of December 22, 2004

The Bank of New York Trust Company, N.A.,

as Trustee

 

 

GUARANTEE AGREEMENT

SECOND SUPPLEMENTAL
GUARANTEE AGREEMENT dated as of December 1, 2006 (this “Supplemental
Guarantee Agreement”) to the Guarantee Agreement dated as of December 22,
2004 (the “Guarantee Agreement”) by and among Reliant Energy, Inc., a
Delaware corporation (the “Company”), the Subsidiary Guarantors (as
defined therein), and The Bank of New York Trust Company, N.A., as trustee (the
“Trustee”) (as successor to J.P. Morgan Trust Company, National
Association), relating to the Pennsylvania Economic Development Financing
Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project)
Series 2003A, as supplemented by the Supplemental Guarantee Agreement dated as
of September 21, 2006 among the Company, Reliant Energy Power Supply, LLC and
the Trustee.  Capitalized terms used in
this Supplemental Guarantee Agreement, but not defined herein, shall have the
respective meanings given to such terms in the Guarantee Agreement.

WITNESSETH:

WHEREAS, Section 9.02 of
the Guarantee Agreement provides, among other things, that the Company and the
Trustee may amend or supplement the Guarantee Agreement with the consent of the
Holders of at least a majority in aggregate principal amount of the Series
2003A Bonds then Outstanding; and

WHEREAS, the Company has
solicited the consent of the Holders to certain amendments to the Guarantee
Agreement described in the Second Amended and Restated Consent Solicitation
Statement dated November 8, 2006 (the “Consent Solicitation Statement”)
and which have been reflected herein (the “Amendments”); and

WHEREAS, the Company has
received and filed with the Trustee, in the manner contemplated by the
Guarantee Agreement, evidence of the consent of the Holders of at least a
majority in aggregate principal amount of the outstanding Series 2003A Bonds,
consenting to the Amendments to be effected in the form of this Supplemental
Guarantee Agreement; and

NOW, THEREFORE, in
consideration of the mutual agreements herein set forth, the parties hereto
agree as follows:

1.             Amendments to the
Guarantee Agreement.

The following amendments
are made to the Guarantee Agreement effective as of the date specified in
Section 2 below:

(a)           In Section 1.01:

(1)           The definition of “Excluded
Securities” is amended in its entirety to read as follows:

Excluded Securities” means debt or equity securities issued by
any Subsidiary of the Company other than RERH Holdings, LLC, IP Trust, IT
Trust, Orion Power Holdings, Inc. and REMA (or their successors); provided,
however, that “Excluded Securities” shall include beneficial interests in the
IP Trust or the IT Trust that are held by RERH Holdings, LLC or its
Subsidiaries.

 1
 

 

(2)           The definition of “Excluded
Subsidiaries” is amended to delete the reference to “RE Retail Receivables,
LLC.”

(3)           The following definition is added:

“IP Trust” means
Reliant Energy Trademark Trust, a Delaware statutory trust.

(4)           The following definition is added:

“IT Trust” means
Reliant Energy IT Trust, a Delaware statutory trust.

(5)           The definition of “Permitted
Liens” is amended:

(i)            to
amend clause (24) in its entirety to read as follows:

(24)         [Reserved];

(ii)           to
delete “and” at the end of clause (33);

(iii)          to add the following new clause (34) after
clause (33):

(34)         Liens
on assets of RERH Holdings, LLC and its Subsidiaries securing obligations of
RERH Holdings, LLC or any of its Subsidiaries under (a) Credit Facilities in an
aggregate principal amount not to exceed $300,000,000 plus all other
obligations due under such Credit Facilities and (b) any agreement for or in
support of the supply or sales of energy or products or services related or
incidental to the supply or sales of energy or any activities related to the
supply or sales of energy or products or services related or incidental to the
supply or sales of energy of RERH Holdings, LLC or any of its Subsidiaries,
including any agreement providing for the reimbursement of guarantees or
collateral postings made on behalf of RERH Holdings, LLC or any of its
Subsidiaries; and

; and

(iv)          to
renumber existing clause “(34)” as clause “(35).”

(6)           The definition of “Permitted
Prior Liens” is amended to substitute “and (33)” with “, (33) and (34).”

(b)           Section 4.08(b) is
amended:

(1)           to delete “and” at the
end of clause (18);

 2
 

 

(2)           to substitute “; and”
for the period at the end of clause (19); and

(3)           to add the following
new clause (20) after clause (19):

(20)         restrictions on RERH
Holdings, LLC or any of its Subsidiaries contained in (a) the Working Capital
Facility dated as of September 24, 2006 among Reliant Energy Power Supply, LLC
(“REPS”), the guarantors party thereto, and Merrill Lynch Capital Corporation,
(b) the Credit Sleeve and Reimbursement Agreement dated as of September 24,
2006 among REPS, the guarantors party thereto, Merrill Lynch Commodities, Inc.,
and Merrill Lynch & Co., Inc., and (c) any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the agreements referred to in the preceding clauses (a) and
(b), provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are not
materially more restrictive, taken as a whole, with respect to such dividend
and other payment restrictions than those contained in those agreements as
reasonably determined by the Company.

(c)           The following
Subsection (c) is added to Section 4.08:

(c)           Promptly following the last day of each month
and so long as such payment is permitted under the terms of the agreements
referred to in Section 4.08(b)(20), the Company shall cause RERH Holdings, LLC
to pay cash dividends or distributions to the Company in an amount equal to (i)
the amount which is permitted under the terms of the agreements referred to in
Section 4.08(b)(20) on such day minus (ii)(A) amounts reasonably estimated by
the Company to be due and payable by RERH Holdings, LLC and its Subsidiaries on
or before the 20th day of the month next occurring plus (B) the lesser of (1)
$100,000,000 and (2) the amount permitted under the Credit Agreement on the
date the agreements referred to in Section 4.08(b)(20) become effective.

(d)           In Section 4.09(b):

(1)           Subsection (b)(1) of
Section 4.09 is amended in its entirety to read as follows:

(1)           the
incurrence (A) by the Company and the guarantee by the Guarantors of additional
Indebtedness and letters of credit under Credit Facilities, (B) by
Securitization Entities of Indebtedness in Qualified Securitization
Transactions, and (C) by RERH Holdings, LLC and its Subsidiaries of additional
Indebtedness and letters of credit under Credit Facilities (including 

 3
 

 

guarantees of such Indebtedness) (provided, however,
that (I) the aggregate principal amount of Indebtedness incurred under this
clause (C) at any one time outstanding shall not exceed $310,000,000, and (II)
the proceeds of Indebtedness incurred under this clause (C) shall be used only
for the repayment of Indebtedness and other Obligations of RERH Holdings, LLC
and its Subsidiaries or to finance working capital needs of RERH Holdings, LLC
and its Subsidiaries, including the payment of sales, general and
administrative, and operations and maintenance expenses (including capital
expenditures) and all other expenses in the ordinary course of business of RERH
Holdings, LLC and its Subsidiaries) in an aggregate principal amount at any one
time outstanding under this clause (1) (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the Company
and its Restricted Subsidiaries thereunder), including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (1), not to exceed $2.5 billion;

(2)           The following paragraph
is added to the end of the section:

Notwithstanding anything in this Section 4.09(b) to
the contrary, the aggregate principal amount of Indebtedness of RERH Holdings,
LLC and its Subsidiaries at any one time outstanding, other than Indebtedness
incurred pursuant to clause (14) of this Section 4.09(b), may not exceed
$310,000,000.

(e)           Section 4.10 is amended
in its entirety to read as follows:

Section 4.10  Asset Sale Offers.

(a)           Within
five Business Days after the receipt of any Net Proceeds from an Asset Sale of
the Equity Interests of RERH Holdings, LLC (and its successors), of all or
substantially all of the assets of RERH Holdings, LLC and its Subsidiaries (and
their successors), or of all or substantially all of the assets of the Company
and its Subsidiaries (other than RERH Holdings, LLC and its Subsidiaries (and
their successors)), the Company shall make an Asset Sale Offer to all Holders
of each Series of Bonds and all holders of other Indebtedness (including the
2014 Notes, the Existing 2010 Notes, and the Existing 2013 Notes) that is pari
passu with the Seward Guarantees (other than Credit Agreement Debt) (and so
long as this Guarantee Agreement is Equally and Ratably secured with such other
pari passu Indebtedness) containing provisions similar to those set forth in
this Guarantee Agreement with respect to offers to purchase or redeem with the
proceeds of sales of assets, to purchase (or repay, prepay or redeem, as
applicable) an aggregate principal amount of each Series of

 4
 

 

Bonds and such
other pari passu Indebtedness that may be purchased (or repaid, prepaid or
redeemed) equal to the aggregate of such Net Proceeds multiplied by a fraction,
the numerator of which consists of (A) the aggregate principal amount then
outstanding on each Series of Bonds and all such other pari passu Indebtedness
containing such provisions (not including Credit Agreement Debt) and the
denominator of which is (B) the sum of (i) such aggregate amount in the
preceding clause (A) and (ii) the Credit Agreement Debt then outstanding (an “Asset
Sale Offer”). The offer price in any Asset Sale Offer will be equal to 100% of
principal amount plus accrued and unpaid interest to the date of purchase, and
shall be payable in cash.  If any such
Net Proceeds remain after consummation of an Asset Sale Offer, the Company may
use such Net Proceeds for any purpose not otherwise prohibited by this
Guarantee Agreement.  If the aggregate
principal amount of each Series of Bonds and such other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of such Net Proceeds,
the Company shall select the Series of Bonds and such other pari passu
Indebtedness to be purchased on a pro rata basis based on the principal amount
of Series of Bonds and such other pari passu Indebtedness tendered.

(b)           In
the event that, pursuant to Section 4.10 hereof, the Company is required to
commence an Asset Sale Offer, it shall follow the procedures specified below.

(c)           The
Asset Sale Offer shall be made to all holders of each Series of Bonds and all
holders of other Parity Secured Debt (other than Credit Agreement Debt)
containing provisions similar to those set forth in this Guarantee Agreement
with respect to offers to purchase or redeem with the proceeds of sales of
assets.  The Asset Sale Offer shall
remain open for a period of at least 20 Business Days following its commencement
and not more than 30 Business Days, except to the extent that a longer period
is required by applicable law (the “Offer Period”).  No later than three Business Days after the
termination of the Offer Period (the “Purchase Date”), the Company shall apply
a portion of the Net Proceeds as calculated pursuant to the first sentence of
Section 4.10(a) hereof (the “Offer
Amount”) to the purchase of Notes and such other Parity Secured Debt (on a pro rata basis, if applicable) or, if
less than the Offer Amount has been tendered, all Series of Bonds and other
Indebtedness tendered in response to the Asset Sale Offer.  Payment for any bond in a Series of Bonds
(each a “Bond”) so purchased shall be made in the same manner as interest
payments are made.

(d)           If
the Purchase Date is on or after an interest record date and on or before the
related interest payment date, any accrued and unpaid interest shall be paid to
the Person in whose name a Bond is registered at the close of business on such
record date, and no additional interest will be payable to Holders who tender
Bonds pursuant to the Asset Sale Offer.

 5
 

 

(e)           Upon
the commencement of an Asset Sale Offer, the Company shall send, by first class
mail, a notice to the Trustee and each of the Holders.  The notice will contain all instructions and
materials necessary to enable such Holders to tender Bonds pursuant to the
Asset Sale Offer.  The notice, which will
govern the terms of the Asset Sale Offer, will state:

(i)            that the Asset Sale Offer is being made
pursuant to Section 4.10 hereof and the length of time the Asset Sale Offer
will remain open;

(ii)           the Offer Amount, the purchase price and the Purchase Date;

(iii)          that any Bond not tendered or accepted for payment will continue to
accrue interest;

(iv)          that, unless the Company defaults in making such payment, any Bond
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest;

(v)           that Holders electing to have a Bond purchased pursuant to an Asset
Sale Offer may elect to have Bond purchased in integral multiples of $1,000
only;

(vi)          that Holders electing to have a Bond purchased pursuant to any Asset
Sale Offer shall be required to surrender the Bond endorsed or assigned as the
Trustee may require or transfer by book-entry transfer, to the Company or a
Paying Agent at the address specified in the notice at least three days before
the Purchase Date;

(vii)         that Holders shall be entitled to withdraw their election if the
Company or the Paying Agent, as the case may be, receives, not later than the
expiration of the Offer Period, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Bond
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Bond purchased;

(viii)        that, if the aggregate principal amount of Bonds and other Parity Secured Debt surrendered in
connection with the Asset Sale Offer exceeds the Offer Amount, the Company
shall select the Bonds and other Parity
Secured Debt to be purchased on a pro rata basis based on the principal
amount of Bonds and such other Parity
Secured Debt surrendered (with such adjustments as may be deemed
appropriate by the Company so that only Bonds in denominations of $1,000, or
integral multiples thereof, will be purchased); and

(ix)           that Holders whose Bonds were purchased only in part will be issued new
Bonds equal in principal amount to the

 6
 

 

unpurchased portion of the
Bonds surrendered (or transferred by book-entry transfer).

On or before the
Purchase Date, the Company shall, to the extent lawful, accept for payment, on
a pro rata basis to the extent necessary, the Offer Amount of Bonds or portions
thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer
Amount has been tendered, all Bonds tendered, and shall deliver to the Trustee
an Officer’s Certificate stating that such Bonds or portions thereof were
accepted for payment by the Company in accordance with the terms of this
Section 4.10.  The Company or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an
amount equal to the purchase price of the Bonds tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly cause the
issuance of a new Bond, and the Trustee, upon written request from the Company
shall authenticate and mail or deliver such new Bond to such Holder, in a
principal amount equal to any unpurchased portion of the Bond surrendered.  Any Bond not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof.  The Company shall publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Purchase
Date.

(f)            The
foregoing shall be made in accordance with the terms of the Indenture and, to
the extent inconsistent with any terms of the Indenture, the terms of the
Indenture shall control.

(g)           If
a Holder of a bond in Series of Bonds’ acceptance of any Asset Sale Offer results
in the inclusion of the interest on such Holder’s bonds in the gross income of
such Holder for federal income tax purposes, the Company shall pay such Holder
on the date each interest payment is due for such Holder’s Series of Bonds an
amount equal to the interest then due and payable divided by (1 minus the
highest effective federal tax rate at such time) less the amount of interest
otherwise paid to the Holder.

(f)            Section 4.24 is added
to read in its entirety as follows:

Section 4.24  Early Redemption.

The Company and
the Subsidiary Guarantors agree that, notwithstanding the terms of the Series
2003A Bonds, (1) the Company and the Subsidiary Guarantors will cause the
Series 2003A Bonds not to be redeemed before June 1, 2011 and (2) upon any
optional redemption of the Series 2003A Bonds during the period beginning June
1, 2011 and ending May 31, 2014, the Company and the Subsidiary Guarantors will
cause an additional amount to be paid to the Holders of the Series 2003A Bonds
being redeemed such that the aggregate amount received by such Holders upon
redemption is equal to the amounts expressed as a percentage of principal
amount set forth below (plus accrued interest, if

 7
 

 

any, to the redemption date) for a redemption of the
Series 2003A Bonds during the periods set forth below:

	
  Optional Redemption Dates

  	
   

  	
  Redemption Prices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 1, 2011
  through May 31, 2012

  	
   

  	
  103

  	
  %

  
	
  June 1, 2012
  through May 31, 2013

  	
   

  	
  102

  	
  %

  
	
  June 1, 2013 through
  May 31, 2014

  	
   

  	
  101

  	
  %

  

 

(g)           The following
Subsection (h) is added to Section 10.06:

(h)           Notwithstanding
anything herein to the contrary, the Company agrees that, without the prior
consent of the holders of at least a majority in aggregate principal amount of
the Guarantee Obligations with respect to each Series of Bonds, the Collateral
Trustee’s Liens in the Equity Interests of RERH Holdings, LLC (or its
successor) or, if any, in all or substantially all of the assets of RERH
Holdings, LLC and its Subsidiaries (or their successors) (the “Retail Assets”)
or in all or substantially all of the Company and its Subsidiaries’ (other than
RERH Holdings, LLC and its Subsidiaries’ (or their successors)) assets,
including Equity Interests (the “Wholesale Assets”) may not be released, except
no such consent shall be required (i) in the case of an Asset Sale of the
Equity Interests of RERH Holdings, LLC (or its successor), the Retail Assets or
the Wholesale Assets or (ii) on and after the date on which, as of the last day
of two consecutive Fiscal Quarters, both (A) the Consolidated Leverage Ratio
for the applicable immediately preceding four Fiscal Quarters was 2.75:1 or
less and (B) the Consolidated Interest Coverage Ratio for the applicable
immediately preceding four Fiscal Quarters was 3.25:1 or more (the “Ratio Test”).  The Company agrees to file a current report
on Form 8-K with the SEC showing the calculation of the Ratio Test within 60
days (or 90 days if end of the period is also the end of a fiscal year) (i)
after the end of first four-quarter period in which it meets the Ratio Test and
for which it proposes to use the Ratio Test to implement the foregoing Lien
release and (ii) after the end of the second consecutive four-quarter period in
which it meets the Ratio Test and for which it proposes to use the Ratio Test
to implement the foregoing Lien release. 
The Company also agrees to promptly notify the Trustee of the filing of
the Form 8-K and to deliver to the Trustee the calculations of the Ratio Test
certified by the Company’s chief financial officer and that the Company may not
implement a Lien release without consent on account of the Ratio Test without
first complying with this sentence and the immediately preceding sentence.

The following terms shall have the following meanings
when used in this paragraph (h):

“Acquisition” means any transaction or any
series of related transactions by which a Person (a) acquires any going
business (including a power generation facility) or all or substantially all of
the assets of any

 8
 

 

other Person, or division thereof, whether through purchase of assets,
merger, or otherwise or (b) directly or indirectly acquires greater than 50% of
the Voting Stock of any other Person.

“Consolidated EBITDAR” means, for any period
for the Company and its Subsidiaries determined on a consolidated basis in
accordance with GAAP, an amount equal to, without any duplication, (a) net
income (before giving effect to the cumulative effect of changes in accounting
principles and discontinued operations and before income taxes and franchise
taxes to the extent based on the income of such Person and its Subsidiaries)
for such period, plus (b) Consolidated Interest Charges for such period, plus
(c) depreciation, depletion, impairment, abandonment and amortization expense
for such period, plus (d) the book accounting lease expense under the REMA
Lease for such period, plus (e) interest and fees expensed under any
receivables monetization or securitization during such period, plus (f) net
unrealized losses related to trading or non-trading energy derivatives, plus
(g) cash dividends or distributions actually received during such period from
an entity which is not a consolidated Subsidiary of such Person, minus
(h) net unrealized gains related to trading or non-trading energy
derivatives; provided, however, for purposes of this definition, (i) gains
and losses on the disposition of assets not in the ordinary course of business,
(ii) any other noncash charge or gain, and (iii) any extraordinary or other
non-recurring item or expense, including severance costs, shall be excluded to
the extent incurred or realized during such period in accordance with GAAP from
the calculation of Consolidated EBITDAR. If during any period for which
Consolidated EBITDAR is being determined, the Company or any Subsidiary shall
have (a) made or consummated any Acquisition for gross consideration of
$3,000,000 or more (including Indebtedness assumed), then Consolidated EBITDAR
shall be determined on a pro forma basis for such period as if such Acquisition
had been made or consummated as of the beginning of the first day of such
period or (b) made or consummated any Asset Sale that is not fully included in
discontinued operations, then Consolidated EBITDAR shall, to the extent such
Asset Sale is not excluded from Consolidated EBITDAR pursuant to the foregoing
proviso, be determined on a pro forma basis for such period as if such Asset
Sale had been made or consummated as of the beginning of the first day of such
period.

“Consolidated Interest Charges” means, without
duplication, for any period for the Company and its Subsidiaries on a
consolidated basis in accordance with GAAP, (a) the total interest expense for
such period, plus (b) the interest expense during such period attributable to
(i) the REMA Lease, (ii) the fees and yield paid in connection with,
or interest expense attributable to, any account receivables securitization or
monetization permitted hereunder, and (iii) any capitalized interest
during such period, plus (c) all cash dividends and distributions paid on
preferred or preference stock, plus (d) to the extent deducted in
determining total interest expense, net unrealized gains under any agreement
described in the definition of “Hedging Obligations” permitted hereunder and
existing

 9
 

 

on or prior to December 22, 2004 (excluding any ongoing settlement
payments in connection with permitted interest rate swap agreements), minus
(e)(i) the total interest income of such Person and its Subsidiaries, including
interest income from any escrow or trust account, (ii) in all cases whether
expensed or amortized, any interest expense attributable to (A) any makewhole
or premium paid in connection with the repayment of any Debt, (B) any upfront
direct or indirect costs, expenses, or fees incurred in connection with,
including those arising out of the preparation for the maturity of, (1) any
Debt, (2) the incurrence of any Debt after December 22, 2004, or (3) the
amendment of any Debt, (C) to the extent added in determining total
interest expense, the upfront cost and net unrealized losses under any
agreement described in the definition of “Hedging Obligations” permitted
hereunder and existing on or prior to December 22, 2004 (excluding ongoing
settlement payments in connection with permitted interest rate swap
agreements), and (D) any of the RRI Warrants; (iii)  all
non-recurring interest expense with respect to items not constituting
Indebtedness, and (iv) interest expense attributable to Indebtedness repaid or
required to be repaid under any Indebtedness for which the Company has notified
the Credit Agreement Agent in writing that it agrees it will not designate the
Net Proceeds as Excluded Proceeds, in each case in connection with an Asset
Sale.

“Consolidated Interest Coverage Ratio” means,
as of any date of determination, the ratio of (a) Consolidated EBITDAR for the
period of the four prior Fiscal Quarters ending on such date to (b)
Consolidated Interest Charges for such period.

“Consolidated Leverage Ratio” means, as of any
date of determination, the ratio of (a) Consolidated Total Debt as of such date
to (b) Consolidated EBITDAR for the period of the four Fiscal Quarters most
recently ended.

“Consolidated Total Debt” means, as of any date
of determination, for the Company and its Subsidiaries on a consolidated basis
in accordance with GAAP, (i) all outstanding Debt of the Company and its
Subsidiaries on such date, minus (ii) without duplication, all (a) cash and
short-term investments, in an aggregate amount not to exceed $300,000,000 at
any time, (b) restricted cash, in an amount not to exceed the aggregate amount
of Indebtedness of the Company or any of its Subsidiaries, the terms of which
Indebtedness cause such cash to appear as restricted cash on the consolidated
balance sheet of the Company and its Subsidiaries, and (c) broker, counterparty,
and customer margin/collateral assets and deposits advanced to or held on
behalf of such broker, counterparty or customer, as each of the foregoing
appears on the consolidated balance sheet of the Company and its Subsidiaries.

“Debt” means, as of any date of determination
with respect to the Company and its Subsidiaries, without duplication, in
accordance with GAAP the following: (a) the total amount of indebtedness,
including any

 10
 

 

fair value adjustments, and other obligations of the Company and its
Subsidiaries for borrowed money (whether by loan or the issuance of debt
securities), including the unreimbursed amount of any drawings under letters of
credit issued for the account of the Company or any of its Subsidiaries, but
excluding the amount of indebtedness for borrowed money that is either (i)
required to be repaid or (ii) for which the Company has notified the Credit
Agreement Agent in writing that it agrees it will not designate the Net
Proceeds as Excluded Proceeds, in each case in connection with an Asset Sale,
(b) all Capital Lease Obligations and, except for the REMA Lease,
Attributable Debt in respect of sale and leaseback transactions or financing
leases, (c) the unpaid balance owed to the certificate holders under the REMA
Lease, (d) obligations under any accounts securitization or monetization
arrangement permitted hereunder and not recorded on the Company balance sheet
for that period, and (e) all guaranties of payment or collection of any
obligations described in clauses (a) through (d) of this definition of any
other Person; provided, however, that Debt shall not include:  (i) any guaranties that may be incurred by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business or similar transactions, (ii) any Obligations or guaranties
of performance of Obligations under performance bonds, (iii) trade accounts
payable in the ordinary course of business, (iv) customer advance payments and
customer deposits arising in the ordinary course of business, (v) the liability
of any Person as a general partner of a partnership for Debt of such
partnership, if the partnership is not a Subsidiary of such Person, and (vi)
any completion or performance guarantees (or similar guarantees that a project
or a Subsidiary perform as planned).  In
determining the outstanding amount of any Debt: 
(a) the amount of money borrowed shall be the outstanding principal
amount thereof, (b) the amount of all unreimbursed letters of credit shall be
the unreimbursed amount thereof, (c) the amount of any accounts monetization or
securitization shall be the amount invested by the investor therein, and (d)
the amount of guaranties shall be the amount of the guaranteed obligations
determined as provided above in this sentence.

“RRI Warrants” means the warrants issued by the
Company and outstanding on December 22, 2004.

(h)           Subsection (a)(2) of
Section 13.01 is amended in its entirety to read as follows:

(2)           the
Seward Subsidiary and the Seward Collateral Trustee shall file a mortgage on
the Seward Collateral substantially in the form of Exhibit B hereto for the
benefit of the present and future holders of the Series 2003A Bonds and any
other Permitted Secured PEDFA Bond Indebtedness on an Equal and Ratable Basis
on or before the date on which the Seward Security Event occurs, and the Series
2003A Bonds will thereafter be secured by Liens upon the Seward Subsidiary’s
rights in the Seward Collateral;

 11
 

 

 

2.             Effectiveness of
Amendments.

The Amendments shall
become effective on the date of this Supplemental Guarantee Agreement.

3.             Ratification of
Guarantee Agreement.

The Guarantee Agreement,
as supplemented and amended by this Supplemental Guarantee Agreement, is in all
respects ratified and confirmed, and this Supplemental Guarantee Agreement
shall be deemed part of the Guarantee Agreement in the manner and to the extent
herein and therein provided.

4.             Trustee Not
Responsible for Recitals.

The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof.  The Trustee makes no representation as to the
validity or sufficiency of this Supplemental Guarantee Agreement.

5.             Governing Law.

THE INTERNAL LAW OF THE
STATE OF NEW YORK SHALL GOVERN THIS SUPPLEMENTAL GUARANTEE AGREEMENT.

6.             Separability.

In case any one or more
of the provisions contained in this Supplemental Guarantee Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect,
then, to the extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Supplemental
Guarantee Agreement, but this Supplemental Guarantee Agreement shall be
construed as if such invalid or illegal or unenforceable provision had never
been contained herein.

7.             Counterparts.

This Supplemental
Guarantee Agreement may be executed in any number of counterparts each of which
shall be an original, but such counterparts shall together constitute but one
and the same instrument.

 12
 

 

IN WITNESS WHEREOF, the
parties hereto have caused this Supplemental Guarantee Agreement to be duly
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.

	
  

  	
  RELIANT ENERGY, INC.,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Johannesen

  	
   

  
	
   

  	
  Name:

  	
   Andrew Johannesen

  	
   

  
	
   

  	
  Title:

  	
   Vice President and Assistant Treasurer

  	
   

  
								

 

 13
 

 

RELIANT ENERGY ASSET
MANAGEMENT, LLC

RELIANT ENERGY
BROADBAND, INC.

RELIANT ENERGY
CALIFORNIA HOLDINGS, LLC

RELIANT ENERGY
COMMUNICATIONS, INC.

RELIANT ENERGY
COOLWATER, INC.

RELIANT ENERGY CORPORATE
SERVICES, LLC

RELIANT ENERGY ELLWOOD,
INC.

RELIANT ENERGY ETIWANDA,
INC.

RELIANT ENERGY FLORIDA,
LLC

RELIANT ENERGY KEY/CON
FUELS, LLC

RELIANT ENERGY MANDALAY,
INC.

RELIANT ENERGY NORTHEAST
GENERATION, INC.

RELIANT ENERGY NORTHEAST
HOLDINGS, INC.

RELIANT ENERGY ORMOND
BEACH, INC.

RELIANT ENERGY POWER
GENERATION, INC.

RELIANT ENERGY SABINE
(TEXAS), INC.

RELIANT ENERGY SERVICES
DESERT BASIN, LLC

RELIANT ENERGY SERVICES
MID-STREAM, LLC

RELIANT ENERGY SEWARD,
LLC

RELIANT ENERGY TRADING
EXCHANGE, INC.

RELIANT ENERGY VENTURES,
INC.

RELIANT
ENERGY WHOLESALE GENERATION, LLC

	
  

  	
   

  	
   

  	
  By:

  	
  /s/ Andrew Johannesen

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Andrew Johannesen

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Assistant Treasurer of the corporations and limited

  liability companies listed above

  
						

 

 14
 

 

 

RELIANT
ENERGY SERVICES, INC.

 

	
  

  	
  By:

  	
  /s/ Andrew C.
  Johannesen

  
	
   

  	
  Name: Andrew C.
  Johannesen

  
	
   

  	
  Title: Vice
  President and Treasurer

  

 

RELIANT ENERGY ELECTRIC
SOLUTIONS, LLC

RELIANT ENERGY POWER
SUPPLY, LLC

RELIANT ENERGY RETAIL
SERVICES, LLC

RELIANT
ENERGY SOLUTIONS EAST, LLC

 

	
  

  	
  By:

  	
  /s/ Lloyd A. Whittington

  
	
   

  	
  Name: Lloyd A. Whittington

  
	
   

  	
  Title:Vice President and Treasurer of the limited

  liability companies listed above

  

 

RELIANT
ENERGY RETAIL HOLDINGS, LLC

 

	
  

  	
  By:

  	
  /s/ Lloyd A. Whittington

  
	
   

  	
  Name:

  	
  Lloyd A. Whittington

  
	
   

  	
  Title:

  	
  Assistant Treasurer

  
				

 

 15
 

 

RELIANT ENERGY CAPTRADES
HOLDING CORP.

RELIANT
ENERGY SABINE (DELAWARE), INC.

 

	
  

  	
  By:

  	
  /s/ Patricia F.
  Genzel

  
	
   

  	
  Name: Patricia
  F. Genzel

  	
   

  
	
   

  	
  Title: President
  and Secretary

  	
   

  
				

 

 16
 

 

THE
BANK OF NEW YORK TRUST COMPANY,

N.A., as Trustee

 

	
  

  	
  By:

  	
   /s/ Michael
  J. Judge

  
	
   

  	
   

  	
  Authorized
  Signatory

  

 

 17

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