Document:

Exhibit
10.1

[Execution
Version]

 

 

CREDIT SLEEVE AND
REIMBURSEMENT AGREEMENT

dated as of

September 24, 2006

among

RELIANT ENERGY
POWER SUPPLY, LLC,

The Other Reliant Retail
Obligors referred to herein,

as Reimbursement
Guarantors,

MERRILL LYNCH COMMODITIES,
INC.,

as Sleeve
Provider,

and

MERRILL LYNCH & CO.,
INC.,

as ML Guarantee Provider

 

 

 

 

 

TABLE OF CONTENTS

This Table of
Contents is not part of the Agreement to which it is attached but is inserted
for convenience of reference only.

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 1. Definitions and Accounting Matters

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.01

  	
   

  	
  Certain Defined Terms

  	
   

  	
  1

  
	
  1.02

  	
   

  	
  Terms Generally

  	
   

  	
  32

  
	
  1.03

  	
   

  	
  Accounting Terms and Determinations

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2. Credit Sleeve for Reliant Retail Obligors

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  2.01

  	
   

  	
  Credit Sleeve Generally; Exclusivity

  	
   

  	
  32

  
	
  2.02

  	
   

  	
  Credit Sleeve of OTC Trading and Hedging Activities

  	
   

  	
  35

  
	
  2.03

  	
   

  	
  Credit Sleeve of Exchange Traded Hedging Activities

  	
   

  	
  40

  
	
  2.04

  	
   

  	
  Credit Sleeve of C&I and Governmental Contracts

  	
   

  	
  41

  
	
  2.05

  	
   

  	
  Credit Sleeve of Regulatory Obligations

  	
   

  	
  41

  
	
  2.06

  	
   

  	
  Term

  	
   

  	
  41

  
	
  2.07

  	
   

  	
  Posting Collateral to Increase K

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3. Payments, Fees and Records

  	
   

  	
  42

  
	
   

  	
   

  	
   

  
	
  3.01

  	
   

  	
  Notice of Payment on ML Guarantee or Collateral
  Foreclosure

  	
   

  	
  42

  
	
  3.02

  	
   

  	
  Repayment of Draw Reimbursement Obligations

  	
   

  	
  42

  
	
  3.03

  	
   

  	
  Interest

  	
   

  	
  42

  
	
  3.04

  	
   

  	
  Monthly Sleeve Fee

  	
   

  	
  44

  
	
  3.05

  	
   

  	
  Make-whole Payment

  	
   

  	
  44

  
	
  3.06

  	
   

  	
  Structuring Fee

  	
   

  	
  44

  
	
  3.07

  	
   

  	
  Payments Generally

  	
   

  	
  44

  
	
  3.08

  	
   

  	
  Records; Prima Facie Evidence

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4. Conditions

  	
   

  	
  45

  
	
   

  	
   

  	
   

  
	
  4.01

  	
   

  	
  Initial Conditions for Merrill Parties

  	
   

  	
  45

  
	
  4.02

  	
   

  	
  Initial Conditions for Reliant Retail Obligors

  	
   

  	
  48

  
	
  4.03

  	
   

  	
  Conditions to Certain Obligations of the Merrill
  Parties

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5. Representations and Warranties

  	
   

  	
  50

  
	
   

  	
   

  	
   

  
	
  5.01

  	
   

  	
  Existence, Qualification and Power; Compliance with
  Laws

  	
   

  	
  50

  
	
  5.02

  	
   

  	
  Authorization; No Contravention

  	
   

  	
  50

  
	
  5.03

  	
   

  	
  Governmental Authorization; Other Consents

  	
   

  	
  51

  
	
  5.04

  	
   

  	
  Binding Effect

  	
   

  	
  51

  
	
  5.05

  	
   

  	
  Financial Statements; No Material Adverse Effect

  	
   

  	
  51

  
	
  5.06

  	
   

  	
  Litigation

  	
   

  	
  52

  
	
  5.07

  	
   

  	
  No Default

  	
   

  	
  52

  
	
  5.08

  	
   

  	
  Ownership of Property; Liens

  	
   

  	
  52

  
	
  5.09

  	
   

  	
  Environmental Matters

  	
   

  	
  52

  
							

 

 

 

 

	
  5.10

  	
   

  	
  Insurance

  	
   

  	
  53

  
	
  5.11

  	
   

  	
  Taxes

  	
   

  	
  53

  
	
  5.12

  	
   

  	
  ERISA Compliance

  	
   

  	
  54

  
	
  5.13

  	
   

  	
  Subsidiaries; Equity Interests

  	
   

  	
  54

  
	
  5.14

  	
   

  	
  Margin Regulations; Investment Company Act; Public
  Utility Holding Company Act

  	
   

  	
  55

  
	
  5.15

  	
   

  	
  Disclosure

  	
   

  	
  55

  
	
  5.16

  	
   

  	
  Compliance with Laws

  	
   

  	
  55

  
	
  5.17

  	
   

  	
  Intellectual Property; Licenses, Etc

  	
   

  	
  56

  
	
  5.18

  	
   

  	
  Solvency

  	
   

  	
  56

  
	
  5.19

  	
   

  	
  Perfection, Etc

  	
   

  	
  56

  
	
  5.20

  	
   

  	
  Employees, Etc

  	
   

  	
  56

  
	
  5.21

  	
   

  	
  Information Technology Systems

  	
   

  	
  56

  
	
  5.22

  	
   

  	
  Marks

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6. Affirmative Covenants

  	
   

  	
  57

  
	
   

  	
   

  	
   

  
	
  6.01

  	
   

  	
  Financial Statements

  	
   

  	
  57

  
	
  6.02

  	
   

  	
  Certificates; Other Information

  	
   

  	
  58

  
	
  6.03

  	
   

  	
  Notices

  	
   

  	
  59

  
	
  6.04

  	
   

  	
  Payment of Obligations

  	
   

  	
  59

  
	
  6.05

  	
   

  	
  Preservation of Existence, Etc

  	
   

  	
  59

  
	
  6.06

  	
   

  	
  Maintenance of Properties

  	
   

  	
  60

  
	
  6.07

  	
   

  	
  Maintenance of Insurance

  	
   

  	
  60

  
	
  6.08

  	
   

  	
  Compliance with Laws

  	
   

  	
  60

  
	
  6.09

  	
   

  	
  Books and Records

  	
   

  	
  60

  
	
  6.10

  	
   

  	
  Inspection Rights

  	
   

  	
  60

  
	
  6.11

  	
   

  	
  Addition and Removal of Transaction Parties;
  Collateral Matters; Waterfall

  	
   

  	
  61

  
	
  6.12

  	
   

  	
  Further Assurances

  	
   

  	
  64

  
	
  6.13

  	
   

  	
  Risk Management Policy

  	
   

  	
  64

  
	
  6.14

  	
   

  	
  Employees

  	
   

  	
  66

  
	
  6.15

  	
   

  	
  Information Technology Systems

  	
   

  	
  66

  
	
  6.16

  	
   

  	
  Marks

  	
   

  	
  66

  
	
  6.17

  	
   

  	
  Reliant Parent Services Agreement

  	
   

  	
  67

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7. Negative Covenants

  	
   

  	
  67

  
	
   

  	
   

  	
   

  
	
  7.01

  	
   

  	
  Liens

  	
   

  	
  67

  
	
  7.02

  	
   

  	
  Investments and Acquisitions

  	
   

  	
  67

  
	
  7.03

  	
   

  	
  Indebtedness

  	
   

  	
  68

  
	
  7.04

  	
   

  	
  Consolidation and Mergers

  	
   

  	
  69

  
	
  7.05

  	
   

  	
  Asset Sales

  	
   

  	
  70

  
	
  7.06

  	
   

  	
  Limitation on Issuances and Sales of Certain Equity
  Interests

  	
   

  	
  70

  
	
  7.07

  	
   

  	
  Restricted Payments

  	
   

  	
  71

  
	
  7.08

  	
   

  	
  Line of Business

  	
   

  	
  71

  
	
  7.09

  	
   

  	
  Transactions with Affiliates

  	
   

  	
  71

  
	
  7.10

  	
   

  	
  Restrictive Agreements

  	
   

  	
  72

  
	
  7.11

  	
   

  	
  Modification of Transaction Documents

  	
   

  	
  73

  
	
  7.12

  	
   

  	
  Fiscal Year

  	
   

  	
  73

  
						

 

 ii
 

 

 

	
  7.13

  	
   

  	
  Specified Transaction

  	
   

  	
  73

  
	
  7.14

  	
   

  	
  Services

  	
   

  	
  73

  
	
  7.15

  	
   

  	
  Tax Agreements

  	
   

  	
  73

  
	
  7.16

  	
   

  	
  Posting of Collateral

  	
   

  	
  73

  
	
  7.17

  	
   

  	
  Accepted Products

  	
   

  	
  73

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8. Events of Default

  	
   

  	
  74

  
	
   

  	
   

  	
   

  
	
  8.01

  	
   

  	
  Reliant Events of Default

  	
   

  	
  74

  
	
  8.02

  	
   

  	
  Sleeve Provider Events of Default

  	
   

  	
  76

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 9. Remedies and Termination

  	
   

  	
  78

  
	
   

  	
   

  	
   

  
	
  9.01

  	
   

  	
  Remedies of Sleeve Provider

  	
   

  	
  78

  
	
  9.02

  	
   

  	
  Remedies of REPS

  	
   

  	
  78

  
	
  9.03

  	
   

  	
  Certain Intercreditor Agreements

  	
   

  	
  80

  
	
  9.04

  	
   

  	
  Certain Limitations on Remedies

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 10. Unwind

  	
   

  	
  81

  
	
   

  	
   

  	
   

  
	
  10.01

  	
   

  	
  Permitted Activities during Unwind Period

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 11. Reimbursement Guaranty by Other Reliant
  Retail Parties

  	
  83

  
	
   

  	
   

  
	
  11.01

  	
   

  	
  Reimbursement Guaranty of the Obligations

  	
   

  	
  83

  
	
  11.02

  	
   

  	
  Payment by Guarantors

  	
   

  	
  83

  
	
  11.03

  	
   

  	
  Liability of Reimbursement Guarantors Absolute

  	
   

  	
  83

  
	
  11.04

  	
   

  	
  Waivers by Reimbursement Guarantors

  	
   

  	
  85

  
	
  11.05

  	
   

  	
  Reimbursement Guarantors’ Rights of Subrogation,
  Contribution, etc

  	
   

  	
  86

  
	
  11.06

  	
   

  	
  Subordination of Other Obligations

  	
   

  	
  86

  
	
  11.07

  	
   

  	
  Continuing Reimbursement Guaranty

  	
   

  	
  86

  
	
  11.08

  	
   

  	
  Authority of Reimbursement Guarantors or REPS

  	
   

  	
  87

  
	
  11.09

  	
   

  	
  Financial Condition of REPS

  	
   

  	
  87

  
	
  11.10

  	
   

  	
  Bankruptcy, etc

  	
   

  	
  87

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 12. Miscellaneous

  	
   

  	
  88

  
	
   

  	
   

  	
   

  
	
  12.01

  	
   

  	
  Notices

  	
   

  	
  88

  
	
  12.02

  	
   

  	
  Confidentiality; Limitation on Use of Information

  	
   

  	
  89

  
	
  12.03

  	
   

  	
  Reliant Employees

  	
   

  	
  90

  
	
  12.04

  	
   

  	
  Provisions relating to Collateral Trust Agreement
  and Reimbursement Guarantee

  	
   

  	
  91

  
	
  12.05

  	
   

  	
  Waiver

  	
   

  	
  92

  
	
  12.06

  	
   

  	
  Amendments, Etc

  	
   

  	
  92

  
	
  12.07

  	
   

  	
  Expenses, Etc

  	
   

  	
  92

  
	
  12.08

  	
   

  	
  Successors and Assigns

  	
   

  	
  93

  
	
  12.09

  	
   

  	
  Assignments

  	
   

  	
  93

  
	
  12.10

  	
   

  	
  Survival

  	
   

  	
  93

  
	
  12.11

  	
   

  	
  Counterparts

  	
   

  	
  93

  
	
  12.12

  	
   

  	
  Governing Law; Jurisdiction; Etc

  	
   

  	
  93

  
	
  12.13

  	
   

  	
  Certain Dispute Resolution Procedures

  	
   

  	
  94

  

 

 iii
 

 

 

	
  12.14

  	
   

  	
  Captions

  	
   

  	
  95

  
	
  12.15

  	
   

  	
  Limitation on Interest

  	
   

  	
  95

  
	
  12.16

  	
   

  	
  Integration

  	
   

  	
  95

  

 

 iv
 

 

 

Schedules and Exhibits

 

	
  SCHEDULE 1.01(a)

  	
  -

  	
  Risk Management Policy Violations

  	
   

  	
   

  
	
  SCHEDULE 1.01(b)

  	
  -

  	
  Calculations Relating to Exchange Traded Contracts

  	
   

  	
   

  
	
  SCHEDULE 1.01(c)

  	
  -

  	
  Determination of K and VaR

  	
   

  	
   

  
	
  SCHEDULE 1.01(d)

  	
  -

  	
  Information Technology Systems

  	
   

  	
   

  
	
  SCHEDULE 1.01(e)

  	
  -

  	
  Trademarks

  	
   

  	
   

  
	
  SCHEDULE 1.01(f)

  	
  -

  	
  Delegation of Authority and Credit Limit Approval
  Guidelines

  	
   

  	
   

  
	
  SCHEDULE 2.02(a)

  	
  -

  	
  Counterparty Document Negotiation Provisions

  	
   

  	
   

  
	
  SCHEDULE 2.04

  	
   

  	
  C&I Contracts and Governmental Contracts
  receiving ML Guarantee on Effective Date

  	
   

  	
   

  
	
  SCHEDULE 3.04

  	
  -

  	
  Calculation and Settlement of Monthly Sleeve Fee

  	
   

  	
   

  
	
  SCHEDULE 3.05

  	
   

  	
  Calculation of Make-whole Payment

  	
   

  	
   

  
	
  SCHEDULE 3.07(a)

  	
   

  	
  Merrill Account

  	
   

  	
   

  
	
  SCHEDULE 5.13

  	
  -

  	
  List of Subsidiaries

  	
   

  	
   

  
	
  SCHEDULE 7.13

  	
  -

  	
  List of Retail Services

  	
   

  	
   

  
	
  SCHEDULE 12.13

  	
  -

  	
  List of Calculation Agents

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A1

  	
  –

  	
  Form of ML Guarantee for Accepted Counterparties

  	
   

  	
   

  
	
  EXHIBIT A2

  	
  –

  	
  Form of ML Guarantee for C&I Customers

  	
   

  	
   

  
	
  EXHIBIT B

  	
  –

  	
  List of Accepted Counterparties

  	
   

  	
   

  
	
  EXHIBIT C1

  	
  –

  	
  Form of EEI Power Purchase and Hedging Contract

  	
   

  	
   

  
	
  EXHIBIT C2

  	
  –

  	
  Form of ISDA Power Purchase and Hedging Contract

  	
   

  	
   

  
	
  EXHIBIT D1

  	
  –

  	
  Form of EEI Collateral Annex

  	
   

  	
   

  
	
  EXHIBIT D2

  	
  –

  	
  Form of ISDA Credit Support Annex

  	
   

  	
   

  
	
  EXHIBIT E1

  	
  –

  	
  Reliant Energy — Retail Risk Policy

  	
   

  	
   

  
	
  EXHIBIT E2

  	
  –

  	
  Wholesale Risk Control Policy

  	
   

  	
   

  
	
  EXHIBIT F

  	
  –

  	
  ERCOT Asset List

  	
   

  	
   

  
	
  EXHIBIT G

  	
  –

  	
  Form of Joinder Agreement

  	
   

  	
   

  
	
  EXHIBIT H

  	
  –

  	
  Form of Compliance Certificate

  	
   

  	
   

  
	
  EXHIBIT I1

  	
  –

  	
  Sleeve Provider’s Employees with Access to Certain
  Reliant Retail Obligor Information

  	
   

  	
   

  
	
  EXHIBIT I2

  	
  –

  	
  Reliant Retail Obligors’ Employees with Access to
  Certain Merrill Party Information

  	
   

  	
   

  

 

 

 v

CREDIT
SLEEVE AND REIMBURSEMENT AGREEMENT dated as of September 24, 2006 (this “Agreement”)
among RELIANT ENERGY POWER SUPPLY, LLC, a Delaware limited liability company (“REPS”),
the Other Reliant Retail Obligors listed on the signature pages hereto, MERRILL
LYNCH COMMODITIES, INC., a Delaware corporation, as sleeve provider (the “Sleeve
Provider”), and MERRILL LYNCH & CO., INC., a Delaware corporation, as
guarantee provider (the “ML Guarantee Provider”).

The Reliant Retail
Obligors have requested that the Sleeve Provider arrange for the provision of
certain guarantees of the ML Guarantee Provider and the posting of required
collateral in connection therewith, in each case, in connection with the
trading and related activities of the Reliant Retail Obligors in the Retail
Energy Business.  The Sleeve Provider is
prepared to arrange for such guarantees and other required posting of
collateral upon the terms and conditions hereof, and, accordingly, the Parties
hereto agree as follows:

Section 1.               Definitions and Accounting
Matters.

1.01         Certain Defined Terms.  As used herein, the following terms shall
have the following respective meanings:

“Accepted Counterparty”
means each Core Accepted Counterparty and Other Accepted Counterparty.

“Accepted Exchange”
means the NYMEX, ICE and, with the prior written consent of the Sleeve
Provider, such consent not to be unreasonably withheld or delayed, any other
public trading exchange commonly used by the natural gas or electric power
industries for commercial transactions in Accepted Products.

“Accepted Product”
means, (a) in general, (i) physical and financial power, power basis, natural
gas, natural gas basis and heat rate, (ii) options on the foregoing, (iii)
weather derivatives, ancillary services, transmission congestion rights, and
renewable energy credits, and (iv) other structured products related to the
hedging of retail electricity, as such other structured products may be
approved by the Sleeve Provider, including in such approval such related
changes to the terms and conditions of this Agreement as the Merrill Parties
deem appropriate (including the addition of related Counterparty Limitations in
respect of such products), but with approval of such other structured products
not to be unreasonably withheld, conditioned or delayed unless the impact
thereof on K or VaR are not measurable using the methodology employed on Schedule
1.01(c) or, in the case of products traded on an Accepted Exchange, such
products are not capable of being assigned to the Sleeve Provider in connection
with the execution of a related over the counter trade between the Sleeve
Provider and REPS in a manner similar to that as provided in Section 2.03,
in the Sleeve Provider’s reasonable discretion, and (b) in respect of each
Accepted Counterparty, each of the foregoing with respect to such Accepted
Counterparty set forth on Exhibit B; provided
that (x) all Accepted Products shall be reasonably related to the electricity
market regulated in ERCOT and (y) all Accepted Products shall have transactions
thereunder with delivery or settlement dates, as applicable, which commence
within six months of the consummation of the transaction and end on or before
the earlier of (i) the fifth 

 

anniversary of the first
delivery or settlement date under the transaction or (ii) the third anniversary
of the then current expiry date of the Scheduled Term.

“Accepted Retail
Product” has the meaning ascribed thereto in Schedule 1.01(c).

“Accepted Trades”
means each trade, including purchases and sales, relating to an Accepted
Product with an Accepted Counterparty under a Power and Hedging Contract; provided
that wholesale physical power sales shall be limited to sales within the ERCOT
market area.

“Acquisition”
means any transaction or any series of related transactions by which a Person
(1) acquires any going business or all or substantially all of the assets of
any other Person, or division thereof, whether through purchase of assets,
merger, or otherwise or (2) directly or indirectly acquires 100% of the Equity
Interests of any other Person.

“Adjusted
Volume” means, in respect of the volume under a Mirror OTC Contract, the
volume of the related Exchange Traded Contract(s), adjusted in accordance with Schedule
1.01(b).

“Affiliate” of any
specified Person means any other Person directly or indirectly Controlling or
Controlled by or under direct or indirect common Control with such specified
Person; provided that a Person will be deemed to be an Affiliate of
RERH Holdings if RERH Holdings has knowledge that such Person beneficially owns
10% or more of the Voting Stock of RERH Holdings or, so long as Reliant Parent
has a direct or indirect beneficial interest in RERH Holdings, Reliant Parent; provided,
further,
that RERH Holdings shall only be deemed to have knowledge of any Person
beneficially owning 10% or more of the Reliant Parent’s Voting Stock if such
Person has filed a statement of beneficial ownership pursuant to Sections 13(d)
or 13(g) of the Exchange Act or has provided written notice thereof to RERH
Holdings.

“Allocable State Taxes”
means any state or local taxes other than Applicable State Taxes.

“Applicable State
Taxes” means any state or local taxes (i) that are determined by reference
solely to the income, transactions or attributes of the Reliant Retail
Obligors, and (ii) the sole liability for which is imposed on the Reliant
Retail Obligors.

“Agreement” has
the meaning ascribed thereto in the title paragraph hereto.  The Agreement is sometimes referred to as the
“CSRA”.

“Asset Sale” means
the sale, lease, conveyance or other disposition of any assets.  Notwithstanding the foregoing, none of the
following items will be deemed to be an Asset Sale:

(1)           any single transaction or series of
related transactions that (i) involves assets with gross cash proceeds of
$500,000 or less or (ii) involves assets with gross cash proceeds of greater
than $500,000 and less than $5,000,000 to the extent the aggregate of such
transactions since the Execution Date does not exceed $25,000,000;

(2)           a transfer of assets between or among
the Reliant Retail Obligors;

 2
 

 

(3)           an issuance of Equity Interests by
any Subsidiary of RERH Holdings to any Reliant Retail Obligor;

(4)           the sale or lease of products or
services in the ordinary course of business, the sale or other disposition of
damaged, worn out or obsolete assets or assets no longer used or useful in RERH
Holdings’ or any of its Subsidiaries’ business and the sale or other
disposition of accounts receivable which are more than sixty (60) days past due
for collection;

(5)           the sale or other disposition of cash
or Cash Equivalents in the ordinary course of the Retail Energy Business;

(6)           any Permitted Investment;

(7)           a disposition resulting from any
Condemnation; and

(8)           a disposition of assets in connection
with a foreclosure, transfer or deed in lieu of foreclosure or other exercise
of remedial action.

“Attributable Debt”
means, on any date, (a) in respect of a sale and leaseback transaction, the
present value of the obligation of the lessee for net rental payments during
the remaining term of the lease included in such sale and leaseback transaction
including any period for which such lease has been extended or may, at the
option of the lessor, be extended (such present value to be calculated using a
discount rate equal to the rate of interest implicit in such transaction,
determined in accordance with GAAP; provided, that if such sale and
leaseback transaction results in a Capital Lease Obligation, the amount of
Indebtedness represented thereby will be determined in accordance with the
definition of “Capital Lease Obligation”) and (b) in respect of any Synthetic
Lease Obligation or financing lease, the amount of the remaining lease payments
under the relevant lease that would as of such date be required to be
capitalized on a balance sheet in accordance with GAAP if such lease were
accounted for as a Capital Lease Obligation.

“Audited Financial
Statements” has the meaning ascribed thereto in Section 4.01(h).

“Audit Committee”
means the Audit Committee of the Board of Directors or any equivalent committee
of the Board of Directors having equivalent responsibilities to the Audit
Committee of the Board of Directors of the Reliant Parent as of the Execution
Date.

“Available Cash Flow”
means funds available to any Reliant Retail Obligor pursuant to Section
6.11(c)(ix).

“Available
Commitment” has the meaning ascribed thereto in Section 6.11(c).

“Available
Contributions” means funds from cash contributions by the Reliant Parent to
RERH Holdings or through RERH Holdings to any Reliant Retail Obligor.

“Available Funds”
means any Available Cash Flow or Available Contributions.

 3
 

 

“Bankruptcy Code”
means the Bankruptcy Reform Act of 1978, as heretofore and hereafter amended,
as codified at 11 U.S.C. Section 101 et seq.

“Bankruptcy Event”
means, with respect to any Person, a “Bankruptcy” (as defined in the 2003 ISDA
Credit Derivatives Definitions, published by the International Swaps and
Derivatives Association, Inc., determined as if such Person were a “Reference
Entity”) of such Person.

“Base Rate” means
for any day a fluctuating rate per annum equal to the higher of (a) the Federal
Funds Rate in effect for such day plus 1/2 of 1% and (b) the Prime Rate in
effect for such day.  Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be
effective from and including the effective date of such change in the Prime
Rate or the Federal Funds Rate, respectively.

“Bcf” means one
billion cubic feet.

“Blocked Account
Agreement” means collectively, (a) the Blocked Account Agreement dated as
of the Effective Date among certain Reliant Retail Obligors, Mellon Bank, N.A.,
and the Collateral Trustee, (b) the Blocked Account Agreement dated as of the
Effective Date among certain Reliant Retail Obligors, Wells Fargo Bank, NA, and
the Collateral Trustee, and (c) the Securities Account Control Agreement dated
as of the Effective Date among certain Reliant Retail Obligors, Lehman Brothers
Inc., and the Collateral Trustee.

“Board of Directors”
means the Board of Directors of the Reliant Parent or the board of directors,
board of members, board of managers or similar body having equivalent
responsibilities to the Board of Directors of the Reliant Parent as of the
Execution Date.

“Business Day”
means any day other than a Saturday, Sunday or other day (a) on which
commercial banks are authorized to close under the Laws of, or are in fact
closed in, Houston, Texas or New York City or (b) if the context relates to the
NYMEX or ICE, on which the NYMEX or ICE is authorized to close or in fact is
closed.

“Business Services
Mass Customer” means
any commercial, industrial or governmental customer of the Reliant Retail
Obligors that is not a C&I Customer.

“C&I
Contract” means a contract for the sale of any retail electric products or
services by any Reliant Retail Obligor to a C&I Customer.

“C&I
Customer” means any commercial, industrial or governmental customer of the
Reliant Retail Obligors designated by the Reliant Retail Obligors for treatment
as such or as a successor to such designation in the ordinary course of
business.

“Calculation Agent”
has the meaning ascribed thereto in Section 12.13.

“Capital Lease
Obligation” means, as applied to any Person, at the time any determination
is to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet of such Person in
accordance with GAAP in the reasonable judgment of such Person, and the stated
maturity thereof shall be the 

 4
 

 

date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be prepaid by the lessee without payment of a penalty.

“Capital Outlay Date”
has the meaning ascribed thereto in Section 3.01.

“Capital Stock”
means:

(a)           in the case of a corporation,
corporate stock;

(b)           in the case of an association or
business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock;

(c)           in the case of a partnership or
limited liability company, partnership interests (whether general or limited)
or membership interests; and

(d)           any other interest or participation
that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person, but excluding from all
of the foregoing any debt securities convertible into Capital Stock, whether or
not such debt securities include any right of participation with Capital Stock.

“Cash Collateral”
means, with respect to any Collateral Account, Collateral consisting of the
balance of Dollars credited to such Collateral Account.

“Cash Equivalents”
means:

(a)           Dollars;

(b)           securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality of the United States government (provided that the full faith
and credit of the United States is pledged in support of those securities)
having maturities of not more than one year from the date of acquisition;

(c)           deposit accounts with any other bank
that has a long-term debt rating at the time of investment of A+ or better by
S&P and A1 or better by Moody’s (an “Approved Bank”);

(d)           time deposits, certificates of
deposit, acceptances or prime commercial paper issued by an Approved Bank at
the time acquired or issued (as applicable and whichever is latest), in each
case, having a maturity of not more than one year from the date of acquisition;

(e)           repurchase obligations for underlying
securities of the types described in clause (b) entered into with an
Approved Bank at the time acquired, issued or entered into (as applicable and
whichever is latest), in each case, having a maturity of not more than one year
from the date of acquisition and secured by securities of the type described in

 5
 

 

clause (b), the
market value of which (including accrued interest) is not less than the amount
of the applicable repurchase agreement;

(f)            commercial paper with a rating at
the time of investment of A-1 by S&P and P-1 by Moody’s and, in each case,
maturing within one year after the date of acquisition; and

(g)           money market funds which invest
primarily in Cash Equivalents of the kinds described in clauses (a)
through (f) of this definition.

“Channelview Services
Agreement” means the Channelview Services Agreement dated as of July 1,
2006, among REPS, RES, RERS and RESC.

“Chief Executive
Officer” means the Chief Executive Officer of the Reliant Parent or the
individual with equivalent responsibilities to the Chief Executive Officer as
of the Execution Date.

“Chief Financial
Officer” means the Chief Financial Officer of the Reliant Parent or the
individual with equivalent responsibilities to the Chief Financial Officer as
of the Execution Date.

“Chief Risk Officer”
means the Chief Risk Officer of the Reliant Parent or the individual with
equivalent responsibilities to the Chief Risk Officer as of the Execution Date.

“Code” means the Internal Revenue Code of 1986, as
amended from time to time.

“Collateral” has
the meaning ascribed thereto in the Collateral Trust Agreement.

“Collateral Accounts”
has the meaning ascribed thereto in the Security Agreement.

“Collateral
Foreclosure” means
any setoff, application or foreclosure taken by an applicable secured party
with respect to any Merrill Collateral.

“Collateral
Reimbursement Obligations” means, at any time, the obligations of REPS then outstanding, or
that may thereafter arise, in respect of all Merrill Collateral posted in
accordance with this Agreement, to reimburse the Sleeve Provider for the amount
of such Merrill Collateral.

“Collateral Thresholds”
means the collateral
thresholds for applicable counterparties determined in accordance with the
credit risk policy and delegation of authority of the Reliant Parent, as the
same is set forth on Schedule 1.01(f), such Schedule to be updated from
time at the option of REPS with the approval of the Sleeve Provider, not to be
unreasonably withheld or delayed.

“Collateral Trust
Agreement” means the Collateral Trust Agreement dated as of the Effective
Date, among each Reliant Retail Obligor and the Collateral Trustee under which
the Merrill Parties are Secured Counterparties as therein defined.

 6
 

 

“Collateral Trustee”
means the Collateral Trustee under the Collateral Trust Agreement, including
any successors from time to time acting as such thereunder.

“Commitment”
means (i) the commitment of the Working Capital Facility Provider to make Loans
to REPS under, and in accordance with, the Working Capital Facility and (ii)
the commitments of Replacement Working Capital Providers to make Loans to any
of the Reliant Retail Obligors under, and in accordance with, Replacement
Working Capital Facilities.

“Compliance
Certificate” means a compliance certificate in substantially the form of Exhibit
H.

“Compliance
Information” means, with respect to any Compliance Party, the information customarily
requested from similarly situated trading counterparties by the Sleeve Provider
or the ML Guarantee Provider in the ordinary course of their respective
businesses (i) to comply with applicable Laws (including the USA PATRIOT
Act (Title III of Pub. L. 107-56 (signed into law October
26, 2001))) and (ii) to comply with other internal compliance
requirements, in each case to the extent the same are of general application
to, and established by the Sleeve Provider or the ML Guarantee Provider in the
ordinary course of their respective businesses for, similarly situated trading
counterparties.

“Compliance Party”
means any Accepted Counterparty, C&I Customer, Governmental Customer,
Governmental Authority or any other Person entitled to benefit from (i) an ML
Guarantee, or (ii) the posting of cash collateral by, or any agreement to post
or provide cash collateral by, the Sleeve Provider.

“Compliance
Requirements” means, with respect to any Compliance Party, the receipt by
the Sleeve Provider or the ML Guarantee Provider, as applicable, from such
Compliance Party of applicable Compliance Information that satisfies the
compliance requirements generally established by the Sleeve Provider or the ML
Guarantee Provider for similarly situated trading counterparties in the
ordinary course of their respective businesses.

“Computation Failure
Event of Default” has the meaning ascribed thereto in Schedule 1.01(c).

“Computation Period”
means, as of the last day of each month, (i) occurring on or prior to the last
day of the eleventh month after the Effective Date, the period commencing on
the Effective Date and ending on such last day and (ii) occurring from and
after the last day of the eleventh month after the Effective Date, the last
twelve full calendar months ending on such last day.

“Condemnation”
shall mean any condemnation or other taking, or temporary or permanent
requisition of, any property, any interest therein or right appurtenant
thereto, or any change of grade affecting any property, in each case as the result
of the exercise of any right of condemnation or eminent domain.  A sale or other transfer to a Governmental
Authority in lieu of, or in anticipation of, condemnation shall be deemed to be
a Condemnation.

 7
 

 

“Contractual
Obligation” means, as to any Person, any provision of any security issued
by such Person or of any agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its property is bound.

“Controller” means
the Controller of the Reliant Parent or the individual with equivalent
responsibilities to the Controller as of the Execution Date.

“Contribution
Agreement” means the Contribution Agreement dated as of the Effective Date
between Reliant Parent and RERH Holdings.

“Control” means,
with respect to any Person, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; and the terms “controlling,” “controlled by” and “under common
control with” have correlative meanings.

“Core Accepted
Counterparty” means each “Core Accepted Counterparty” listed in Exhibit
B, as such Exhibit may be updated from time to time in accordance with Section
2.02.

“Counterparty”
means a Person that at any time sells, delivers, purchases and/or receives, or
is or can be required to sell, deliver, purchase and/or receive, Accepted
Products to or from any Reliant Retail Obligor.

“Counterparty Document”
means, with respect to each Accepted Counterparty, the Power and Hedging
Contract, Credit Support Agreement and ML Guarantee and any related
certificates, documents and agreements, as applicable, relating to such
Accepted Counterparty.

“Counterparty
Limitations” means, in respect of an Accepted Counterparty and an Accepted
Product, each of the limits set forth on Exhibit B.

“Counterparty CDS Fee”
has the meaning ascribed thereto in Section 2.02(b).

“CPT” means the
prevailing time in Houston, Texas.

“Credit Rating”
means, at any time with respect to any Accepted Counterparty:

(a)           if Moody’s or S&P has issued a
credit rating for long-term senior unsecured, and non-credit enhanced,
Dollar-denominated debt of such Accepted Counterparty, such credit rating, or,
if such credit rating is not available, the issuer rating of such Accepted
Counterparty, issued by each of Moody’s and S&P, as applicable, as in
effect at such time in respect of the Accepted Counterparty (in the event of a split rating the lower
rating shall apply);

(b)           if (i) clause (a) above
does not apply at such time, (ii) the obligations of such Accepted
Counterparty are guaranteed by any Person, (iii) the Sleeve Provider has
approved in its reasonable discretion the form of such guarantee and
(iv) Moody’s or S&P has issued a credit rating for long-term senior
unsecured, and non-credit enhanced debt of such guarantor, such credit rating
issued by each of Moody’s and S&P, as applicable, as 

 8
 

 

in effect at such time in
respect of the guarantor (in
the event of a split rating the lower rating shall apply); or

(c)           if neither clause (a) nor
clause (b) above shall apply at such time, the credit rating, if any, for
such Accepted Counterparty designated in writing by the Sleeve Provider and in
effect at such time for purposes of this Agreement (which the Sleeve Provider
may designate or withhold in its reasonable discretion after consultation with,
and review of any relevant credit information provided by, the Reliant Retail
Obligors).

“Credit Sleeve
Obligations” mean the Obligations of the Reliant Retail Obligors under this
Agreement, including the Reimbursement Obligations and the Obligations in
respect of the payment of all Monthly Sleeve Fees required hereunder.

“Credit Sleeve
Termination Date” means the earliest date on which the Credit Sleeve Obligations
have been terminated and satisfied in full and all collateral, including all ML
Guarantees, posted by the Merrill Parties required to be returned to the
Merrill Parties has been so returned or reimbursement has been made therefor.

“Credit Support
Agreement” means a credit support agreement among an Accepted Counterparty,
REPS and the Sleeve Provider, in substantially the form of Exhibits  D1
or D2, or in such other form as REPS and the Sleeve Provider may
otherwise agree, in accordance with Section 2.02, providing for credit
support with respect to a Power and Hedging Contract.

“Daily Meeting”
has the meaning ascribed thereto in Section 2.02(a)(ii).

“Data Failure Event of
Default” has the meaning ascribed thereto in Schedule 1.01(c).

“Default” means an
Event of Default or an event that with notice or lapse of time or both would,
unless cured or waived, become an Event of Default.

“Deferred Cure
Reimbursement Obligations” has the meaning ascribed thereto in Section
12.07(b).

“Deferred Draw Reimbursement Obligations” has
the meaning ascribed thereto in Section 3.02.

“Deferred Reimbursement Obligations” means the
Deferred Draw Reimbursement Obligations and Deferred Cure Reimbursement
Obligations.

“Disqualified Stock” means any Capital Stock
that, by its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, in each case, at the option of
the holder of the Capital Stock), or upon the happening of any event, matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder of the Capital Stock, in
whole or in part, on or prior to the date that is 91 days after the Credit
Sleeve Termination Date.  Notwithstanding
the preceding sentence, any Capital Stock that would constitute Disqualified
Stock solely because the holders of the Capital 

 9
 

 

Stock have the right to
require the Borrower to repurchase such Capital Stock upon the occurrence of a
change of control or an asset sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Borrower may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the provisions of Sections 7.06 and
7.07.  The amount of Disqualified
Stock deemed to be outstanding at any time for purposes of this Agreement shall
be equal to the maximum amount that the Borrower and its Restricted
Subsidiaries may become obligated to pay upon the maturity of, or pursuant to
any mandatory redemption provisions of, such Disqualified Stock, exclusive of
accrued dividends.

“Dollars” and “$”
means lawful money of the United States of America.

“Downgrade Event”
means, with respect to any Person, the Credit Rating of such Person in effect
on the date of this Agreement or when such Person first becomes an Accepted
Counterparty, as applicable, is downgraded by either of Moody’s or S&P by
two notches or has been downgraded by one notch and put on watch list for a
possible additional downgrade by either of Moody’s or S&P.

“Draw Reimbursement
Obligations” means the Guarantee Reimbursement Obligations and Collateral
Reimbursement Obligations, other than any portion thereof that becomes a
Deferred Reimbursement Obligation.

“EEI Master Agreement”
means the Edison Electric Institute Master Power Purchase and Sale Agreement,
version 2.1 (modified 04/25/00) as in effect from time to time.

“Effective Date”
means the date the conditions precedent in Section 4.01 have been
satisfied (or waived by the Merrill Parties) and the conditions precedent in Section
4.02 have been satisfied (or waived by the Reliant Retail Obligors); provided
that such date shall be the first day of a month, unless the Parties mutually
agree otherwise.

“Effectiveness Notices”
has the meaning ascribed thereto in Section 2.01(a)(1).

“EFS
Transaction” means, in respect of any NYMEX Exchange Traded Contract(s)
held on the Effective Date, or subsequently entered into by REPS, an exchange
of such futures for a swap transaction between REPS and the Sleeve Provider
executed on the NYMEX, in accordance with any applicable rules and procedures,
pursuant to which the Sleeve Provider and REPS exchange (a) the number of NYMEX
Exchange Traded Contract(s) held by REPS at the volume weighted average price
at which REPS entered into such Exchange Traded Contract(s) for (b) related
Mirror NYMEX OTC Contracts.

“Energy” means “Energy”
as defined in Schedule P to the EEI Master Agreement.

“Environmental Laws”
means any and all Federal, state, local, regional and foreign statutes, laws,
rules of common law, constitutional provisions, regulations, ordinances, rules
judgments, orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or governmental restrictions relating to pollution and the
protection of the environment or Hazardous Materials, including, those relating
to the use analysis, generation, manufacture, storage, discharge, emission,
release, disposal, transportation treatment, investigation, removal, 

 10
 

 

or remediation of
Hazardous Materials.  Environmental Laws
include those acts commonly referred to as: the Comprehensive Environmental
Response, Compensation and Liability Act of 1980; the Superfund Amendments and
Reauthorization Act; the National Environmental Policy Act; the Hazardous
Materials Transportation Act; the Resource Conservation and Recovery Act, the
Solid Waste Disposal Act, the Clean Water Act, the Clean Air Act, the Toxic
Substances Control Act, and the Occupational Safety and Health Act, and their
state counterparts.

“EOO Transaction”
means, in respect of any
NYMEX Exchange Traded Contract(s) held on the Effective Date, or subsequently
entered into by REPS, an exchange of such NYMEX options for an over-the-counter
option transaction between REPS and the Sleeve Provider executed on NYMEX, in
accordance with any applicable rules and procedures, pursuant to which the
Sleeve Provider and REPS exchange (a) the number of NYMEX options held by REPS
for (b) related Mirror NYMEX OTC Contracts.

“Equity Interests”
means Capital Stock and all warrants, options or other rights to acquire
Capital Stock (but excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).

“ERCOT” means the
Electric Reliability Council of Texas, or any successor thereto.

“ERCOT Market”
means the electric market regulated by ERCOT.

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time,
and the regulations promulgated thereunder.

“ERISA Affiliate”
means any trade or business (whether or not incorporated) which is a member of
the controlled group of RERH Holdings or under common control with RERH
Holdings within the meaning of Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412
of the Code) or Section 4001(a)(14) of ERISA.

“ERISA
Event” means (a) a reportable event (within the meaning of Section 4043 of
ERISA) with respect to a Pension Plan; (b) a withdrawal by RERH Holdings or any
ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA
during a plan year in which it was a substantial employer (as defined in
Section 4001(a)(2) of ERISA) or a cessation of operations that is treated
as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal (within the meaning of Sections 4203 or 4205 of ERISA) by
RERH Holdings or any ERISA Affiliate from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice of
intent to terminate, the treatment of a Plan amendment as a termination under
Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC
to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition
which constitutes grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon RERH Holdings or any ERISA Affiliate.

 11
 

 

“Estimated
Obligations” has the meaning ascribed thereto in Section 6.11(c).

“Estimation
Day” has the meaning ascribed thereto in Section 6.11(c).

“Estimation
Period” means, for any Estimation Day, the period from such Estimation Day
until the date 30 days after such Estimation Day.

“Event of Default”
means a Sleeve Provider Event of Default or a Reliant Event of Default.

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Exchange
Traded Contract” means each trade of an Accepted Product traded and cleared
on an Accepted Exchange held or obtained by REPS relating to the sale,
purchase, delivery or receipt of any Accepted Product.

“Execution Date”
means September 24, 2006.

“Fair Market Value”
means the value that would be paid by a willing buyer to a willing seller in a
transaction not involving distress or necessity of either party, determined in
good faith by the chief financial officer of RERH Holdings or Board of
Directors of RERH Holdings or the selling entity (unless otherwise provided in
this Agreement).

“Failure to Pay or
Post” means, in respect of any Accepted Counterparty, any event of default
(after any applicable cure period) for failure to make payment or post
collateral (howsoever defined) by such Accepted Counterparty under its related
Power and Hedging Contract with REPS (including, as applicable, its related
Credit Support Agreement).

“Federal Funds Rate”
means, for any day, the rate per annum equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided,
that (a) if such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate (rounded upward, if necessary, to a whole
multiple of 1/100 of 1%) charged to Bank of America, N.A. on such day on such
transactions as determined by the Sleeve Provider.

“Federal Reserve Board”
means the Board of Governors of the Federal Reserve System of the United States
of America.

“Federal Tax Payable
Amount” has the meaning set forth in the Reliant Parent Services Agreement.

“Financial Officer”
means, with respect to any Reliant Retail Obligor, any of the chief financial
officer, principal accounting officer, treasurer or controller thereof.

 12
 

 

“Fiscal Quarter” means each three month period of a Fiscal
Year ending on March 31, June 30, September 30, and December 31.

“Fiscal Year”
means any period of twelve consecutive calendar months ending on
December 31; references to a Fiscal Year with a number corresponding to
any calendar year (e.g., the “2006 Fiscal Year”) refer to the
Fiscal Year ending on December 31 of such calendar year.

“GAAP” means
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
have been approved by a significant segment of the accounting profession, which
are in effect from time to time.

“GLO” means the
Texas General Land Office.

“GLO Amount”
means, at any time, the aggregate outstanding amount owed to GLO in respect of
the outstanding GLO Payments (as such term is defined in the GLO Contract).

“GLO Contract”
means that certain Energy Supply and Services Agreement dated as of October 1,
2001, between GLO and REPS.

“Governmental
Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state, county, or local,
and any agency, authority, instrumentality, regulatory body, court, central
bank, independent system operator, transmission organization or other entity to
the extent exercising executive, legislative, judicial, taxing, monetary,
regulatory, supervisory or administrative powers or functions of or pertaining
to government or the regulation of the Retail Energy Business, including ERCOT
and the PUCT in such capacities as regulators of their applicable markets.

“Governmental
Contract” means a contract for the purchase or sale of any retail electric
products or services between any Reliant Retail Obligor and a Governmental
Customer.

“Governmental Customer”
means (a) any agency, authority, instrumentality, central bank, independent
system operator, transmission organization or other entity owned or controlled
by any Governmental Authority or (b) any Person that is or could be a
Governmental Authority; in either case, to the extent acting in a commercial
capacity under a Governmental Contract, including ERCOT and the GLO in such
capacities.

“Guarantee” means
a guarantee other than by endorsement of negotiable instruments for collection
in the ordinary course of business, direct or indirect, in any manner including
by way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness (whether
arising by virtue of partnership arrangements, or by agreements to keep-well,
to purchase assets, goods, securities or services, to take or pay or to
maintain financial statement conditions or otherwise).  The term “Guarantee” as a verb has a
corresponding meaning.

 13
 

 

“Guarantee
Reimbursement Obligations” means, at any time, the obligations of REPS then
outstanding, or that may thereafter arise, in respect of all ML Guarantees then
outstanding, to reimburse amounts paid by the ML Guarantee Provider in respect
of any payments made under an ML Guarantee on behalf of any Reliant Retail
Obligor.

“Guaranteed Obligations” has the meaning ascribed thereto
in Section 11.01.

“Hazardous Materials”
means all explosive, flammable, corrosive or radioactive substances or wastes
and all hazardous, carcinogenic, mutagenic or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or
asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes, toxic mold and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.

“ICE” means the
Intercontinental Exchange or its successor.

“ICE
Block Transaction” means, in respect of any ICE Exchange Traded Contract(s)
held on the Effective Date, or subsequently entered into by REPS, transactions
between REPS and the Sleeve Provider, pursuant to which the Sleeve Provider and
REPS (a) execute a block trade entered into ICE in accordance with any
applicable rules and procedures, whereby Sleeve Provider takes the same net
long or short position as that initially held by REPS for the number of ICE
Exchange Traded Contract(s) held by REPS at the volume weighted average price
at which REPS entered into such ICE Exchange Traded Contract(s) and (b) enter
into related Mirror ICE OTC Contracts.

“Indebtedness”
means, with respect to any specified Person, any indebtedness of such Person
(excluding accrued expenses or trade payables), whether or not contingent
(without duplication):

(a)           in respect of borrowed money;

(b)           evidenced by bonds, notes, debentures
or similar instruments or letters of credit or reimbursement agreements in
respect thereof;

(c)           in respect of banker’s acceptances;

(d)           representing Capital Lease
Obligations or Attributable Debt in respect of sale and leaseback transactions,
Synthetic Lease Obligations or financing leases;

(e)           representing the balance deferred and
unpaid of the purchase price of any property or services due more than six
months after such property is acquired or such services are completed;

(f)            representing any Interest Hedging
Obligations; or

(g)           consisting of Disqualified Stock;

whether or not any of the
preceding items appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP. 
In addition, the term “Indebtedness” 

 14
 

 

includes all Indebtedness
of others secured by a Lien on any asset of the specified Person (whether or
not such Indebtedness is assumed by the specified Person) and, to the extent
not otherwise included, the Guarantee by the specified Person of any
Indebtedness of any other Person.  The
amount of any Indebtedness outstanding as of any date will be:

(i)            the accreted value of the
Indebtedness, in the case of any Indebtedness issued with original issue
discount;

(ii)           the principal amount of and premium
(if any) on the Indebtedness, in the case of any other Indebtedness;

(iii)          in respect of Indebtedness of other
Persons secured by a Lien on the assets of the specified Person, the lesser of:

(A)          the Fair Market Value of such asset at
such date of determination, and

(B)           the amount of such Indebtedness of
such other Persons; and

(iv)          in respect of any Guarantee, an amount
equal to the stated or determinable amount of the related primary obligation,
or portion thereof, in respect of which such Guarantee is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by the guaranteeing Person in good faith.

“Indemnity
Letter” means that certain letter dated September 20, 2006 from the Reliant
Parent and certain of the Reliant Retail Obligors accepted and agreed to by
MLCI on behalf of the Merrill Parties, relating to the transactions
contemplated hereby.

“Information
Technology Systems” means all information technology systems used in the
operation of the Retail Energy Business including hardware, software,
middleware, tools, databases, technical and business information, know-how or
other data or information, related documents, registrations and franchises,
licenses or leases for any of the foregoing and all license rights and all
additions, improvements, enhancements and accessions thereto, and books and
records describing or used in connection with any of the foregoing, including
the information technology systems set forth on Schedule 1.01(d).

“Intercompany Cash
Management Agreement” means the Intercompany Cash Management Agreement
dated as of the Effective Date among RERH Holdings and its Subsidiaries.

“Interest Hedging
Obligations” means, with respect to any specified Person, the net
obligations of such Person under:

(a)           interest rate swap agreements
(whether from fixed to floating or from floating to fixed), interest rate cap
agreements and interest rate collar agreements;

(b)           other agreements or arrangements
designed to manage interest rate risk; and

 15
 

 

(c)           other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange
rates.

“Investment”
means, with respect to any Person, all direct or indirect investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees or similar obligations), advances or capital contributions
(excluding payroll, commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.  “Investment” shall exclude extensions of
trade credit or posting of cash collateral by RERH Holdings and its
Subsidiaries in the ordinary course of business.  The acquisition by RERH Holdings or any
Subsidiary of RERH Holdings of a Person that holds an Investment in a third
Person will be deemed to be an Investment by RERH Holdings or such Subsidiary
in such third Person in an amount equal to the Fair Market Value of the
Investments held by the acquired Person in such third Person.  Except as otherwise provided in this
Agreement, the amount of an Investment shall be its Fair Market Value at the
time the Investment is made and without giving effect to subsequent changes in
value.

“Investment Grade
Rating” means a Credit Rating equal to or higher than Baa3 (or the
equivalent) by Moody’s and BBB- (or the equivalent) by S&P.

“IP License Agreement”
means the IP License Agreement dated as of the Effective Date between IP Trust
and one or more of the Reliant Retail Obligors.

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

“IP Servicing
Agreement” means the IP Servicing Agreement dated as of the Effective Date
between the Reliant Parent and IP Trust.

“IT Service Agreement”
means the IT Service Agreement dated as of Effective Date between IT Trust and
one or more of the Reliant Retail Obligors.

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

“IT Trust Management
Agreement” means the IT Trust Management Agreement dated as of the
Effective Date between the Reliant Parent and IT Trust.

 “Joinder Agreement”
means a Joinder Agreement in the form of Exhibit G or in such other form
as REPS and the Merrill Parties may agree executed pursuant to Section
6.11(a)(i) in connection with a Subsidiary of RERH Holdings becoming an “Other
Reliant Retail Obligor” hereunder.

“K”
has the meaning ascribed thereto in, and shall be determined in accordance
with, Schedule 1.01(c).

“Laws” means,
collectively, all international, foreign, federal, state and local statutes,
treaties, rules, guidelines, regulations, ordinances, codes and administrative
or judicial precedents or authorities, including the interpretation or
administration thereof by any 

 16
 

 

Governmental Authority
charged with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, requests, licenses,
authorizations and permits of any Governmental Authority.

“Level I Violation”, “Level
II Violation” or “Level III Violation” means a violation relating to the
Risk Management Policy described as such in Schedule 1.01(a).

“Lien” means, with
respect to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including any conditional
sale or other title retention agreement and any lease that constitutes a
security interest.

“Loans” means (i)
the loans made by the Working Capital Facility Provider to REPS under, and in
accordance with, the Working Capital Facility and (ii) the loans made by
Replacement Working Capital Providers to REPS under, and in accordance with,
any Replacement Working Capital Facilities.

“Loss Exposure”
means, with respect to any underlying transaction, the mark-to-market value of
such underlying transaction assuming a two standard deviation move in the
underlying variables and assuming a two week liquidation period.

“Make-whole Payment”
has the meaning ascribed thereto in Schedule 3.05.

“Margin Stock”
means “margin stock” within the meaning of Regulations T, U and X of the
Federal Reserve Board.

“Marks” means all
trade names, trademarks and service marks, logos, trademark and service mark
registrations owned by the Reliant Parent or any of its Subsidiaries and applicable
to the Reliant Retail Obligors, including those set
forth on Schedule 1.01(e), and all related applications for
trademark and service mark registrations, including all renewals of trademark
and service mark registrations, all rights to recover for all past, present and
future infringements thereof and all rights to sue therefor, and all rights
corresponding thereto throughout the world.

“Market Information”
means market information such as price curves, volatilities, interest rates and
similar information for which quotes are customarily available from reference
market makers.

“Material Adverse
Effect” means a material adverse effect upon (a) the business, operations,
property or financial condition of RERH Holdings and its Subsidiaries taken as
a whole; or (b) the validity or enforceability against any of RERH Holdings or
any of its Subsidiaries of any Transaction Document to which it is a party or
the material rights and remedies of the Sleeve Provider thereunder.

“Merrill Collateral”
has the meaning ascribed thereto in Section 3.01.

“Merrill Parties”
means the Sleeve Provider and the ML Guarantee Provider

 17
 

 

“Mirror
ICE OTC Contract” means, in respect of any ICE Exchange Traded Contract(s),
the over-the-counter swap leg of the related ICE Block Transaction between REPS
and the Sleeve Provider (executed under the MLCI/REPS ISDA), (i) in which REPS
takes the same net long or short position it took in the related ICE Exchange
Traded Contract(s); (ii) that settles on the industry standard settlement date applicable
to such Accepted Product; (iii) that has a price per unit equal to the price of
the ICE Exchange Traded Contract(s) leg of the ICE Block Transaction; and (iv)
that has a volume equal to the related Adjusted Volume.

“Mirror
NYMEX OTC Contract” means, in respect of any NYMEX Exchange Traded
Contracts, the over-the-counter swap leg of the related EFS Transaction or EOO
Transaction between REPS and the Sleeve Provider (executed under the MLCI/REPS
ISDA), (i) in which REPS takes the same net long or short position it held in
the related Exchange Traded Contracts; (ii) that settles on the industry
standard settlement date applicable to such Accepted Product; (iii) that has a
price or strike per unit equal to the price or strike of the futures or option leg
of the EFS Transaction or EOO Transaction; and (iv) that has a volume equal to
the related Adjusted Volume.

“Mirror
OTC Contract” means any Mirror ICE OTC Contract or Mirror NYMEX OTC
Contract.

“ML&Co.” means
Merrill Lynch & Co., Inc., a Delaware corporation.

“MLCI” means
Merrill Lynch Commodities, Inc., a Delaware corporation.

“ML Equivalent Credit
Rating” means “A” and “A2” by S&P and Moody’s, respectively, provided
that if the Credit Rating for the ML Guarantee Provider by S&P or Moody’s,
respectively, is lower, then the actual S&P or Moody’s Credit Rating of the
ML Guarantee Provider, respectively, shall apply.

“ML Guarantee”
means a guarantee by the ML Guarantee Provider (i) in substantially the form of
Exhibit A1 with respect to Accepted Counterparties or Exhibit A2 with respect
to C&I Customers, (ii) in substantially the form of Exhibit A2 with respect
to Governmental Customers and Governmental Authorities that do not have
requirements with respect to the forms of guarantees received or in such other
form of guarantee as is required by the applicable Governmental Customer or
Governmental Authority and is reasonably acceptable to the Merrill Parties, and
(iii)  in such other form as REPS and the
Merrill Parties may agree.

“ML Guarantee Provider”
means ML&Co.

“MLCI/REPS
ISDA” means the ISDA 2002 Master Agreement dated the Effected Date between
the Sleeve Provider and REPS.

“Moody’s” shall
mean Moody’s Investors Service, Inc. or if such company shall cease to issue
ratings, another nationally recognized rating company selected in good faith by
mutual agreement of the Sleeve Provider and REPS.

“Monthly Payment Date”
means, in respect of any month, the date two Business Days after the Sleeve
Provider provides REPS with the invoice in respect of such month 

 18
 

 

generated and delivered
in accordance with the provisions of Schedule 3.04, commencing with the
Monthly Payment Date first occurring after the Effective Date.

“Monthly Sleeve Fee”
means the Sleeve Fee or Unwind Sleeve Fee, as applicable, as defined in Schedule
3.04.

“Multiemployer Plan”
means a multiemployer plan defined as such in Section 3(37) of ERISA to
which contributions have been made, or have been required to be made, by RERH
Holdings or any ERISA Affiliate and that is covered by Title IV of ERISA.

“MWh” means a
megawatt hour of energy.

“MW” means one
million watts.

“Non-Guarantor Cutoff
Amounts” means, on any date of determination, in respect of all
Subsidiaries of RERH Holdings that are not Reliant Retail Obligors on a
consolidated basis, either (i) $1,000,000 or more of consolidated net income
during the four-fiscal quarter period most recently ended for which
financial statements are available or (ii) assets equal to or exceeding
$25,000,000 in book value at the end of the fiscal quarter most recently ended
for which financial statements are available.

“Notice Date” has
the meaning ascribed thereto in Section 3.02.

“NYMEX” means the
New York Mercantile Exchange or its successor.

“Obligations” means any amounts, principal,
interest, premium, fees, indemnifications, reimbursements, expenses, damages
and other liabilities payable under the applicable documentation.

“Obligee Guarantor”
has the meaning ascribed thereto in Section 11.06.

“Organizational Documents” means, (a) with
respect to any corporation, the certificate or articles of incorporation and
the bylaws (or equivalent or comparable constitutive documents with respect to
any non-U.S. jurisdiction); (b) with respect to any limited liability company,
the certificate or articles of formation or organization and operating
agreement; and (c) with respect to any partnership, joint venture, trust
or other form of business entity, the partnership, joint venture or other
applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or
organization with the applicable Governmental Authority in the jurisdiction of
its formation or organization and, if applicable, any certificate or articles
of formation or organization of such entity.

“Other Reliant Retail Obligors” means each of
RERH Holdings, RERH, RERS and any other Wholly Owned Subsidiaries of RERH
Holdings that join this Agreement in accordance with the provisions of this
Agreement and, in each case, their respective successors and assigns.

 19

 

“Other Accepted
Counterparty” means each “Other Accepted Counterparty” listed in Exhibit
B, as such Exhibit may be updated from time to time in accordance with Section
2.02.

“Party” means any
Reliant Retail Obligor or any Merrill Party, as applicable.

“PBGC” means the
Pension Benefit Guaranty Corporation or any entity succeeding to any or all of
its functions under ERISA.

“Pension Plan”
means any “employee pension benefit plan” (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject
to Title IV of ERISA and is sponsored or maintained by RERH Holdings or any
ERISA Affiliate or to which RERH Holdings or any ERISA Affiliate contributes or
has an obligation to contribute or with respect to which RERH Holdings or any ERISA
Affiliate has any direct or contingent liability, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has made
contributions at any time during the immediately preceding five plan years.

“Permitted Acquisition”
means any Acquisition by any Reliant Retail Obligor made with Available Funds
that satisfies all of the following conditions: 
(1) no Default with respect to a Reliant Event of Default shall have
occurred and be continuing or would result therefrom on the date of the closing
of such Acquisition, (2) the acquired Person is in (or the acquired assets,
including books of commercial and industrial and consumer electricity customers
and related contracts, are useful in) the Retail Energy Business and (3) the assets,
including any Equity Interests, acquired pursuant to such Acquisition shall be
pledged as additional collateral for the Credit Sleeve Obligations, in each
case in accordance with Section 6.11.

“Permitted Investments”
means:

(a)           (1) any Investment by a Reliant
Retail Obligor in any other  Reliant
Retail Obligor and (2) Investments by the Reliant Retail Obligors in Wholly
Owned Subsidiaries of RERH Holdings that are not Other Reliant Retail Obligors,
in each case, with Available Funds or in accordance with cash management
principles in the ordinary course of business and, to the extent applicable, in
accordance with Section 6.11(c);

(b)           any Investment by a Reliant Retail
Obligor or its Subsidiaries in a Person made with Available Funds, if as a
result of such Investment:

(i)                                     such Person
becomes a Wholly Owned Subsidiary of RERH Holdings; or

(ii)                                  such Person is
merged or consolidated with or into, or transfers or conveys substantially all
of its assets to, or is liquidated into, RERH Holdings or a Wholly Owned
Subsidiary of RERH Holdings;

(c)           any Investment in Cash Equivalents,
the Collateral Accounts and under the Intercompany Cash Management Agreement;

 20
 

 

(d)           any Investment (other than an
Investment in Capital Stock) made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the provisions of Section 7.05;

(e)           any Investments received in
compromise or resolution of (A) Obligations of trade creditors or customers
that were incurred in the ordinary course of business of the Reliant Retail
Obligors, including pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of any trade creditor or
customer; or (B) litigation, arbitration or other disputes with Persons who are
not Affiliates;

(f)            loans or advances to employees made
in the ordinary course of business up to an aggregate principal amount not to
exceed $2,000,000 at any one time;

(g)           any Investment acquired by any
Reliant Retail Obligor on account of any claim against, or interest in, any
other Person (A) acquired in good faith in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of such other Person or
(B) as a result of a bona fide foreclosure by any Reliant Retail Obligor with
respect to any claim against any other Person;

(h)           receivables owing to any Reliant
Retail Obligor, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; provided that such trade terms may include such
concessionary trade terms as such Reliant Retail Obligor deems reasonable under
the circumstances; and

(i)            other Investments otherwise
permitted in accordance with this Agreement (other than Investments in Capital
Stock) made with Available Funds; provided that
the aggregate outstanding amount of Investments under this clause (i) shall not
exceed $25,000,000.

With respect to all of
the foregoing Permitted Investments in Subsidiaries of RERH Holdings that are
not Reliant Retail Obligors, such Investments are subject to Section 6.11(a).

“Permitted Liens”
means:

(a)           Liens under the Collateral Trust
Agreement or otherwise securing the Credit Sleeve Obligations and Working
Capital Obligations;

(b)           Liens in favor of the Reliant Retail
Obligors;

(c)           Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that
any reserve or other appropriate provision as is required in conformity with
GAAP has been made therefore;

(d)           Liens imposed by law, such as
carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case,
incurred in the ordinary course of business;

 21
 

 

(e)           Liens in the form of survey
exceptions, encumbrances, easements or reservations, including those for
licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines,
other utilities, mineral reservations and rights and leases, zoning
restrictions and other restrictions as to the use of real property or other
exceptions to title that were not incurred in connection with Indebtedness and
that do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such Person;

(f)            Liens
securing Capital Lease Obligations and purchase money obligations, in each case
permitted to be incurred pursuant to clause (f) of Section 7.03,
covering only the assets acquired with or financed by such Indebtedness;

(g)           Liens in the form of financing
statements (including precautionary statements) filed in connection with a
Capital Lease Obligation, financing lease or an operating lease, in each case,
not prohibited hereunder; provided, that
no such financing statement extends to, covers or refers to as collateral, any
property or assets of RERH or its Subsidiaries, other than the property or
assets which are subject to such Capital Lease Obligation, financing lease or
operating lease;

(h)           Liens arising out of or in connection
with any judgment that does not constitute a Reliant Event of Default or in
connection with any litigation or other legal proceeding as to which an appeal
to contest or review is timely commenced in good faith by appropriate
proceedings and as to which adequate reserves have been established in
accordance with GAAP; provided, that
any right to levy, seizure, attachment, sequestration, foreclosure or
garnishment of any property and assets of a Reliant Retail Obligor arising out
of or in connection with any such Lien has been and continues to be enjoined or
effectively stayed;

(i)            Liens in the form of inchoate
statutory Liens arising under ERISA;

(j)            Liens on cash and short-term
investments pledged or deposited as collateral to a contract counterparty or
issuer of surety bonds by RERH Holdings or any of its Subsidiaries to secure
obligations with respect to contracts for commercial activities in the ordinary
course of business;

(k)           Liens
granted during the Transition Period or an Unwind Period in favor of a
commercial trading counterparty pursuant to a netting agreement, which Liens
encumber rights under agreements that are subject to such netting agreement and
which Liens are granted by a Subsidiary of RERH Holdings to secure such
Subsidiary’s obligations to such counterparty under such netting agreement; provided that any such agreements and netting agreements are
entered into in the ordinary course of business; and provided,
further, that the Liens are incurred in
the ordinary course of business and when granted do not secure obligations
which are past due;

(l)            Liens arising by virtue of any
statutory or common law provision relating to banker’s liens, rights of set off
or similar rights, contractual rights of setoff or netting 

 22
 

 

arrangements entered into
in the ordinary course of business and similar rights with respect to deposit
accounts, commodity accounts and/or securities accounts;

(m)          Liens arising under Section 9.343 of
the Texas Uniform Commercial Code or similar statutes of states other than
Texas;

(n)           pledges and deposits to secure the
payment of worker’s compensation, unemployment insurance, social security
benefits or obligations under similar laws, or to secure the payment or
performance of statutory or public obligations (including environmental,
municipal and public utility commission obligations and requirements),
reimbursement or indemnity obligations arising out of surety, performance, or
other similar bonds, and other obligations of a like nature, in each case incurred
in the ordinary course of business;

(o)           Liens incurred in the ordinary course
of business of RERH Holdings or any Subsidiary of RERH Holdings securing
obligations that do not exceed $10,000,000 in the aggregate at any one time
outstanding; and

(p)           Liens in favor of any Replacement
Sleeve Provider or Replacement Working Capital Provider incurred during the
Transition Period or Unwind Period and subject to the Collateral Trust
Agreement.

“Person” means any
individual, corporation, firm, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization, limited liability
company or government or other entity.

“PJM” means the
PJM Interconnection, L.L.C., or any successor thereto.

“PJM Retail Business”
means the Retail Energy Business conducted by RESE in the ordinary course of
business in the PJM market area.

“Plan” means any “employee
benefit plan” (as such term is defined in Section 3(3) of ERISA)
established by RERH Holdings or its Subsidiaries or with respect to which RERH
Holdings or its Subsidiaries could have any direct or contingent liability or,
with respect to any such plan that is subject to Section 412 of the Code,
Section 4980B of the Code or Title IV of ERISA, any ERISA Affiliate.

“Post-Default Rate”
means a per annum rate equal to the Base Rate (as in effect from time to time) plus
3.875%.

“Post-Unwind Start
Date Transaction” means an Accepted Trade entered prior to the Unwind Start
Date in accordance with this Agreement under which the final delivery date,
payment date, or settlement date is scheduled to occur after the Unwind Start
Date.

“Power and Hedging
Contract” means an over-the-counter master agreement between REPS and an
Accepted Counterparty substantially in the form of Exhibits C1 or C2,
or in such other form as REPS and the Sleeve Provider may agree in accordance
with Section 2.02, 

 23
 

 

providing for
transactions regarding Accepted Products, and including as part thereof the
associated Credit Support Agreement.

“Prime Rate” means
a fluctuating rate of interest equal to the rate of interest most recently
announced by the Wall Street Journal as the prime rate for Dollar-denominated
loans.

“Properly Allocable”
means with respect to any Allocable State Taxes the percentage of the total tax
(not in excess of 100 percent) which the tax of the Reliant Retail Obligors if
computed on a separate return would bear to the total amount of the taxes for
all members of the group so computed.

“PUCT” means the
Public Utility Commission of Texas, or any successor thereto.

“Qualified Institution”
means a major U.S.
commercial bank or a foreign bank with a U.S. branch office with a Credit
Rating of at least the ML Equivalent Credit Rating.

“Quarterly Payment
Period” means the period beginning on the Effective Date and ending on December
31, 2006, and each subsequent period beginning on the day following the close
of the preceding Quarterly Payment Period and ending on the earliest of the
next succeeding March 31, June 30, September 30, or December 31.

“QSE” or “Qualified
Scheduling Entity” means a market participant qualified by ERCOT in
accordance with the ERCOT protocols to submit schedules and settle payments
with ERCOT.

“Ramp-Up Period”
means the period from and including the Execution Date to but excluding the
Effective Date.

“REES” means
Reliant Energy Electric Solutions, LLC, a Delaware limited liability company.

“REES/REPS Power
Purchase Agreement” means the ISDA 2002 Master Agreement dated July 1, 2006
between REES and REPS, relating solely to the “Upton Wind” transactions on the
Execution Date.

“Reimbursement
Guarantors” means each of the Other Reliant Retail Obligors and their
respective successors and assigns.

“Reimbursement
Guaranty” means the guarantee of the Reimbursement Guarantors to repay the
Guaranteed Obligations in accordance with Section 11.

“Reimbursement
Obligations” means the Draw Reimbursement Obligations and the Deferred
Reimbursement Obligations.

“Reliant Event of
Default” has the meaning ascribed thereto in Section 8.01.

“Reliant Parent”
means Reliant Energy, Inc., a Delaware Corporation.

 24
 

 

“Reliant Parent
Consent and Agreements” means the Consent and Agreements each dated as of
the Effective Date made by the Reliant Parent 
for the benefit of the Collateral Trustee and the Secured Counterparties
pertaining to the Reliant Parent Services Agreement and the Transition
Agreement.

“Reliant Parent Debt
Documents” means (a) the Indenture dated as of July 1, 2003 among Reliant
Parent, the guarantors referred to therein, and Wilmington Trust Company, as
trustee, pursuant to which Reliant Parent’s 9.25% Secured Notes due 2010 were
issued, (b) the Indenture dated as of July 1, 2003 among Reliant Parent, the
guarantors referred to therein, and Wilmington Trust Company, as trustee,
pursuant to which Reliant Parent’s 9.50% Secured Notes due 2013 were issued,
(c) the Senior Indenture
dated as of December 22, 2004 between Reliant Parent and Wilmington Trust
Company, as trustee, as supplemented by the First Supplemental Indenture
thereto dated December 22, 2004 among Reliant Parent, the guarantors referred
to therein, and Wilmington Trust Company, as trustee, pursuant to which
Reliant Parent’s 6.75% Secured Notes due 2014 were issued, (d) Reliant Parent’s
five Guarantee Agreements, each dated as of December 22, 2004, among Reliant
Parent, the guarantors referred to therein, and J.P.Morgan Trust Company, as
trustee, and (e) the Second Amended and Restated Credit and Guaranty Agreement
dated as of December 22, 2004 among Reliant Parent, the guarantors referred to
therein, the lenders referred to therein, and Bank of America, N.A., as
administrative agent and collateral agent, as each of the foregoing has been
amended through the Effective Date.

“Reliant Parent
Lenders” means any one or more financial institutions or groups of financial
institutions providing credit to the Reliant Parent, including their respective
administrative, collateral, and other like agents if applicable, in each case
to the extent designated by REPS as Reliant Parent Lenders hereunder.

“Reliant Parent Services
Agreement” means the Master Services Agreement dated as of even date
herewith among Reliant Parent, RECS and RESE on one hand, and RERH Holdings and
its Subsidiaries, on the other hand.

“Reliant Power
Purchase Agreements” means the REES/REPS Power Purchase Agreement, the
REPS/RERS Power Purchase Agreement, and the RES/REPS Power Purchase Agreement.

“Reliant Retail
Obligors” means REPS and the Other Reliant Retail Obligors.

“Remediation Plan”
means a written report outlining the sequence of actions that the Reliant
Retail Obligors will take to address a Level III Violation and seek to prevent
similar Level III Violations from occurring in the future.

“Replacement Sleeve
Provider” means a counterparty or counterparties with a Credit Rating that
is at least equal to the ML Equivalent Credit Rating and providing Accepted
Products or credit support for the acquisition thereof to RERH Holdings or any
of its Subsidiaries during the Transition Period or Unwind Period.

“Replacement
Working Capital Facility” means a working capital facility or similar
facility provided by a Replacement Working Capital Provider  (a) entered into during the 

 25
 

 

Unwind Period
after the commitments under the Working Capital Facility shall have been
permanently terminated and the Working Capital Obligations have been paid in
full, (b) having available commitments that, together with all other
Replacement Working Capital Facilities then in effect, do not exceed
$300,000,000 on an aggregate basis, and (c) having terms, taken as a whole, no
less restrictive than the Working Capital Facility on the date of its
termination.

“Replacement Working
Capital Provider” means a counterparty or counterparties with a Credit
Rating that is at least equal to the ML Equivalent Credit Rating and providing
working capital to RERH Holdings or any of its Subsidiaries under a Replacement
Working Capital Facility.

“RECS” means
Reliant Energy Corporate Services, LLC, a Delaware limited liability company.

“REPS” has the
meaning ascribed thereto in the opening paragraph of this Agreement.

“REPS/RERS Power
Purchase Agreement” means the ISDA 2002 Master Agreement dated July 1, 2006
between REPS and RERS.

“RERH” means
Reliant Energy Retail Holdings, LLC, a Delaware limited liability company.

“RERH Holdings”
means RERH Holdings, LLC, a Delaware limited liability company.

“RERR” means RE
Retail Receivables, LLC, a Delaware limited liability company.

“RERS” means
Reliant Energy Retail Services, LLC, a Delaware limited liability company.

“RES” means
Reliant Energy Services, Inc., a Delaware corporation.

“RES/REPS Power
Purchase Agreement” means the ISDA 2002 Master Agreement dated July 1,
2006, between RES and REPS.

“RESC” means
Reliant Energy Services Channelview, LLC, a Delaware limited liability company.

“RESE” means
Reliant Energy Solutions East, LLC, a Delaware limited liability company.

“Residential Mass
Customer” means any
residential customer of the Reliant Retail Obligors.

“Responsible Officer”
means the chief executive officer, president, chief financial officer, treasurer
or assistant treasurer of a Party and, in addition with respect to RERH
Holdings, 

 26
 

 

any officer thereof that
is also a vice president or more senior officer of the Reliant Parent
(excluding vice presidents in marketing). 
Any document delivered hereunder that is signed by a Responsible Officer
of a Party shall be conclusively presumed to have been authorized by all
necessary corporate, partnership and/or other action on the part of such Party
and such Responsible Officer shall be conclusively presumed to have acted on
behalf of such Party.

“Restricted Payment”
means any of the following:

(a)           any declaration or payment of any
dividend or the making of any other payment or distribution on account of RERH
Holdings’ or any of its Subsidiaries’ Equity Interests (including any payment
in connection with any merger or consolidation involving RERH Holdings or any
of its Subsidiaries) or to the direct or indirect holders of RERH Holdings’ or
any of its Subsidiaries’ Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests of RERH Holdings or to
RERH Holdings or any Other Reliant Retail Obligor);

(b)           any purchase, redemption or other
acquisition or retirement for value (including in connection with any merger or
consolidation involving RERH Holdings) of any Equity Interests of RERH
Holdings; or

(c)           any payment on or with respect to, or
purchase, redemption, defeasance or other acquisition or retirement for value
of any Indebtedness of RERH Holdings and its Subsidiaries that is contractually
subordinated to the Credit Sleeve Obligations (excluding any intercompany
Indebtedness, intercompany receivables or intercompany advances between or
among any of the Reliant Retail Obligors).

“Restricted Period”
has the meaning ascribed thereto in Section 9.03(a).

“Retail Energy
Business” means the business of providing Accepted Retail Products in
retail electricity markets in the United States and any businesses incidental
or related thereto and performing under the Transaction Documents and any
activities incidental or related thereto.

“Retail Organizational
Documents” means the Organizational Documents of each of the Reliant Retail
Obligors.

“Risk Limit” means
any of EGD Short Position, EGD Long Position, Gas Hedge, Natural Gas Basis
Position or Power Average Daily Peak Contractual Load, in each case as such
terms are defined in Section 3 of the “Wholesale Risk Control Policy” set forth
in Exhibit E2 comprising part of the Risk Management Policy.

“Risk Management Event
of Default” has the meaning ascribed thereto in Section 6.13.

“Risk Management
Policy” means the “Reliant Energy — Retail Risk Policy” set forth in Exhibit
E1 and the sections of the “Wholesale Risk Control Policy” set forth in Exhibit
E2, as each of the same may be updated from time to time in accordance with
Section 6.13.

 27
 

 

“S&P” means
Standard & Poor’s Ratings Group (presently a division of The McGraw-Hill
Companies, Inc.), together with its successors, or, if such company shall cease
to issue ratings, another nationally recognized rating company selected in good
faith by mutual agreement of the Sleeve Provider and REPS.

“Scheduled Term”
means the period from the Execution Date through December 31, 2011; provided
that if neither the Sleeve Provider nor REPS objects in writing prior to the
last day of each calendar year (excluding the calendar year ending December 31,
2006), the referenced expiration date in this clause shall be automatically
extended for an additional calendar year and provided, further,
that the Parties to this Agreement may agree, in their sole discretion, to
extend the referenced expiration date under this clause for greater than one
additional calendar year.

“SEC” means the
Securities and Exchange Commission or any Governmental Authority succeeding to
any of its principal functions.

“Secured Obligations”
has the meaning ascribed thereto in the Collateral Trust Agreement.

“Secured
Counterparties” has the meaning ascribed thereto in the Collateral Trust
Agreement.

“Securitization
Facility” means the transaction governed by (a) the Second Amended and
Restated Receivables Purchase Agreement dated as of September 9, 2005 among
RERR as Seller, RERS as Servicer, Falcon Asset Securitization Corporation,
Liberty Street Funding Corporation, and Gemini Securitization Corp., LLC as
Conduit Investors, JPMorgan Chase Bank, N.A., The Bank of Nova Scotia, and
Deutsche Bank AG as Committed Investors and Managing Agents, and JPMorgan Chase
Bank, N.A. as Program Agent, as heretofore amended and otherwise modified, (b)
the Amended and Restated Receivables Sale Agreement dated as of September 30,
2003 among RERS (for itself and as successor to RES), RESE, and REES as
Originators and RERR as Buyer, and (c) the other agreements related to the
foregoing as each have been amended through the Effective Date.

“Security Agreement”
means the Security Agreement dated as of the Effective Date among the Reliant
Retail Obligors, and the Collateral Trustee.

“Security Documents”
shall mean (i) the Collateral Trust Agreement, the Security Agreement, the
Reliant Parent Consent and Agreements, the Blocked Account Agreement, and (ii)
each other security agreement, pledge agreement, mortgage, deed of trust,
assignment agreement, consent and agreement and other instrument being executed
concurrently therewith or herewith or from time to time hereafter pursuant to
which a Lien has been granted by the Reliant Retail Obligors in favor of the
Collateral Trustee (for the benefit of the Secured Counterparties) on any of
their respective assets to secure any of the Secured Obligations.

“Sleeve Provider”
has the meaning ascribed thereto in the title paragraph hereto.

“Sleeve Provider Event
of Default” has the meaning ascribed thereto in Section 8.02.

 28
 

 

“Solvent” and “Solvency”
mean, with respect to any Person on any date of determination, that on such
date (a) the fair value of the property of such Person is greater than the
total amount of liabilities, including contingent liabilities, of such Person,
(b) such Person is expected to have assets available of not less than the
amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and matured, (c) such Person does not
intend to, and does not believe that it will, incur debts or liabilities beyond
such Person’s ability to pay such debts and liabilities as they mature and
(d) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person’s property
would constitute an unreasonably small capital. 
The amount of contingent liabilities at any time shall be computed as
the amount that, in the light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability; provided that if the context in
which “Solvent” or “Solvency” is used refers to a Person together with its
Subsidiaries, Person as used above shall be deemed to be a reference to such
Person together with its Subsidiaries.

“Specified Transaction”
means, with respect to any Person (i) any prepaid forward sale of energy, oil,
gas or minerals by such Person that is intended primarily as a borrowing of
funds, excluding volumetric production payments, and (ii) any interest rate,
currency, commodity or other swap, collar, cap, option or other derivative that
is intended primarily as a borrowing of funds, or any combination of any of the
foregoing, with the amount of the obligations of such Person thereunder being
the net obligations of such Person thereunder.

“State Tax
Distribution Amount” means with respect to any Allocable State Taxes, on
any date of determination, the excess of (a) the cumulative amounts, for
periods beginning on or after the Effective Date, of Allocable State Taxes
Properly Allocable to the Reliant Retail Obligors as shown on tax returns
relating thereto (and reflecting any adjustments thereto agreed upon with
applicable Governmental Authorities or as determined by courts of competent
jurisdiction), over (b) amounts previously distributed pursuant to Section
6.11(c)(ii) of this Agreement.

“Stated Maturity”
means, with respect to any installment of interest or principal on any series
of Indebtedness, the date on which the payment of interest or principal was
scheduled to be paid in the documentation governing such Indebtedness as of the
Execution Date, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

“Structuring Fee”
has the meaning ascribed thereto in Section 3.06.

“Subordinated
Indebtedness” means any Indebtedness of a Person that is contractually
subordinated to the Credit Sleeve Obligations.

“Subordinated Secured
Obligations” has the meaning ascribed thereto in the Collateral Trust
Agreement.

“Subsidiary” of a
Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body 

 29
 

 

(other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or
both, by such Person.

“Synthetic Lease
Obligation” means the monetary obligation of a Person under a so-called
synthetic, off-balance sheet or tax retention lease.

“Tax Code” means
Title 26 of the United States Code (Internal Revenue), 26 U.S.C.
Section 1 et  seq.

“Tax Subordination
Agreement” means the Tax Subordination Agreement dated as of the Effective
Date made by the Reliant Parent and the Reliant Retail Obligors for the benefit
of the Merrill Parties and the Working Capital Facility Provider.

“Term” has the
meaning ascribed thereto in Section 2.06.

“Transaction Documents”
means (i) this Agreement, (ii) the Working Capital Facility, (iii) the Security
Documents, (iv) the Contribution Agreement, (v) Retail Organizational
Documents, (vi) the Reliant Parent Services Agreement, (vii) the REES/REPS
Power Purchase Agreement, (viii) the RES/REPS Power Purchase Agreement, (ix)
the REPS/RERS Power Purchase Agreement, (x) the Channelview Services Agreement,
(xi) Mirror OTC Contracts, (xii) the IP License Agreement, (xiii) the IP Trust,
(xiv) the IP Servicing Agreement, (xv) the IT Service Agreement, (xvi) the IT
Trust, (xvii) the IT Trust Management Agreement, (xviii) the Transition
Agreement, (xix) the Indemnity Letter, (xx) the Tax Subordination Agreement and
(xxi) any other contract or agreement (including ISDA Master Agreements, but
excluding any Credit Support Agreements) between any Merrill Party or its
Affiliates, on one hand, and any Reliant Retail Obligor or its Affiliates, on
the other hand, relating to the transactions contemplated hereby.

“Transition Agreement”
means the Transition Agreement dated as of the Effective Date among Reliant
Parent, RECS, RESE, the Reliant Retail Obligors, the IP Trust and the IT Trust,
with respect to certain interim employment matters, intellectual property and
information technology matters and other interim matters related to the
ringfencing of the Reliant Retail Obligors.

“Transition Period”
means the period from the Transition Start Date through the Unwind Start Date.

“Transition Start Date”
means the date three months prior to the last day of the Scheduled Term.

“Trigger Event”
has the meaning ascribed thereto in, and shall be determined in accordance
with, Schedule 1.01(c).

“UCC” means the
Uniform Commercial Code as in effect from time to time in the State of New York
and (solely with respect to the perfection or priority of any Lien in personal
property or fixtures or control over Collateral that constitutes personal property
or fixtures) the Uniform Commercial Code as in effect from time to time in the
jurisdiction that governs such 

 30
 

 

perfection, priority or
control, provided that, for purposes of each Security Document in
which the term “UCC” is separately defined, “UCC” has the meaning assigned to such term in such Security
Document.

“Unaudited Financial
Statements” has the meaning ascribed thereto in Section 4.01(h).

“Unfunded Pension
Liability” means any “accumulated funding deficiency” of a Pension Plan as
determined in accordance with Section 412 of the Code.

“Unwind Conclusion
Date” means, with respect to any Unwind Start Date, the Credit Sleeve
Termination Date.

“Unwind Period”
means the period from the Unwind Start Date through the Unwind Conclusion Date.

“Unwind Start Date”
means the earlier of (a) the date immediately following the last day of the
Scheduled Term, (b) the date for the beginning of the Unwind Period declared by
the Sleeve Provider in connection with a Reliant Event of Default in accordance
with Section 9.01(a), (c) the date for the beginning of the Unwind
Period declared by REPS in connection with a Sleeve Provider Event of Default
in accordance with Section 9.02(a)(i), or (d) the date for the beginning
of the Unwind Period declared by REPS in accordance with Section 2.06(b).

“VaR” has the
meaning ascribed thereto in, and shall be determined in accordance with, Schedule
1.01(c).

“Voting Stock” of
any Person as of any date means the Capital Stock of such Person that is at the
time entitled to vote in the election of the Board of Directors of such Person.

“Wholly
Owned Subsidiary” of any specified Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors’ qualifying shares) is owned by such Person or by one or
more other Wholly Owned Subsidiaries of such Person.

“Working Capital
Facility” means the Working Capital Facility dated as of even date herewith
among Working Capital Facility Provider, as Lender, REPS, as Borrower, and the
Other Reliant Retail Obligors, as Guarantors.

“Working Capital
Facility Provider” means Merrill Lynch Capital Corporation, a Delaware
corporation.

“Working Capital
Obligations” mean the Obligations of the Reliant Retail Obligors under the
Working Capital Facility.

“Work Plan” means
a written report outlining a series of actions that the Reliant Retail Obligors
will take to develop a Remediation Plan.

 31
 

 

1.02         Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument
or other document as from time to time amended, restated, supplemented or
otherwise modified, renewed or replaced (subject to any restrictions on such
amendments, restatements, supplements or modifications, renewals or replacements
set forth therein or herein), (b) references to any law, constitution,
statute, treaty, regulation, rule or ordinance, including any section or other
part thereof (each, for purposes of this Section 1.02, a “law”)
shall refer to that law as amended from time to time and shall include any
successor law, (c) any reference herein to any Person shall be construed
to include such Person’s successors and permitted assigns, (d) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof and (e) all references herein to Sections, Exhibits and Schedules
shall be construed to refer to Sections of, and Exhibits and Schedules to, this
Agreement.

1.03         Accounting Terms and Determinations.  Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
furnished to the Sleeve Provider hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent with that used in the financial statements
referred to in Section 5.05.

Section 2.               Credit Sleeve for Reliant
Retail Obligors

2.01         Credit Sleeve Generally; Exclusivity   (a)  Commitment
of Merrill Parties.  During the Term,
and otherwise subject to and in accordance with the terms and conditions of
this Agreement (including Sections 2.04 and 2.05), at the request
of REPS from time to time, subject to the proviso below, the Merrill Parties
shall:

(i)            cause the ML Guarantee Provider to
execute and deliver to Accepted Counterparties and perform under ML Guarantees
in respect of REPS’ obligations under Power and Hedging Contracts, including
Credit Support Agreements, and prevent any events of default or termination
events relating solely to the ML Guarantee Provider as a credit support
provider under the Power and Hedging Contracts, including the related Credit
Support Agreements;

(ii)           cause the Sleeve Provider to execute
and deliver to Accepted Counterparties and REPS and perform under Credit
Support Agreements providing credit support for the obligations under Power and
Hedging Contracts, and prevent any events of default or termination events
relating solely to the Sleeve Provider as a credit support provider under the
Credit Support Agreements related to the Power and Hedging Contracts;

 32
 

 

(iii)          cause the Sleeve Provider to execute
and deliver and perform under EFS Transactions, EOO Transactions and ICE Block
Transactions in connection with Exchange Traded Contracts held on the Effective
Date, or subsequently obtained by REPS, in each case, in accordance with the
provisions of Section 2.03;

(iv)          cause the ML Guarantee Provider to
execute and deliver to C&I Customers and Governmental Customers and perform
under ML Guarantees in connection with C&I Contracts and Governmental
Contracts;

(v)           subject to Section 2.05, cause
the ML Guarantee Provider and the Sleeve Provider to, in the case of the ML
Guarantee Provider, execute and deliver to Governmental Authorities, to the
Reliant Retail Obligors for the benefit of Persons making customer deposits and
advance payments and to Persons constituting transmission and distribution
service providers (for this paragraph, the “regulatory beneficiaries”) and
perform under ML Guarantees for and, in the case of the Sleeve Provider,
directly or enter into agreements to post or provide cash collateral to
regulatory beneficiaries for, in each case, the obligations of the Reliant
Retail Obligors to such regulatory beneficiaries regarding (A) regulatory
requirements with respect to the conduct of the Retail Energy Business in the
ERCOT market area under or with Governmental Authorities, (B) the obligations
of the Reliant Retail Obligors with respect to customer deposits and advance
payments relating to the ERCOT market area as required by Governmental Authorities
(including under PUCT Subst. Reg. 25.107, or any successor thereto), provided
that the same are for the benefit of Persons making customer deposits and
advance payments and are payable or made at the direction of the Reliant Retail
Obligors, and (C) the obligations of the Reliant Retail Obligors with respect
to transmission and distribution service in the ERCOT market area required by
Governmental Authorities (including posting requirements under PUCT Subst. Reg.
25.108, or any successor thereto).

(vi)          in connection with RESE executing a
Joinder Agreement and becoming an “Other Reliant Retail Obligor” hereunder,
make or consent to commercially reasonable modifications to the Transaction
Documents (including modifications to the Accepted Counterparties and
Counterparty Limitations to include counterparties and limits relating to the
PJM Retail Business) as may be necessary to reflect the inclusion of the PJM
Retail Business hereunder, subject to receipt of all applicable approvals of
Governmental Authorities necessary to permit the PJM Retail Business to be
included under this Agreement in accordance with the general requirements of
this Agreement, and receipt of legal opinions reasonably satisfactory to the
Sleeve Provider to such effect; and

(vii)         execute and deliver such further
certificates, documents and agreements, and take such further actions, as REPS
may reasonably request to fully implement the intent of the foregoing;

Provided, however, that the foregoing commitments of the Merrill
Parties are subject to the following:

 33
 

 

(1)           during the Ramp-up Period, the
commitments of the Merrill Parties under clauses (i) through (v) above shall
not require the effectiveness of any ML Guarantees and Credit Support
Agreements, the effectiveness of any commitments to enter into EFS
Transactions, EOO Transactions, Mirror OTC Contracts and ICE Block
Transactions, or the effectiveness of any agreement to post or provide cash
collateral to Governmental Authorities (or any posting or provision of the
same), but only the execution and delivery of applicable documents and
agreements the effectiveness of which is subject to receipt of notice of
effectiveness (the “Effectiveness Notices”) from the applicable Merrill
Parties; provided that upon the Effective Date
the Merrill Parties shall provide such Effectiveness Notices as are necessary
to cause all outstanding ML Guarantees and Credit Support Agreements, all
commitments to enter into EFS Transactions, EOO Transactions, Mirror OTC
Contracts and ICE Block Transactions and all agreements to post or provide cash
collateral to Governmental Authorities to become effective.

(2)           on and after the Effective Date, the
commitments to enter into any ML Guarantees or Credit Support Agreements, any
EFS Transactions, EOO Transactions, Mirror OTC Contracts or ICE Block
Transactions or any agreement to post or provide cash collateral to
Governmental Authorities, are subject to the satisfaction of the conditions
precedent set forth in Section 4.03; and

(3)           following the Unwind Start Date, (A)
commitments with respect to any ML Guarantees and Credit Support Agreements,
and EFS Transactions, EOO Transactions, Mirror OTC Contracts and ICE Block
Transactions, other than those described in clause (B) below shall be limited
to the maintenance and modification of hedges in Accepted Products where those
hedges are in place to support contracts with Residential Mass Customers,
Business Service Mass Customers and C&I Customers existing on the Unwind
Start Date, (B) ninety (90) days after the Unwind Start Date, the commitments
of the Merrill Parties with respect to providing ML Guaranties or the posting
or provision of collateral to Governmental Authorities or with respect to
customer deposits shall be terminated, and (C) to the extent of any commitments
that have terminated, the Merrill Parties shall have the right to deliver to
the applicable Persons notices that such commitments have terminated and the
right to the return of any collateral theretofore posted under such
commitments.

The Merrill Parties shall
take all actions reasonably requested under this Section 2.01(a) by REPS
reasonably promptly upon receipt of such request unless another time period is
expressly provided for such actions under this Agreement.

 34
 

 

(b)           Exclusivity.

(i)            Subject
to Section 2.01(b)(ii), the Reliant Retail Obligors shall conduct all
power, gas and other commodity purchases or sales and all hedging transactions
after the Effective Date
(A) using Accepted Products under Power and Hedging Contracts and the Reliant
Power Purchase Agreements, as applicable, with Accepted Counterparties and
within each applicable Counterparty Limitation, (B) on an Accepted Exchange in
accordance with Section 2.03, or (C) with Governmental Customers, and,
in each case, such transactions shall be solely for the Retail Energy Business;
provided that this paragraph (b)(i) shall not
restrict sales of electricity in the ordinary course of the Retail Energy
Business to Residential Mass Customers, Business Services Mass Customers and
C&I Customers using Accepted Retail Products.

(ii)           During the Transition Period and the
Unwind Period, the Reliant Retail Obligors shall have the right to conduct
power, gas and other commodity purchases or sales and hedging transactions
other than under Section 2.01(b)(i) so long as such transactions (A) are
either (1) with Accepted Counterparties and, taken together with the
transactions under this Agreement, are within applicable Counterparty
Limitations and applicable Collateral Thresholds, or (2) on an Accepted
Exchange, (B) do not impose setoff rights against transactions under Credit
Support Agreements, and (C) use Accepted Products measurable in K and VaR; provided that this paragraph (b)(ii) shall not restrict
sales of electricity in the ordinary course of the Retail Energy Business to
Residential Mass Customers, Business Services Mass Customers and C&I
Customers using Accepted Retail Products.

(iii)          Until the commitments under the
Working Capital Facility have been terminated, the Working Capital Obligations
have been repaid, and the Unwind Start Date has occurred, the Reliant Retail
Obligors the shall not enter into any agreement with any Person for the
provision of working capital facilities and, thereafter, shall not enter into
any agreement for the provision of working capital facilities other than
Replacement Working Capital Facilities.

2.02         Credit Sleeve of OTC Trading and
Hedging Activities.

(a)           Negotiation
and Documentation of Power and Hedging Contracts.  In connection with the obligations of the
Merrill Parties under Section 2.01(a), REPS and the Sleeve Provider
shall negotiate in good faith the terms and conditions of each Counterparty
Document, and document, execute and deliver, with each Accepted Counterparty in
according with the following procedures:

(i)  General.  REPS shall communicate directly with each
Accepted Counterparty and, unless requested by REPS, the Sleeve Provider may
not communicate directly with any Accepted Counterparty in connection with such
negotiation.  REPS shall promptly provide
the Sleeve Provider with each draft of or comments to a Counterparty Document
that is distributed or received by REPS. 
Modifications from the form Power and Hedging Contract, Credit Support
Agreement and ML Guarantee attached to this Agreement (as Exhibits  C,
D and A, respectively) shall require the consent of the Merrill
Parties, not to be unreasonably withheld or delayed; provided
that consent shall be deemed given with respect to the items provided on Schedule
2.02(a) if not objected to by the Sleeve Provider within one (1) Business
Day of the receipt of the related proposed modification.  

 35
 

 

No
consent of the Merrill Parties shall be required with respect to confirmations
reflecting Accepted Trades under the Power and Hedging Contracts; provided
that consent of the Merrill Parties shall be required to execute any
confirmation for an Accepted Trade that (i) modifies the underlying terms of
any Power and Hedging Contract, to the same extent consent would have been
required had such modification been proposed at the time such Power and Hedging
Contract was originally executed or (ii) modifies or supplements in any manner
(including any supplement providing for posting of additional collateral or any
independent amount) the terms of any Credit Support Agreement, but in each case
such consent shall not be unreasonably withheld or delayed.

(ii)  Ramp-Up Period.  During the Ramp-Up Period, on each Business
Day, REPS and the Sleeve Provider shall meet daily (each, a “Daily Meeting”)
at an agreed time (3:00 p.m. Houston time unless otherwise agreed, which
meetings may occur telephonically) to discuss Counterparty Documents being
negotiated with Accepted Counterparties. 
At each Daily Meeting, REPS and the Sleeve Provider shall discuss comments
received from each Accepted Counterparty to each applicable Counterparty
Document, and the Sleeve Provider shall make available necessary resources and,
to the extent commercially practicable, respond at such Daily Meeting to
comments and drafts received on or before the Business Day prior to such Daily
Meeting.

(iii)  Following the Ramp-Up Period.  Following the Ramp-Up Period, during the
Scheduled Term, REPS shall promptly provide the Sleeve Provider with comments
received from each Accepted Counterparty to each applicable Counterparty Document
and the Sleeve Provider shall make available necessary resources and, to the
extent commercially practicable, respond to comments and drafts within three
Business Days of receipt by the Sleeve Provider.

(iv)  Execution of Counterparty Documents.  Following the completion of the negotiation
of each Counterparty Document with respect to an Accepted Counterparty (and the
agreement by REPS and the Merrill Parties to the terms and conditions thereof),
the Merrill Parties shall as soon as is reasonably practicable and to the
extent applicable, execute and deliver each such Counterparty Document, but in
no event later than three (3) Business Days after a receipt of a request
therefor.  Following the execution
thereof by all applicable parties and as soon as is commercially practicable,
REPS shall provide the Sleeve Provider with a complete, fully executed set of
Counterparty Documents with respect to each Accepted Counterparty.  Following the execution of a Counterparty
Document, any amendment, supplement or other modification thereto shall be
conducted in accordance with the processes set forth in this Section
2.02(a)(i) through (iii).

(v)  Notice and Demands for Collateral Posting.  Following receipt of notice from any Person,
including any Accepted Counterparty or Governmental Customer, that REPS (or the
Sleeve Provider on its behalf) is required to post or return collateral in
connection with any collateral posting obligation that the Sleeve Provider has
undertaken in accordance with this Agreement, REPS shall promptly (and in no
event later than, for collateral to be posted on the same day, 11:00 a.m. CPT
on such day of receipt, and for collateral to be posted on the next day, 2:00
p.m. CPT on such day of receipt) provide 

 36
 

 

such
notice to the Sleeve Provider.  On each
day in which REPS is permitted to value exposure or make any other
determination in respect of collateral to be posted by or to the Sleeve
Provider in connection with any posting obligation that the Sleeve Provide has
agreed to undertake in connection with this Agreement, REPS shall make such
valuation or determination in good faith and in a commercially reasonable
manner.  To the extent applicable,
following any valuation or determination made pursuant to the prior sentence,
REPS shall make demand to the applicable Person for the posting of collateral
by or the return of collateral to the Sleeve Provider and to the extent the
Sleeve Provider receives such a demand from REPS, the Sleeve Provider shall,
subject to the terms and conditions of this Agreement and the related Credit
Support Agreement, make such posting of Collateral as demanded, whether or not
the Sleeve Provider disputes the valuation, determination or demand (but
subject to the Sleeve Provider’s rights to cause the adjustment thereof
below).  Each valuation, determination
and demand of REPS specified in this clause (v) shall be made by REPS without
consultation with the Sleeve Provider unless such consultation is sought by
REPS, except that:

(1)
if the Sleeve Provider disputes any such valuation, determination or demand,
prior to any action taken under paragraphs (2) or (3) below, and prior to the
commencement of any further remedial action, REPS shall negotiate with the
Sleeve Provider in good faith for one Business Day to resolve any such dispute
and upon resolution of such dispute, the applicable valuation, determination or
demand shall be adjusted accordingly, with corresponding adjustments to the
subsequent requests to the Persons to whom such valuations, determinations or
demands apply;

(2)
if the Sleeve Provider disputes any such valuation based on Market Information,
prior to any action taken under paragraph (3) below, the Market Information and
resulting calculation shall be determined in accordance with Section 12.13
and upon such determination, the applicable valuation shall be adjusted
accordingly, with corresponding adjustments to the subsequent requests to the
Persons to whom such valuations apply; provided that, until such
determination in accordance with Section 12.13, the valuation determined
by REPS shall apply;

(3)
to the extent applicable, if after the application of clauses (1) and (2)
above, the Sleeve Provider in its reasonable discretion determines that
(x) more than $30,000,000 in outstanding value of Merrill Collateral
remains at any time posted or is requested to be posted in excess of the amount
that is required to be posted as determined by REPS (determined, in each case,
on aggregate basis across all Persons to whom the Sleeve Provider has such
excess posted or has requested posting of Merrill Collateral in an outstanding
value of $2,000,000 or more in connection with this Agreement), or
(y) more than $10,000,000 in outstanding value of Merrill Collateral
remains at any time posted or is requested to be posted to any single Person in
excess of the amount that is required to be posted as determined by REPS, then,
in either case, if REPS disputes such determination, such determination shall
be referred by the parties to the Calculation Agent for resolution, and upon
resolution of such dispute the 

 37
 

 

applicable
valuation shall apply and REPS shall use its best efforts to negotiate with,
and to the extent applicable, dispute valuations of, or provide updated
valuations to each such Person holding excess Merrill Collateral that the
Sleeve Provider may direct in accordance with the resolution; provided that
in lieu thereof  REPS may instead
authorize the Sleeve Provider to do so; and provided
further that, until resolution of this dispute by the Calculation
Agent, the valuation determined by REPS shall apply; and

(4)
to the extent applicable, if after application of clause (1) and (2) above the
Sleeve Provider in its reasonable discretion determines that the outstanding
value of any single Counterparty’s cash collateral posted or requested to be
posted to any Reliant Retail Obligor as determined by REPS is more than
$10,000,000 in deficiency of the amount that is required to be posted as
determined by Sleeve Provider, then, if REPS disputes such determination, such
determination shall be referred by the parties to the Calculation Agent for
resolution, and upon resolution of such dispute the applicable valuation shall
apply and REPS shall use its best efforts to negotiate with, and to the extent
applicable, dispute valuations of, or provide updated valuations to each such
Counterparty that the Sleeve Provider may direct in accordance with the
resolution; provided that in lieu thereof REPS may instead authorize the
Sleeve Provider to do so; and provided further that, until resolution
of this dispute by the Calculation Agent, the valuation determined by REPS
shall apply.

(b)           Core Accepted Counterparties and
Counterparty Limitations.  Each
counterparty listed on Exhibit B and designated as a Core Accepted
Counterparty shall constitute a Core Accepted Counterparty and the limitations
set forth therein shall constitute such Core Accepted Counterparty’s “Counterparty
Limitations” (in respect of each Accepted Product set forth therein).  Following a Failure to Pay or Post or a
Bankruptcy Event in respect of a Core Accepted Counterparty, the Sleeve
Provider shall have the right by written notice to REPS to make adjustments to
the Counterparty Limitations applicable to such Core Accepted Counterparty, as
determined by the Sleeve Provider in its commercially reasonable
discretion.  In addition, at any time,
REPS may (i) (a) use Available Funds to pay to the Sleeve Provider an
additional fee (each, a “Counterparty CDS Fee”), determined by the
Sleeve Provider in its commercially reasonable discretion based on the
then-market price for credit default swaps on such Core Accepted Counterparty,
to increase the Counterparty Limitations applicable to such Core Accepted
Counterparty or (b) deliver to the Sleeve Provider a credit default swap or swaps
purchased with Available Funds and written by a Qualified Institution or
Qualified Institutions with such Core Accepted Counterparty as the “Reference
Entity” thereunder, in each case in which the applicable Counterparty
Limitations shall be increased, as determined by the Sleeve Provider in its
commercially reasonable discretion, for the term of the related credit default
swap(s) or (ii) use Available Funds to post cash Collateral to the Sleeve
Provider, in an amount determined by the Sleeve Provider in its commercially
reasonable discretion, to increase the Counterparty Limitations applicable to
such Core Accepted Counterparty in which case the applicable Counterparty
Limitations shall be increased, as determined by the Sleeve Provider in its
commercially reasonable discretion, during the period until REPS requests the
return of such posted cash Collateral at which time, so long as the trading
activities under such Power and Hedging Contract are within the Counterparty
Limitations without giving effect to such increase, 

 38
 

 

such posted cash
Collateral shall be promptly returned to REPS and such increase shall no longer
be applicable.  In connection with each
adjustment to the Counterparty Limitations described in this paragraph, the Sleeve
Provider shall promptly provide an updated Exhibit B reflecting such
adjustment to REPS.

(c)           Other Accepted Counterparties.  Each counterparty listed on Exhibit B
shall constitute an Other Accepted Counterparty and the limitations set forth
therein shall constitute such Other Accepted Counterparty’s “Counterparty
Limitations” (in respect of each Accepted Product set forth therein).  Following a Failure to Pay or Post or other
material event of default (howsoever defined), a Bankruptcy Event or a
Downgrade Event in respect of such Other Accepted Counterparty, the Sleeve
Provider shall have the right by written notice to REPS to adjust the
Counterparty Limitations applicable to such Other Accepted Counterparty, as
determined by the Sleeve Provider in its commercially reasonable discretion.  In addition, at any time, REPS may (i) (a)
use Available Funds to pay to the Sleeve Provider a Counterparty CDS Fee on
such Other Accepted Counterparty to increase the Counterparty Limitations
applicable to such Other Accepted Counterparty or (b) deliver to the Sleeve
Provider a credit default swap or swaps purchased with Available Funds and
written by a Qualified Institution or Qualified Institutions with such Other
Accepted Counterparty as the “Reference Entity” thereunder, and in each case the
applicable Counterparty Limitations shall be increased, as determined by the
Sleeve Provider in its commercially reasonable discretion, for the term of the
related credit default swap(s) or (ii) use Available Funds to post cash
Collateral to the Sleeve Provider, in an amount determined by the Sleeve
Provider in its commercially reasonable discretion, to increase the
Counterparty Limitations applicable to such Other Accepted Counterparty in
which case the applicable Counterparty Limitations shall be increased, as
determined by the Sleeve Provider in its commercially reasonable discretion,
during the period until REPS requests the return of such posted cash Collateral
at which time so long as the trading activities under such Power and Hedging
Contract are within the Counterparty Limitations without giving effect to such
increase, such posted cash Collateral shall be promptly returned to REPS and
such increase shall no longer be applicable. 
In connection with each adjustment to the Counterparty Limitations described
in this paragraph, the Sleeve Provider shall promptly provide an updated Exhibit
B reflecting such adjustment to REPS.

(d)           Additional Counterparties.  REPS shall have the right to add additional
Core Accepted Counterparties and Other Accepted Counterparties to Exhibit B
with the approval of the Sleeve Provider, which shall not be unreasonably
withheld or delayed.  When any Accepted
Counterparty is added such Accepted Counterparty shall be added with
commercially reasonable Counterparty Limitations as the Sleeve Provider may
reasonably determine;  provided that,
at all times after the Effective Date, the Sleeve Provider shall grant
approvals referred to above to the extent necessary such that (i) the Core
Accepted Counterparties shall own at least the percentages of the aggregate
generating capacity for the asset classes and zones set forth on Exhibit F
and (ii) at all times there shall be at least 30 Other Accepted Counterparties;
and provided
further, that, if the Sleeve Provider shall reject any additional
Accepted Counterparty proposed by REPS and such rejection would cause a
violation of the foregoing requirements, then Sleeve Provider shall suggest an
alternative Accepted Counterparty meeting such requirements.  In connection with each additional Accepted
Counterparty added as described in this paragraph, the Sleeve Provider shall
promptly provide an updated Exhibit B reflecting such adjustment to
REPS.

 39

 

(e)           Compliance Requirements.  Each Compliance Party shall be subject to the
Compliance Requirements.  The obligation
of the Merrill Parties under (i) Section 2.01(a) with respect to any Compliance
Party or (ii) paragraphs (c) and (d) of this Section 2.02 to (A)
designate any Other Accepted Counterparty or (B) add any additional Accepted
Counterparty, shall in each case be subject to the satisfaction of the
Compliance Requirements with respect to such Compliance Party or such Other
Accepted Counterparty or additional Accepted Counterparty, as the case may
be.  To the extent the Sleeve Provider or
the ML Guarantee Provider is not already in possession of applicable Compliance
Information satisfying the applicable Compliance Requirements with respect to
any such Person, REPS hereby permits, and the Merrill Parties hereby agree,
that the Sleeve Provider or the ML Guarantee Provider shall use commercially
reasonable efforts to endeavor to obtain the same from such Person and, in the
event the Sleeve Provider or the ML Guarantee Provider, as the case may be, has
not timely received applicable Compliance Information with respect to such
Person, the Sleeve Provider shall promptly notify REPS of the same by written
notice, and REPS may request the required Compliance Information for such
Person and forward the same to Sleeve Provider upon receipt, provided that REPS shall not be deemed to have made any
representation or warranty, express or implied, with respect to the accuracy
thereof.  The Merrill Parties shall
provide to REPS upon request from time to time a description of the applicable
Compliance Information and Compliance Requirements at such time with respect to
any Compliance Party or generally with respect to any category of Compliance
Parties as to which similar requirements apply.

(f)            Sleeve Provider Commitment for
Initial Transactions.  From the
Effective Date and the five Business Days thereafter, the Sleeve Provide shall,
subject to the terms of this Agreement, enter into transactions, at prices
consistent with market prices at the time such transactions are consummated,
for Accepted Products with REPS under the MLCI/REPS ISDA without volume or
credit restrictions (applicable during such period or thereafter for such
transactions) provided that such transactions are limited in scope to (i)
hedging obligations to existing C&I Customers that exercise a contractual
right to fix their pricing, (ii) purchases and sales of fixed price power on a
day ahead basis not to exceed 500 MWs, and (iii) purchasing natural gas to
hedge new C&I Customers, new Business Service Mass Customers or marketing
campaigns for Residential Mass Customers, not to exceed 15 Bcf in the
aggregate.

2.03         Credit Sleeve of Exchange Traded
Hedging Activities.

(a)           Effective Date Transactions.  On the Effective Date, REPS and the Sleeve
Provider shall execute (i) one EFS Transaction or EOO Transaction per Accepted
Product per delivery month, for all of the NYMEX Exchanged Traded Contracts
held by REPS as of the Business Day prior to the Effective Date, and (ii) one
ICE Block Transaction per Accepted Product per delivery month, for all of the
ICE Cleared Swap Contracts held by REPS as of the Business Day prior to the
Effective Date.  With respect to all EFS
Transactions, EOO Transactions and ICE Block Transactions, each party shall pay
its own broker’s fees and FCM fees.

(b)           Ongoing Transactions.  On each Business Day, on and after the
Effective Date, REPS and the Sleeve Provider shall execute (i) one EFS
Transaction or EOO Transaction per Accepted Product, for all of the NYMEX
Exchanged Traded Contracts held by REPS as of the mutually agreed upon time on
such Business Day, by the close of the Business Day such 

 40
 

 

NYMEX Exchanged
Traded Contracts were entered into, and (ii) one ICE Block Transaction per Accepted
Product, for all of the ICE Cleared Swap Contracts held by REPS as of the
mutually agreed upon time on such Business Day, by the close of the Business
Day such ICE Cleared Swap Contracts were entered into.  With respect to all EFS Transactions, EOO Transactions
and ICE Block Transactions, each Party shall pay its own broker’s fees and FCM
fees.

2.04         Credit Sleeve of C&I and
Governmental Contracts   On the Effective Date, subject to
the terms and conditions of this Agreement, the ML Guarantee Provider shall
provide an ML Guarantee in respect of each of the C&I Contracts and
Governmental Contracts set forth Schedule 2.04.  The obligations of the Merrill Parties under Section
2.01(a)(iv) to provide ML Guarantees in respect of additional C&I
Contracts and Governmental Contracts shall be subject to the following
restrictions: (i) no more than 20 such ML Guarantees shall be issued per 12
month period and (ii) such additional C&I Contracts and Governmental
Contracts shall be in respect of Accepted Retail Products.

2.05         Credit Sleeve of Regulatory
Obligations.  In connection with the
obligation of the Merrill Parties under Section 2.01(a)(v), REPS shall
endeavor with the Merrill Parties to cause the applicable beneficiaries to
accept ML Guarantees instead of the posting or provision of cash collateral
when possible to satisfy the requirements of the Merrill Parties thereunder; provided that the foregoing shall not imply any waiver of
the obligation to post or provide cash collateral.  In providing such ML Guarantee or cash
collateral, neither the Sleeve Provider nor any of its Affiliates shall be
responsible for or otherwise guarantee or assure, any other regulatory
requirements or compliance provisions applicable to the Reliant Retail
Obligors, other than those pertaining to required financial criteria, the
required posting of deposits or collateral, or the provision of ML Guarantees
with respect to the applicable regulatory beneficiaries identified in, and as
defined in, Section 2.01(a)(v).

2.06         Term

(a)           The term of this Agreement (the “Term”)
shall be the period from the Execution Date through the Credit Sleeve
Termination Date.

(b)           REPS shall have the right to declare
an Unwind Start Date on the last day of any month to effect the beginning of
the Unwind Period at any time upon not less than 60 days prior written notice
provided by REPS to the Sleeve Provider. 
The declaration of an Unwind Start Date in accordance with this Section
2.06(b) may result in an obligation of REPS with respect to a Make-whole
Payment under Section 3.05.

2.07         Posting Collateral to Increase K.  At any time REPS shall have the right to use
Available Funds to post cash Collateral to the Sleeve Provider, in an amount
determined by REPS, to increase the value of clause (y) of the definition of “Trigger
Event”, in which case such clause (y) shall be increased by the amount of such
posted cash Collateral as contemplated by clause (y)(2) of the definition of “Trigger
Event” until such time as REPS requests the return of such posted cash Collateral,
at which time, so long as the return of such cash Collateral would not cause a
Trigger Event, such posted cash Collateral shall be promptly returned to REPS
and such increase shall no longer be applicable.

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Section
3.               Payments, Fees and
Records.

3.01         Notice
of Payment on ML Guarantee or Collateral Foreclosure.  The Sleeve Provider shall notify REPS,
promptly upon receipt from any beneficiary or recipient of an ML Guarantee or
any secured party to which the Sleeve Provider has provided collateral pursuant
to Article II (“Merrill Collateral”) of any demand for payment under
such ML Guarantee or any Collateral Foreclosure thereon. The Sleeve Provider
shall notify REPS of the Dollar amount paid by the Merrill Parties as a result
of such demand or the Dollar amount of Merrill Collateral relating to such
Collateral Foreclosure, as applicable, and the date on which payment was made
by a Merrill Party in respect of such demand or the date on which such
Collateral Foreclosure occurred, as applicable (any such date, a “Capital
Outlay Date”).

3.02         Repayment
of Draw Reimbursement Obligations. 
REPS hereby unconditionally and irrevocably promises to pay to the
Sleeve Provider, on behalf of the applicable Merrill Party, the entire
outstanding Dollar amount of each Draw Reimbursement Obligation arising from
each demand for payment under a ML Guarantee or a Collateral Foreclosure of
Merrill Collateral described in Section 3.01 (each, a “Payment Event”),
notwithstanding the identity of the beneficiary or recipient of any ML
Guarantee or Merrill Collateral, and without presentment, demand, protest or
other formalities of any kind.  Each such
Draw Reimbursement Obligation shall mature on the Business Day following the
date the Sleeve Provider delivers notice to REPS of the related Capital Outlay
Date as provided in Section 3.01 (the “Notice Date”); provided that, in the event that, on or prior to the
Business Day following the Notice Date, REPS delivers to the Sleeve Provider in
good faith a written notice referred to in Section 8.02(b) or (c) predicated
upon (i) failure to pay under any ML Guarantee after demand by the beneficiary
complying with the terms and conditions of the ML Guarantee or (ii) the breach
of a Merrill Party of its obligations under Section 2.01 or any Credit
Support Agreement, such Draw Reimbursement Obligation shall mature and
be payable on the earliest of (A) the date that the notice to the Sleeve
Provider is withdrawn, (B) the date the underlying failure related to the
Payment Event is cured, (C) the date that the remedies under Section 9.02
with respect to such failure have been resolved, mutually concluded, or finally
determined by a court of competent jurisdiction, or (D) the date that the
Working Capital Facility matures (whether on the Maturity Date under, and as
defined in, the Working Capital Facility, by acceleration or otherwise) (any
Reimbursement Obligation subject to the foregoing proviso, a “Deferred Draw
Reimbursement Obligation”).

Notwithstanding
any payment of a Draw Reimbursement Obligation REPS makes as required in this Section
3.02, REPS does not by making such payment waive any rights under Sections
8.02 and 9.02 against a Merrill Party related to Payment Event,
subject to the limitations in Section 9.04.

3.03         Interest.

(a)           (i) REPS hereby unconditionally promises to
pay to the Sleeve Provider, when due and payable in accordance with Section
3.03(d):

(A)  interest
accruing at a rate per annum equal to the Base Rate (as in effect from time to
time) plus 0.45% on the unpaid Dollar amount of each Draw 

 42
 

 

Reimbursement Obligation for the period from and
including the Business Day following the related Notice Date to but excluding
the date the Dollar amount of such Draw Reimbursement Obligation shall be paid
in full; and

(B)  interest
accruing at a rate per annum equal to the LIBO Rate (as defined in the Working
Capital Facility and incorporated by reference in accordance with Section
3.03(a)(ii)) plus 0.45% on the unpaid Dollar amount of each Deferred
Reimbursement Obligation for the period from and including the Business Day
following the related Notice Date to but excluding the date the Dollar amount
of such Deferred Reimbursement Obligation shall be paid in full.

(ii)  REPS agrees, for the
benefit of the Sleeve Provider, to perform, comply with and be bound by each of
its covenants, agreements and obligations contained in Sections 2.10, 2.13,
2.14 of the Working Capital Facility with respect to Deferred Reimbursement
Obligations, as modified and supplemented and in effect from time to time, or as
last in effect in the event the Working Capital Facility shall be
terminated.  Without limiting the
generality of the foregoing, the above-mentioned provisions of Working Capital
Facility, together with related definitions (including the definition of “LIBO
Rate” and “Interest Payment Date”) and ancillary provisions, are hereby
incorporated herein by reference, as if set forth herein in full, mutatis mutandis.

(b)           Notwithstanding Section 3.03(a),
REPS hereby unconditionally promises to pay to the Sleeve Provider, when due
and payable in accordance with Section 3.03(d), interest accruing at a
rate per annum equal to the Post-Default Rate (as in effect from time to time)
on (i) the Dollar amount of each Reimbursement Obligation that is not paid
in full within one Business Day after becoming due and (ii) any other overdue
amount payable by REPS under any Transaction Documents with any Merrill Party,
in each case for the period from and including the due date thereof to but
excluding the date the same is paid in full.

(c)           Interest on any amount, including
interest on Reimbursement Obligations, shall be computed on the basis of actual
days elapsed (including the first day but excluding the last day) occurring
during the period such interest accrues and a year of 365 or 366 days, as
applicable (if computed by reference to the Prime Rate) or 360 days (if
computed by reference to the Federal Funds Rate or the LIBO Rate).

(d)           (i) Subject to clause (iii) below,
accrued interest on each Draw Reimbursement Obligation shall be payable monthly
on the last Business Day of each month and on the date that such Draw
Reimbursement Obligation shall be paid in full; (ii) subject to clause (iii)
below, accrued interest on each Deferred Reimbursement Obligation shall be
payable on each Interest Payment Date (as defined in the Working Capital
Facility and incorporated by reference in accordance with Section
3.03(a)(ii)) for such Deferred Reimbursement Obligation and on the date
that such Deferred Reimbursement Obligation shall be paid in full; provided that interest payable on each Interest Payment Date
prior to the date that such Deferred Reimbursement Obligation is payable shall
be reserved in accordance with Section 6.11(c)(vi) in lieu of being paid
on such Interest Payment Date; and (iii) accrued interest on any amount  (including Draw Reimbursement Obligations and
Deferred Reimbursement Obligations) payable in accordance with Section
3.03(b) shall be payable on demand from time to time, on the last 

 43
 

 

Business Day of
each month and on the date that such amount is paid in full.

3.04         Monthly Sleeve Fee.  The Monthly Sleeve Fee shall accrue on each
day from the Effective Date to and including the Unwind Conclusion Date and be
payable in arrears by REPS to the Sleeve Provider in monthly installments on
each Monthly Payment Date, in each case, as determined in accordance with Schedule
3.04.

3.05         Make-whole Payment.  In the event that an Unwind Start Date is declared by the Sleeve
Provider in connection with a Reliant Event of Default or is declared by REPS
in accordance with Section 2.06(b), in either case, within two years of
the Effective Date, REPS shall pay to the Sleeve Provider the Make-whole
Payment.

3.06         Structuring Fee.  On the Effective Date, REPS shall pay to the
Sleeve Provider a one-time structuring fee (the “Structuring Fee”) in an
amount equal to $12,750,000.

3.07         Payments Generally.

(a)           Payments
by Reliant Retail Obligors.  Except
to the extent otherwise provided herein, all payments in respect of
Reimbursement Obligations, interest, Monthly Sleeve Fees and other amounts to
be made by the Reliant Energy Obligors under this Agreement, and, except to the
extent otherwise provided therein, all payments to be made by the Reliant
Energy Obligors under any other Transaction Document, shall be made in Dollars,
in immediately available funds, without deduction, set-off or
counterclaim to the Sleeve Provider at the account designated on Schedule
3.07(a) or any other account designated in writing by the Sleeve Provider
to REPS not less than five Business Days before any payment is made, not later
than 3:00 p.m., New York City time, on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).

(b)           Extensions to Next Business Day.  If the due date of any payment under this
Agreement would otherwise fall on a day that is not a Business Day, such date
shall be extended to the immediately succeeding Business Day and interest shall
be payable for any amount so extended for the period of such extension (except
in the case of the Monthly Sleeve Fee).

3.08         Records; Prima Facie Evidence.

(a)           Maintenance of Records by the
Sleeve Provider.  The Sleeve Provider
shall maintain records in which it shall record (i) each ML Guarantee
issued hereunder, (ii) the amount of each Reimbursement Obligation,
(iii) interest due and payable or to become due and payable from REPS to
the Sleeve Provider hereunder and (iv) the amount of any sum received by
the Sleeve Provider hereunder.

(b)           Effect of Entries.  The entries made in the records maintained
pursuant to paragraph (a) above shall be prima  facie evidence of
the existence and amounts of the obligations recorded therein; provided
that the failure of the Sleeve Provider to maintain such 

 44
 

 

records or any error
therein shall not in any manner affect the obligation of REPS to repay the
Reimbursement Obligations in accordance with the terms of this Agreement.

Section 4.               Conditions.

4.01         Initial
Conditions for Merrill Parties.  The
obligation of the Merrill Parties to issue the Effectiveness Notices in Section
2.01(a)(1) and to otherwise enter into the initial ML Guarantees or Credit
Support Agreements, initial EFS Transactions, EOO Transactions, Mirror OTC Contracts
or ICE Block Transactions or initial agreements to post or provide cash
collateral to Governmental Authorities or other Persons, shall be subject to
the conditions that each of the conditions in Section 4.02 are satisfied
(or waived by the Reliant Retail Obligors), each of the conditions below in
this Section 4.01 and in Section 4.03 has been satisfied (or
waived by the Merrill Parties) and the Sleeve Provider has received each below
agreement, instrument, certificate, opinion and other document in form and
substance reasonably satisfactory to it 
(unless a different standard is expressed below) and in full force and
effect:

(a)           Certain Information, CD ROM,
Schedules and Exhibits.  (i) The
Sleeve Provider shall have timely received prior to the Effective Date all
information required to be received from REPS as contemplated by Schedule
1.01(c), (ii) the CD ROM referred to in Schedule 1.01(c) shall have
been approved by REPS and the Original Sample Results and General Principles
referred to in Schedule 1.01(c) shall have been agreed by the Sleeve
Provider and REPS, in each case at least 7 Business Days prior to the Effective
Date as contemplated by Schedule 1.01(c) and (iii) Annex 1.01(a)
to Schedule 1.01(a), Schedule 1.01(c).23, Schedule 1.01(d),
Schedule 1.01(e), Schedule 2.02(a), Schedule 2.04,
Schedule 3.07(a), Exhibit G, Exhibit H, Exhibit I1
and Exhibit I2 shall have been completed and attached in a manner
satisfactory to Sleeve Provider, after consultation with REPS.

(b)           Transaction Documents.  This Agreement shall have been duly executed
by each of the Parties (and a Joinder Agreement shall have been duly executed
and delivered by RERR in a form reasonably satisfactory to the Sleeve Provider
pursuant to which RERR shall become an Other Reliant Retail Obligor under this
Agreement) and each of the Transaction Documents described in clauses (ii)
through (xx) of the definition thereof, and the MLCI/REPS ISDA, shall be
executed and delivered in a form reasonably satisfactory to the Sleeve
Provider.

(c)           Ringfence.  Evidence
satisfactory to the Sleeve Provider that the Transition Agreement, employment
arrangements with respect to management of the Reliant Retail Obligors,
transfer of retail supply and hedging contracts, and office space leasing
arrangements each have been completed on documentation or conditions reasonable
satisfactory to the Sleeve Provider and the remaining elements of the ring
fence restructuring of RERH Holdings and its Subsidiaries have otherwise been
completed on documentation or conditions reasonably satisfactory to the Sleeve
Provider; provided, however that (i) the
contribution of RERH and its Subsidiaries to RERH Holdings shall occur prior to
the Merrill Parties receiving any interest in RERH Holdings, (ii) employees
that are being transferred to RERH Holdings or any of its Subsidiaries and
whose services are provided for in the Transition Agreement shall not be
required to

 45
 

 

transfer until January 1,
2007, and (iii) the ISDA confirmations under the REES/REPS Power Purchase
Agreement relating to “Upton Wind” and under the RES/REPS Power Purchase
Agreement relating to the Channelview Services Agreement shall or shall be
amended to have delivery or settlement dates, as applicable, ending on or
before the third anniversary of the then current expiry date of the Scheduled
Term.

(d)           Secretary’s Certificates.  A
certificate, dated the Effective Date, of the secretary or assistant secretary
or (if none) any comparable officer of each Reliant Retail Obligor as to
(i) its Retail Organizational Documents, (ii) resolutions of its
board of directors, members, managers or comparable governing body, as
applicable, authorizing the transactions contemplated by the Transaction
Documents and (iii) incumbency of officers authorized to execute and
deliver its Transaction Documents on its behalf and authenticity of the
signatures of such officers.

(e)           Good Standing Certificates.

(i)            A (long form) certificate, without
exhibits, dated within one week prior to the Effective Date, of the Secretary
of State of Delaware, as to the existence and good standing of each Reliant
Retail Obligor and the title and date of filing of each Retail Organizational
Document of such Person filed with such Secretary of State.

(ii)           A certificate, dated within one week
prior to the Effective Date, of the Secretary of State and the taxing authority
of the State in which the principal place of business and chief executive
office of each Reliant Retail Obligor, are located, as to (A) the good
standing and (B) the authority or qualification to do business in such
jurisdiction of such Person and (C) no tax delinquencies (to the extent
that such certificate is generally available in such State).

(f)            Opinions of Counsel to Reliant,
et al.  Written opinions addressed to the Merrill Parties of Bracewell
& Giuliani LLP, special counsel to the Reliant Retail Obligors (including
customary opinions as to “true contribution”, “non-consolidation”,
non-contravention of the Reliant Parent Debt Documents and the creation and
perfection of Liens on Collateral), and of in-house counsel to Reliant Parent,
in each case, dated the Effective Date, and in a form reasonably satisfactory
to the Merrill Parties.

(g)           Officer Certificates.  A
certificate, dated the Effective Date, of a Financial Officer of RERH Holdings,
to the effect that (A) (i) each of the representations and warranties made
by the Reliant Retail Obligors in Section 5 and in the other Transaction
Documents which is qualified by materiality is true and correct, (ii) each of
the other representations and warranties made by the Reliant Retail Obligors in
Section 5 and in the other Transaction Documents is true and correct in
all material respects, in each case, on and as of the Effective Date with the
same force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date); and (B) no Default with respect
to a Reliant Event of Default or Trigger Event has occurred and is continuing
on and as of the Effective Date.

 46
 

 

(h)           Financial Statements.  The audited consolidated balance sheet of
RERH and its consolidated Subsidiaries for the Fiscal Year ended December 31,
2005, and the related consolidated statements of income or operations,
stockholders’ equity, comprehensive income (loss) and cash flows for such
Fiscal Year (the “Audited Financial Statements”), setting forth in each
case in comparative form the figures as of the end of, and for, the previous
Fiscal Year, all in reasonable detail and prepared in accordance with GAAP, (B)
the unaudited consolidated balance sheet of RERH and its consolidated
Subsidiaries as at the end of the Fiscal Quarter ended June 30, 2006, and the
related unaudited consolidated statements of income or operations for such Fiscal
Quarter and for the portion of RERH’s Fiscal Year then ended and cash flows for
the portion of RERH’s Fiscal Year then ended (the “Unaudited Financial
Statements”), without comparisons to prior periods and subject to normal
year-end audit adjustments and the absence of footnotes; and (C) a projected
unaudited consolidated balance sheet of RERH Holdings and its consolidated
Subsidiaries based on the unaudited consolidated balance sheet of RERH and its
consolidated Subsidiaries as at the end of the Fiscal Quarter ended June 30,
2006, and giving effect to the transfer of RERH to RERH Holdings and the other
contributions of the assets and liabilities of the Retail Energy Business
contemplated by this Agreement as at the Effective Date, certified by a Responsible
Officer of RERH Holdings as being accurate and complete in all material
respects with respect to the subject matter thereof.

(i)            Lender Consents.  The Reliant Parent Debt Documents shall have
been amended in a form reasonably satisfactory to the Sleeve Provider in order
to permit the transactions contemplated by this Agreement (it being understood
that provisions relating to the consent fee and other amounts payable for any
such amendments shall not be subject to the Sleeve Provider’s satisfaction, and
that the form of consent provided to the bondholders as of July 25, 2006, as
amended by the supplement dated August 28, 2006, is satisfactory).

(j)            Repayment of Securitization
Facility.  Evidence satisfactory to
the Sleeve Provider that the Securitization Facility shall be permanently
repaid in full and the collateral trust arrangement holding subordinated notes
related to the Securitization Facility in favor of secured trading
counterparties has been terminated.

(k)           Lien Search Reports, Etc.  (i) A
lien search report, certified by the Secretary of State or other applicable
Governmental Authority for each jurisdiction the filing in which could perfect
a Lien in any Collateral, for all UCC, judgment lien, tax lien and equivalent
lien filings made against each Reliant Retail Obligor; and (ii) evidence
that the Liens indicated by such financing statements and similar filings
(A) have been or will be on the Effective Date terminated, released or
otherwise discharged in full prior to or concurrently with the Effective Date
or (B) are Permitted Liens.

(l)            Collateral Accounts.  Evidence that Reliant Retail Obligors have
established or transferred to the Collateral Trustee the Collateral Accounts
required by the Security Documents.

 47
 

 

(m)          Accepted Products.  Evidence that, upon the occurrence of the
Effective Date (and the delivery of Effectiveness Notices, if applicable, and
the consummation of the transactions under Section 2.01, contemplated to
occur on the Effective Date), 90% of (i) purchases of financial gas and gas
options (as measured by total net notional volume), (ii) sales of financial gas
and gas options (as measured by total net notional volume), (iii) purchases of
heat rate capacity (as measured by average peak MW’s) and (iv) sales of heat
rate capacity (as measured by average peak MW’s) is coming directly from the
Sleeve Provider or other third parties (and not from Affiliates of the Reliant
Retail Obligors).  For the avoidance of
doubt, (x) for heat rate transactions that involve purchasing fixed-priced
power and selling financial gas to the same counterparty, the financial gas
volume shall be included in clause (ii) above and the fixed-priced power
volume shall be included in clause (iii) above and (y) volumes relating
to the obligation of REPS to purchase output priced at the Market Clearing
Price of Energy pursuant to the Channelview Services Agreement and related ISDA
confirm shall be excluded in calculating the foregoing 90% threshold.

(n)           Other Conditions.  Such
other information, diligence, documents, opinions, certificates, approvals and
conditions as the Sleeve Provider may reasonably request.

4.02         Initial Conditions for Reliant
Retail Obligors.  The obligation of
the Reliant Retail Obligors to pay any Monthly Sleeve Fees or any Make-whole
Payment, to secure the Merrill Parties under the Collateral Trust Agreement, to
enter into any further Transaction Documents or to proceed with the
Transactions contemplated thereunder shall not become effective until the date
the each of the conditions in Section 4.01 and Section 4.03 are
satisfied (or waived by the Merrill Parties) and each of the conditions below
in this Section 4.02 has been satisfied (or waived by the Reliant Retail
Obligors) and the REPS has received each below agreement, instrument, certificate,
opinion and other document in form and substance reasonably satisfactory to it
(unless a different standard is expressed below) and in full force and effect:

(a)           Certain Information, CD ROM,
Schedules and Exhibits.  (i) REPS
shall have timely received prior to the Effective Date all information required
to be received from the Sleeve Provider as contemplated by Schedule 1.01(c),
(ii) the CD ROM referred to in Schedule 1.01(c) shall have been approved
by the Sleeve Provider and the Original Sample Results and General Principles
referred to in Schedule 1.01(c) shall have been agreed by the Sleeve
Provider and REPS, in each case at least 7 Business Days prior to the Effective
Date as contemplated by Schedule 1.01(c) and (iii) Annex 1.01(a)
to Schedule 1.01(a), Schedule 1.01(c).23, Schedule 1.01(d),
Schedule 1.01(e), Schedule 2.02(a), Schedule 2.04,
Schedule 3.07(a), Exhibit G, Exhibit H, Exhibit I1
and Exhibit I2 shall have been completed and attached in a manner
satisfactory to REPS, after consultation with the Sleeve Provider.

(b)           Transaction Documents.  This Agreement shall have been duly executed
by each of the Parties (and a Joinder Agreement shall have been duly executed
and delivered by RERR in a form reasonably satisfactory to REPS pursuant to
which RERR shall become an Other Reliant Retail Obligor under this Agreement)
and each of the Transaction Documents described in clauses (ii) through (xx) of
the definition thereof, 

 48
 

 

and the MLCI/REPS ISDA,
shall be executed and delivered in a form reasonably satisfactory to REPS.

(c)           Ringfence.  Evidence
satisfactory to REPS that the Transition Agreement, employment arrangements
with respect to management of the Reliant Retail Obligors, transfer of retail
supply and hedging contracts, and office space leasing arrangements each have
been completed on documentation or conditions reasonably satisfactory to REPS
and the remaining elements of the ring fence restructuring of RERH Holdings and
its Subsidiaries have otherwise been completed on documentation or conditions
reasonably satisfactory to REPS; provided,
however that (i) the contribution of RERH and its Subsidiaries to RERH Holdings
shall occur prior to the Merrill Parties receiving any interest in RERH
Holdings, (ii) employees that are being transferred to RERH Holdings or any of
its Subsidiaries and whose services are provided for in the Transition
Agreement shall not be required to transfer until January 1, 2007, and (iii)
the ISDA confirmations under the REES/REPS Power Purchase Agreement relating to
“Upton Wind” and under the RES/REPS Power Purchase Agreement relating to the
Channelview Services Agreement shall or shall be amended to have delivery or
settlement dates, as applicable, ending on or before the third anniversary of
the then current expiry date of the Scheduled Term

(d)           Trading Contracts.  (i) Power and Hedging Contracts, including
Credit Support Agreements, and ML Guarantees each executed and delivered by the
parties thereto with respect to all Core Counterparties, with the obligations
of the parties thereunder being subject only to the delivery of the
Effectiveness Notices, and (ii) evidence satisfactory to REPS of the delivery
of the Effectiveness Notices.

(e)           Lender Consents and Funding.  The Reliant Parent Debt Documents shall have
been amended in order to permit the transactions contemplated by the
Transaction Documents and any new facilities thereunder have been funded.

(f)            No Default or Trigger Event.  No Default with respect to a Reliant Event of
Default, Default with respect to a Sleeve Provider Event of Default or Trigger
Event shall have occurred and be continuing or would occur upon the Effective
Date (and in connection therewith, the Sleeve Provider has run sample
calculations with respect to Trigger Events during the period prior to the
Effective Date at the request of and subject to receipt of applicable data from
REPS).

(g)           Other Conditions.  Such
other information, diligence, documents, opinions, certificates, approvals and
conditions as REPS may reasonably request.

4.03         Conditions
to Certain Obligations of the Merrill Parties.  The obligation of the Merrill Parties to
issue the Effectiveness Notices in Section 2.01(a)(1) and to enter into
any ML Guarantees or Credit Support Agreements, any EFS Transactions, EOO
Transactions, Mirror OTC Contracts or ICE Block Transactions, any agreement to
post or provide cash collateral to Governmental Authorities or other Persons or any
transaction contemplated by Section 2.02(e) is subject to the following
conditions precedent that, both immediately prior to and after giving
effect thereto and to the intended use thereof:

 49
 

 

(a)           As of the Effective Date and
thereafter, (i) each of the representations and warranties of the Reliant
Retail Obligors made in Section 5 and in the other Transaction Documents
which is qualified by materiality shall be true and correct and (ii) each of
the other representations and warranties of the Reliant Retail Obligors made in
Section 5 and in the other Transaction Documents shall be true and
correct in all material respects, in each case of clause (i) and (ii) on and as
of the date of request for issuance of an ML Guarantee or execution of a Credit
Support Agreement with the same force and effect as if made on and as of such
date (or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date); and

(b)           no Default relating to a Reliant
Event of Default or Trigger Event shall have occurred and be continuing.

Each request by REPS for the issuance of an ML Guarantee or
the execution of a Credit Support Agreement shall constitute a
certification to the effect that the above conditions have been satisfied.

Section 5.               Representations and Warranties.  Each of the Reliant Retail Obligors hereby
represents and warrants that as of the Effective Date and thereafter:

5.01         Existence, Qualification and Power;
Compliance with Laws.  Such Person
(a) is duly organized or formed, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation or organization, (b) has all
requisite power and authority and all requisite governmental licenses,
authorizations, consents and approvals to (i) own its assets and carry on its
business and (ii) execute, deliver and perform its obligations under the
Transaction Documents to which it is a party, (c) is duly qualified and is
licensed and in good standing under the Laws of each jurisdiction where its
ownership, lease or operation of properties or the conduct of its business
requires such qualification or license, and (d) is in compliance with all
Laws; except in each case referred to in clause (b)(i), (c)
or (d), to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect.

5.02         Authorization; No Contravention.  The execution, delivery and performance by
such Person of each Transaction Document to which such Person is party, have
been duly authorized by all necessary corporate or other organizational action,
and do not and will not (a) contravene the terms of any of such Person’s
Organizational Documents; (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, or require any payment to
be made under (i) any Contractual Obligation to which such Person is a party or
affecting such Person or the properties of such Person or any of its
Subsidiaries, except as could not reasonably be expected to have a Material
Adverse Effect, or (ii) any order, injunction, writ or decree of any
Governmental Authority or any arbitral award to which such Person or its
property is subject that could reasonably be expected to have a Material
Adverse Effect; (c) violate any Law that could reasonably be expected to have a
Material Adverse Effect; or (d) result in the creation of any Lien other than a
Permitted Lien.  The Reliant Retail
Obligors are in compliance with all Contractual Obligations referred to in clause (b)(i),
except to the extent that failure to do so could not reasonably be expected to
have a Material Adverse Effect.

 50
 

 

5.03         Governmental Authorization; Other
Consents.  Except as to those which have been duly
obtained, taken, given or made and are in full force and effect and except as
noted below, no approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other
Person is necessary or required in connection with (i) the execution, delivery
or performance by any Reliant Retail Obligors of this Agreement or any other
Transaction Document, (ii) the grant by any Reliant Retail Obligors of the
Liens granted by it pursuant to the Transaction Documents, or (iii) the
perfection or maintenance of the Liens created under the Transaction Documents
(including the first priority (subject to Permitted Liens) nature thereof),
other than the filing of UCC-1 Financing Statements and applicable
filings with respect to patents, trademarks and material copyrights.  The Parties recognize that in connection with
transaction contemplated hereby, (i) REPS will be required to notify FERC of a
change in its ownership as a result of the Sleeve Provider’s acquisition of an
ownership interest in RERH Holdings and (ii) one or more of the Reliant Retail
Obligors may be required to seek approval and/or provide notice to a
Governmental Authority prior to or in order to undertake one or more of the
transactions not prohibited by Article 7.

5.04         Binding Effect.  This Agreement has been, and each other
Transaction Document, when executed and delivered hereunder, will have been,
duly executed and delivered by each Reliant Retail Obligor that is party
thereto.  This Agreement constitutes, and
each other Transaction Document when so executed and delivered will constitute,
a legal, valid and binding obligation of each Reliant Retail Obligor,
enforceable against each Reliant Retail Obligor that is party thereto in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors’ rights generally and by general principles of equity, whether such
enforceability is considered in a proceeding at law or in equity.

5.05         Financial Statements; No Material
Adverse Effect.

(a)           The Audited Financial Statements (i)
were prepared in accordance with GAAP consistently applied throughout the
period covered thereby, except as otherwise expressly noted therein and (ii)
fairly present in all material respects the consolidated financial condition of
RERH and its consolidated Subsidiaries as of the date thereof and their results
of operations and cash flows for the period covered thereby in accordance with
GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein.

(b)           The Unaudited Financial Statements
(i) were prepared in accordance with GAAP consistently applied throughout the
period covered thereby, except as otherwise expressly noted therein and (ii)
fairly present in all material respects the consolidated financial condition of
RERH and its consolidated Subsidiaries as of the date thereof and their results
of operations and cash flows for the period covered thereby in accordance with
GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, subject, in the case of clauses (i)
and (ii), to the absence of footnotes and to normal year-end audit
adjustments.

(c)           From the date of the Audited
Financial Statements through the Effective Date, except as disclosed in public
filings or in writing to the Sleeve Provider on or before five 

 51
 

 

Business Days before the
Execution Date, there has been no event or circumstance, either individually or
in the aggregate that has had or could reasonably be expected to have a
Material Adverse Effect.

5.06         Litigation.  There are no actions, suits, proceedings,
claims or disputes pending or, to the knowledge of each Reliant Retail Obligor,
threatened or contemplated, at law, in equity, in arbitration or before any
Governmental Authority, by or against the Reliant Retail Obligors or against
any of their properties or revenues that (a) purport to affect or pertain to
this Agreement or any other Transaction Document, or any of the transactions
contemplated hereby or (b) except as disclosed in public filings or in writing
to the Sleeve Provider on or before five Business Days before the Execution Date,
exist on or prior to the Effective Date and either individually or in the
aggregate, if determined adversely, could reasonably be expected to have a
Material Adverse Effect.

5.07         No Default.  No Default with respect to a Reliant Event of
Default has occurred and is continuing or would result from the consummation of
the transactions contemplated by this Agreement or any other Transaction
Document.

5.08         Ownership of Property; Liens.

(a)           Each of the Reliant Retail Obligors
has good and marketable title in fee simple to, or valid leasehold interests
in, all real property necessary or used in the ordinary conduct of its
business, except for Permitted Liens and such defects in title as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(b)           The property of the Reliant Retail
Obligors is subject to no Liens, other than Permitted Liens.

(c)           As of the Effective Date, the Reliant
Retail Obligors have no fee interests in real property.

5.09         Environmental Matters.

(a)           The Reliant Retail Obligors have been
and are in compliance with all Environmental Laws, including obtaining and
complying with all required environmental permits, other than non-compliances
that could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.

(b)           None of the Reliant Retail Obligors
nor any property currently or, to the knowledge of the Reliant Retail Obligors,
previously owned, operated or leased by or for Reliant Retail Obligors is
subject to any pending or, to the knowledge of the Reliant Retail Obligors,
threatened, claim, order, agreement, notice of violation, notice of potential
liability or is the subject of any pending or threatened proceeding or
governmental investigation under or pursuant to Environmental Laws other than
those that could not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.

 52
 

 

(c)           As of the Effective Date none of the
Reliant Retail Obligors has a treatment, storage or disposal facility requiring
a permit under the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., the regulations thereunder or any state analog.

(d)           There are no facts, circumstances or
conditions known to the Reliant Retail Obligors arising out of or relating to
the operations or ownership of  the
Reliant Retail Obligors or of the property owned, operated or leased by the
Reliant Retail Obligors that are not specifically included in the financial information
furnished to the Sleeve Provider that could be reasonably expected to result in
any Environmental Liabilities that could reasonably be expected to have a
Material Adverse Effect, unless such liabilities are (i) covered by
environmental liability insurance, (ii) subject to an indemnity from any
Governmental Authority, or (iii) subject to an indemnity satisfactory to REPS
from a Person that is not an Affiliate of REPS that REPS has determined in good
faith is appropriately credit worthy in relation to the potential amount of
such liabilities.

(e)           As of the Effective Date, no
environmental Lien has attached to any property of the Reliant Retail Obligors
and, to the knowledge of the Reliant Retail Obligors, no facts, circumstance or
conditions exist that could, individually or in the aggregate, reasonably be
expected to result in an environmental Lien that would have a Material Adverse
Effect.

(f)            None of the Reliant Retail Obligors
is undertaking, and has not completed, either individually or together with
other potentially responsible parties, any investigation or assessment or
remedial action relating to any actual or threatened release of Hazardous
Materials at any site, location or operation, either voluntarily or pursuant to
the order of any Governmental Authority or the requirements of any
Environmental Law that could reasonably be expected to have a Material Adverse
Effect; and all Hazardous Materials generated, used, treated, handled or stored
at, or transported to or from, any property currently or formerly owned or
operated by the Reliant Retail Obligors have been disposed of in a manner that
could not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

5.10         Insurance.  The properties of the Reliant Retail Obligors
are insured with financially sound and reputable insurance companies not
Affiliates of REPS, in such amounts (after giving effect to any self-insurance
compatible with the following standards), with such deductibles and covering
such risks as are customarily carried by companies of the same or similar size
engaged in similar businesses and owning similar properties in localities where
each Reliant Retail Obligor operates, which insurance may be under policies
obtained by the Reliant Parent.

5.11         Taxes.  The Reliant Retail Obligors have filed all
Federal, state and other material tax returns and reports required to be filed
after giving effect to applicable extensions, except for tax returns or reports
the failure of which to timely file could not reasonably be expected to have a
Material Adverse Effect, and have paid all Federal, state and other material
taxes, assessments, fees and other governmental charges levied or imposed upon
them or their properties, income or assets otherwise due and payable, except
those which are being contested in good faith by appropriate proceedings
diligently conducted and for which adequate reserves have been provided in
accordance with GAAP.  There is no
proposed tax assessment against any Reliant Retail Obligor that would, if made,
have a Material Adverse Effect.  Except
for the 

 53
 

 

provisions
of the Reliant Parent Services Agreement or any replacement thereof with
respect to tax matters entered into in accordance with Section 7.15,
neither RERH Holdings nor any Subsidiary thereof is party to any tax sharing
agreement that would create any liability for taxes (for any period either
before or after the Effective Date), after taking into account the provisions
of the Reliant Parent Services Agreement or any such replacement.

5.12         ERISA Compliance.

(a)           Each Plan has been established,
operated and administered in compliance in all material respects with its terms
and the applicable provisions of ERISA, the Code and other Federal or state
Laws.  Each Plan that is intended to
qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS or an application for such a letter is
currently being processed by the IRS with respect thereto and, to the best
knowledge of the Reliant Retail Obligors, nothing has occurred which would prevent,
or cause the loss of, such qualification. 
RERH Holdings and each ERISA Affiliate have made all required
contributions (both quarterly and annually) to each Plan subject to
Section 412 of the Code, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.

(b)           There are no pending or, to the best
knowledge of the Reliant Retail Obligors, threatened claims, actions or
lawsuits or investigations, or action by any Governmental Authority, with
respect to any Plan that could reasonably be expected to have a Material
Adverse Effect.  There has been no
prohibited transaction or violation of the fiduciary responsibility rules with
respect to any Plan that has resulted or could reasonably be expected to result
in a Material Adverse Effect.

(c)           (i) No ERISA Event has occurred or is
reasonably expected to occur that could reasonably be expected to have a
Material Adverse Effect; (ii) no Pension Plan has any Unfunded Pension
Liability, whether or not waived, that could reasonably be expected to have a
Material Adverse Effect, and no application for a waiver of the minimum funding
standard has been filed or is expected to be filed with respect to any Pension
Plan; (iii) none of the Reliant Retail Obligors and any of their ERISA
Affiliates has incurred, or reasonably expects to incur, any liability under
Title IV of ERISA with respect to any Pension Plan or Multiemployer Plan (other
than premiums due and not delinquent under Section 4007 of ERISA) that
could reasonably be expected to have a Material Adverse Effect; (iv) none of
the Reliant Retail Obligors and any of their ERISA Affiliates has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Sections 4201 or 4243 of ERISA with respect to a
Multiemployer Plan that could reasonably be expected to have a Material Adverse
Effect; and (v) none of the Reliant Retail Obligors and any of their ERISA
Affiliates has engaged in a transaction that could be subject to Sections 4069
or 4212(c) of ERISA.

5.13         Subsidiaries; Equity Interests.  On the Effective Date and after giving effect
to the contribution under the Contribution Agreement, (a) RERH Holdings has no
Subsidiaries other than RERH, REPS, RERS, and RERR, and each such Subsidiary is
a Wholly Owned Subsidiary of RERH Holdings, and all of the outstanding Equity
Interests in such Subsidiaries have been validly issued, are fully paid and
nonassessable and are free and clear of 

 54
 

 

all Liens except
those created under the Transaction Documents and the Permitted Liens, (b) RERH
Holdings and its Subsidiaries have no equity investments in any other Persons,
and (c) set forth in Schedule 5.13 is a complete and accurate list of
the jurisdiction of incorporation, the address of principal place of business
and U.S. taxpayer identification number for RERH Holdings and its Subsidiaries.

5.14         Margin Regulations; Investment
Company Act; Public Utility Holding Company Act.

(a)           None of the Reliant Retail Obligors
is engaged or will engage, principally or as one of its important activities,
in the business of purchasing or carrying Margin Stock, or extending credit for
the purpose of purchasing or carrying Margin Stock.

(b)           None of the Reliant Retail Obligors
or any Person Controlling the Reliant Retail Obligors (i) is in violation of
any regulation under the Public Utility Holding Company Act of 2005, the
Federal Power Act or any foreign, federal or local statute or any other Law of
the United States of America or any other jurisdiction, in each case limiting
its ability to incur indebtedness for money borrowed as contemplated by any
Transaction Document, or (ii) is or is required to be registered as an “investment
company” under the Investment Company Act of 1940.  Neither the issuing of any ML Guarantee nor
the provision of collateral by the Merrill Parties in accordance with this
Agreement, nor the consummation of the other transactions contemplated by the
Transaction Documents, will violate any provision of such Act or any rule,
regulation or order of the SEC thereunder.

5.15         Disclosure.  The Reliant Retail Obligors have disclosed to
the Sleeve Provider all agreements, instruments and corporate or other
restrictions to which the Reliant Retail Obligors are subject, and all other
matters known to it (other than general industry, political, and economic
conditions), that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.  No report, financial statement, certificate
or other information furnished (whether in writing or orally) by or on behalf
of any Reliant Retail Obligor to the Sleeve Provider in connection with the
transactions contemplated hereby and the negotiation of this Agreement or
delivered to the Sleeve Provider hereunder or under any other Transaction
Document (in each case, as modified or supplemented by other information so
furnished), at the time furnished or delivered, contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, taken as a whole, in the light of the circumstances under
which they were made, not misleading; provided that
with respect to projected financial information, the Reliant Retail Obligors
represent only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time made; and provided further, that the Reliant Retail Obligors make no representation
or warranty, express or implied, with respect to the Compliance Information
delivered to Sleeve Provider in accordance with Section 2.02(e).

5.16         Compliance with Laws.  Each of the Reliant Retail Obligors is in
compliance in all material respects with the requirements of all Laws and all
orders, writs, injunctions and decrees applicable to it or to its properties,
except in such instances in which (a) such requirement of Law or order, writ,
injunction or decree is being contested in good faith by appropriate
proceedings diligently conducted or (b) the failure to comply therewith, either

 55
 

 

individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

5.17         Intellectual Property; Licenses, Etc.  The Reliant Retail Obligors own, or possess
the right to use, all of the trademarks, service marks, trade names,
copyrights, patents, patent rights, franchises, licenses and other intellectual
property rights (collectively, “IP Rights”) that are necessary for the
operation of their respective businesses, without conflict with the rights of
any other Person, unless the failure to so own or possess the right to use
could not reasonably be expected to have a Material Adverse Effect.  To the best knowledge of the Reliant Retail
Obligors, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Reliant Retail Obligors infringes upon any rights held by any
other Person in a manner that could reasonably be expected to have a Material
Adverse Effect.  No claim or litigation
regarding any of the foregoing is pending or, to the best knowledge of the
Reliant Retail Obligors, threatened, which, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

5.18         Solvency.  RERH Holdings is, together with its
Subsidiaries on a consolidated basis, Solvent.

5.19         Perfection, Etc..  The Security Documents, together with (i) the
filing of appropriate UCC-1 and, if applicable, UCC-3, financing
statements with the filing offices required under the Security Agreement, and
(ii) the possession of certificated Pledged Securities (together with
blank executed stock powers with respect thereto), if any, create and grant to
the Collateral Trustee for the benefit of the holders of Secured Obligations,
including the Merrill Parties, a valid, first priority (subject to Permitted
Liens), perfected security interest in the Collateral, subject to the terms and
provisions of the Security Agreement.

5.20         Employees, Etc.  On the Effective Date, RERH Holdings and its
Subsidiaries have a chief executive officer, a principal risk officer, an
in-house attorney (or have the same provided for in the Transition Agreement)
and sufficient employees that, taken together with the services provided under
arm’s length service contracts (including the Transition Agreement and Reliant
Parent Service Agreement), they can run the Retail Energy Business in a manner
consistent with the business operations of the Retail Energy Business as of the
Effective Date (taking into account the Transition Agreement if then in
effect).

5.21         Information Technology Systems.  On the Effective Date, RERH Holdings and its
Subsidiaries own or have access to (through arm’s length service contracts
including the IT Service Agreement and the Reliant Parent Services Agreement if
then in effect) the Information Technology Systems necessary to run the Retail
Energy Business, including Information Technology Systems providing
capabilities consistent with the arrangements in place for the Retail Energy
Business as of the Effective Date (taking into account the Transition Agreement
if then in effect).

5.22         Marks.  On the Effective Date, RERH Holdings and its
Subsidiaries own or have access to (through arm’s length licenses and other
arrangements including the IP License 

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Agreement and the
Reliant Parent Services Agreement if then in effect) the Marks necessary to run
the Retail Energy Business using the “Reliant” name consistent with the
arrangements in place for the Retail Energy Business as of the Effective Date
(taking into account the Transition Agreement if then in effect).

Section
6.               Affirmative Covenants.  From the Effective Date until the Credit
Sleeve Termination Date, the Reliant Retail Obligors shall, and shall cause
each of their Subsidiaries, to:

6.01         Financial Statements.  Deliver to the Sleeve Provider, in form and
detail satisfactory to the Sleeve Provider:

(a)           as soon as available, but in any
event within 90 days after the end of each Fiscal Year of RERH Holdings, an
audited consolidated balance sheet of RERH Holdings and its consolidated
Subsidiaries as at the end of such Fiscal Year, and the related consolidated
statements of income or operations, stockholders’ equity, comprehensive income
(loss) and cash flows for such Fiscal Year, setting forth in each case
(beginning with Fiscal Year 2006, and in addition with respect to such Fiscal
Year, the unaudited opening balance sheet used to prepare such audited balance
sheet as at the end of Fiscal Year 2006), the figures as of the end of, and
for, the previous Fiscal Year, all in reasonable detail and prepared in
accordance with GAAP, such consolidated statements to be audited and
accompanied by a report and opinion of an independent registered public
accounting firm of nationally recognized standing, which report and opinion
shall be prepared in accordance with the standards of the Public Company
Accounting Oversight Board or its successor and shall not be subject to any
“going concern” or like qualification or exception;

(b)           as soon as available, but in any
event within 50 days after the end of each of the first three Fiscal Quarters
of each Fiscal Year of RERH Holdings, an unaudited consolidated balance sheet
of RERH Holdings and its consolidated Subsidiaries as at the end of such Fiscal
Quarter, and the related unaudited consolidated statements of income or
operations for such Fiscal Quarter and for the portion of RERH Holdings’ Fiscal
Year then ended and cash flows for the portion of RERH Holdings’ Fiscal Year
then ended, setting forth in each case (beginning with Fiscal Year 2007) in
comparative form the figures for the corresponding Fiscal Quarter of the
previous Fiscal Year and the corresponding portion of the previous Fiscal Year,
all in reasonable detail, certified by a Responsible Officer of RERH Holdings
as fairly presenting in all material respects the financial condition, results
of operations and cash flows of RERH Holdings and its consolidated Subsidiaries
in accordance with GAAP, subject only to normal year-end audit adjustments and
the absence of footnotes;

(c)           as soon as available, but in any
event within 30 days after the end of the first and second calendar months of
each Fiscal Quarter (beginning with the first Fiscal Quarter of 2007), a copy
of RERH Holdings’ internal monthly consolidated corporate reporting package (i.e.,
flash reports) in form reasonably acceptable to Sleeve Provider; and

(d)           as soon as available, but in any
event within 55 days after the end of each of the first three Fiscal Quarters
of each Fiscal Year, and 95 days after the end of the fourth 

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Fiscal Quarter of each
Fiscal Year, a financial forecast (for each quarter remaining in the then
current calendar year and each of the two following calendar years) for the
Retail Energy Business of RERH Holdings and its Subsidiaries in form reasonably
acceptable to the Sleeve Provider (which form shall include a summary balance
sheet and statement of income and cash analysis in a format similar to those
prepared for Reliant Parent prior to the Execution Date).

6.02         Certificates; Other Information.  Deliver to the Sleeve Provider, in form and
detail satisfactory to the Sleeve Provider:

(a)           concurrently with the delivery of the
financial statements referred to in Sections 6.01(a) and (b),
a duly completed Compliance Certificate signed by a Responsible Officer of RERH
Holdings;

(b)           promptly after any request by the
Sleeve Provider, copies of any detailed audit reports, management letters or recommendations
submitted to the board of directors (or the audit committee of the board of
directors) of RERH Holdings by independent accountants in connection with the
accounts or books of RERH Holdings or any Subsidiary or any audit of any of
them;

(c)           promptly after the furnishing or
receiving thereof, copies of any notice of default furnished to, or received
from, any holder of debt securities of RERH Holdings or any Subsidiary thereof
pursuant to the terms of any indenture, guarantee or credit or similar
agreement and not otherwise required to be furnished to the Sleeve Provider
pursuant to Section 6.01 or any other clause of this Section;

(d)           as soon as available, but in any
event within 15 days after the end of month, a report regarding compliance and
non-compliance with the Risk Management Policy having substantially the same
form, scope and level of detail as the monthly risk management report or
reports presented to senior management of the Reliant Parent with respect to
such month; and

(f)            promptly, such additional
information regarding the business, financial or corporate affairs of RERH
Holdings or any Subsidiary, or compliance with the terms of the Transaction
Documents, as the Sleeve Provider may from time to time reasonably request.

Documents required to be
delivered pursuant to Section 6.01(a) or (b) (to the extent
any such documents are included in materials otherwise filed with the SEC)
shall be delivered electronically and when so delivered, shall be deemed to
have been delivered on the date on which RERH Holdings provides such documents
electronically, including by email or electronic posting; provided
that: (i) RERH Holdings shall at the request of the Sleeve Provider deliver
paper copies of such documents to the Sleeve Provider and (ii) if documents are
electronically posted, RERH Holdings shall notify the Sleeve Provider (by
telecopier or electronic mail) of the posting. 
Notwithstanding anything contained herein, in every instance RERH
Holdings shall be required to provide paper copies of the Compliance
Certificates required by Section 6.02(a) to the Sleeve
Provider.  Except for such Compliance
Certificates, the Sleeve Provider shall have no obligation to request the
delivery or to maintain copies of the

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documents referred to
above, and in any event shall have no responsibility to monitor compliance by
RERH Holdings with any such request for delivery.

6.03         Notices.
 Promptly notify the Sleeve Provider:

(a)           after any Responsible Officer’s
obtaining knowledge of (i) the occurrence of any Default with respect to a
Reliant Event of Default and the intended actions of the Reliant Retail
Obligors with respect thereto and (ii) any Level 3 Violation under, and as
defined in, the Risk Management Policy (as opposed to a Level III Violation as
defined herein);

(b)           of any matter that has resulted or
could reasonably be expected to result in a Material Adverse Effect (including
as a result of (i) breach or non-performance of, or any default under, a
Contractual Obligation of any Reliant Retail Obligor; (ii) any dispute,
litigation, investigation, proceeding or suspension between any Reliant Retail
Obligor and any Governmental Authority; or (iii) the commencement of, or any
material development in, any litigation or proceeding affecting the Reliant
Retail Obligor, including pursuant to any applicable Environmental Laws);

(c)            after any Responsible Officer’s
obtaining knowledge of the occurrence of any ERISA Event or of any actual or
reasonably likely contribution failure under Code Section 412, or ERISA Section
302 with respect to any Pension Plan or the filing of an application seeking
waiver of any potential contribution failure; and

(d)           of the occurrence of any Asset Sale.

Each
notice pursuant to this Section (other than subsection (d)) shall be accompanied
by a statement of a Responsible Officer of the applicable Reliant Retail
Obligor setting forth details of the occurrence referred to therein and stating
what action the applicable Reliant Retail Obligor  has taken and proposes to take with respect
thereto.  Each notice pursuant to Section 6.03(a)
shall describe with particularity any and all provisions of this Agreement and
any other Transaction Document that have been breached.

6.04         Payment of Obligations.  Pay and discharge as the same shall become
due and payable (a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings diligently conducted and
adequate reserves in accordance with GAAP are being maintained by each Reliant
Retail Obligor; and (b) all lawful claims which, if unpaid, would by law become
a Lien upon its property that is not a Permitted Lien.

6.05         Preservation of Existence, Etc..  Preserve, renew and maintain in full force
and effect its legal existence and good standing under the Laws of the
jurisdiction of its organization except in a transaction permitted by Section 7.04,
7.05 or 7.06, (b) take all reasonable action to maintain all
rights, privileges, permits, licenses and franchises necessary or desirable in
the normal conduct of its business, except to the extent that failure to do so
could not reasonably be expected to have a Material Adverse Effect; and (c)
preserve or renew all of its 

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registered
patents, trademarks, trade names and service marks, the non-preservation of
which could reasonably be expected to have a Material Adverse Effect.

6.06         Maintenance of Properties.  (a) Maintain,
preserve and protect all of its material properties and equipment necessary in
the operation of its business in good working order and condition, ordinary
wear and tear excepted; (b) make all necessary repairs thereto and renewals and
replacements thereof; and (c) use the standard of care typical in the industry
in the operation and maintenance of its facilities, in each of cases (a), (b)
and (c), except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.

6.07         Maintenance of Insurance.  Maintain with financially sound and reputable
insurance companies, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by Persons of
same or similar size engaged in the same or similar business, of such types and
in such amounts (after giving effect to any self-insurance compatible with the
following standards) as are customarily carried under similar circumstances by
such other Persons and providing for not less than 30 days’ (or such other
period as required by law) prior notice to the Sleeve Provider and Collateral
Trustee of termination, lapse or cancellation of such insurance; provided that such insurance may be under policies obtained
by Reliant Parent.

6.08         Compliance with Laws.  Comply in all material respects with the
requirements of all Laws and all orders, writs, injunctions and decrees
applicable to it or to its business or property, except in such instances in
which (a) such requirement of Law or order, writ, injunction or decree is being
contested in good faith by appropriate proceedings diligently conducted or (b)
the failure to comply therewith could not reasonably be expected to have a
Material Adverse Effect.

6.09         Books and Records.  (a) Maintain
proper books of record and account, in which entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Reliant Retail Obligors and (b)
maintain such books of record and account in material conformity with all
applicable requirements of any Governmental Authority having regulatory
jurisdiction over the Reliant Retail Obligors.

6.10         Inspection Rights.  Permit representatives and independent
contractors of the Sleeve Provider to visit and inspect any of its properties,
to examine its corporate, financial and operating records, and make copies
thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with its officers, and independent public accountants at such
reasonable times during normal business hours and as often as may be reasonably
desired, upon reasonable advance notice to REPS, all at the expense of the
Reliant Retail Obligors, and the Reliant Retail Obligors will pay up to
$100,000 during any contract year to the extent of the third party expenses of
the Sleeve Provider incurred in connection therewith (but the Reliant Retail
Obligors shall pay no further expenses in connection therewith); provided that, the foregoing shall include permitting one
representative of the Sleeve Provider to retain an office in the retail office
space of the Reliant Retail Obligors with access to the information set forth
in Schedule 1.01(c) and to appropriate personnel of the Reliant Retail
Obligors and the Reliant Parent and the administrative floor on which such
representative’s office is located (but not access to the trading 

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floor) during each
Business Day; provided  further
that when a Reliant Event of Default exists the Sleeve Provider (or any of
their respective representatives or independent contractors) may do any of the
foregoing at the expense of the Reliant Retail Obligors, to the extent
reasonable under the circumstances, without being subject to the expense limit
described above, and at any time during normal business hours and without
advance notice.

6.11         Addition
and Removal of Transaction Parties; Collateral Matters; Waterfall.

(a)           (i)            Promptly
and in any event within thirty (30) Business Days after any Subsidiaries of
RERH Holdings that are not Reliant Retail Obligors have, on an aggregate basis,
net income or book values exceeding the corresponding Non-Guarantor Cutoff
Amounts, and, in the case of RESE, upon the PJM Retail Business becoming
subject to this Agreement, deliver to the Sleeve Provider and Collateral
Trustee the following with respect to one or more such Subsidiaries (as to each
such delivery, each a “Designated Subsidiary”) to the extent necessary
to cause the Subsidiaries of RERH Holdings that are not Reliant Retail Obligors
to have on an aggregate basis, net income or book values less than the
corresponding the Non-Guarantor Cutoff Amounts: (A) Joinder Agreements under
this Agreement and Joinder Agreements under, and as such term is defined in,
the Collateral Trust Agreement pursuant to which, among other things, the
Designated Subsidiary shall become a party to this Agreement and the Collateral
Trust Agreement and the Security Agreement, (B) appropriate UCC-1 financing
statements with respect to the collateral under the Security Agreement, (C) all
applicable Lien searches, (D) Organizational Documents and other documents of
the type described in Section 4.01(d), (E) a written opinion of counsel
covering those matters addressed in the opinion delivered on the Effective Date
but limited to the Designated Subsidiary, (F) such other security documents as
may be reasonably requested by the Sleeve Provider or its counsel and all of
the foregoing in form and substance reasonably satisfactory to the Sleeve
Provider and its counsel, and (G) certificates or other instruments (if any)
representing all of the Equity Interests in the Designated Subsidiary owned by
RERH Holdings or its Subsidiaries together with an undated stock power (or
other appropriate document) executed in blank for each such certificate or
other instrument.

(ii)           If
any Subsidiary of RERH Holdings is, or will be, sold or otherwise transferred
or disposed of in connection with any transaction permitted under this
Agreement, the Merrill Parties shall take the actions described in Section
12.04(d) with respect thereto and shall release such Subsidiary from this
Agreement and any obligations with respect to the Credit Sleeve Obligations and
make or approve any conforming changes reasonably requested by REPS in the
Transaction Documents necessary to implement such release in the reasonable
discretion of the Merrill Parties.

(b)           At
any time and from time to time, promptly execute and deliver any and all
further instruments and documents and take all such other action as the Sleeve
Provider and the Collateral Trustee may reasonably deem necessary or desirable
in obtaining the full benefits of, or in perfecting and preserving, the
Reimbursement Guarantees and the Liens under the Security Documents.

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(c)           Have
all revenues of the Reliant Retail Obligors, all working capital facility
proceeds, all proceeds of asset sales other than Asset Sales and all other
amounts from time to time received by the Reliant Retail Obligors paid directly
to or promptly deposited to the Collateral Accounts (except for proceeds of
Asset Sales applied in accordance with Section 7.05 and proceeds of
Available Contributions applied in any manner not prohibited by this
Agreement), and distribute or instruct the Collateral Trustee to distribute
funds in the Collateral Accounts on each Business Day in the following manner
and priority:

(i)            (A)
to the extent the same are held on behalf of third parties, or owed to third
parties for amounts collected or billed on behalf of third parties, to the
application intended for such funds, including application to RES and RESC for
amounts collected for such entities under the Channelview Services Agreement
(to the extent the same becomes applicable as a result of change in ERCOT rules
and regulations), to third parties for third party refunds or deposits,
transmission and distribution service providers for their charges collected on
their behalf, Governmental Authorities for sales or usage taxes which are
required to be or have been agreed to be collected and paid to them and to the
GLO for payment of the GLO Amount, (B) to Governmental Authorities for taxes
and other amounts due and payable by the Reliant Retail Obligors and their
Subsidiaries to such Governmental Authorities in their capacities as such (and
not in their capacities as Governmental Customers) excluding for this purpose
(x) U.S. federal income taxes, and (y) any state or local taxes other than
Applicable State Taxes, (C) to the directors, officers and employees of the
Reliant Retail Obligors for salary, bonus and other compensation and amounts
then due and payable to such Persons and (D) to the IP Trust and the IT Trust
for payment of all amounts due from the Reliant Retail Obligors under the IP
License Agreement and the IT Service Agreement;

(ii)           on
each date not later than 10 Business Days following the filing of any state or
local tax return that relates to Allocable State Taxes, the State Tax
Distribution Amount;

(iii)          to
the Collateral Trustee for the payment of all amounts due to the Collateral
Trustee under the terms of the Security Documents, including reasonable legal
fees, costs, and other liabilities of any kind incurred by the Collateral
Trustee in connection with the Security Documents, Collateral Trustee’s Fees
(as defined in the Collateral Trust Agreement), and payments to or incurred by
any Agent (as defined in the Collateral Trust Agreement), and including
reimbursement obligations to Secured Counterparties that have made advance
payments to the Collateral Trustee for payment of the foregoing;

(iv)          (A)
to the Accepted Counterparties for payment of all amounts then due and payable
under the Power and Hedging Contracts (including the MLCI/REPS ISDA), (B) to
third party service and goods providers (other than any Replacement Sleeve
Provider or Replacement Working Capital Facility Provider), (C) to other
holders of Permitted Debt for payment of all amounts then due and payable with
respect thereto (other than any Replacement Sleeve Provider or Replacement
Working Capital Facility Provider), (D) to Governmental Customers, including
ERCOT and the GLO, for all amounts due and payable to Governmental Customers in
connection with the Retail

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Energy
Business, (E) to energy brokers engaged for all amounts due and payable to such
brokers in the ordinary course of the Retail Energy Business, (F) to REES under
the REES/REPS Power Purchase Agreement, (G) to RES under the RES/REPS Power
Purchase Agreement , (H) to RES and RESC for payment of all amounts then due
and payable under the Channelview Services Agreement not paid under paragraph
(i) above and (I) to Accepted Exchanges for payments of amounts then due and
payable in connection with EFS Transactions, EOO Transactions and ICE Block
Transactions, together with retention in the Collateral Accounts in an amount
equal to all funds received from transactions on an Accepted Exchange which
will be required to be returned to the Accepted Exchange to complete
transactions contemplated in Section 2.03 until such transactions are
complete;

(v)           (A)
to the ML Guarantee Provider and Sleeve Provider for payment of interest and
principal and other Working Capital Obligations then due and payable under the
Working Capital Facility and (B) to the extent applicable, to any Replacement
Working Capital Provider for payment of interest and principal and other
obligations under the related Replacement Working Capital Facility in
accordance with the terms hereof then due and payable;

(vi)          (A) to
the ML Guarantee Provider and Sleeve Provider for payment of the Reimbursement
Obligations and other Credit Sleeve Obligations then due and payable under this
Agreement, including, on each Monthly Payment Date, the Monthly Sleeve Fees,
(B) to the extent applicable, to any Replacement Sleeve Provider for payment of
any credit support, reimbursement, or related obligations provided by such
Replacement Sleeve Provider in accordance with the terms hereof then due and
payable, and (C) to retention in the Collateral Accounts in an amount equal to
all Deferred Reimbursement Obligations and interest related thereto; provided
that, in the event that funds in the Collateral Accounts are insufficient to
completely satisfy the payment obligations described in this clause to Sleeve
Provider and any Replacement Sleeve Provider, such funds shall be applied
equally and ratably between the Sleeve Provider and any Replacement Sleeve
Provider in proportion to the respective amounts then due and payable to them;

(vii)         to
Reliant Parent for payment of all amounts due under the Reliant Parent Services
Agreement;

(viii)        (A)
to the ML Guarantee Provider for pre-payment of all amounts outstanding under
the Working Capital Facility and (B) to the extent applicable, to any
Replacement Working Capital Facility Provider for pre-payment of all amounts
outstanding under the related Replacement Working Capital Facility; and

(ix)           if
all amounts owing under clauses (i) through (viii) above have been paid, no
Default with respect to a Reliant Event of Default has occurred and is
continuing and no Default with respect to a Reliant Event of Default would
occur as a result of such payment, any remainder, to the Reliant Retail
Obligors, for application to any purpose determined by the Reliant Retail
Obligors that is not prohibited hereunder, including the making of Restricted
Payments to the extent not restricted hereunder;

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provided, however,
that during the existence of any Reliant Event of Default, the Reliant Retail
Obligors shall distribute, or shall instruct the Collateral Trustee to
distribute, funds in the Collateral Accounts from time to time as directed by
the Sleeve Provider.

In addition, in the event
that, on any Business Day (each such Business Day, an “Estimation Day”),
after giving effect to the application of funds in the Collateral Accounts in
accordance with Sections 6.11(c)(i) through 6.11(c)(viii) on such Estimation
Day, (a) no Loans are outstanding and (b) RERH Holdings reasonably anticipates
that any physical power settlement payments and financial settlement payments
under Power and Hedging Contracts that will be due and owing during the
Estimation Period beginning on such Estimation Day (such amounts being referred
to as the “Estimated Obligations”) will exceed the sum of (i) funds in
the Collateral Accounts on such Estimation Day and (ii) the amount of the
Commitment reasonably expected to be available to RERH Holdings on each date on
which such Estimated Obligations are due and payable (“Available Commitment”),
then, on such Estimation Day, RERH Holdings and its Subsidiaries shall retain
in the Collateral Accounts to the extent available an amount of Available Cash
Flow that, when taken together with the funds already in the Collateral
Accounts on such Estimation Day, the Available Cash Flow that RERH Holdings
reasonably expects will be retained in the Collateral Accounts later in such
Estimation Period, and the Available Commitment, would be sufficient to pay
such Estimated Obligations on the day they are due, before otherwise applying
Available Cash Flow in accordance with Section 6.11(c)(ix).

6.12         Further
Assurances.  Promptly upon request by
the Sleeve Provider, (a) correct any material defect or error that may be
discovered in any Transaction Document or in the execution, acknowledgment,
filing or recordation thereof, and (b) do, execute, acknowledge, deliver,
record, re-record, file, re-file, register and re-register any and all such
further acts, deeds, certificates, assurances and other instruments as the
Sleeve Provider may reasonably require from time to time in order to (i) carry
out more effectively the purposes of the Transaction Documents, (ii) to the
fullest extent permitted by applicable law, subject any Reliant Retail Obligors’
properties, assets, rights or interests to the Liens now or hereafter intended
to be covered by any of the Transaction Documents, (iii) perfect and maintain
the validity, effectiveness and priority of any of the Transaction Documents
and any of the Liens intended to be created thereunder and (iv) assure, convey,
grant, assign, transfer, preserve, protect and confirm more effectively unto
the Merrill Parties the rights granted or now or hereafter intended to be
granted to the Merrill Parties under any Transaction Document or under any
other instrument executed in connection with any Transaction Document to which
RERH Holdings or any of its Subsidiaries is or is to be a party.

6.13         Risk
Management Policy

Shall
take the following actions with respect to the Risk Management Policy:

(a)           The
Reliant Retail Obligors shall maintain in effect the Risk Management
Policy.  The Reliant Retail Obligors may
waive the Risk Management Policy with respect to individual actions, provided that any waiver of the Risk Management Policy in respect
of a particular action requiring the approval of the Chief Risk Officer, the
Chief Executive Officer or the Board of Directors or any committee thereof
shall require prior written approval of the Sleeve Provider, which shall not be
unreasonably withheld or delayed, and shall be responded to

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in any event
within three Business Days.  The Reliant
Retail Obligors may amend or otherwise modify in general the Risk Management
Policy, provided that REPS shall promptly
provide to the Sleeve Provider copies of final requests for general amendments
or modifications to the Risk Management Policy promptly after providing such
final requests to senior management, and before becoming effective such
amendments or modifications shall be approved by the Sleeve Provider, which
approval shall not be unreasonably withheld or delayed, and shall be responded
to in any event within three Business Days.

(b)           The
Reliant Retail Obligors shall comply with the Risk Management Policy to the
extent required by the following:

(i)            If
there shall occur any violation of any Risk Limit under, and as defined in, the
Risk Management Policy, the Reliant Retail Obligors shall have three Business
Days to cure the same after notice thereof from the Sleeve Provider or any
Responsible Officer or other executive officer of REPS obtaining knowledge of
such occurrence; provided that if at any time the
mark-to-market loss on position(s) in violation of the Risk Limits exceeds
$25,000,000, the Reliant Retail Obligors shall have only one Business Day after
the date of the notice or knowledge to cure the same such that the position(s)
in violation do not exceed such threshold (however, if such threshold is
exceeded during the last day of any three Business Day cure period, such three
Business Day cure period shall be extended through the following Business Day
such that the Reliant Retail Obligors shall have the fourth Business Day to
cure such violation).  If cure is not
effected within such three (or four) Business Day period, then as the Sleeve
Provider’s sole remedy with respect to such violation, other than under Section
6.13(b)(ii), the Sleeve Provider shall have the right to enter into hedges
with REPS to effect the cure at prices consistent with the prices the Sleeve
Provider would use in transactions with third parties at the applicable times
and in the applicable volumes.  In
exercising such right, Sleeve Provider will use the same standard of care as
Sleeve Provider uses in conducting transactions to correct risk policy
violations under Sleeve Provider’s risk policies.

(ii)           In
addition to the rights of Sleeve Provider under Section 6.13(b)(i), if
there shall occur any Level III Violation, after providing notice thereof to
Sleeve Provider in accordance with Section 6.13(a), at the Sleeve
Provider’s request the Reliant Retail Obligors will take the following actions:

(A)          Notify
immediately the Chief Executive Officer, Chief Financial Officer, Chief Risk
Officer and Controller of the Level III Violation;

(B)           Present
to the Merrill Parties within five Business Days a Working Plan that has been
approved by the Chief Executive Officer;

(C)           Present
to Merrill Parties within 30 Business Days a Remediation Plan that has been
approved by the Chief Executive Officer. 
The Merrill Parties shall have two Business Days after receipt of such
Remediation Plan to consult with the Reliant Parties and review and agree upon
the same.  If the Merrill Parties and the
Reliant Retail Obligors do not mutually agree on the Remediation Plan at the
end of such two

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Business Day period, then a third-party evaluator
chosen from the list set forth in Schedule 1.01(a) shall be engaged to
mediate promptly the matters in dispute; and

(D)          Submit
the Remediation Plan to the Audit Committee promptly after its determination in
accordance with paragraph (C) above.  If
the Audit Committee does not approve the Remediation Plan within six Business
Days after submission, the Reliant Retail Obligors shall consult with the
Merrill Parties and make reasonable modifications to the Remediation Plan based
upon comments from the Audit Committee, and resubmit the same within ten
Business Days after the end of such six Business Day period.

It shall be a Reliant Event of Default (a “Risk
Management Event of Default”) if the Reliant Retail Obligors (1) do not
comply with the process provided for in Section 6.13(b)(ii)(A) through (D),
and the same is not cured within two Business Days, or (2) if the resubmitted
Remediation Plan described in Section 6.13(b)(ii)(D) above is not
implemented by the Reliant Retail Obligors in all material respects.  A Risk Management Event of Default shall be
the sole Reliant Events of Default or Defaults with respect thereto for any
non-compliance with the Risk Management Policy or breach of Section 6.13(b).

6.14         Employees.

(a)           Have, a chief executive officer, a principal
risk officer, an in-house attorney (or have the same provided for in the
Transition Agreement if then in effect), such positions to be filled when
vacant in accordance with paragraph (b) below, and sufficient employees that,
taken together with the services provided under arm’s length service contracts
(including the Transition Agreement and Reliant Parent Service Agreement, each
if then in effect), RERH Holdings and its Subsidiaries can run the Retail
Energy Business in a manner consistent with the business operations of the
Retail Energy Business as of the Effective Date (taking into account the
Transition Agreement if then in effect).

(b)           Consult with the Merrill Parties prior to
appointing any replacement of the chief executive officer, principal risk
officer or in-house attorney of the Reliant Retail Obligors.

6.15         Information
Technology Systems..  Own or have access to (through arm’s length
service contracts including the IT Service Agreement and the Reliant Parent
Services Agreement if the same are then in effect), at all times, the
Information Technology Systems necessary to run the Retail Energy Business,
including Information Technology Systems providing capabilities consistent with
the arrangements in place for the Retail Energy Business as of the Effective
Date (taking into account the Transition Agreement if then in effect).

6.16         Marks.  Own
or have access to (through arm’s length licenses and other arrangements
including the IP License Agreement and the Reliant Parent Services Agreement if
the same are then in effect), at all times, the Marks necessary to run the
Retail Energy Business using the “Reliant” name consistent with the
arrangements in place for the Retail Energy Business as of the Effective Date
(taking into account the Transition Agreement if then in effect),

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subject
to limitations on the use of such Marks and such name set forth in the IP
License Agreement.

6.17         Reliant
Parent Services Agreement.

(a)           Promptly
upon receipt, furnish to the Sleeve Provider the Corporate Cost Center
Allocation under the Reliant Parent Services Agreement for each Fiscal Quarter
contemplated by Section 5.1(b) of the Reliant Parent Services Agreement,
including the cost center basis for such Corporate Cost Center Allocation as
between the cost centers referred to on Exhibit C to the Reliant Parent
Services Agreement; provided that at the option of REPS, certain of the cost
centers may be reported on a consolidated basis.  The Reliant Retail Obligors shall not approve
any change in the methodology for allocation of the costs and expenses giving
rise to the Corporate Cost Center Allocation referred to on Exhibit B to
the Reliant Parent Services Agreement proposed by RECS without giving 30 days
prior written notice to the Sleeve Provider and, in the event RECS proposes to
change the methodology for allocation of such costs and expenses in a manner
materially adverse to the Reliant Retail Obligors (it being expressly
understood that an increase is not in and of itself “materially adverse”), the
Reliant Retail Obligors shall not approve such change without the approval of
the Sleeve Provider, such approval not to be unreasonably withheld or delayed.

(b)           Consult
with the Sleeve Provider in the event that the Corporate Cost Center Allocation
for any Fiscal Year reflects an increase of more than 5% over the prior Fiscal
Year.  In such case, and to the extent
that third-party suppliers could reasonably be expected to provide all or
certain of the Administrative Services provided under the Reliant Parent
Services Agreement on a more cost effective basis than under the Reliant Parent
Service Agreement (taking into account all relevant factors including
demobilization and transition costs), REPS shall solicit as promptly as
practicable, through an industry standard request for proposals, bids for
comparable administrative services from recognized third-party service
providers for those Administrative Services determined not to be cost effective
under the Reliant Parent Services Agreement. 
Upon receipt and review of the bids procured, REPS shall choose the
service provider best able to provide the administrative services required (and
shall furnish a written assessment of the bids provided to the Sleeve Provider,
together with written support for any bids proposed to be accepted that are not
the lowest cost bids).  REPS shall
promptly deliver the notice required under Section 3.4(b) of the Reliant Parent
Services Agreement with respect to any Administrative Services that are to be
performed by third-party service providers in accordance with the foregoing.

Section 7.               Negative
Covenants.  From the Effective Date
until the Credit Sleeve Termination Date, the Reliant Retail Obligors shall
not, and shall cause their Subsidiaries not to:

7.01         Liens.  Create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind on any asset now owned
or hereafter acquired, except Permitted Liens.

7.02         Investments
and Acquisitions.  Make or hold any Investments, except
for Permitted Investments or make any Acquisition, except for a Permitted
Acquisition.

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7.03         Indebtedness.  Create,
incur, issue, assume, suffer to exist, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to any
Indebtedness, and RERH Holdings shall not permit any of its Subsidiaries to
issue any shares of preferred stock, in each case, other than the following
(collectively, “Permitted Debt”):

(a)           Indebtedness of RERH
Holdings and the Reliant Retail Obligors under this Agreement, if any, and the
Working Capital Facility;

(b)           intercompany
Indebtedness (i) between or
among Reliant Retail Obligors and (ii) Indebtedness of Subsidiaries of RERH
Holdings that are not Reliant Retail Obligors to Reliant Retail Obligors; provided that (A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a Person
other than RERH or any Subsidiary, and (B) any sale or other transfer of any
such Indebtedness to a Person that is not RERH or any Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by RERH
or such Subsidiary, as the case may be, that was not permitted by this clause;

(c)           Indebtedness
of RERH Holdings or any of its Subsidiaries in respect of workers’ compensation
claims, self-insurance obligations, performance and surety bonds provided by
RERH Holdings or a Subsidiary in the ordinary course of business;

(d)           Indebtedness
of RERH Holdings or any of its Subsidiaries arising from the honoring by a bank
or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds, so long as such
Indebtedness is covered within five business days;

(e)           Indebtedness
arising from agreements of RERH Holdings or a Subsidiary providing for
indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or Equity Interests of a
Subsidiary of RERH Holdings; provided that
the maximum aggregate liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds (including non-cash proceeds) actually received
by RERH Holdings and/or such Subsidiary in connection with such disposition;

(f)            Additional
Indebtedness of Subsidiaries of RERH Holdings or purchase money obligations in
an aggregate principal amount (or accreted value, as applicable) at any time
outstanding, not to exceed $10,000,000, the proceeds of which are used for, or
assumed in connection with, general corporate purposes of RERH or any of its
Subsidiaries;

(g)           the
Guarantee by (A) Reliant Retail Obligors of Indebtedness of Reliant Retail
Obligors that is otherwise permitted by this Section 7.03 and (B)
Reliant Retail Obligors of Indebtedness of Subsidiaries of RERH Holdings that
are not Reliant Retail Obligors that is otherwise permitted by this Section
7.03; and

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(h)           Indebtedness
of Reliant Retail Obligors under Replacement Working Capital Facilities or in
favor of Replacement Sleeve Provider.

7.04         Consolidation
and Mergers

(a)           Consolidate
or merge with or into another Person, or sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of
RERH Holdings and its Subsidiaries taken as a whole, in one or more related
transactions, to another Person, except that:

(i)            so
long as no Default with respect to a Reliant Event of Default exists or would
result therefrom, (A) any Subsidiary of RERH Holdings may consolidate or merge
with or into any one or more other Subsidiaries of RERH Holdings; provided that in the event that a Subsidiary of RERH
Holdings is a Reliant Retail Obligor, such Subsidiary may only consolidate or
merge with or into another Subsidiary of RERH Holdings that is a Reliant Retail
Obligor, and (B) any Person may be merged with or into any Subsidiary of RERH
Holdings if the resulting entity is a Wholly Owned Subsidiary of RERH Holdings,
provided that the provisions of Section
6.11(a) are complied with in connection with any such transaction involving
a Subsidiary of RERH Holdings that is not a Reliant Retail Obligor;

(ii)           so
long as no Default with respect to a Reliant Event of Default exists or would
result therefrom, any Subsidiary of RERH Holdings may sell, transfer, assign,
convey, lease or otherwise dispose of any or all of its assets to any one or
more other Subsidiaries of RERH Holdings, provided that the provisions of Section
6.11(a) are complied with in connection with any such transaction involving
a Subsidiary of RERH Holdings that is not a Reliant Retail Obligor;

(b)           In
addition, the Reliant Retail Obligors shall not, nor shall they permit any of
their Subsidiaries to, directly or indirectly, lease all or substantially all
of their properties or assets, in one or more related transactions, to any
Person that is not a Reliant Retail Obligor.

(c)           For
the avoidance of doubt, nothing in this Section 7.04 is intended to
restrict the ability of the Reliant Parent to sell, assign, transfer, convey or
otherwise dispose of its interests in RERH Holdings or prohibit any Asset Sale
permitted by Section 7.05.

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7.05         Asset
Sales.

(a)           Consummate
an Asset Sale unless (i) it receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the assets or Equity Interests
issued or sold or otherwise disposed of (as reasonably determined by such
Reliant Retail Obligor), (ii) at least 90% of the consideration therefor
received in the Asset Sale by RERH Holdings or such Subsidiary is in the form
of cash or Cash Equivalents (which, except for cash used to close out existing
Power and Hedging Contracts related to the supply for the assets sold, shall be
applied to the repayment of any outstanding principal and interest on the
Working Capital Facility and payment of outstanding Reimbursement Obligations
then due, with surplus being deemed and available for application as Available
Cash Flow) and (iii) it has entered into new or closed out existing Power and
Hedging Contracts necessary to close out substantially all of the supply for
the assets sold.  For purposes of this
provision, each of the following shall be deemed to be cash:

(A)          any
liabilities, as shown on RERH Holdings’ most recent consolidated balance sheet,
of the Reliant Retail Obligors (other than contingent liabilities and
liabilities that are by their terms subordinated to the Credit Sleeve
Obligations) that are assumed by the transferee of any such assets pursuant to
a customary novation agreement that releases such Reliant Retail Obligor from
further liability;

(B)           any
securities, notes or other Obligations received by a Reliant Retail Obligor
from such transferee that are converted (by sale or other disposition) by such
Reliant Retail Obligor into cash, to the extent of the cash received in that
conversion within 60 days; and

(C)           reasonable
reserves for indemnity obligations and purchase price adjustments funded in
cash or held back by the purchaser;

(b)           Consummate
any Asset Sale (i) comprised of Residential Mass Customers, (ii) comprised of
beneficial interests in the IP Trust or the IT Trust, (iii) comprised of the
Equity Interests in REPS or all or substantially all of the assets of REPS or
any other Subsidiary of RERH Holdings party to any Power and Hedging Contracts,
or (iv) to the extent a Default with respect to a Reliant Event of Default
would result therefrom.

7.06         Limitation
on Issuances and Sales of Certain Equity Interests.  Transfer, convey, sell, lease
or otherwise dispose of any Equity Interests in any Wholly Owned Subsidiary of
RERH Holdings to any Person (other than RERH or a Wholly Owned Subsidiary of
RERH), unless:

(a)                        such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests in
such Wholly Owned Subsidiary; and

(b)                       such transfer,
conveyance, sale, lease or other disposition is made in accordance with Section
7.05.

In addition, the Reliant Retail Obligors will not permit any Wholly
Owned Subsidiary of RERH Holdings to issue any of its Equity Interests (other
than, if necessary, shares of its Capital Stock

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constituting directors’ qualifying shares) to any Person other than to
RERH Holdings or a Wholly Owned Subsidiary of RERH Holdings.

7.07         Restricted
Payments.  Make any Restricted Payment by way of
the payment of any dividend or distribution in cash or Cash Equivalents on any
Equity Interests of RERH Holdings; or otherwise, make any Restricted Payment
except for the following:

(a)           the
payment of any dividend (or, in the case of any partnership or limited
liability company, any similar distribution) by a Subsidiary of RERH Holdings
to RERH Holdings or another Subsidiary of RERH Holdings;

(b)           so
long as no Default with respect to a Reliant Event of Default has occurred and
is continuing or would be caused thereby, Restricted Payments from Available
Cash Flow; and

(c)           the
transactions with any Person (including any Affiliate of RERH Holdings) set
forth in clauses (b)(i) and (b)(iv) of Section 7.09 and
the funding of any obligations in connection therewith.

7.08         Line
of Business.  Engage, or permit any Subsidiary to engage,
in any business other than the Retail Energy Business, except to such extent as
would not be material to the Reliant Retail Obligors taken as a whole.

7.09         Transactions
with Affiliates.

(a)           Not,
and not permit any of its Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of RERH Holdings (each, an “Affiliate
Transaction”), in each case without the approval of the Sleeve Provider,
which shall not be unreasonably withheld or delayed.

(b)           The
following items shall not be deemed to be Affiliate Transactions and,
therefore, shall not be subject to the provisions of Section 7.09(a):

(i)            any employment
agreement or director’s engagement agreement, employee benefit plan, officer
and director indemnification agreement or any similar arrangement entered into
by RERH Holdings or any of its Subsidiaries in the ordinary course of business
or approved by its Board of Directors;

(ii)           transactions between or
among the Reliant Retail Obligors;

(iii)          payment of reasonable
directors’ fees to Persons who are not otherwise Affiliates of RERH Holdings;

(iv)          any issuance of Equity
Interests of RERH Holdings to Reliant Parent;

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(v)            Restricted Payments
that do not violate the provisions of Section 7.07;

(vi)          loans or advances to
employees in the ordinary course of business not to exceed $2,000,000 in the
aggregate outstanding at any one time;

(vii)         the Reliant Parent
Services Agreement;

(viii)        the REES/REPS Power
Purchase Agreement;

(ix)           the RES/REPS Power
Purchase Agreement;

(x)            the
Channelview Services Agreement;

(xi)           the
IP License Agreement, IP Trust, IP Servicing Agreement, IT Service
Agreement,  IT Trust, and IT Trust
Management Agreement;

(xii)          the
Intercompany Cash Management Agreement;

(xiii)         any
other Transaction Documents, and

(xiv)        subject to Section
7.05(b), any payments to, dispositions of properties or assets to,
purchases of property or assets from, or entering into or making or amending
any transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, an Affiliate of RERH Holdings to the extent any
one such transaction or group of related transactions (A) is on terms that are
no less favorable (as reasonably determined by RERH Holdings) to RERH Holdings
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by RERH Holdings or such Subsidiary with an unrelated
Person and (B) does not involve consideration in excess of $5,000,000 when
taken together with all other transactions pursuant to this clause (xiv).

7.10         Restrictive
Agreements.  Enter into, incur or permit to exist
any agreement or other arrangement that prohibits, restricts or imposes any
condition upon (a) the ability of any of its Subsidiaries to create, incur
or permit to exist any Lien upon any of its property or assets; or (b) the
ability of any of its Subsidiaries to pay dividends or make any other
distributions with respect to any shares of its capital stock or any other
Equity Interest or participation in its profits owned by any Subsidiaries; or
(c) the ability of any of its Subsidiaries to make or repay loans or
advances to it or any of its Subsidiaries or to Guarantee Indebtedness of it or
any of its Subsidiaries or to transfer any of its properties or assets to RERH
Holdings or any other Subsidiary; provided that
the foregoing shall not apply to (i) restrictions and conditions imposed by
Laws or by any Transaction Document, (ii) customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary or
asset pending such sale; provided that
such restrictions and conditions apply only to the Subsidiary or asset that is
to be sold and such sale is permitted hereunder, (iii) restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted
by this Agreement if such restrictions or conditions apply only to the property
or assets securing such Indebtedness, (iv) customary non-assignment provisions
in any

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contract,
easement or lease, and other customary encumbrances and restrictions entered
into in the ordinary course of business, and (v) restrictions or conditions
contained in any trading, netting, operating, construction, service, supply,
purchase, sale or similar agreement to which any Subsidiary is a party and
which is entered into in the ordinary course of business; provided
that such agreement prohibits the encumbrance of solely the property or assets
of such Subsidiary that are the subject of such agreement, the payment rights
arising thereunder and/or the proceeds thereof and not to any other asset or property
of such Subsidiary or the assets or property of any other Subsidiary.

7.11         Modification
of Transaction Documents.  Consent to
any amendment, restatement, supplement, modification, renewal or replacement
of, or enter into any forbearance from exercising any rights with respect to
the terms or provisions contained in, or initiate or acquiesce to the
cancellation, termination or suspension of performance under, any Transaction
Document, in each case, without the prior written consent of the Sleeve Provider,
such consent not to be unreasonably withheld or delayed.

7.12         Fiscal
Year.  Change, permit any of its Subsidiaries
to, directly or indirectly change, its Fiscal Year from a Fiscal Year ending
December 31.

7.13         Specified
Transaction.  Enter into, or permit
any of its Subsidiaries to, directly or indirectly enter into, any Specified
Transaction.

7.14         Services.  Provide, or permit any of its Subsidiaries to
provide, services in retail electric markets except for services described in Schedule
7.13 and services consented to by the Sleeve Provider, which consent will
not be unreasonably withheld or delayed.

7.15         Tax
Agreements.  Enter
into, or permit any of its Subsidiaries to enter into, directly or indirectly,
any tax sharing agreement (a) under which cash payments by any Reliant Retail
Obligor with respect to federal income tax shall be made other than from
Available Cash Flow or other payments permitted by the Tax Subordination
Agreement, (b) under which any Reliant Retail Obligor accrues liabilities that
are not subject to subordination terms substantially similar to the
subordination provisions of the Tax Subordination Agreement, or (c) that does
not contain non-petition language in substantially the form set forth in the
Tax Subordination Agreement.

7.16         Posting
of Collateral.  From and after the Effective Date,
post directly or indirectly any collateral with respect to any power, gas or
other commodity purchases of sales or any hedging transactions with any Person
other than (a) in accordance with Section 2.07 and (b) during the
Transition Period and the Unwind Period, in connection with power, gas or other
commodity purchases of sales or any hedging transactions entered into in
accordance with Section 2.01(b) and, in which event, only with Available
Funds.

7.17         Accepted
Products. Shall not permit the aggregate amount of Accepted Products
(measured in Dollars expended) purchased by RERH Holdings and its Subsidiaries
directly or indirectly from Affiliates of RERH Holdings during any Computation
Period to

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exceed
10% of the aggregate amount of all Accepted Products (measured in Dollars
expended) purchased by RERH Holdings and its Subsidiaries during such
Computation Period.

Section 8.               Events
of Default.

8.01         Reliant
Events of Default.  Each of the following shall constitute
a “Reliant Event of Default”:

(a)           Non-Payment.  Any Reliant Retail Obligor fails to pay
within three Business Days after the same becomes due, any amount payable to
any Merrill Party hereunder or under any other Transaction Document; or

(b)           Specific
Covenants.  Any Reliant Retail
Obligor fails to perform or observe any term, covenant or agreement contained
in Section 6.11 or the separateness covenants in any Retail
Organizational Documents, and such failure continues for five Business Days
after the earlier to occur of (i) such Reliant Retail Obligor’s receiving
notice thereof from Sleeve Provider, or (ii) a Responsible Officer or other
executive officer of a Reliant Retail Obligor obtains knowledge of such
occurrence; or

(c)           Other
Defaults.  Any Reliant Retail Obligor
fails to perform or observe any other covenant or agreement (not specified in
clauses (a) or (b) above or not addressed by clauses (l) or (m) below)
contained in any Transaction Document on its part to be performed or observed
and such failure continues for 15 days after the earlier to occur of (i) such
Reliant Retail Obligor’s receiving notice thereof from Sleeve Provider, or (ii)
a Responsible Officer or other executive officer of such Reliant Retail Obligor
obtains knowledge of such occurrence; or

(d)           Representations
and Warranties.  Any representation,
warranty, certification or statement of fact made or deemed made by or on
behalf of any Reliant Retail Obligor herein, in any other Transaction Document,
or in any document delivered in connection herewith or therewith shall be
incorrect or misleading in any material respect when made or deemed made; or

(e)           Cross-Default.  Any Reliant Retail Obligor, except with
respect to payments described in paragraph (a) above, (i) fails to make any
payment when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee
(other than Indebtedness hereunder) having an aggregate principal amount
(including amounts owing to all creditors under any combined or syndicated
credit arrangement) of more than $1,000,000, or (ii) fails to observe or
perform any other agreement or condition relating to any such Indebtedness or
Guarantee or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event occurs, the effect of which default or
other event is to cause such Indebtedness to be demanded or to become due or to
be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or
an offer to repurchase, prepay, defease or redeem such Indebtedness to be made,
prior to its Stated

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Maturity, or such
Guarantee to become payable or cash collateral in respect thereof to be
demanded; or

(f)            Insolvency
Proceedings, Etc.  Any Reliant Retail
Obligor institutes or consents to the institution of any proceeding under any
Debtor Relief Law, or makes an assignment for the benefit of creditors; or
applies for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for all or
any material part of their respective property; or any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer is
appointed without the application or consent of such Person and the appointment
continues undischarged or unstayed for 60 calendar days; or any proceeding
under any Debtor Relief Law relating to any such Person or to all or any
material part of their respective property is instituted without the consent of
such Person and continues undismissed or unstayed for 60 calendar days, or an
order for relief is entered in any such proceeding; or

(g)           Inability
to Pay Debts; Attachment.  Any
Reliant Retail Obligor becomes unable or admits in writing its inability or
fails generally to pay its debts as they become due; or

(h)           Judgments.  There is entered against any Reliant Retail
Obligor a final judgment or order for the payment of money in an aggregate
amount exceeding $100,000,000 (to the extent not covered by independent
third-party insurance or that has not been paid), and (A) enforcement
proceedings are commenced by any creditor upon such judgment or order, or (B)
within thirty (30) days from the later of (X) the entry of any such judgment or
the date of any such order (as applicable) and (Y) the date any payment is
required to be made on or with respect to any such judgment or order pursuant
to the terms thereof, the same shall not have been paid, discharged or vacated
or, in the case of a judgment, stayed pending appeal, or shall not have been
discharged or vacated within thirty (30) days from the entry of a final order
of affirmance on appeal; or

(i)            Invalidity
of Documents.  (i) Any Security
Document shall for any reason (other than pursuant to the terms thereof or as
expressly permitted thereby) cease to create a valid and perfected first
priority Lien (subject to Permitted Liens) on and security interest in the
Collateral purported to be covered thereby; provided that
no such defects pursuant to this clause with respect to a Lien granted or
purported to be granted by any of the Transaction Documents shall give rise to
a Reliant Event of Default under this clause unless such defects shall
adversely affect the aggregate value of the Collateral by an aggregate amount
of $50,000,000 or more; or (ii) any Reliant Retail Obligor shall so assert such
invalidity or lack of perfection or priority; or (iii) at any time after its
execution and delivery and for any reason other than as expressly permitted
hereunder or thereunder or satisfaction in full of all the Credit Sleeve
Obligations thereunder, any other Transaction Document ceases to be in full
force and effect; or any Reliant Retail Obligor or any other Person contests in
any manner the validity or enforceability of any provision of any other
Transaction Document; or any Reliant Retail Obligor denies that it has any or
further liability or obligation under any other Transaction Document, or
purports to revoke, terminate or rescind any provision of any other Transaction
Document; or

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(j) Trigger Event.  After the Effective Date, a Trigger Event
occurs and shall remain uncured until the latest of the following dates: (a)
five Business Days after the occurrence of the Trigger Event, (b) two Business
Days after delivery by the Sleeve Provider to REPS of the Test Results, and (c)
two Business Days after the Sleeve Provider has cured any Computation Failure
Event by delivery by the Sleeve Provider to REPS of the applicable K and VaR
computations (for the purposes of this paragraph, the terms “Computation
Failure Event” and “Test Results” shall have the meanings given to such terms
in Schedule 1.01(c)); or

(k) Breach or
Termination of Indemnity.  Following
the receipt by the Merrill Parties of the indemnity described in Section 9.03(a),
(i) the failure by the Person providing such indemnity to comply with or
perform any agreement or obligation to be complied with or performed by it in
accordance with the agreement providing such indemnity, (ii) the expiration or
termination of such indemnity or the failing or ceasing of the agreement
providing such indemnity to be in full force and effect or (iii) the Person
providing such indemnity disaffirms, disclaims, repudiates or rejects, in whole
or in part, or challenges the validity of, the agreement providing such
indemnity; or

(l)  Data Failure Event of Default.  A Data Failure Event of Default shall occur;
or

(m) Risk Management
Event of Default.  A Risk Management
Event of Default shall occur.

8.02         Sleeve
Provider Events of Default.  Any of the following shall constitute
a “Sleeve Provider Event of Default”:

(a)           Non-Payment.  Any Merrill Party or the Working Capital
Facility Provider fails to pay within three Business Days after the same
becomes due, any amount payable to a Reliant Retail Obligor hereunder or under
any other Transaction Document, including any failure to fund when due under
the Working Capital Facility; or

(b)           Willful
Defaults.  Any Merrill Party fails to
perform or observe any covenant or agreement set forth in Sections 2.01
through 2.05 and such failure continues for ten Business Days after such
Merrill Party receiving written notice thereof from any Reliant Retail Obligor,
which notice makes specific reference to this Section 8.02(b) and
provides reasonably detailed information regarding the facts constituting such
failure; provided that any such failure shall not
fall within the provisions of this Section 8.02(b) in the event that
both:  (i) the covenant or agreement the
Merrill Party failed to perform or observe is a covenant or agreement that
necessarily involves a consent, determination or judgment required to be made
by any Merrill Party or Reliant Retail Obligor in a “reasonable” or “commercially
reasonable” manner, or in “good faith” or with “reasonable discretion” or
without unreasonably withholding any such consent (each, a “Decision”); and
(ii) there is a good faith dispute among the parties as to such Decision; provided further, however, that the foregoing proviso shall
not apply at any time that (1) any Merrill Party is in breach of its
obligations to provide or maintain ML Guarantees or Credit Support Agreements
with two or more Core Accepted Counterparties when required by this Agreement,
or (2) any Merrill Party is in breach of its obligations to post

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collateral to any two or
more Accepted Counterparties when required by the applicable Credit Support
Agreement; or

(c)           Other
Defaults.  Any Merrill Party or the
Working Capital Facility Provider fails to perform or observe any other
covenant or agreement (excluding those specified in clause (a) above or
addressed by clause (i) below, but including those specified under clause (b)
above) contained in any Transaction Document on its part to be performed or
observed and such failure continues for 30 days after the earlier to occur of
(i) the Sleeve Provider receiving notice thereof from any Reliant Retail
Obligor or (ii) a Responsible Officer or other executive officer of Sleeve
Provider obtains knowledge of such occurrence; or

(d)           Representations
and Warranties.  Any representation,
warranty, certification or statement of fact made or deemed made by or on
behalf of any Merrill Party or the Working Capital Facility Provider herein, in
any other Transaction Document, or in any document delivered in connection
herewith or therewith shall be incorrect or misleading in any material respect
when made or deemed made; or

(e)           Cross-Default.  ML&Co. (i) shall default (after giving
effect to all applicable grace periods) in the payment of any Indebtedness or
Guarantee having an aggregate principal amount (including amounts owing to all
creditors under any combined or syndicated credit arrangement) of more than
$100,000,000 and (ii) either (A) at the time of such default (after giving
effect to all applicable grace periods), the final scheduled maturity of such
Indebtedness shall have occurred or (B) the final scheduled maturity of such
Indebtedness shall have been accelerated by the lenders thereunder or the
holders thereof; or

(f)            Credit
Downgrade.  Any senior unsecured,
non-credit enhanced debt of the ML Guarantee Provider shall fail to have an
Investment Grade Rating; or

(g)           Insolvency
Proceedings, Etc.  Either Merrill
Party or the Working Capital Facility Provider institutes or consents to the
institution of any proceeding under any Debtor Relief Law, or makes an
assignment for the benefit of creditors; or applies for or consents to the
appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material part of
their respective property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of such Person and the appointment continues
undischarged or unstayed for 60 calendar days; or any proceeding under any
Debtor Relief Law relating to any such Person or to all or any material part of
their respective property is instituted without the consent of such Person and
continues undismissed or unstayed for 60 calendar days, or an order for relief
is entered in any such proceeding; or

(h)           Inability
to Pay Debts; Attachment.  Either
Merrill Party or the Working Capital Facility Provider becomes unable or admits
in writing its inability or fails generally to pay its debts as they become
due; or

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(i)            Computation
Failure Event of Default.  A
Computation Failure Event of Default shall occur.

Section 9.               Remedies
and Termination.

9.01         Remedies
of Sleeve Provider.  If any Reliant
Event of Default shall have occurred and be continuing, the Sleeve Provider
shall have each of the following rights and remedies:

(a)           the
right to declare an Unwind Start Date;

(b)           the
right to deliver to each Accepted Counterparty notice that all future trades
under an existing Power and Hedging Contract shall not have the benefit of an
ML Guarantee or any Merrill Collateral under such Accepted Counterparty’s Power
and Hedging Contract and related Credit Support Agreement;

(c)           the
right to cause REPS to enter into additional power purchase and hedging
activities that reduce the VaR (and REPS may not enter into any other power
purchase and hedging activities without the Sleeve Provider’s prior written
consent); provided that in exercising such right,
Sleeve Provider will use the same standard of care as Sleeve Provider uses in
conducting transactions to correct risk policy violations under Sleeve Provider’s
risk policies;

(d)           the
right to setoff any amounts owed by any Merrill Party to any Reliant Retail
Obligor under the Transaction Documents, whether such amounts or obligations
are direct or indirect, absolute or contingent, or matured or unmatured,
against any amounts owed by any Reliant Retail Obligor, including Credit Sleeve
Obligations, whether such obligations are direct or indirect, absolute or
contingent, or matured or unmatured;

(e)           the
right of specific performance and injunctive relief to give effect to the terms
and conditions of the Transaction Documents, to the extent permitted by
applicable law, and in connection therewith the Parties acknowledge that the
monetary remedies provided to the Merrill Parties under the Transaction
Documents are insufficient to cover all damages that could be incurred by the
Merrill Parties in connection with such a Reliant Event of Default; and

(f)            any
other rights and remedies available at law or in equity with respect to breach
of contract, subject to the provisions of Section 9.04.

9.02         Remedies
of REPS.

(a)           If
any Sleeve Provider Event of Default shall have occurred and be continuing,
REPS shall have each of the following rights and remedies:

(i)            the
right to declare an Unwind Start Date, without paying any Make-whole Payment
under Section 3.05; and

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(ii)           the
right, without declaring an Unwind Start Date or terminating any commitments of
the Merrill Parties under the Transaction Documents, to cure or cure the
effects of such Sleeve Provider Event of Default.

(b)           If
a Sleeve Provider Event of Default described in Sections 8.02 (b), (g) or
(h) shall have occurred and be continuing, REPS shall have each of the
following additional rights and remedies:

(i)            the
right to suspend all obligations of the Reliant Retail Obligors with respect to
the Monthly Sleeve Fees during the period of such Sleeve Provider Event of
Default, on any ratable basis selected by the Reliant Retail Obligors
reflecting Sleeve Provider failures to comply with Sections 2.01 through
2.05;

(ii)           in
the event that the Unwind Start Date has been declared in accordance with Section
9.02(a)(i) or the Unwind Period has otherwise commenced, the right to
indemnification by the Merrill Parties upon demand for all direct losses,
costs, expenses and damages incurred by the Reliant Retail Obligors in
connection with locating and obtaining a Replacement Sleeve Provider, including
reasonable legal fees and expenses and the excess, if any, of the overall cost to the Reliant Retail
Obligors of the sleeve fees, interest, and other similar costs of obtaining
credit support for the acquisition of Accepted Products and working capital for
the Retail Energy Business from Replacement Sleeve Providers, over the same
costs under the Transaction Documents;

(iii)          in the event that the Unwind Start Date has been declared in accordance
with Section 9.02(a)(i) or the Unwind Period has otherwise commenced,
the right to cause all Secured Obligations of the Merrill Parties under the
Collateral Trust Agreement to become Subordinated Secured Obligations under the
Collateral Trust Agreement;

(iv)          the
right to setoff any amounts owed by any Reliant Retail Obligor to any Merrill
Party under the Transaction Documents, whether such amounts or obligations are
direct or indirect, absolute or contingent, or matured or unmatured, against
any Credit Sleeve Obligations or Reimbursement Obligations, whether such
obligations are direct or indirect, absolute or contingent, or matured or
unmatured;

(v)           the
right of specific performance and injunctive relief to give effect to the terms
and conditions of the Transaction Documents, to the extent permitted by
applicable law, and not to exceed 180 days in duration, and in connection
therewith the Parties acknowledge that the monetary remedies provided to the
Reliant Retail Obligors under the Transaction Documents are insufficient to
cover all damages that could be incurred by the Reliant Retail Obligors in
connection with such a Sleeve Provider Event of Default; and

(vi)          any
other rights and remedies available at law or in equity with respect to breach
of contract, subject to the provisions of Section 9.04.

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9.03         Certain
Intercreditor Agreements.

(a)           Standstill.  Following a Reliant Event of Default, the
Sleeve Provider shall not exercise any of its remedies under Section 9.01
for a 10 Business Day period (the “Restricted Period”) commencing on the
date of such Reliant Event of Default, other than the Sleeve Provider’s rights
under Section 9.01(c).  If the
Merrill Parties receive a full indemnity of their entire exposure under the
Transaction Documents from a Person with a Credit Rating of at least the ML
Equivalent Credit Rating prior to the last day of the Restricted Period, the
Sleeve Provider shall not exercise any of its remedies under Section 9.01
for a period of 90 days (the “Standstill Period”) commencing the date
such indemnity is received, other than the Sleeve Provider’s rights under Section
9.01(c).  For the avoidance of doubt,
the Sleeve Provider may exercise all of its remedies under Section 9.01
if such Default or Event of Default, as applicable, is not cured on or prior to
the last day of either (i) if no indemnity is received on or prior to the last
day of the Restricted Period, the Restricted Period, or (ii) if an indemnity is
received on or prior to the last day of the Restricted Period in accordance
with the prior sentence, the Standstill Period.

(b)           Bank
Cure or Takeout.  If a Standstill
Period shall occur, on or prior to the last day of such Standstill Period, the
Sleeve Provider shall:

(i) upon request from the
Bank Agent on behalf of the Reliant Parent Lenders and as soon as is reasonably
practicable thereafter, provide the Bank Agent with the information described
in clauses (i) through (iii) of Section 7.01(a) of the Collateral Trust
Agreement, solely related to the Merrill Parties;

(ii) permit any Reliant
Parent Lender to cure, in a manner reasonably satisfactory to the Merrill
Parties, the related Default or Event of Default, as applicable, on behalf of
the Reliant Retail Obligors (a “Bank Cure”); and

(iii) permit any Reliant
Parent Lender to cause, in a manner reasonably satisfactory to the Merrill
Parties, the Credit Sleeve Obligations owing to the Merrill Parties to be
terminated and satisfied in full (a “Bank Takeout”), which, for the
avoidance of doubt, may include: the satisfaction, cancellation, return and
reimbursement, as applicable, of all ML Guarantees, all Merrill Collateral and
the Reimbursement Obligations; the termination of all further obligations of
the Merrill Parties in respect of each of the Power and Hedging Contracts,
Credit Support Agreements, the Mirror OTC Contracts; the termination of the
commitment under and the repayment of the Working Capital Obligations; if
applicable, the payment of the Make-whole Payment and any outstanding Monthly
Sleeve Fees; and the repayment of any other amounts owing hereunder to the
Merrill Parties.

(c)           Result
of Bank Cure or Takeout.  Following a
Bank Cure and so long as the indemnity described in paragraph (a) above remains
in full force and effect, the terms of this Agreement shall continue in full
force effect, except that the Monthly Sleeve Fees shall be as set forth on Schedule
3.04.  Following the completion of a
Bank Takeout and upon written confirmation from the Merrill Parties that the
Credit Sleeve Obligations owing to the Merrill

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Parties
have been terminated and satisfied in full, the Liens of the Merrill Parties
under the Transaction Documents shall be released.

9.04         Certain Limitations on Remedies.  FOR BREACH OF ANY PROVISION OF THIS AGREEMENT
FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS
REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE
OBLIGOR’S LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL
OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  IF NO REMEDY OR MEASURE OF DAMAGES IS
EXPRESSLY PROVIDED HEREIN, THE OBLIGOR’S LIABILITY SHALL BE LIMITED TO DIRECT
ACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE
REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  UNLESS EXPRESSLY HEREIN PROVIDED, NO PARTY
SHALL BE LIABLE UNDER THIS AGREEMENT FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY OR INDIRECT DAMAGES, INCLUDING CONSEQUENTIAL LOST PROFITS OR OTHER
CONSEQUENTIAL BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT OR
OTHERWISE.  IT IS THE INTENT OF THE
PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF
DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE
NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT
OR ACTIVE OR PASSIVE.  TO THE EXTENT ANY
DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE
THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE
OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT, AND THE DAMAGES CALCULATED
HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS.

Section 10.             Unwind

10.01       Permitted Activities during Unwind
Period.

(a)           During the Unwind Period, REPS may
exercise one or more of the following rights with respect to any Post-Unwind
Start Date Transactions:

(i)  REPS may terminate Post-Unwind Start Date
Transactions and pay, to the extent such payments do not require application of
funds in violation of this Agreement, applicable settlement payments for the
Post-Unwind Start Date Transactions (in which case, the Liens of the Merrill
Parties under the Collateral Trust Agreement securing the Credit Sleeve
Obligations shall be released on the Credit Sleeve Termination Date, and the
Merrill Parties shall take action under Section 12.04(c) in connection
therewith);

(ii)  REPS may, to the extent such postings do not
require application of funds in violation of this Agreement, post collateral to
cover credit risk for Post-Unwind Start Date Transactions to the Sleeve
Provider or Accepted Counterparties (in which case when such postings have
either replaced or covered all collateral postings by the Merrill Parties under
this Agreement and arrangements acceptable to the Sleeve Provider in its commercially
reasonably discretion for all potential future collateral postings have been

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made in respect of such
Post-Unwind Start Date Transactions, the liens of the Merrill Parties under the
Collateral Trust Agreement securing the Credit Sleeve Obligations shall be
released, and the Merrill Parties shall take action under Section 12.04(c)
in connection therewith); provided that
for such purposes the Sleeve Provider will be deemed to be commercially
reasonable to the extent that it applies standards for collateral postings
comparable to the standards it applies generally in its business to
counterparties with similar credit ratings in comparable transactions;

(iii)  the Reliant Retail Obligors may provide
shared Liens on a pari passu basis (or senior basis to the extent Section
9.02(b)(iii) applies) to any Replacement Sleeve Providers under the terms,
including the sharing provisions, of the Collateral Trust Agreement (in which
case the Merrill Parties shall take action under Section 12.04(b) (or (e),
as applicable), in connection therewith) and the Merrill Parties agree to
negotiate in good faith at the request of REPS with any Replacement Sleeve
Providers to make reasonable adjustments to the terms of the Collateral Trust
Agreement or any requested intercreditor terms in connection therewith;

(iv)  REPS may provide the Sleeve Provider with a
counterparty or counterparties with a ML Equivalent Credit Rating who agree to
take assignment of and assume Reliant Retail’s positions under Post-Unwind
Start Date Transactions, and the Sleeve Provider agrees to negotiate in good
faith with such counterparty or counterparties to establish credit terms under
which REPS positions can be assumed by such counterparties under the standard
credit policies of the Sleeve Provider (in which case, the Liens of the Merrill
Parties under the Collateral Trust Agreement securing the Credit Sleeve
Obligations shall be released following such assumption, and the Merrill
Parties shall take action under Section 12.04(c) in connection
therewith); provided that for such purposes the
Sleeve Provider will be deemed to be acting in good faith to the extent that it
applies standards for credit terms comparable to the standards it applies
generally in its business to counterparties with similar credit ratings in
comparable transactions; and

(v)  REPS may provide the Sleeve Provider with a
counterparty or counterparties with a ML Equivalent Credit Rating, who agree to
take assignment of and assume or replace the ML Guarantees and Credit Support
Agreements with respect to the Post-Unwind Start Date Transactions, and the
Sleeve Provider agrees to negotiate in good faith with such counterparty or
counterparties to effect such an assignment and assumption or replacement (in
which case, the Liens of the Merrill Parties under the Collateral Trust
Agreement securing the Credit Sleeve Obligations shall be released following
such assignment and assumption or replacement, and the Merrill Parties shall
take action under Section 12.04(c) in connection therewith); provided that for such purposes the Sleeve Provider will be
deemed to be acting in good faith to the extent that it applies standards for
assignments and assumptions comparable to the standards it applies generally in
its business to counterparties with similar credit ratings in comparable
transactions.

(b)           At any time and from time to time in
connection with such process, the Merrill Parties and shall promptly execute
and deliver any and all further agreements and documents and take such other
actions as REPS may reasonably request to fully implement the intent of the
foregoing provisions in this Section 10.01.

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Section 11.             Reimbursement
Guaranty by Other Reliant Retail Parties 

11.01       Reimbursement Guaranty of the
Obligations.  Subject to the
provisions of Section 11.02, the Reimbursement Guarantors jointly and
severally hereby irrevocably and unconditionally guaranty to the Merrill
Parties (i) the due and punctual payment in full of all Reimbursement
Obligations and all other amounts payable by REPS to the Merrill Parties under
the Transaction Documents when the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section
362(a)) and (ii) the performance of all other obligations of REPS hereunder
(collectively, the “Guaranteed Obligations”).

11.02       Payment by Guarantors.  The Reimbursement Guarantors hereby jointly
and severally agree, in furtherance of the foregoing and not in limitation of
any other right which any Merrill Party may have at law or in equity against
any Reimbursement Guarantor by virtue hereof, that upon the failure of REPS to
pay any of the Guaranteed Obligations when and as the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. Section 362(a)), the Reimbursement Guarantors will upon demand pay, or
cause to be paid, in accordance with the terms of this Agreement, to the
Merrill Parties, an amount equal to the sum of the unpaid principal amount of
all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest
on such Guaranteed Obligations (including interest which, but for REPS’s
becoming the subject of a case under the Bankruptcy Code, would have accrued on
such Guaranteed Obligations, whether or not a claim is allowed against REPS for
such interest in the related bankruptcy case) and all other Guaranteed
Obligations then owed to the Merrill Parties as aforesaid.

11.03       Liability of Reimbursement Guarantors
Absolute.  Each Reimbursement
Guarantor agrees that its obligations hereunder are irrevocable, absolute,
independent and unconditional and shall not be affected by any circumstance
which constitutes a legal or equitable discharge of a guarantor or surety other
than payment in full of the Guaranteed Obligations.  In furtherance of the foregoing and without
limiting the generality thereof, each Reimbursement Guarantor agrees as
follows:

(a)  this Reimbursement Guaranty is a guaranty of
payment when due and not of collectability. 
This Reimbursement Guaranty is a primary obligation of each
Reimbursement Guarantor and not merely a contract of surety;

(b)  the obligations of each Reimbursement
Guarantor hereunder are independent of the obligations of REPS and the
obligations of any other guarantor (including any other Reimbursement
Guarantor) of the obligations of REPS, and a separate action or actions may be
brought and prosecuted against such Reimbursement Guarantor whether or not any
action is brought against REPS or any of such other guarantors and whether or
not REPS is joined in any such action or actions;

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(c)  payment by any Reimbursement Guarantor of a
portion, but not all, of the Guaranteed Obligations shall in no way limit,
affect, modify or abridge any Reimbursement Guarantor’s liability for any
portion of the Guaranteed Obligations which has not been paid; and without
limiting the generality of the foregoing, if the Merrill Parties is awarded a
judgment in any suit brought to enforce any Reimbursement Guarantor’s covenant
to pay a portion of the Guaranteed Obligations, such judgment shall not be
deemed to release such Reimbursement Guarantor from its covenant to pay the
portion of the Guaranteed Obligations that is not the subject of such suit, and
such judgment shall not, except to the extent satisfied by such Reimbursement
Guarantor, limit, affect, modify or abridge any other Reimbursement Guarantor’s
liability hereunder in respect of the Guaranteed Obligations;

(d)  any Merrill Party, upon such terms as it
deems appropriate, without notice or demand and without affecting the validity
or enforceability hereof or giving rise to any reduction, limitation,
impairment, discharge or termination of any Reimbursement Guarantor’s liability
hereunder, from time to time may (i) renew, extend, accelerate, increase the
rate of interest on, or otherwise change the time, place, manner or terms of
payment of the Guaranteed Obligations; (ii) settle, compromise, release or
discharge, or accept or refuse any offer of performance with respect to, or
substitutions for, the Guaranteed Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guaranteed
Obligations and take and hold security for the payment hereof or the Guaranteed
Obligations; (iv) release, surrender, exchange, substitute, compromise, settle,
rescind, waive, alter, subordinate or modify, with or without consideration,
any security for payment of the Guaranteed Obligations, any other guaranties of
the Guaranteed Obligations, or any other obligation of any Person (including
any other Reimbursement Guarantor) with respect to the Guaranteed Obligations;
(v) enforce and apply any security now or hereafter held by or for the benefit
of such Merrill Party in respect hereof or the Guaranteed Obligations and
direct the order or manner of sale thereof, or exercise any other right or
remedy that such Merrill Party may have against any such security, in each case
as such Merrill Party in its discretion may determine consistent herewith or
any applicable security agreement, including foreclosure on any such security
pursuant to one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable, and even though such action
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of any Reimbursement Guarantor against REPS or any
security for the Guaranteed Obligations; and (vi) exercise any other rights
available to it under the Transaction Documents; and

(e)  this Reimbursement Guaranty and the
obligations of the Reimbursement Guarantors hereunder shall be valid and
enforceable and shall not be subject to any reduction, limitation, impairment,
discharge or termination for any reason (other than payment in full of the
Guaranteed Obligations), including the occurrence of any of the following,
whether or not any Reimbursement Guarantor shall have had notice or knowledge
of any of them: (i) any failure or omission to assert or enforce or agreement
or election not to assert or enforce, or the stay or enjoining, by order of
court, by operation of law or otherwise, of the exercise or enforcement of, any
claim or demand or any right,

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power or remedy (whether arising under the Transaction
Documents, at law, in equity or otherwise) with respect to the Guaranteed
Obligations or any agreement relating thereto, or with respect to any other
guaranty of or security for the payment of the Guaranteed Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to departure
from, any of the terms or provisions (including provisions relating to events
of default) hereof, any of the other Transaction Documents or any agreement or
instrument executed pursuant thereto, or of any other guaranty or security for
the Guaranteed Obligations, in each case whether or not in accordance with the
terms hereof or such Transaction Document or any agreement relating to such
other guaranty or security; (iii) the Guaranteed Obligations, or any agreement
relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect; (iv) any Merrill Party’s consent to the change,
reorganization or termination of the corporate structure or existence of REPS
or any of its Subsidiaries and to any corresponding restructuring of the
Guaranteed Obligations; (v) any failure to perfect or continue perfection of a
security interest in any collateral which secures any of the Guaranteed
Obligations; and (vi) any other act or thing or omission, or delay to do any
other act or thing, which may or might in any manner or to any extent vary the
risk of any Reimbursement Guarantor as an obligor in respect of the Guaranteed
Obligations.

11.04       Waivers by Reimbursement Guarantors.  Each Reimbursement Guarantor hereby waives,
for the benefit of the Merrill Parties: (a) any right to require any Merrill
Party, as a condition of payment or performance by such Reimbursement
Guarantor, to (i) proceed against REPS, any other guarantor (including any
other Reimbursement Guarantor) of the Guaranteed Obligations or any other
Person, (ii) proceed against or exhaust any security held from REPS, any such
other guarantor or any other Person, (iii) proceed against or have resort to
any balance of any Collateral Account or credit on the books of any Merrill
Party in favor of REPS or any other Person, or (iv) pursue any other remedy in
the power of any Merrill Party whatsoever; (b) any defense arising by reason of
the incapacity, lack of authority or any disability of REPS or any other
Reimbursement Guarantor including any defense based on or arising out of the
lack of validity or the unenforceability of the Guaranteed Obligations or any
agreement or instrument relating thereto; (c) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal; (d) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms hereof, to the extent the same
may be waived, (ii) the benefit of any statute of limitations affecting such
Reimbursement Guarantor’s liability hereunder or the enforcement hereof, and
(iii) promptness, diligence and any requirement that any Merrill Party protect,
secure, perfect or insure any security interest or lien or any property subject
thereto; (e) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
hereof, notices of default hereunder or under any agreement or instrument
related thereto, notices of any renewal, extension or modification of the
Guaranteed Obligations or any agreement related thereto, notices of any
extension of credit to REPS and notices of any of the matters referred to in Section
11.04; and (f) any other defenses or benefits that may be derived from or
afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms hereof.

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11.05       Reimbursement Guarantors’ Rights of
Subrogation, Contribution, etc. 
Until the Guaranteed Obligations shall have been indefeasibly paid in
full, each Reimbursement Guarantor hereby agrees not to exercise any claim,
right or remedy, direct or indirect, that such Reimbursement Guarantor now has
or may hereafter have against REPS or any other Reimbursement Guarantor or any
of its assets in connection with this Reimbursement Guaranty or the performance
by such Reimbursement Guarantor of its obligations hereunder, in each case
whether such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise and including (a) any right of
subrogation, reimbursement or indemnification that such Reimbursement Guarantor
now has or may hereafter have against REPS with respect to the Guaranteed
Obligations, (b) any right to enforce, or to participate in, any claim, right
or remedy that any Merrill Party now has or may hereafter have against REPS,
and (c) any benefit of, and any right to participate in, any collateral or
security now or hereafter held by any Merrill Party.  In addition, until the Guaranteed Obligations
shall have been indefeasibly paid in full, each Reimbursement Guarantor shall
withhold exercise of any right of contribution such Reimbursement Guarantor may
have against any other guarantor (including any other Reimbursement Guarantor)
of the Guaranteed Obligations, including any such right of contribution as
contemplated by Section 11.02. 
Each Reimbursement Guarantor further agrees that, to the extent the
agreement to withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification such Reimbursement Guarantor may
have against REPS or against any collateral or security, and any rights of
contribution such Reimbursement Guarantor may have against any such other
guarantor, shall be junior and subordinate to any rights any Merrill Party may
have against REPS, to all right, title and interest any Merrill Party may have
in any such collateral or security, and to any right any Merrill Party may have
against such other guarantor.  If any
amount shall be paid to any Reimbursement Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guaranteed Obligations shall not have been finally and indefeasibly
paid in full, such amount shall be held in trust for the Merrill Parties and
shall forthwith be paid over to the Merrill Parties to be credited and applied
against the Guaranteed Obligations, whether matured or unmatured, in accordance
with the terms hereof.

11.06       Subordination of Other Obligations.  Any Indebtedness of REPS or any Reimbursement
Guarantor now or hereafter held by any Reimbursement Guarantor (the “Obligee
Guarantor”) is hereby subordinated in right of payment to the Guaranteed
Obligations during the existence of a Reliant Event of Default, and any such
indebtedness collected or received by the Obligee Guarantor during the
existence of a Reliant Event of Default shall be held in trust for the Merrill
Parties and shall forthwith be paid over to the Merrill Parties to be credited
and applied against the Guaranteed Obligations but without affecting, impairing
or limiting in any manner the liability of the Obligee Guarantor under any
other provision hereof.

11.07       Continuing Reimbursement Guaranty.  This Reimbursement Guaranty is a continuing
guaranty and shall remain in effect until all of the Guaranteed Obligations
shall have been indefeasibly paid in full. 
Each Reimbursement Guarantor hereby irrevocably waives any right to
revoke this Reimbursement Guaranty as to future transactions giving rise to any
Guaranteed Obligations.

 86
 

 

11.08       Authority of Reimbursement Guarantors
or REPS.  It is not necessary for any
Merrill Party to inquire into the capacity or powers of any Reimbursement
Guarantor or REPS or the officers, directors or any agents acting or purporting
to act on behalf of any of them.

11.09       Financial Condition of REPS.  Any Reimbursement Guarantee may be made to
REPS or continued from time to time, without notice to or authorization from
any Reimbursement Guarantor regardless of the financial or other condition of
REPS at the time of any such grant or continuation.  No Merrill Party shall have any obligation to
disclose or discuss with any Reimbursement Guarantor its assessment, or any
Reimbursement Guarantor’s assessment, of the financial condition of REPS.  Each Reimbursement Guarantor has adequate
means to obtain information from REPS on a continuing basis concerning the
financial condition of REPS and its ability to perform its obligations under
the Transaction Documents, and each Reimbursement Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
REPS and of all circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations.  Each Reimbursement
Guarantor hereby waives and relinquishes any duty on the part of any Merrill
Party to disclose any matter, fact or thing relating to the business,
operations or conditions of REPS now known or hereafter known by any Merrill
Party.

11.10       Bankruptcy, etc.

(a)  So long as any Guaranteed Obligations remain
outstanding, no Reimbursement Guarantor shall, without the prior written
consent of Merrill Parties acting pursuant to the instructions of Requisite
Lenders, commence or join with any other Person in commencing any bankruptcy,
reorganization or insolvency case or proceeding of or against REPS or any other
Reimbursement Guarantor or admit in writing or in any legal proceeding that it
is unable to pay its debts as they become due. 
The obligations of Reimbursement Guarantors hereunder shall not be
reduced, limited, impaired, discharged, deferred, suspended or terminated by
any case or proceeding, voluntary or involuntary, involving the bankruptcy,
insolvency, receivership, reorganization, liquidation or arrangement of REPS or
any other Reimbursement Guarantor or by any defense which REPS or any other
Reimbursement Guarantor may have by reason of the order, decree or decision of
any court or administrative body resulting from any such proceeding.

(b) 
Each Reimbursement Guarantor acknowledges and agrees that any interest
on any portion of the Guaranteed Obligations which accrues after the
commencement of any case or proceeding referred to in clause (a) above (or, if
interest on any portion of the Guaranteed Obligations ceases to accrue by
operation of law by reason of the commencement of such case or proceeding, such
interest as would have accrued on such portion of the Guaranteed Obligations if
such case or proceeding had not been commenced) shall be included in the
Guaranteed Obligations because it is the intention of Reimbursement Guarantors
and Merrill Parties that the Guaranteed Obligations which are guaranteed by
Reimbursement Guarantors pursuant hereto should be determined without regard to
any rule of law or order which may relieve REPS of any portion of such
Guaranteed Obligations.  Reimbursement
Guarantors will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to pay the
Merrill Parties, or allow the claim of the Merrill Parties in respect of, any
such interest accruing after the date on which such case or proceeding is
commenced.

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(c)  In the event that all or any portion of the
Guaranteed Obligations are paid by REPS, the obligations of Reimbursement
Guarantors hereunder shall continue and remain full force and effect or be
reinstated, as the case may be, in the event that all or any part of such
payment(s) are rescinded or recovered directly or indirectly from any Merrill
Party as a preference, fraudulent transfer or otherwise, and any such payments
which are so rescinded or recovered shall constitute Guaranteed Obligations for
all purposes hereunder.

Section 12.             Miscellaneous.

12.01       Notices.  All notices and other communications provided
for herein shall be in writing, including telecopy and electronic mail, and
shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy or other means of electronic transmission
approved in advance by the recipient party, as follows:

(a)           if to the REPS:

RELIANT ENERGY POWER SUPPLY, LLC

1000 Main Street

Houston, Texas 
77002

Attention: 
Daniel N. Hannon

Telephone No.: 
(713) 497-6149

Telecopy No.:  (713)
497-0881

E-Mail:  DHannon@reliant.com

With a copy to

RELIANT ENERGY POWER SUPPLY, LLC

1000 Main Street

Houston, Texas 
77002

Attention: 
Andrew C. Johannesen

Telephone No.: 
(713) 497-6417

Telecopy No.:  (713)
497-9289

E-Mail:  AJohannesen@reliant.com

and

RELIANT ENERGY POWER SUPPLY, LLC

1000 Main Street

Houston, Texas 
77002

Attention: 
Michael L. Jines

Telephone No.: 
(713) 497-7465

Telecopy No.:  (713)-497-0140

E-Mail:  MJines@reliant.com

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(b)           if
to the Sleeve Provider:

MERRILL
LYNCH COMMODITIES, INC.

20
East Greenway Plaza

Suite
700

Houston,
Texas  77046

Attention:  Legal Department

Telephone
No.:  (713) 544-5263

Telecopy No.:  (713) 544-5551

E-Mail:  steve_ballard@ml.com

(c)           if to the ML Guarantee Provider:

MERRILL
LYNCH & CO., INC.

222
Broadway

17th Floor

New
York, New York  10038

Attention:  Office of General Counsel

Telephone
No.:  (212) 670-0434

Telecopy No.:  (212) 670-4703

E-Mail:  cara_londin@ml.com

Any Party hereto may
change its address, telecopy number or e-mail address for notices and other
communications hereunder by notice to the other Party hereto.  All notices and other communications given to
any Party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.

12.02       Confidentiality; Limitation on Use of
Information.

(a)           Any
information made available by one Party to another Party with respect to this
Agreement is confidential and shall not be discussed with or disclosed to any
third party, except for such information (i) as may become generally available
to the public other than as a result of a violation of this Agreement, (ii) as
may be required or appropriate in response to any summons, subpoena, or
otherwise in connection with any litigation or to comply with any applicable
law, order, regulation, or ruling or to the extent requested by any regulatory
authority, (iii) which becomes available to a Party on a non-confidential basis
from a source other than the other Party, (iv) as may be furnished to any
person or entity (including that Party’s auditors, attorneys, advisors, or
financial institutions) with which the Party has a written agreement or which
are otherwise required to keep the information that is disclosed in confidence,
(v) relating to the U.S. Federal income tax treatment and tax structure of the
transactions contemplated by this Agreement, including all relevant materials
relating to such tax treatment and tax structure (except where confidentiality
is reasonably necessary to comply with the securities laws) or (vi) to the extent
required by Section 7.01 of the Collateral Trust Agreement.

(b)           In addition to the confidentiality
restrictions with respect to third parties in paragraph (a) above, the Merrill
Parties agree that:

 89
 

 

(i)            the confidential information of the
Reliant Retail Obligors will not be used by the Merrill Parties except for
determining compliance with, and performance under, the Transaction Documents;
and

(ii)           With respect to the information
provided to the Merrill Parties pursuant to Schedule 1.01(c) or
otherwise relating to the
transactions or market positions of the Reliant Retail Obligors, access
to such information will be limited to the management and credit personnel
listed on Exhibit I1 and their successors in function with respect to
this Agreement and the management and credit personnel of the Merrill Parties
that are described in any updates to such Exhibit provided by the Sleeve
Provider from time to time for such purposes, subject to the approval of REPS,
which shall not be unreasonably withheld or delayed; provided
that no such personnel shall be engaged in placing trades in the wholesale
electricity or natural gas markets except under the Transaction Documents.

(c)           In addition to the confidentiality
restrictions with respect to third parties in paragraph (a) above, the Reliant
Retail Obligors agree that:

(i)            the confidential information of the
Merrill Parties will not be used by the Reliant Retail Obligors except for
determining compliance with, and performance under, the Transaction Documents;
and

(ii)           With respect to the information
provided to the Reliant Retail Obligors pursuant to Schedule 1.01(c) or
otherwise relating to the
transactions, market positions or proprietary commodity curves of the Merrill
Parties, access to such information will be limited to the management
and credit personnel listed on Exhibit I2 and their successors in
function with respect to this Agreement and the management and credit personnel
of Reliant Retail Obligors that are described in any updates to such Exhibit
provided by the Sleeve Provider from time to time for such purposes, subject to
the approval of the Sleeve Provider, which shall not be unreasonably withheld
or delayed.

(d)           In connection with the foregoing
provisions of this Section 12.02, (A) the Parties recognize that the
Parties are both engaged in wholesale trading activities in the gas and
electricity markets that may from time to time be adverse, (B) the possession
by the Merrill Parties of the confidential information of the Reliant Retail
Obligors, or the possession by the Reliant Retail Obligors of the confidential
information of the Merrill Parties, in compliance with the foregoing does not
constitute a reason for one Party to limit the ability of the other Party to
engage in such adverse trading activities, and (C) the Parties may in
compliance with the foregoing and for the purposes of the Transaction Documents
discuss the confidential information of the other Parties internally.

12.03       Reliant
Employees.  For a period of three
years from the Execution Date, the Merrill Parties shall not solicit or
otherwise induce any director, officer or key employee of the Reliant Retail
Obligors, or any officer or key employee of the Reliant Parent or its
Subsidiaries that is actively involved in the negotiation or administration of
this Agreement to leave the employ of the Reliant Retail Obligors, the Reliant
Parent or its Subsidiaries; provided

 90
 

 

that
(a) this prohibition shall not apply to (i) directors, officers or key
employees of the Reliant Retail Obligors or officers or key employees of the
Reliant Parent or its Subsidiaries who are not full time employees or who are
not actively involved with the Merrill Parties in negotiating on or
administering this Agreement or (ii) officers, directors or key employees of
the Reliant Retail Obligors, the Reliant Parent or its Subsidiaries who respond
to general solicitations or who otherwise independently seek employment without
inducement by any Merrill Party and (b) in the event that (i) the Reliant
Parent or any Subsidiary of the Reliant Parent that provides services to the
Reliant Retail Obligors under the Reliant Parent Services Agreement becomes
subject of a bankruptcy, insolvency or similar proceeding or (ii) the Reliant
Parent Services Agreement is terminated, this prohibition shall not apply with
respect to any such officer or employee of the Reliant Parent or any of its
Subsidiaries who provided services to the Reliant Retail Obligors under the
Reliant Parent Services Agreement.

12.04       Provisions
relating to Collateral Trust Agreement and Reimbursement Guarantee.  The Merrill Parties hereby agree that at the
direction of REPS from time to time and to the extent no Default with respect
to a Reliant Event of Default or Reliant Event of Default exists and no such
Default or Reliant Event of Default would be caused thereby, the Merrill
Parties shall or shall direct the Collateral Trustee, as applicable, to:

(a)           accept additional Collateral in
accordance with Section 2.03 of the Collateral Trust Agreement;

(b)           accept Replacement Sleeve Providers
and Replacement Working Capital Providers and their respective agreements as
additional secured counterparties and secured agreements in accordance with
Section 3.01 and 3.03 of the Collateral Trust Agreement;

(c)           remove the Merrill Parties as secured
counterparties with respect to the Credit Sleeve Obligations in accordance with
Section 3.02 and 3.03 of the Collateral Trust Agreement (A) upon the occurrence
of the Credit Sleeve Termination Date (or, if any Merrill Party is the sole
secured counterparty under the Collateral Trust Agreement upon the occurrence
of the Credit Sleeve Termination Date, at the direction of REPS release all of
the Collateral in accordance with Section 2.07 of the Collateral Trust
Agreement); (B) under the circumstances expressly contemplated by Section
10.01(a)(i), 10.01(a)(ii), 10.01(a)(iv) and 10.01(a)(v) (or, if any Merrill
Party is the sole secured counterparty under the Collateral Trust Agreement at
the time of the occurrence of the events and circumstances set forth in such
Sections, at the direction of REPS release all of the Collateral in accordance
with Section 2.07 of the Collateral Trust Agreement);

(d)           with respect to, and to the extent
of, property constituting Collateral that is, or will be, sold or otherwise
transferred or disposed of in connection with any transaction permitted under
this Agreement, release or confirm the release of such Collateral under
Sections 2.04, 2.05  or 2.06 of the
Collateral Trust Agreement, as applicable; provided that
(i) to the extent that such sale, transfer or other disposition is of all of
the Equity Interests in a Subsidiary, the Merrill Parties shall also instruct
the Collateral Trustee to release all of the assets of such Subsidiary that
constitute Collateral, (ii) to the extent that such sale, transfer or other
disposition is of all or substantially all of the assets of a Subsidiary, the
Merrill Parties shall also instruct the Collateral

 91
 

 

Trustee to release
all of the Equity Interests in such Subsidiary that constitute Collateral and
(iii) make or approve any conforming changes reasonably requested by REPS in
the Security Documents necessary to implement such release in the reasonable
discretion of the Merrill Parties;

(e)           to the extent expressly contemplated
by Section 9.02(b)(iii), cause all Secured Obligations of the Merrill Parties under the
Collateral Trust Agreement to become Subordinated Secured Obligations under the
Collateral Trust Agreement;

(f)            enter into intercreditor agreements
with respect to the Credit  Sleeve
Obligations in accordance with, and to the extent, expressly contemplated by Section
10.01(a)(iii) and Article IX of the Collateral Trust Agreement; and

(g)           amend, restate, supplement, modify,
renew or replace, or forbear from exercising any rights with respect to the
terms or provisions contained in, or cancel, terminate or suspend performance
under, any Security Document, or consent to the taking of any of the foregoing
actions with respect to any other Transaction Document, in each case to the
extent such foregoing action is approved by the Sleeve Provider in accordance
with Section 7.11 hereof.

The Merrill
Parties shall timely execute and deliver, provide, return or otherwise make
available or direct the execution and delivery, provision, return or otherwise
making available of all filings, recordings, notices, and other related
documents and agreements, including releases and notices, directions and other
communications to the Collateral Trustee, reasonably required to implement the
foregoing in accordance with the terms of the foregoing.

12.05       Waiver.  No failure on the part of any Party to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

12.06       Amendments,
Etc..  Except as otherwise expressly
provided in this Agreement, any provision of this Agreement or in any other
Transaction Document between or among any of the Merrill Parties, on one hand,
and any of the Reliant Retail Obligors, on the other hand, may be modified or
supplemented only by an instrument in writing signed by the applicable Parties
thereto.

12.07       Expenses,
Etc.

(a)           REPS
agrees to pay or reimburse the Sleeve Provider for:  (a) all reasonable
out-of-pocket costs and expenses of the Sleeve Provider (including the
reasonable fees and expenses of legal counsel) in connection with (1) any
Default by the Reliant Retail Obligors and any enforcement or collection
proceedings resulting therefrom, including all manner of participation in or
other involvement with (i) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (ii) judicial or
regulatory proceedings and (iii) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction

 92
 

 

contemplated thereby is consummated) and (2) the enforcement of
this Section 12.07; and (b) all transfer, stamp, documentary
or other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Transaction
Documents or any other document referred to herein or therein and all costs,
expenses, taxes, assessments and other charges incurred in connection with any
filing, registration, recording or perfection of any security interest
contemplated by any Security Document or any other document referred to
therein.

(b)           REPS
agrees to reimburse the Merrill Parties for any amounts paid by the Merrill
Parties to cure defaults by REPS or any Other Reliant Retail Obligor under any
Transaction Document or any other document, contract or agreement to which REPS
or such Other Reliant Retail Obligor is a party (such amounts “Deferred Cure
Reimbursement Obligations”). 
Deferred Cure Reimbursement Obligations shall mature and be payable on
the date that the Working Capital Facility matures (whether on the Maturity
Date under, and as defined in, the Working Capital Facility, by acceleration or
otherwise).

12.08       Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns.

12.09       Assignments.  Neither the Reliant Retail Obligors nor the
Merrill Parties may assign any of their rights or obligations hereunder without
the prior written consent of the other Parties hereto.

12.10       Survival.  The obligations of REPS under Section 12.07
and any other provision that expressly provides for survival after termination
shall survive the Credit Sleeve Termination Date.

12.11       Counterparts.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the Parties hereto may execute this Agreement by signing
any such counterpart.

12.12       Governing
Law; Jurisdiction; Etc.

(a)           Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.

(b)           Submission to Jurisdiction.  The Parties hereby submit to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of the Supreme Court of the State of New York sitting in New York
County (including its Appellate Division), and of any other appellate court in
the State of New York (the “New York Courts”), for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby.  Notwithstanding the
nonexclusive submission above:

(A)          With respect to any proceeding
initiated by or on behalf of any Reliant Retail Obligor arising out of or
relating to this Agreement or the transactions contemplated hereby, the Reliant
Retail Obligors agree to bring such proceeding exclusively in the United States
District Court for the Southern District of New York or if

 93
 

 

such
court does not have subject matter jurisdiction in any of the other New York
Courts located in New York, New York, and in such case EACH PARTY HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING;

(B)           With respect to any proceeding
initiated by or on behalf of any Merrill Party arising out of or relating to
this Agreement or the transactions contemplated hereby, which the Merrill
Parties elect to bring in the United States District Court for the Southern
District of New York or if such court does not have subject matter jurisdiction
in any of the other New York Courts located in New York, New York, EACH PARTY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING; and

(C)           With respect to any proceeding
initiated by or on behalf of any Merrill Party arising out of or relating to
this Agreement or the transactions contemplated hereby, which the Merrill
Parties elect to bring in the United States District Court for the Southern
District of Texas (Houston Division) or if such court does not have subject
matter jurisdiction in any of the other Texas Courts located in Houston, Texas,
the Reliant Retail Obligors expressly reserve their rights to trial by jury.

(c)           Waiver of Venue.  Each Party hereby irrevocably waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.

(d)           Service of Process.  Each Party to this Agreement irrevocably
consents to service of process in the manner provided for notices in Section 12.01.  Nothing in this Agreement will affect the
right of any Party to this Agreement to serve process in any other manner
permitted by law.

12.13       Certain
Dispute Resolution Procedures.  If a
Party (a “Disputing Party”) disputes any Market Information forming a
component used in a calculation under Sections 2.02(a)(v)(2), (3), and (4),
then (i) the Disputing Party will notify the other Party not later than the
close of business on the Business Day following the date that Disputing Party
received the other Party’s calculation and such Disputing Party will also
provide its calculation of such amount and the applicable Market Information
used to make such calculation, (ii) the Parties will in good faith consult with
each other in an attempt to resolve the dispute and (iii) if the Parties fail
to resolve the dispute by the third (3rd) Business Day following the date the
notice of dispute was delivered, then the Calculation Agent will recalculate the
applicable calculation by: (A) utilizing any Market Information that the
Parties have agreed are not in dispute; and (B) calculating the component that
is in dispute by seeking four actual quotations at mid market from reference
market makers, and taking the arithmetic average of those obtained; provided that if such number of quotations are not available
for a particular component, then fewer than such number of quotations may be
used for such component; and if no quotations are available for a particular
component, then the Calculation Agent shall use its own calculations for that

 94
 

 

component.  Following a recalculation pursuant to this
Section, the Calculation Agent will notify the Parties of the recalculation of
such amount not later than 12:00 noon CPT on the fifth Business Day following
the date of the notice of dispute was delivered, and the same shall be binding
for the purposes of this Agreement.  The “Calculation
Agent” shall be a third party agreed to by both REPS and the Sleeve
Provider from the list of third parties in Schedule 12.13; provided that if the Parties are unable to promptly agree on
such third party, then the next third party listed on such Schedule who has not
yet served as Calculation Agent shall be the Calculation Agent for such dispute.

12.14       Captions.  The table of contents and captions and
section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Agreement.

12.15       Limitation
on Interest.  Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Reimbursement Obligation, together with all fees, charges and other amounts
which are treated as interest on such Reimbursement Obligation under applicable
law (collectively the “Charges”), shall exceed the maximum lawful rate
(the “Maximum Rate”) which may be contracted for, charged, taken,
received or reserved by the Sleeve Provider in accordance with applicable law,
the rate of interest payable in respect of such Reimbursement Obligations
hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Reimbursement Obligation but
were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to the Sleeve Provider in
respect of other Reimbursement Obligations or periods shall be increased (but
not above the Maximum Rate therefor) until such cumulated amount, together with
interest thereon at the Federal Funds Rate to the date of repayment, shall have
been received by the Sleeve Provider.

12.16       Integration.  This Agreement and the other Transaction
Documents constitute the entire contract among the Parties relating to the
subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.

[signatures
follow]

 95

 

IN WITNESS
WHEREOF, the Parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.

	
  

  	
  RELIANT ENERGY POWER SUPPLY, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lloyd A.
  Whittington

  
	
   

  	
   

  	
  Lloyd A. Whittington

  
	
   

  	
   

  	
  Vice President and Treasurer

  

 

Signature Page to Credit
Sleeve and Reimbursement Agreement

 

 

	
  

  	
  MERRILL PARTIES

  
	
   

  	
   

  	
   

  
	
   

  	
  MERRILL LYNCH COMMODITIES, INC.,

  
	
   

  	
   

  	
  as Sleeve Provider

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Dennis
  Albrecht

  
	
   

  	
  Name:

  	
  Dennis Albrecht

  
	
   

  	
  Title:

  	
  Managing
  Director, COO

  
	
   

  	
   

  	
   

  
	
   

  	
  MERRILL LYNCH
  & CO., INC.,

  
	
   

  	
   

  	
  as ML Guarantee Provider

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Allen G.
  Braithwaite III

  
	
   

  	
  Name:

  	
  Allen G.
  Braithwaite III

  
	
   

  	
  Title:

  	
  Assistant
  Treasurer

  
							

 

Signature Page to Credit
Sleeve and Reimbursement Agreement

 

 

	
  

  	
  OTHER RELIANT
  RETAIL OBLIGORS

  
	
   

  	
   

  	
   

  
	
   

  	
  RERH HOLDINGS,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Daniel N. Hannon

  
	
   

  	
   

  	
  Daniel N. Hannon

  
	
   

  	
   

  	
  Vice President and Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
  RELIANT ENERGY
  RETAIL HOLDINGS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Daniel N. Hannon

  
	
   

  	
   

  	
  Daniel N. Hannon

  
	
   

  	
   

  	
  Vice President and Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
  RELIANT ENERGY RETAIL SERVICES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lloyd A.
  Whittington

  
	
   

  	
   

  	
  Lloyd A. Whittington

  
	
   

  	
   

  	
  Vice President and Treasurer

  
				

 

Signature Page to Credit
Sleeve and Reimbursement AgreementExhibit 10.2

 

WORKING CAPITAL FACILITY

dated as of

September 24, 2006

among

RELIANT ENERGY POWER SUPPLY, LLC

as Borrower

The Guarantors Party Hereto

and

MERRILL LYNCH CAPITAL CORPORATION

as Lender

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  Defined Terms

  	
   

  	
  1

  
	
  SECTION 1.02.

  	
  Classification of
  Loans and Borrowings

  	
   

  	
  6

  
	
  SECTION 1.03.

  	
  Terms Generally

  	
   

  	
  7

  
	
  SECTION 1.04.

  	
  Accounting Terms;
  GAAP

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II The
  Credits

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
  Commitment

  	
   

  	
  7

  
	
  SECTION 2.02.

  	
  Loans and Borrowings

  	
   

  	
  7

  
	
  SECTION 2.03.

  	
  Requests for
  Borrowings; Interest Elections

  	
   

  	
  8

  
	
  SECTION 2.04.

  	
  Funding of Borrowings

  	
   

  	
  9

  
	
  SECTION 2.05.

  	
  Termination or
  Reduction of the Commitment

  	
   

  	
  10

  
	
  SECTION 2.06.

  	
  Repayment of
  Loans; Evidence of Debt

  	
   

  	
  10

  
	
  SECTION 2.07.

  	
  Prepayment of Loans

  	
   

  	
  11

  
	
  SECTION 2.08.

  	
  No Facility Fees

  	
   

  	
  11

  
	
  SECTION 2.09.

  	
  Interest

  	
   

  	
  11

  
	
  SECTION 2.10.

  	
  Increased Costs

  	
   

  	
  12

  
	
  SECTION 2.11.

  	
  Taxes

  	
   

  	
  13

  
	
  SECTION 2.12.

  	
  Payments Generally;
  Pro Rata Treatment; Sharing of Set-offs

  	
   

  	
  14

  
	
  SECTION 2.13

  	
  Illegality

  	
   

  	
  15

  
	
  SECTION 2.14.

  	
  Inability to
  Determine Rates

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III
  Representations and Warranties

  	
   

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV Conditions

  	
   

  	
  16

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  WCF Effective Date

  	
   

  	
  16

  
	
  SECTION 4.02

  	
  Each Credit Event

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V Affirmative
  Covenants

  	
   

  	
  19

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01

  	
  Use of Proceeds

  	
   

  	
  20

  
	
  SECTION 5.02

  	
  Other Affirmative
  Covenants

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI Negative
  Covenants

  	
   

  	
  20

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01

  	
  Financial Covenant

  	
   

  	
  21

  
	
  SECTION 6.02

  	
  Other Negative
  Covenants

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII Events of
  Default

  	
   

  	
  21

  

 i
 

 

	
  

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX Miscellaneous

  	
   

  	
  22

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
  Notices

  	
   

  	
  22

  
	
  SECTION 9.02.

  	
  Waivers; Amendments

  	
   

  	
  24

  
	
  SECTION 9.03.

  	
  Expenses; Indemnity;
  Damage Waiver

  	
   

  	
  24

  
	
  SECTION 9.04.

  	
  Successors and
  Assigns

  	
   

  	
  25

  
	
  SECTION 9.05.

  	
  Survival

  	
   

  	
  27

  
	
  SECTION 9.06.

  	
  Counterparts;
  Integration; Effectiveness

  	
   

  	
  27

  
	
  SECTION 9.07.

  	
  Severability

  	
   

  	
  28

  
	
  SECTION 9.08.

  	
  Right of Setoff

  	
   

  	
  28

  
	
  SECTION 9.09.

  	
  Governing Law;
  Jurisdiction; Consent to Service of Process

  	
   

  	
  28

  
	
  SECTION 9.10.

  	
  Headings

  	
   

  	
  29

  
	
  SECTION 9.11.

  	
  Confidentiality

  	
   

  	
  29

  
	
  SECTION 9.12.

  	
  USA PATRIOT Act

  	
   

  	
  30

  
	
  SECTION 9.13.

  	
  Interest Rate
  Limitation

  	
   

  	
  30

  
	
  SECTION 9.14.

  	
  Provisions Relating
  to the Collateral Trust Agreement, Etc

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X The
  Guaranty

  	
   

  	
  31

  
	
   

  	
   

  	
   

  
	
  SECTION 10.01

  	
  Guaranty of the
  Obligations

  	
   

  	
  31

  
	
  SECTION 10.02

  	
  Payment by Guarantors

  	
   

  	
  32

  
	
  SECTION 10.03

  	
  Liability of
  Guarantors Absolute

  	
   

  	
  32

  
	
  SECTION 10.04

  	
  Waivers By Guarantors

  	
   

  	
  34

  
	
  SECTION 10.05

  	
  Guarantors’ Rights of
  Subrogation, Contribution, etc

  	
   

  	
  34

  
	
  SECTION 10.06

  	
  Subordination of
  Other Obligations

  	
   

  	
  35

  
	
  SECTION 10.07

  	
  Continuing Guarantee

  	
   

  	
  35

  
	
  SECTION 10.08

  	
  Authority of
  Guarantors or the Borrower

  	
   

  	
  36

  
	
  SECTION 10.09

  	
  Financial Condition
  of the Borrower

  	
   

  	
  36

  
	
  SECTION 10.10

  	
  Bankruptcy, etc

  	
   

  	
  36

  

 

EXHIBITS:

	
  Exhibit A

  	
  —

  	
  Form of Assignment and Assumption

  
	
  Exhibit B

  	
  —

  	
  Form of Promissory Note

  
	
  Exhibit C

  	
  —

  	
  Form of Borrowing Request

  
	
  Exhibit D

  	
  —

  	
  Form of Interest Election Request

  
	
  Exhibit E

  	
  —

  	
  Form of WCF Joinder Agreement

  

 

 ii

WORKING CAPITAL FACILITY dated as of September 24, 2006
(this “Agreement”) among RELIANT ENERGY POWER SUPPLY, LLC, a Delaware
limited liability company (the “Borrower” or “REPS”), the
Guarantors party hereto (each a “Guarantor” and together, with any Additional
Guarantors, the “Guarantors”), and MERRILL LYNCH CAPITAL CORPORATION, a
Delaware corporation (the “Lender”).

The Borrower has requested that the Lender provide a
working capital facility to it for the purposes specified hereunder.

The Lender is prepared to extend such credit upon the
terms and conditions hereof, and, accordingly, the parties hereto agree as
follows:

ARTICLE
I

DEFINITIONS

SECTION 1.01. 
Defined Terms.  As used in
this Agreement, the following terms have the meanings specified below (capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in the CSRA):

“ABR”, when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Alternate Base
Rate.

“Additional Guarantor” means (a) RERR as
contemplated by Section 4.01(b) or (b) an additional Guarantor contemplated by
Section 6.11(a) of the CSRA as incorporated by reference in this Agreement pursuant
to Section 5.02.

“Agreement” has the meaning ascribed thereto in
the title paragraph hereto.

“Alternate Base Rate” means, for any day, a
rate per annum equal to the greatest of (a) the Prime Rate in effect on such
day and (b) the Federal Funds Rate in effect on such day plus 1⁄2 of
1%.  Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Rate shall be
effective from and including the effective date of such change in the Prime
Rate or the Federal Funds Rate, respectively. 

“Approved Fund” means any Person (other than a
natural person) that is engaged in making, purchasing, holding or investing in
bank loans and similar extensions of credit in the ordinary course of its
business and that is administered or managed by (a) a Lender, (b) an Affiliate
of a Lender or (c) an entity or an Affiliate of an entity that administers or
manages a Lender.

 

“Assignment and Assumption” means an assignment
and assumption entered into by a Lender and an assignee, and accepted by the Lender,
in the form of Exhibit A or any other form approved by the Lender.

“Availability Period” means the period from and
including the WCF Effective Date to but excluding the earlier of (i) the
Maturity Date and (ii) the date the Commitments are terminated in full in
accordance with the terms of this Agreement.

“Board” means the Board of Governors of the
Federal Reserve System of the United States of America.

“Borrower” means Reliant Energy Power Supply,
LLC, a Delaware limited liability corporation.

“Borrowing” means Loans of the same Type, made,
converted or continued on the same date, as to which a single Interest Period
is in effect.

“Borrowing Request” means a request by the
Borrower for a Borrowing in the form of Exhibit C.

“Business Day” means any day that is not a
Saturday, Sunday or other day on which commercial banks in New York City and
Houston, Texas are authorized or required by law to remain closed; provided
that, when used in connection with a Eurodollar Loan, the term “Business Day”
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.

“Change in Law” means (a) the adoption of any
law, rule or regulation after the date of this Agreement, (b) any change in any
law, rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by
the Lender with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority made or issued after the date of
this Agreement.

“Code” means the Internal Revenue Code of 1986,
as amended from time to time.

“Collateral” has the meaning ascribed thereto
in the CSRA.

“Collateral Trust Agreement” has the meaning
ascribed thereto in the CSRA.

“Collateral Trustee” has the meaning ascribed
thereto in the CSRA.

“Commitment” means, the commitment of the
Lender to make Loans hereunder, in an initial aggregate principal amount of
$300,000,000.

“Consolidated EBITDA”
means, for any Person for any period 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

 2
 

 

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) interest and fees expenses under the
Securitization Facility during such period, plus (e) net unrealized
losses related to trading or non-trading energy derivatives, and minus
(f) 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 EBITDA.  If during any
period for which Consolidated EBITDA is being determined, RERH Holdings or any
Subsidiary shall have (a) made or consummated any Permitted Acquisition, then
Consolidated EBITDA shall be determined on a pro  forma basis for
such period as if such Permitted 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 EBITDA shall, to the extent such Asset Sale is not excluded from
Consolidated EBITDA 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 RERH
Holdings and its Subsidiaries on a consolidated basis, (a) the total interest
expense for such period (including the Monthly Service Fee (and any similar fee
payable to a Replacement Sleeve Provider, however defined) and the Make-whole
Payment (and any similar payment payable to a Replacement Sleeve Provider,
however defined)), whether or not included as interest expense in accordance
with GAAP), plus (b) any capitalized interest during such period, minus
(c) (i) the total interest income of such Person and its Subsidiaries,
including interest income from any escrow or trust account, and (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
Indebtedness permitted hereunder, or (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) this Agreement or the CSRA or (2) the
incurrence of any Indebtedness permitted hereunder after the WCF Effective
Date.

“CSRA” means the Credit Sleeve and
Reimbursement Agreement dated as of September 24, 2006 among the Borrower, the
Sleeve Provider, the ML Guarantee Provider and the Guarantors, as the same may
be amended, amended and restated, supplemented or otherwise modified, renewed,
or replaced from time to time.

“Default” means any event or condition which
constitutes an Event of Default or which upon notice, lapse of time or both
would, unless cured or waived, become an Event of Default.

“Dollars” and “$” means lawful money of
the United States of America.

“Environmental Liability” means any liability,
contingent or otherwise (including any liability for damages, costs of
environmental remediation, fines, penalties or indemnities), of

 3
 

 

RERH Holdings or
any Subsidiary of the Borrower directly or indirectly resulting from or based
upon (a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure
to any Hazardous Materials, (d) the release or threatened release of any
Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.

“Equity Interests” has the meaning ascribed
thereto in the CSRA.

“Eurodollar”, when used in reference to any
Loan or Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the LIBO
Rate.

“Event of Default” has the meaning ascribed
thereto in Article VII.

“Exchange Act” means the Securities Exchange
Act of 1934, as amended.

“Excluded Taxes” means, with respect to the
Lender or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or which its applicable lending office is
located, (b) any branch profits taxes imposed by the United States of America
or any similar tax imposed by any other jurisdiction in which the Borrower is
located.

“Federal Funds Rate” means, for any day, the
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day; provided,
that (a) if such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate (rounded upward, if necessary, to a whole
multiple of 1/100 of 1%) charged to Bank of America, N.A. on such day on such
transactions as determined by the Lender.

“Guaranteed Obligations” has the meaning
ascribed thereto in Section 10.01.

“Guarantor” has the meaning ascribed thereto in
the title paragraph hereto.

“Indemnified Taxes” means Taxes other than
Excluded Taxes.

“Interest Election Request” means a request by
the Borrower to convert or continue a Borrowing in the form of Exhibit D.

“Interest Payment Date” means, with respect to
any Loan, the last day of the Interest Period applicable to the Borrowing of
which such Loan is a part.

 4
 

 

“Interest Period” means with respect to any
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one month
thereafter as the Borrower shall elect in accordance with Section 2.03; provided
that (i) if any Interest Period would end on a day other than a Business Day,
such Interest Period shall be extended to the next succeeding Business Day,
unless such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day
and (ii) any Interest Period that commences on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period.  For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter
shall be the effective date of the most recent conversion or continuation of
such Borrowing.

“LIBO Rate” means, with respect to any
Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Lender from time to time for purposes of providing quotations
of interest rates applicable to dollar deposits in the London interbank market)
at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. 
In the event that such rate is not available at such time for any
reason, then the “LIBO Rate” with respect to such Borrowing for such
Interest Period shall be the rate at which dollar deposits of $5,000,000 for a
maturity comparable to such Interest Period are offered by the principal London
office of the Lender in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.

“Loans” means the loans made by the Lender to
the Borrower pursuant to this Agreement.

“Maturity Date” means the earlier to occur of
(a) the 90th day after the last day of the Scheduled Term,
(b) the 90th day after any Unwind Start Date or (c) the
Credit Sleeve Termination Date.

“Obligations” means any amounts, principal,
interest, premium, fees, indemnifications, reimbursements, expenses, damages
and other liabilities payable under the applicable documentation.

“Other Taxes” means any and all present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement.

“Participant” has the meaning ascribed thereto
in Section 9.04.

 5
 

 

“Prime Rate” means a fluctuating rate of interest equal to the
rate of interest most recently announced by the Wall Street Journal as the
prime rate for Dollar-denominated loans.

“Party” means any Reliant Retail Obligor or the
Lender, as applicable.

“Register” has the meaning ascribed thereto in
Section 9.04.

“Related Parties” means, with respect to any
specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such Person’s
Affiliates.

“Reliant Retail Obligor” has the meaning
ascribed thereto in the CSRA.

“RERH” has the meaning ascribed thereto in the
CSRA.

“RERH Holdings” has the meaning ascribed thereto
in the CSRA.

“RERR” has the meaning ascribed thereto in the
CSRA.

“Revolving Credit Exposure” means, with respect
to the Lender at any time, the sum of the outstanding principal amount of the
Loans outstanding at such time.

“Sleeve Provider” means Merrill Lynch
Commodities, Inc., a Delaware corporation.

“Subsidiary” has the meaning ascribed thereto
in the CSRA.

“Taxes” means any and all present or future
taxes, levies, imposts, duties, deductions, charges or withholdings imposed by
any Governmental Authority.

“Transactions” means the execution, delivery
and performance by the Borrower of this Agreement, the borrowing of Loans and
the use of the proceeds thereof.

“WCF Effective Date” means the date the
conditions precedent in Section 4.01 have been satisfied (or waived in
accordance with Section 9.02).

“WCF Joinder Agreement” means a Joinder
Agreement in the form of Exhibit E or in such other form as the Borrower
and the Lender may agree executed by an Additional Guarantor pursuant to
Section 6.11(a) of the CSRA as incorporated by reference in this Agreement
pursuant to Section 5.02.

SECTION 1.02.    Classification
of Loans and Borrowings.  For
purposes of this Agreement, Loans may be classified and referred to by Type
(e.g., a “Eurodollar Loan”).  Borrowings also
may be classified and referred to by Type (e.g., a “Eurodollar Borrowing”).

SECTION 1.03.    Terms
Generally.  The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined.  Whenever the context may
require,

 6
 

 

any pronoun shall
include the corresponding mascu­line, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person’s successors and assigns, (c) the words “herein”, “hereof”
and “hereunder”, and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words “asset” and “property” shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.

SECTION 1.04.      Accounting
Terms; GAAP.  Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time.

 

ARTICLE II

THE CREDITS

SECTION 2.01.      Commitment.  Subject to the terms and conditions set forth
herein, the Lender agrees to make Loans to the Borrower from time to time
during the Availability Period in an aggregate principal amount that will not
result in the Lender’s Revolving Credit Exposure exceeding the Lender’s
Commitment.  Within the foregoing limits
and subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Loans.

 

SECTION 2.02.      Loans
and Borrowings.

(a)           Obligations
of Lender.  Each Loan shall be made
as part of a Borrowing consisting of Loans made by the Lender in accordance
with its Commitment.

(b)           Types of Loans.  Subject to Section 2.10, each Revolving
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. 
The Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of the Lender to make such Loan; provided,
that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.

(c)           Minimum Amounts.  At the commencement of each Interest Period
for any Borrowing, such Borrowing shall be in an aggregate principal amount
that is an integral multiple of $1,000,000.

 7
 

 

(d)           Limitation on Interest Periods.  Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.

SECTION 2.03.    Requests
for Borrowings; Interest Elections.

(a)           Requests for Borrowings.  To request a Borrowing, the Borrower shall
notify the Lender of such request by telephone not later than (a) in the cases
of a Eurodollar Borrowing, 11:00 a.m., New York City time, two Business Days
before the date of the proposed Borrowing and (b) in the case of an ABR
Borrowing, 11:00 a.m., New York City time, on the same Business Day as the
proposed Borrowing.  Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Lender of a written Borrowing Request.  Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:

(i)            the aggregate amount of the
requested Borrowing;

(ii)           the date of such Borrowing, which
shall be a Business Day;

(iii)          whether such Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and

(iv)          if such Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto after giving effect to
such election, which shall be a period contemplated by the definition of the
term “Interest Period”.

(b)           Interest Elections.

(i)            Interest
Election by Borrower.  Each Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period as specified in such Borrowing Request. 
Thereafter, the Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this
Section.

(ii)           Notice of Interest Election.  To make an election pursuant to this Section,
the Borrower shall notify the Lender of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03(a) if the
Borrower were requesting a Borrowing of the Type resulting from such election
to be made on the effective date of such election.  Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery
or telecopy to the Lender of a written Interest Election Request.

 8
 

 

(iii)          Content of Interest Election
Requests.  Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:

(A)          the Borrowing to which such Interest
Election Request applies;

(B)           the effective date of the election
made pursuant to such Interest Election Request, which shall be a Business Day;

(C)           whether the resulting Borrowing is to
be an ABR Borrowing or a Eurodollar Borrowing; and

(D)          if the resulting Borrowing is a
Eurodollar Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the definition
of the term “Interest Period”.

If any such Interest
Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest
Period of one month’s duration.

(iv)          If the Borrower fails to deliver a
timely Interest Election Request with respect to a Eurodollar Borrowing prior
to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be converted to an ABR Borrowing.  Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the Lender so
notifies the Borrower, then, so long as an Event of Default is continuing (A) no
outstanding Borrowing may be converted to or continued as a Eurodollar
Borrowing and (B) unless repaid, each Eurodollar Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.04.    Funding
of Borrowings.  The Lender will make such Loans
available to the Borrower by 3:00 p.m., New York City time, on the Business Day
specified for the related Borrowing in the applicable Borrowing Request by
crediting the amounts to the following Collateral Account maintained at Mellon
Bank (Mellon Bank, Pittsburgh, PA; ABA Routing #:  043000261; Account #: 1194193; Account
Name:  Reliant Energy Power Supply, LLC)
or to such other Collateral Account as the Borrower may instruct the Lender in
writing.

SECTION 2.05.    Termination
or Reduction of the Commitment.  

(a)           Scheduled
Termination.  Unless
previously terminated in accordance with this Agreement, the Commitment shall
terminate on the Maturity Date.

(b)           Voluntary Termination or Reduction.  The Borrower may at any time terminate, or
from time to time reduce, the Commitment; provided that (i) each
reduction of the

 9
 

 

Commitment shall
be in an amount that is an integral multiple of $1,000,000 and (ii) the
Borrower shall not terminate or reduce the Commitment if, after giving effect
to such termination or reduction and any concurrent prepayment of the Loans in
accordance with Section 2.07, the aggregate principal amount of outstanding
Loans would exceed the Commitment.

(c)           Notice of Voluntary Termination or
Reduction.  The Borrower shall notify
the Lender of any election to terminate or reduce the Commitments under
paragraph (b) of this Section at least two Business Days prior to the effective
date of such termination or reduction, specifying such election and the
effective date thereof.  Each notice
delivered by the Borrower pursuant to this Section shall be irrevocable; provided
that a notice of termination of the Commitment delivered by the Borrower may
state that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Lender on or prior to the specified effective date) if such condition is
not satisfied.  Any termination or
reduction of the Commitment shall be permanent.

SECTION 2.06.              Repayment
of Loans; Evidence of Debt.

(a)           Repayment.  The Borrower hereby unconditionally promises
to pay to the Lender the then unpaid principal amount of each Loan on the
Maturity Date.

(b)           Maintenance
of Records by Lender.  The Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the Lender resulting from each
Loan made by the Lender, including the amounts of principal and interest
payable and paid to the Lender from time to time hereunder.

(c)           Effect
of Entries.  The entries made in the
accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of the Lender to maintain such
accounts or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Loans in accordance with the terms of this Agreement.

(d)           Promissory
Notes.  The Lender may request that
Loans made by it be evidenced by a promissory note.  In such event, the Borrower shall execute and
deliver to the Lender a promissory note payable to the order of the Lender and
in substantially the form of Exhibit B duly completed.  Thereafter, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein.

SECTION 2.07.              Prepayment
of Loans.

 

(a)           Optional Prepayments.  The Borrower shall have the right at any time
and from time to time to prepay any Borrowing in whole or in part, subject to
any prior notice that is required in accordance with paragraph (b) of this
Section.

(b)           Notices,
Etc.  The Borrower shall notify the
Lender by telephone (confirmed by telecopy) (i) of any prepayment of a
Eurodollar Borrowing not later than

 10
 

 

11:00 a.m., New York
City time, two Business Days before the date of prepayment and (ii) of any
prepayment of an ABR Borrowing not later than 11:00 a.m., New York City time,
on the Business Day of such prepayment; provided that no such advance
notice shall be required if the prepayment is required under Section 6.11(c)(v)
or 6.11(c)(viii) of the CSRA.  Each such
notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided
that, if a notice of prepayment is given in connection with a conditional
notice of termination of the Commitment as contemplated by Section 2.06, then
such notice of prepayment may be revoked if such notice of termination is revoked
in accordance with Section 2.06.  Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.09.

SECTION 2.08.              No Facility Fees.  No facility or commitment fee shall be
payable by the Borrower to the Lender in respect of the Lender’s Commitment
hereunder.

 

SECTION 2.09.              Interest.

 

(a)           ABR
Loans.  The Loans comprising each ABR
Borrowing shall bear interest at the Alternate Base Rate.

(b)           Eurodollar
Loans.  The Loans comprising each
Eurodollar Borrowing shall bear interest at the LIBO Rate plus 0.45%.

(c)           Default
Interest.  Notwithstanding the
foregoing, if any principal of or interest on any Loan or any fee or other
amount payable by the Borrower hereunder is not paid when due, whether at
stated maturity, upon acceleration or otherwise, such overdue amount shall bear
interest, after as well as before judgment, at a rate per annum equal to 3.875%
plus the rate otherwise applicable to such Loan as provided in paragraph
(a) of this Section.

(d)           Payment
of Interest.  Accrued interest on
each Loan shall be payable in arrears on each Interest Payment Date for such
Loan and upon the Maturity Date; provided that (i) interest accrued
pursuant to paragraph (b) of this Section shall be payable on demand and (ii) in
the event of any repayment or prepayment of any Loan, accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment.

(e)           Computation.  All interest hereunder shall be computed on
the basis of a year of 360 days, except that interest computed by reference to
the Alternate Base Rate at times when the Alternate Base Rate is based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in
a leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate or LIBO
Rate shall be determined by the Lender, and such determination shall be
conclusive absent manifest error.

 11
 

 

SECTION 2.10.              Increased
Costs.

 

(a)           Increased Costs Generally.  If any Change in Law shall:

(i)            impose, modify or deem applicable
any reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, the Lender; or

(ii)           impose on the Lender or the London
interbank market any other condition affecting this Agreement or Loans or
participation therein;

and the result of
any of the foregoing shall be to increase the cost to the Lender of making or
maintaining any Loan (or of maintaining its obligation to make any such Loan)
or to increase the cost to the Lender of participating in, or to reduce the
amount of any sum received or receivable by the Lender hereunder (whether of
principal, interest or otherwise), then the Borrower will pay to the Lender
additional amount or amounts as will compensate the Lender for such additional
costs incurred or reduction suffered.

(b)           Capital
Requirements.  If the Lender
determines that any Change in Law regarding capital requirements has or would
have the effect of reducing the rate of return on the Lender’s capital or on
the capital of the Lender’s holding company, if any, as a consequence of this
Agreement or the Loans made by the Lender to a level below that which the
Lender or the Lender’s holding company could have achieved but for such Change
in Law (taking into consideration the Lender’s policies and the policies of the
Lender’s holding company with respect to capital adequacy), then from time to
time the Borrower will pay to the Lender such additional amount or amounts as
will compensate the Lender or the Lender’s holding company for any such
reduction suffered.

(c)           Certificates
from Lender.  A certificate of the
Lender setting forth the amount or amounts necessary to compensate the Lender
or its holding company, as the case may be, as specified in paragraph (a) or
(b) of this Section shall be delivered to the Borrower and shall be conclusive
absent manifest error.  The Borrower
shall pay the Lender, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.

(d)           Delay
in Requests.  Failure or delay on the
part of the Lender to demand compensation pursuant to this Section shall not
constitute a waiver of the Lender’s right to demand such compensation; provided
that the Borrower shall not be required to compensate a Lender pursuant to this
Section for any increased costs or reductions incurred more than 180 days prior
to the date that the Lender notifies the Borrower of the Change in Law giving
rise to such increased costs or reductions and of the Lender’s intention to
claim compensation therefor; provided  further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.

(e)           Reserves
on Loans.  The Borrower shall pay to
the Lender, as long as the Lender shall be required to maintain reserves with
respect to liabilities or assets consisting of or including Eurocurrency funds
or deposits (currently known as “Eurocurrency liabilities”),

 12
 

 

additional
interest on the unpaid principal amount of each Loan equal to the actual costs
of such reserves allocated to the Loan by the Lender (as determined by the
Lender in good faith, which determination shall be conclusive), which shall be
due and payable on each date on which interest is payable on the Loan; provided,
that the Borrower shall have received at least 10 days’ prior notice of such
additional interest from the Lender.  If
the Lender fails to give notice 10 days prior to the relevant Interest Payment
Date, such additional interest shall be due and payable 10 days from receipt of
such notice.

(f)            Break Funding Payments.  In the
event of (a) the payment of any principal of any Eurodollar Loan other than on
the last day of an Interest Period applicable thereto (including as a result of
an Event of Default), (b) the conversion of any Eurodollar Loan other than on
the last day of the Interest Period applicable thereto or (c) the failure to
borrow, convert, continue or prepay any Eurodollar Loan on the date specified
in any notice delivered pursuant hereto (regardless of whether such notice may
be revoked and is revoked in accordance therewith), then, in any such event,
the Borrower shall compensate the Lender for the loss, cost and expense
attributable to such event.  Such loss,
cost or expense to the Lender shall be deemed to include an amount determined
by the Lender to be the excess, if any, of (i) the amount of interest which
would have accrued on the principal amount of such Loan had such event not
occurred, at the LIBO Rate that would have been applicable to such Loan, for
the period from the date of such event to the last day of the then current
Interest Period therefor (or, in the case of a failure to borrow, convert or
continue, for the period that would have been the Interest Period for such
Loan), over (ii) the amount of interest which would accrue on such principal
amount for such period at the interest rate which the Lender would bid were it
to bid, at the commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the eurodollar market.  A certificate of the Lender setting forth any
amount or amounts that the Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error.  The Borrower shall pay
the Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

SECTION 2.11.              Taxes.

 

(a)           Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided
that if the Borrower shall be required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Lender receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall
pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.

(b)           Payment
of Other Taxes by Borrower.  In
addition, the Borrower shall pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable law.

(c)           Indemnification
by Borrower.  The Borrower shall
indemnify the Lender within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Lender on or with
respect to any payment by or on account of any

 13
 

 

obligation of the
Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such
payment or liability delivered to the Borrower by a Lender shall be conclusive
absent manifest error.

(d)           Evidence
of Payments.  As soon as practicable
after any payment of Indemnified Taxes or Other Taxes by the Borrower to a
Governmental Authority, the Borrower shall deliver to the Lender the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Lender.

(e)           Refunds.  If the Lender determines, in its sole
discretion, that it has received a refund of any Taxes or Other Taxes as to
which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to this Section, it shall pay
over such refund to the Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by the Borrower under this Section with
respect to the Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of the Lender and without interest (other than any
interest paid by the relevant Governmental Authority with respect to such
refund); provided that the Borrower, upon the request of the Lender,
agrees to repay the amount paid over to the Borrower (plus any penalties,
interest or other charges imposed by the relevant Governmental Authority) to
Lender in the event the Lender is required to repay such refund to such
Governmental Authority.  This Section
shall not be construed to require the Lender to make available its tax returns
(or any other information relating to its taxes which it deems confidential) to
the Borrower or any other Person.

SECTION 2.12.              Payments
Generally; Pro Rata Treatment; Sharing of Set-offs.

 

(a)           Payments
by Borrower.  The Borrower shall make
each payment required to be made by it hereunder (whether of principal,
interest, fees, or of amounts payable under Section 2.10 or 2.11, or otherwise)
prior to 3:00 p.m., New York City time, on the date when due, in immediately
available funds, without set-off or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Lender, be deemed to have been received on
the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Lender
at its offices at 4 World Financial Center 22nd Floor, New York, New York 10080 (through
Deutsche Bank AG, New York Branch; ABA/Routing No: 021-001-033; Account Name:
ML Capital Corp Loan Syndications; Account No.: 00-883-675; Attention:  Gillian Prince/Maxeen Jacques; Reference:
(Reliant Energy Power Supply, LLC)).  If
any payment hereunder shall be due on a day that is not a Business Day, the
date for payment shall be extended to the next succeeding Business Day, and, in
the case of any payment accruing interest, interest thereon shall be payable
for the period of such extension.  All
payments hereunder shall be made in Dollars.

(b)           Application
of Insufficient Payments.  If at any
time insufficient funds are received by and available to the Lender to pay
fully all amounts of principal, interest and fees

 14
 

 

then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, and (ii) second, towards payment of principal then
due hereunder.

SECTION 2.13               Illegality.  If the Lender determines that any Law has
made it unlawful, or that any Governmental Authority has asserted that it is
unlawful, for the Lender or its applicable Lending Office to make, maintain or
fund the Loans, or to determine or charge interest rates based upon the LIBO
Rate, or any Governmental Authority has imposed material restrictions on the
authority of the Lender to purchase or sell, or to take deposits of, Dollars in
the London interbank market, then, on notice thereof by the Lender to the
Borrower, any obligation of the Lender to make or continue the Loans shall be
suspended until the Lender notifies the Borrower that the circumstances giving
rise to such determination no longer exist. 
Upon receipt of such notice, the Borrower shall, upon demand from the
Lender prepay, either on the last day of the Interest Period therefor, if the
Lender may lawfully continue to maintain such Loans to such day, or
immediately, if the Lender may not lawfully continue to maintain such Loans.  Upon any such prepayment or conversion, the
Borrower shall also pay accrued interest on the amount so prepaid.

SECTION 2.14.              Inability to Determine Rates.  If the Lender determines that for any reason
in connection with any request for a Loan that (a) Dollar deposits are not
being offered to banks in the London interbank eurodollar market for the
applicable amount and Interest Period of such Loan, (b) adequate and reasonable
means do not exist for determining the LIBO Rate for any requested Interest
Period with respect to a proposed Loan, or (c) the LIBO Rate for any requested
Interest Period with respect to a proposed Loan does not adequately and fairly
reflect the cost to the Lender of funding such Loan, the Lender will promptly
so notify the Borrower.  Thereafter, the
obligation of the Lender to make or maintain the Loans shall be suspended until
the Lender revokes such notice.  Upon
receipt of such notice, the Borrower may revoke any pending request for a
Borrowing.

ARTICLE
III

REPRESENTATIONS AND WARRANTIES

The provisions of
Section 5 of the CSRA, together with all related definitions and ancillary
provisions, all as in effect from time to time, are hereby incorporated herein
by reference mutatis  mutandis and shall be deemed to continue in
effect (with any amendments, modifications or waivers thereof) for the benefit
of the Lender and the Reliant Retail Obligors, as applicable (provided
that if the CSRA is no longer in effect then the foregoing clause shall be
deemed to apply to such provisions, definitions and ancillary provisions as the
same were in effect immediately before the CSRA ceased to be in effect), and
each other Reliant Retail Obligor hereby makes each of the representations and
warranties, and the Lender agrees to perform and observe each of its
obligations, in each case set forth in Section 5 of the CSRA to the Lender as
if (i) each reference therein to “the Sleeve Provider”, “the Merrill Parties”, “MLCI”
and “the ML Guarantee Provider” and similar expressions were references to the
Lender, (ii) each reference therein to “Reliant Default” or “Reliant Event of
Default” and similar expressions were references to “Default” or “Event of
Default”, respectively, (iii) each reference therein to “REPS” were a reference
to the Borrower, (iv) each reference therein to “the Reliant

 15
 

 

Retail Obligors” were
references to the Borrower and the Guarantors and the Reliant Retail Obligors
as defined herein, (v) each reference therein to “the Other Reliant Retail
Obligors” and “the Reimbursement Guarantors” were references to the Guarantors
and the Other Reliant Retail Obligors as defined herein and (vi) each reference
to a Joinder Agreement were a reference to a “WCF Joinder Agreement”. 

ARTICLE IV

CONDITIONS

SECTION 4.01.              WCF
Effective Date.  The obligations of the Lender to make Loans
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):

(a)           Exhibit E.  Exhibit E shall have been completed and
attached in a manner satisfactory to the Lender, after consultation with the
Borrower.

(b)           Transaction Documents.  This Agreement shall have been duly executed
by each of the Parties (and a WCF Joinder Agreement shall have been duly
executed and delivered by RERR in a form reasonably satisfactory to the Lender
pursuant to which RERR shall become an Additional Guarantor under this
Agreement) and each of the Transaction Documents described in clauses (i) and
(iii) through (xx) of the definition thereof, and the MLCI/REPS ISDA, shall be
executed and delivered in a form reasonably satisfactory to the Lender.

(c)           Ringfence.  Evidence satisfactory to the Lender that the
Transition Agreement, employment arrangements with respect to management of the
Reliant Retail Obligors, transfer of retail supply and hedging contracts, and
office space leasing arrangements each have been completed on documentation or
conditions reasonably satisfactory to the Lender and the remaining elements of
the ring fence restructuring of RERH Holdings and its Subsidiaries have
otherwise been completed on documentation or conditions reasonably satisfactory
to Lender; provided, however that (i) the contribution of RERH
and its Subsidiaries to RERH Holdings shall occur prior to the Merrill Parties
receiving any interest in RERH Holdings, (ii) employees that are being
transferred to RERH Holdings or any of its Subsidiaries and whose services are
provided for in the Transition Agreement shall not be required to transfer
until January 1, 2007, and (iii) the ISDA confirmations under the REES/REPS
Power Purchase Agreement relating to “Upton Wind” and under the RES/REPS Power
Purchase Agreement relating to the Channelview Services Agreement shall or
shall be amended to have delivery or settlement dates, as applicable, ending on
or before the third anniversary of the then current expiry date of the
Scheduled Term.

(d)           Secretary’s Certificates.  A certificate, dated the Effective Date, of
the secretary or assistant secretary or (if none) any comparable officer of
each Reliant Retail Obligor as to (i) its Retail Organizational Documents, (ii)
resolutions of its board of directors, members,

 16
 

 

managers or comparable
governing body, as applicable, authorizing the transactions contemplated by the
Transaction Documents and (iii) incumbency of officers authorized to execute
and deliver its Transaction Documents on its behalf and authenticity of the
signatures of such officers.

(e)           Good Standing Certificates.

(i)            A
(long form) certificate, without exhibits, dated within one week prior to the
Effective Date, of the Secretary of State of Delaware, as to the existence and
good standing of each Reliant Retail Obligor and the title and date of filing
of each Retail Organizational Document of such Person filed with such Secretary
of State.

(ii)           A
certificate, dated within one week prior to the Effective Date, of the
Secretary of State and the taxing authority of the State in which the principal
place of business and chief executive office of each Reliant Retail Obligor,
are located, as to (A) the good standing and (B) the authority or qualification
to do business in such jurisdiction of such Person and (C) no tax delinquencies
(to the extent that such certificate is generally available in such State).

(f)            Opinions of Counsel to Reliant,
et al.  Written opinions addressed to
the Lender of Bracewell & Giuliani LLP, special counsel to the Reliant
Retail Obligors (including customary opinions as to “true contribution”, “non-consolidation”,
non-contravention of the Reliant Parent Debt Documents and the creation and
perfection of Liens on the Collateral), and of in-house counsel to Reliant
Parent, in each case dated the Effective Date, and in a form reasonably
satisfactory to the Lender.

(g)           Officer Certificates.  A certificate, dated the Effective Date, of a
Financial Officer of RERH Holdings, to the effect that (A) (i) each of the
representations and warranties made by the Reliant Retail Obligors in Article
III and in the other Transaction Documents which is qualified by materiality is
true and correct and (ii) each of the other representations and warranties made
by the Reliant Retail Obligors in Article III and in the other Transaction
Documents is true and correct in all material respects, in each case of clause
(i) and clause (ii) on and as of the Effective Date with the same force and
effect as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of
such specific date); and (B) no Default or Trigger Event has occurred and is
continuing on and as of the Effective Date.

(h)           Financial Statements.  The audited consolidated balance sheet of
RERH and its consolidated Subsidiaries for the Fiscal Year ended December 31,
2005, and the related consolidated statements of income or operations,
stockholders’ equity, comprehensive income (loss) and cash flows for such
Fiscal Year (the “Audited Financial Statements”), setting forth in each
case in comparative form the figures as of the end of, and for, the previous
Fiscal Year, all in reasonable detail and prepared in accordance with GAAP, (B)
the unaudited consolidated balance sheet of RERH and its consolidated
Subsidiaries as at the end of the Fiscal Quarter ended June 30, 2006, and the
related unaudited consolidated statements of income or operations for such
Fiscal Quarter and for the portion of RERH’s Fiscal Year then ended and cash
flows for

 17
 

 

the portion of RERH’s
Fiscal Year then ended (the “Unaudited Financial Statements”), without
comparisons to prior periods and subject to normal year-end audit adjustments
and the absence of footnotes; and (C) a projected unaudited consolidated
balance sheet of RERH Holdings and its consolidated Subsidiaries based on the
unaudited consolidated balance sheet of RERH and its consolidated Subsidiaries
as at the end of the Fiscal Quarter ended June 30, 2006, and giving effect to
the transfer of RERH to RERH Holdings and the other contributions of the assets
and liabilities of the Retail Energy Business contemplated by this Agreement as
at the Effective Date, certified by a Responsible Officer of RERH Holdings as
being accurate and complete in all material respects with respect to the
subject matter thereof.

(i)            Lender Consents.  The Reliant Parent Debt Documents shall have
been amended in a form reasonably satisfactory to the Lender in order to permit
the transactions contemplated by this Agreement (it being understood that
provisions relating to the consent fee and other amounts payable for any such
amendments shall not be subject to the Lender’s satisfaction, and that the form
of consent provided to the bondholders as of July 25, 2006, as amended by the
supplement dated August 28, 2006, is satisfactory).

(j)            Repayment of Securitization
Facility.  Evidence satisfactory to
the Lender that the Securitization Facility shall be permanently repaid in full
and the collateral trust arrangement holding subordinated notes related to the
Securitization Facility in favor of secured trading counterparties has been
terminated.

(k)           Lien Search Reports, Etc.  (i) A lien search report, certified by the
Secretary of State or other applicable Governmental Authority for each
jurisdiction the filing in which could perfect a Lien in any Collateral, for
all UCC, judgment lien, tax lien and equivalent lien filings made against each
Reliant Retail Obligor; and (ii) evidence that the Liens indicated by such
financing statements and similar filings (A) have been terminated, released or
otherwise discharged in full prior to or concurrently with the Effective Date
or (B) are Permitted Liens.

(l)            Collateral Accounts.  Evidence that Reliant Retail Obligors have
established or transferred to the Collateral Trustee the Collateral Accounts
required by the Security Documents.

(m)          EBITDA Certificate  A certificate dated the Effective Date signed by a Responsible Officer of
RERH Holdings setting forth the computation of EBITDA for the Fiscal Quarter
most recently ended at least 55 days prior to the Effective Date.

(n)           CSRA Effective Date.  The Effective Date under the CSRA shall have
occurred.

(o)           Other Conditions.  Such other information, diligence, documents,
opinions, certificates, approvals and conditions as the Lender may reasonably
request.

The obligation of the
Lender to make Loans hereunder shall not become effective unless each of the
foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or
prior to 3:00 p.m., 

 18

 

New York City time, on December
31, 2006 (and, in the event such conditions are not so satisfied or
waived, the Commitment shall terminate at such time).

SECTION 4.02                                            Each
Credit Event.  The obligation of the Lender to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:

(a)                             Representations
and Warranties.  As of the Effective
Date and thereafter, (i) each of the representations and warranties of the
Reliant Retail Obligors made in Article III and in the other Transaction
Documents which is qualified by materiality shall be true and correct and (ii)
each of the other representations and warranties of the Reliant Retail Obligors
made in Article III and in the other Transaction Documents shall be true and correct
in all material respects, in each case of clause (i) and clause (ii) on and as
of the date of such Borrowing with the same force and effect as if made on and
as of such date (or, if any such representation or warranty is expressly stated
to have been made as of a specific date, as of such specific date).

(b)                            Defaults.  At the time of and immediately after giving
effect to such Borrowing no Default or Trigger Event shall have occurred and be
continuing.

Each Borrowing shall be deemed to constitute a representation
and warranty by the Borrower and Guarantors on the date thereof as to the
matters specified in paragraphs (a) and (b) of this Section.

ARTICLE V

AFFIRMATIVE COVENANTS

Until the Commitment has expired or been terminated
and the principal of and interest on each Loan and all fees and other amounts
payable hereunder shall have been paid in full, the Reliant Retail Obligors
covenant and agree with the Lender that:

SECTION 5.01                                            Use
of Proceeds.  The proceeds of the Loans will be used
only for the payment by Reliant Retail Obligor of obligations due within three
Business Days of the date of the related Borrowing and referred to in Section
6.11(c)(i) through 6.11(c)(vii) of the CSRA but only to the extent that the
Borrower determines reasonably and in good faith that funds available in the
Collateral Accounts will be insufficient to make such payments on such date; provided
that proceeds of the Loans will not be used for funding of reserves with
respect to Deferred Reimbursement Obligations as contemplated by Section
6.11(c)(vi)(C).  No part of the proceeds
of any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations T, U and X.

SECTION 5.02                                            Other
Affirmative Covenants.  The provisions of Section 6 of the
CSRA, together with all related definitions and ancillary provisions, all as in
effect from time to time, are hereby incorporated herein by reference mutatis
mutandis and shall be deemed to continue in effect (with any amendments,
modifications or waivers thereof) for the benefit of the Lender and the Reliant
Retail Obligors, as applicable (provided that if the CSRA is no longer
in

 19
 

 

effect then the foregoing
clause shall be deemed to apply to such provisions, definitions and ancillary
provisions as the same were in effect immediately before the CSRA ceased to be
in effect), and the Reliant Retail Obligors covenant and agree with the Lender
that they shall perform and observe each of the covenants, and the Lender
agrees to perform and observe each of its obligations, in each case set forth
in Section 6 of the CSRA as if (i) each reference therein to “the Sleeve
Provider”, “the Merrill Parties”, “MLCI” and “the ML Guarantee Provider” and
similar expressions were references to the Lender, (ii) each reference therein
to “Reliant Default” or “Reliant Event of Default” and similar expressions were
references to “Default” or “Event of Default”, respectively, (iii) each
reference therein to “REPS” were a reference to the Borrower, (iv) each
reference therein to “the Reliant Retail Obligors” were references to the
Borrower and the Guarantors and the Reliant Retail Obligors as defined herein,
(v) each reference therein to “the Other Reliant Retail Obligors” and “the Reimbursement
Guarantors” were references to the Guarantors and the Other Reliant Retail
Obligors as defined herein, (vi) each reference to a Joinder Agreement were a
reference to a “WCF Joinder Agreement” and (vii) each reference to “Section
12.04” or any subclause thereof were a reference to Section 9.14 or the
corresponding subclause thereof.

ARTICLE VI

NEGATIVE COVENANTS

Until the Commitment has expired or been terminated
and the principal of and interest on each Loan and all fees and other amounts
payable hereunder shall have been paid in full, the Reliant Retail Obligors
covenant and agree with the Lender that:

SECTION 6.01                                            Financial
Covenant.  On the
last day of each Fiscal Quarter, EBITDA of RERH Holdings and its Subsidiaries
for the period of four Fiscal Quarters most recently ended shall be at least
equal to $150,000,000.  Promptly but in
no case later than 55 days after the end of each of the first three Fiscal
Quarters of each Fiscal Year, and 95 days after the end of the fourth Fiscal
Quarter of each Fiscal Year, the Borrower shall deliver to the Lender a
certificate signed by a Responsible Officer of RERH Holdings setting forth the
computation of EBITDA for such Fiscal Quarter.

SECTION 6.02                                            Other
Negative Covenants.  The provisions of Section 7 of the
CSRA, together with all related definitions and ancillary provisions, all as in
effect from time to time, are hereby incorporated herein by reference mutatis
mutandis and shall be deemed to continue in effect (with any amendments,
modifications or waivers thereof) for the benefit of the Lender and the Reliant
Retail Obligors, as applicable (provided that if the CSRA is no longer
in effect then the foregoing clause shall be deemed to apply to such
provisions, definitions and ancillary provisions as the same were in effect
immediately before the CSRA ceased to be in effect), and the Reliant Retail
Obligors covenant and agree with the Lender that they shall, and shall cause
their Subsidiaries to, comply with all of the negative covenants, and the
Lender agrees to perform and observe each of its obligations, in each case set
forth in Section 7 of the CSRA as if (i) each reference therein to “the Sleeve
Provider”, “the Merrill Parties”, “MLCI” and “the ML Guarantee Provider” and
similar expressions were references to the Lender, (ii) each reference therein
to “Reliant Default” or “Reliant Event of Default” and similar expressions

 20
 

 

were references to “Default”
or “Event of Default”, respectively, (iii) each reference therein to “REPS”
were a reference to the Borrower, (iv) each reference therein to “the Reliant
Retail Obligors” were references to the Borrower and the Guarantors and the
Reliant Retail Obligors as defined herein, (v) each reference therein to “the
Other Reliant Retail Obligors” and “the Reimbursement Guarantors” were
references to the Guarantors and the Other Reliant Retail Obligors as defined
herein and (vi) each reference to a Joinder Agreement were a reference to a “WCF
Joinder Agreement”.

ARTICLE VII

EVENTS OF DEFAULT

If any of the
following events (“Events of Default”) shall occur:

(a)                             Principal
Payments.  The Borrower shall fail to
pay any principal of any Loan when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for prepayment
thereof or otherwise; or

(b)                            Other
Payment Defaults.  The Borrower shall
fail to pay any interest on any Loan or any fee or any other amount (other than
an amount referred to in clause (a) of this Article) payable under this
Agreement, when and as the same shall become due and payable, and such failure
shall continue unremedied for a period of three Business Days; or

(c)                                  CSRA
Defaults.    A Reliant Event of
Default shall occur and is continuing under and as defined in the CSRA; or

(d)                                 Insolvency
Proceedings, Etc.  Any Reliant Retail
Obligor institutes or consents to the institution of any proceeding under any
Debtor Relief Law, or makes an assignment for the benefit of creditors; or
applies for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for all or
any material part of their respective property; or any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer is
appointed without the application or consent of such Person and the appointment
continues undischarged or unstayed for 60 calendar days; or any proceeding
under any Debtor Relief Law relating to any such Person or to all or any
material part of their respective property is instituted without the consent of
such Person and continues undismissed or unstayed for 60 calendar days, or an
order for relief is entered in any such proceeding; or

(e)                                  Inability
to Pay Debts.  Any Reliant Retail
Obligor becomes unable or admits in writing its inability or fails generally to
pay its debts as they become due,

then, and in every such event (other than an event
with respect to the Borrower described in clause (d) or (e) of this
Article), and at any time thereafter during the continuance of such event, the
Lender may, by notice to the Borrower, take either or both of the following
actions, at the same or different times: 
(i) terminate the Commitment, and thereupon the Commitment shall

 21
 

 

terminate immediately, and (ii) declare the Loans
then outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to
be due and payable), and thereupon the principal of the Loans so declared to be
due and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; and in case of any event with
respect to the Borrower described in clause (d) or (e) of this
Article, the Commitment shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01.                                         Notices.

(a)                                  Notices
Generally.  Except in the case of
notices and other communications expressly permitted to be given by telephone
(and subject to paragraph (b) of this Section), all notices and other
communications provided for herein shall be in writing and shall be delivered
by hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy, as follows:

(i)                                     if
to the Borrower, to:

Reliant Energy Power
Supply, LLC
1000 Main Street
Houston, Texas  77002
Attention:  Daniel N. Hannon
Telephone No.:  (713) 497-6149
Telecopy No.:  (713) 497-0881
E-Mail:  DHannon@reliant.com

With a copy to

Reliant Energy Power
Supply, LLC
1000 Main Street
Houston, Texas  77002
Attention:  Andrew C. Johannesen
Telephone No.:  (713) 497-6417
Telecopy No.:  (713) 497-9289
E-Mail:  AJohannesen@reliant.com

 22
 

 

and

Reliant Energy Power
Supply, LLC
1000 Main Street
Houston, Texas  77002
Attention:  Michael L. Jines
Telephone No.:  (713) 497-7465
Telecopy No.:  (713)-497-0140
E-Mail:  MJines@reliant.com

(ii)                                  if
to the Lender, to:

Merrill Lynch Capital
Corporation
4 World Trade Center
22nd Floor
New York, New York  10080
Attention:  Gillian Prince
Telephone No.  212-449-7839
Telecopy No.:  212-449-9435
E-Mail:  Gillian_Prince@ml.com;

(b)                                 Electronic
Communications.  Notices and other
communications to the Lender hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Lender; provided
that the foregoing shall not apply to notices pursuant to Article II
unless otherwise agreed by the Lender. 
The Lender or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.

(c)                                  Change
of Address, Etc.  Any party hereto
may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto.  All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.

SECTION 9.02.                                         Waivers;
Amendments.

(a)                                  No
Deemed Waivers; Remedies Cumulative. 
No failure or delay by the Lender in exercising any right or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power.  The rights and remedies of the Lender
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have.  No waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of

 23
 

 

a Loan shall not
be construed as a waiver of any Default, regardless of whether the Lender may
have had notice or knowledge of such Default at the time.

(b)                                 Amendments.  Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Borrower and the Lender.

SECTION 9.03.                                         Expenses;
Indemnity; Damage Waiver.

(a)                                  Costs
and Expenses.  The Borrower shall pay
all reasonable out-of-pocket expenses incurred by the Lender, including the
reasonable fees, charges and disbursements of any counsel for the Lender in
connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with
the enforcement or acceleration of the Loans made hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.

(b)                                 Indemnification
by Borrower.  The Borrower shall
indemnify the Lender and each Related Party of the Lender (each such Person
being called an “Indemnitee”) against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses, including
the fees, charges and disbursements of any counsel for any Indemnitee, incurred
by or asserted against any Indemnitee arising out of, in connection with, or as
a result of (i) the execution or delivery of this Agreement or any
agreement or instrument contemplated hereby, the performance by the parties
hereto of their respective obligations hereunder or the consummation of the
Transactions or any other transactions contemplated hereby, (ii) any Loan
or the use of the proceeds therefrom, (iii) any actual or alleged presence
or release of Hazardous Materials on or from any property owned or operated by
RERH Holdings or any of its Subsidiaries, or any Environmental Liability
related in any way to RERH Holdings or any of its Subsidiaries, or (iv) any
actual or prospective claim, litigation, investigation or proceeding relating
to any of the foregoing, whether based on contract, tort or any other theory
and regardless of whether any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.

(c)                                  Waiver
of Consequential Damages, Etc.  TO
THE EXTENT PERMITTED BY APPLICABLE LAW, UNLESS EXPRESSLY HEREIN PROVIDED, NO
PARTY SHALL BE LIABLE UNDER THIS AGREEMENT FOR CONSEQUENTIAL, INCIDENTAL,
PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, INCLUDING CONSEQUENTIAL LOST PROFITS
OR OTHER CONSEQUENTIAL BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR
CONTRACT OR OTHERWISE.

SECTION 9.04.                                         Successors
and Assigns.

(a)                                  Assignments
Generally.  The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that
(i) the Borrower may not assign or otherwise transfer any

 24
 

 

of its rights or
obligations hereunder without the prior written consent of the Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be
null and void) and (ii) no Lender may assign or otherwise transfer its
rights or obligations hereunder except in accordance with this Section.  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby, Participants
(to the extent provided in paragraph (c) of this Section) and, to the
extent expressly contemplated hereby, the Related Parties of the Lender) any
legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)                                 Assignments by Lender.

(i)                                     Assignments
Generally.  Subject to the conditions
set forth in paragraph (b)(ii) below, the Lender may assign to one or more
Affiliates of the Lender or an Approved Fund all of its rights and obligations
under this Agreement (including all of its Commitment and the Loans at the time
owing to it) so long as, if no Event of Default by the Borrower exists it has
received the prior written consent of the Borrower, such consent not to be
unreasonably withheld or delayed;

(ii)                                  Effectiveness
of Assignments.  Subject to
acceptance and recording thereof pursuant to paragraph (b)(iv) of this
Section, from and after the effective date specified in each Assignment and
Assumption the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of
Sections 2.10, 2.11, 2.12 and 9.03). 
Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this Section shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (c) of this Section.

(iii)                               Maintenance
of Register.  The Lender, acting for
this purpose as an agent of the Borrower, shall maintain at one of its offices
a copy of each Assignment and Assumption delivered to it and a register for the
recordation of the names and addresses of the Lender, and principal amount of
the Loans owing to, the Lender pursuant to the terms hereof from time to time
(the “Register”).  The entries in
the Register shall be conclusive, and the Borrower, the Lender may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as
the Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary.  The Register shall be
available for inspection by the Borrower at any reasonable time and from time
to time upon reasonable prior notice.

(iv)                              Acceptance
of Assignments by Lender.  Upon its
receipt of a duly completed Assignment and Assumption, the Lender shall accept
such Assignment and

 25
 

 

Assumption and
record the information contained therein in the Register.  No assignment shall be effective for purposes
of this Agreement unless it has been recorded in the Register as provided in
this paragraph.

(c)                                  Participations.

(i)                                     Participations
Generally.  The Lender may, without
the consent of the Borrower sell participations to one or more banks or other
entities (a “Participant”) in all or a portion of the Lender’s rights
and obligations under this Agreement (including all or a portion of the Loans
owing to it); provided that (A) the Lender’s obligations under this
Agreement shall remain unchanged, (B) the Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower and the Lender shall continue to deal solely and
directly in connection with the Lender’s rights and obligations under this
Agreement.  Any agreement or instrument
pursuant to which the Lender sells such a participation shall provide that the
Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such agreement or instrument may provide that the Lender will not, without
the consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such
Participant.  Subject to
paragraph (c)(ii) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.10, 2.11 and
2.12 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section.  To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 9.08 as
though it were a Lender.

(ii)                                  Limitations
on Rights of Participants.  A
Participant shall not be entitled to receive any greater payment under
Section 2.10, 2.11 or 2.12 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower’s prior written consent.  A
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.11 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for
the benefit of the Borrower, to comply with Section 2.11(e) as though it
were a Lender.

(d)                                 Certain
Pledges.  The Lender may at any time
pledge or assign a security interest in all or any portion of its rights under
this Agreement to secure obligations of the Lender, including without
limitation any pledge or assignment to secure obligations to a Federal Reserve
Bank, and this Section shall not apply to any such pledge or assignment of a
security interest; provided that no such pledge or assignment of a
security interest shall release the Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for the Lender as a party
hereto.

SECTION 9.05.                                         Survival.  All
covenants, agreements, representations and warranties made by the Borrower and
the Guarantors herein and in the certificates or other instru­ments delivered
in connection with or pursuant to this Agreement shall be considered to

 26
 

 

have been relied
upon by the other parties hereto and shall survive the execution and delivery
of this Agreement and the making of any Loans, regardless of any investigation
made by any such other party or on its behalf and notwithstanding that the
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstand­ing and so long as the Commitment have not expired or
terminated.  The provisions of
Sections 2.10, 2.11 and 2.12 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans or the termination
of this Agreement or any provision hereof.

SECTION 9.06.                                         Counterparts;
Integration; Effectiveness.  This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract.  This
Agreement and any separate letter agreements with respect to fees payable to
the Lender constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the Lender
and when the Lender shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

SECTION 9.07.                                         Severability.  Any
provision of this Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.

SECTION 9.08.                                         Right
of Setoff. 
If an Event of Default shall have occurred and be continuing, the Lender
and each of its Affiliates is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other obligations at any time owing by the Lender or Affiliate to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by the Lender, irrespective of whether or not the Lender shall have made any
demand under this Agreement and although such obligations may be
unmatured.  The rights of the Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff) which the Lender may have.

SECTION 9.09.                                         Governing
Law; Jurisdiction; Consent to Service of Process.

(a)                                  Governing
Law.  This Agreement shall be
governed by, and construed in accordance with, the law of the State of New
York.

 27
 

 

(b)                                 Submission
to Jurisdiction.  The Parties hereby
submit to the nonexclusive jurisdiction of the United States District Court for
the Southern District of New York and of the Supreme Court of the State of New
York sitting in New York County (including its Appellate Division), and of any
other appellate court in the State of New York (the “New York Courts”),
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby.  Notwithstanding the nonexclusive submission
above:

(A)                              With
respect to any proceeding initiated by or on behalf of any Reliant Retail
Obligor arising out of or relating to this Agreement or the transactions
contemplated hereby, the Reliant Retail Obligors agree to bring such proceeding
exclusively in the United States District Court for the Southern District of
New York or if such court does not have subject matter jurisdiction in any of
the other New York Courts located in New York, New York, and in such case EACH
PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING;

(B)                                With
respect to any proceeding initiated by or on behalf of the Lender arising out
of or relating to this Agreement or the transactions contemplated hereby, which
the Lender elects to bring in the United States District Court for the Southern
District of New York or if such court does not have subject matter jurisdiction
in any of the other New York Courts located in New York, New York, EACH PARTY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING; and

(C)                                With
respect to any proceeding initiated by or on behalf of Lender arising out of or
relating to this Agreement or the transactions contemplated hereby, which the
Lender elects to bring in the United States District Court for the Southern
District of Texas (Houston Division) or if such court does not have subject
matter jurisdiction in any of the other Texas Courts located in Houston, Texas,
the Reliant Retail Obligors expressly reserve their right to trial by jury.

(c)                                  Waiver
of Venue.  Each Party hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.

(d)                                 Service
of Process.  Each Party to this
Agreement irrevocably consents to service of process in the manner provided for
notices in Section 9.01.  Nothing in this
Agreement will affect the right of any Party to this Agreement to serve process
in any other manner permitted by law.

SECTION 9.10.                                         Headings. 
Article and Section headings and the Table of Contents used herein are
for convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in interpreting,
this Agreement.

 28
 

 

SECTION 9.11.                                         Confidentiality.  The
Lender agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its
Affiliates’ directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to
the extent requested by any Governmental Authority, (c) to the extent
required by applicable laws or regulations or by any subpoena or similar legal
process, (d) to any other party to this Agreement, (e) in connection
with the exercise of any remedies hereunder or any suit, action or proceeding
relating to this Agreement or the enforcement of rights hereunder,
(f) subject to an agreement containing provisions substantially the same
as those of this Section, to (i) any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement or (ii) any actual or prospective counterparty (or
its advisors) to any swap or derivative transaction relating to the Borrower
and its obligations, (g) with the consent of the Borrower or (h) to
the extent such Information (i) becomes publicly available other than as a
result of a breach of this Section or (ii) becomes available to the Lender
on a nonconfidential basis from a source other than the Borrower.  For the purposes of this Section, “Information”
means all information received from the Borrower relating to the Borrower or
its business, other than any such information that is available to the Lender
on a nonconfidential basis prior to disclosure by the Borrower; provided
that, in the case of information received from the Borrower after the date
hereof, such information is clearly identified at the time of delivery as
confidential.  Any Person required to
maintain the confidentiality of Information as provided in this Section shall
be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

SECTION 9.12.                                         USA
PATRIOT Act.  The Lender hereby notifies the Borrower that
pursuant to the requirements of the USA PATRIOT Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)), the Lender
may be required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and
other information that will allow the Lender to identify the Borrower in
accordance with said Act.

SECTION 9.13.                                         Interest
Rate Limitation.  Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated
as interest on such Loan under applicable law (collectively the “Charges”),
shall exceed the maximum lawful rate (the “Maximum Rate”) which may be
contracted for, charged, taken, received or reserved by the Lender holding such
Loan in accordance with applicable law, the rate of interest payable in respect
of such Loan hereunder, together with all Charges payable in respect thereof,
shall be limited to the Maximum Rate and, to the extent lawful, the interest
and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated and the
interest and Charges payable to the Lender in respect of other Loans or periods
shall be increased (but not above the Maximum Rate therefor) until such
cumulated amount, together with interest thereon at the Federal Funds Rate to
the date of repayment, shall have been received by the Lender.

 29
 

 

SECTION 9.14.                                         Provisions
Relating to the Collateral Trust Agreement, Etc.  The Lender hereby agrees that at the
direction of the Borrower from time to time and to the extent no Default or
Event of Default exists and no Default or Event of Default would be caused
thereby, the Lender shall or shall direct the Collateral Trustee, as
applicable, to:

(a)                                  accept
additional Collateral in accordance with Section 2.03 of the Collateral Trust
Agreement;

(b)                                 accept
Replacement Sleeve Providers and Replacement Working Capital Providers and
their respective agreements as additional secured counterparties and secured
agreements in accordance with Section 3.01 and 3.03 of the Collateral Trust
Agreement;

(c)                                  remove
the Lender as a secured counterparty with respect to the Obligations under this
Agreement and the Security Documents in accordance with Section 3.02 and 3.03
of the Collateral Trust Agreement upon the payment in full of all Obligations
under this Agreement and the Security Documents (or, if the Lender is the sole
secured counterparty under the Collateral Trust Agreement upon the payment in
full of all obligations under this Agreement and the Security Documents, at the
direction of the Borrower release all of the Collateral in accordance with
Section 2.07 of the Collateral Trust Agreement);

(d)                                 with
respect to, and to the extent of, property constituting Collateral that is, or
will be, sold or otherwise transferred or disposed of in connection with any
transaction permitted under this Agreement, release or confirm the release of
such Collateral under Sections 2.04, 2.05 or 2.06 of the Collateral Trust
Agreement, as applicable; provided that (i) to the extent that such sale,
transfer or other disposition is of all of the Equity Interests in a
Subsidiary, the Lender shall also instruct the Collateral Trustee to release
all of the assets of such Subsidiary that constitute Collateral, (ii) to the
extent that such sale, transfer or other disposition is of all or substantially
all of the assets of a Subsidiary, the Lender shall also instruct the
Collateral Trustee to release all of the Equity Interests in such Subsidiary
that constitute Collateral and (iii) in the case of clauses (i) and (ii), the
Lender shall make or approve any conforming changes reasonably requested by the
Borrower in the Security Documents necessary to implement such release in the
reasonable discretion of the Lender; and

(e)                                  amend,
restate, supplement, modify, renew or replace, or forbear from exercising any
rights with respect to the terms or provisions contained in, or cancel,
terminate or suspend performance under, any Security Document, or consent to
the taking of any of the foregoing actions with respect to any other
Transaction Document, in each case to the extent such foregoing action is
approved by the Lender in accordance with Section 7.11 of the CSRA as
incorporated by reference in this Agreement pursuant to Section 6.02.

 30
 

 

The Lender shall
timely execute and deliver, provide, return or otherwise make available or direct
the execution and delivery, provision, return or otherwise making available of
all filings, recordings, notices, and other related documents and agreements,
including releases and notices, directions and other communications to the
Collateral Trustee, reasonably required to implement the foregoing in
accordance with the terms of the foregoing.

ARTICLE X

THE GUARANTY

SECTION 10.01                                      Guaranty
of the Obligations.  Subject to the
provisions of Section 10.02, the Guarantors jointly and severally hereby irrevocably
and unconditionally guaranty to the Lender (i) the due and punctual
payment in full of all Obligations and all other amounts payable by the
Borrower to the Lender under the Transaction Documents when the same shall
become due, whether at Stated Maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. §362(a)) and (ii) the performance of all other obligations
of the Borrower hereunder (collectively, the “Guaranteed Obligations”).

SECTION 10.02                                      Payment
by Guarantors.  The Guarantors hereby
jointly and severally agree, in furtherance of the foregoing and not in
limitation of any other right which the Lender may have at law or in equity
against any Guarantor by virtue hereof, that upon the failure of the Borrower
to pay any of the Guaranteed Obligations when and as the same shall become due,
whether at Stated Maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. §362(a)), the Guarantors will upon demand pay, or cause to be paid, in cash,
to the Lender, an amount equal to the sum of the unpaid principal amount of all
Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on
such Guaranteed Obligations (including interest which, but for the Borrower’s
becoming the subject of a case under the Bankruptcy Code, would have accrued on
such Guaranteed Obligations, whether or not a claim is allowed against the
Borrower for such interest in the related bankruptcy case) and all other
Guaranteed Obligations then owed to the Lender as aforesaid.

SECTION 10.03                                      Liability
of Guarantors Absolute.  Each
Guarantor agrees that its obligations hereunder are irrevocable, absolute,
independent and unconditional and shall not be affected by any circumstance
which constitutes a legal or equitable discharge of a guarantor or surety other
than payment in full of the Guaranteed Obligations.  In furtherance of the foregoing and without
limiting the generality thereof, each Guarantor agrees as follows:

 31
 

 

(a) this Guaranty
is a guaranty of payment when due and not of collectability.  This Guaranty is a primary obligation of each
Guarantor and not merely a contract of surety;

(b) the
obligations of each Guarantor hereunder are independent of the obligations of
the Borrower and the obligations of any other guarantor (including any other
Guarantor) of the obligations of the Borrower, and a separate action or actions
may be brought and prosecuted against such Guarantor whether or not any action
is brought against the Borrower or any of such other guarantors and whether or
not the Borrower is joined in any such action or actions;

(c) payment by any
Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no
way limit, affect, modify or abridge any Guarantor’s liability for any portion
of the Guaranteed Obligations which has not been paid; and without limiting the
generality of the foregoing, if the Lender is awarded a judgment in any suit
brought to enforce any Guarantor’s covenant to pay a portion of the Guaranteed
Obligations, such judgment shall not be deemed to release such Guarantor from
its covenant to pay the portion of the Guaranteed Obligations that is not the
subject of such suit, and such judgment shall not, except to the extent
satisfied by such Guarantor, limit, affect, modify or abridge any other
Guarantor’s liability hereunder in respect of the Guaranteed Obligations;

(d) the Lender,
upon such terms as it deems appropriate, without notice or demand and without
affecting the validity or enforceability hereof or giving rise to any
reduction, limitation, impairment, discharge or termination of any Guarantor’s
liability hereunder, from time to time may (i) renew, extend, accelerate,
increase the rate of interest on, or otherwise change the time, place, manner
or terms of payment of the Guaranteed Obligations; (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Guaranteed Obligations or any agreement relating
thereto and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guaranteed
Obligations and take and hold security for the payment hereof or the Guaranteed
Obligations; (iv) release, surrender, exchange, substitute, compromise, settle,
rescind, waive, alter, subordinate or modify, with or without consideration,
any security for payment of the Guaranteed Obligations, any other guaranties of
the Guaranteed Obligations, or any other obligation of any Person (including
any other Guarantor) with respect to the Guaranteed Obligations; (v) enforce
and apply any security now or hereafter held by or for the benefit of the
Lender in respect hereof or the Guaranteed Obligations and direct the order or
manner of sale thereof, or exercise any other right or remedy that the Lender
may have against any such security, in each case as the Lender in its
discretion may determine consistent herewith or any applicable security
agreement, including foreclosure on any such security pursuant to one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy
of any Guarantor against the Borrower or any

 32
 

 

security for the
Guaranteed Obligations; and (vi) exercise any other rights available to it
under the Transaction Documents; and

(e) this Guaranty
and the obligations of the Guarantors hereunder shall be valid and enforceable
and shall not be subject to any reduction, limitation, impairment, discharge or
termination for any reason (other than payment in full of the Guaranteed
Obligations), including the occurrence of any of the following, whether or not
any Guarantor shall have had notice or knowledge of any of them: (i) any
failure or omission to assert or enforce or agreement or election not to assert
or enforce, or the stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand or any right,
power or remedy (whether arising under the Transaction Documents, at law, in
equity or otherwise) with respect to the Guaranteed Obligations or any
agreement relating thereto, or with respect to any other guaranty of or security
for the payment of the Guaranteed Obligations; (ii) any rescission, waiver,
amendment or modification of, or any consent to departure from, any of the
terms or provisions (including provisions relating to events of default)
hereof, any of the other Transaction Documents or any agreement or instrument
executed pursuant thereto, or of any other guaranty or security for the
Guaranteed Obligations, in each case whether or not in accordance with the
terms hereof or such Credit Document or any agreement relating to such other
guaranty or security; (iii) the Guaranteed Obligations, or any agreement
relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect; (iv) the Lender’s consent to the change,
reorganization or termination of the corporate structure or existence of the
Borrower or any of its Subsidiaries and to any corresponding restructuring of
the Guaranteed Obligations; (v) any failure to perfect or continue perfection
of a security interest in any collateral which secures any of the Guaranteed
Obligations; and (vi) any other act or thing or omission, or delay to do any
other act or thing, which may or might in any manner or to any extent vary the
risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.

SECTION 10.04                                      Waivers
By Guarantors.  Each Guarantor hereby
waives, for the benefit of the Lender: (a) any right to require the Lender, as
a condition of payment or performance by such Guarantor, to (i) proceed against
the Borrower, any other guarantor (including any other Guarantor) of the
Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any
security held from the Borrower, any such other guarantor or any other Person,
(iii) proceed against or have resort to any balance of any deposit account or
credit on the books of the Lender in favor of the Borrower or any other Person,
or (iv) pursue any other remedy in the power of the Lender whatsoever; (b) any
defense arising by reason of the incapacity, lack of authority or any disability
or other defense of the Borrower or any other Guarantor including any defense
based on or arising out of the lack of validity or the unenforceability of the
Guaranteed Obligations or any agreement or instrument relating thereto or by
reason of the cessation of the liability of the Borrower or any other Guarantor
from any cause other than payment in full of the Guaranteed Obligations; (c)
any defense based upon any statute or rule of law which provides that the
obligation of a surety must be neither larger in amount nor in other respects
more burdensome than that of the principal; (d) (i) any principles or
provisions of law, statutory or otherwise, which are or might be in conflict
with the terms hereof and any legal or equitable discharge of such Guarantor’s
obligations hereunder, (ii) the benefit of

 33
 

 

any statute of
limitations affecting such Guarantor’s liability hereunder or the enforcement
hereof, (iii) any rights to set offs, recoupments and counterclaims, and (iv)
promptness, diligence and any requirement that the Lender protect, secure,
perfect or insure any security interest or lien or any property subject
thereto; (e) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
hereof, notices of default hereunder or under any agreement or instrument
related thereto, notices of any renewal, extension or modification of the
Guaranteed Obligations or any agreement related thereto, notices of any
extension of credit to the Borrower and notices of any of the matters referred
to in Section 10.04 and any right to consent to any thereof; and (f) any
defenses or benefits that may be derived from or afforded by law which limit
the liability of or exonerate guarantors or sureties, or which may conflict
with the terms hereof.

SECTION 10.05                                      Guarantors’
Rights of Subrogation, Contribution, etc. 
Until the Guaranteed Obligations shall have been indefeasibly paid in
full, each Guarantor hereby agrees not to exercise any claim, right or remedy,
direct or indirect, that such Guarantor now has or may hereafter have against
the Borrower or any other Guarantor or any of its assets in connection with
this Guaranty or the performance by such Guarantor of its obligations
hereunder, in each case whether such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise and including without
limitation (a) any right of subrogation, reimbursement or indemnification that
such Guarantor now has or may hereafter have against the Borrower with respect
to the Guaranteed Obligations, (b) any right to enforce, or to participate in,
any claim, right or remedy that the Lender now has or may hereafter have
against the Borrower, and (c) any benefit of, and any right to participate in,
any collateral or security now or hereafter held by the Lender.  In addition, until the Guaranteed Obligations
shall have been indefeasibly paid in full, each Guarantor shall withhold
exercise of any right of contribution such Guarantor may have against any other
guarantor (including any other Guarantor) of the Guaranteed Obligations,
including any such right of contribution as contemplated by Section 10.02.  Each Guarantor further agrees that, to the extent
the agreement to withhold the exercise of its rights of subrogation,
reimbursement, indemnification and contribution as set forth herein is found by
a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification such Guarantor may have
against the Borrower or against any collateral or security, and any rights of
contribution such Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights the Lender may have against the Borrower,
to all right, title and interest the Lender may have in any such collateral or
security, and to any right the Lender may have against such other
guarantor.  If any amount shall be paid
to any Guarantor on account of any such subrogation, reimbursement, indemnification
or contribution rights at any time when all Guaranteed Obligations shall not
have been finally and indefeasibly paid in full, such amount shall be held in
trust for the Lender and shall forthwith be paid over to the Lender to be
credited and applied against the Guaranteed Obligations, whether matured or
unmatured, in accordance with the terms hereof.

SECTION 10.06                                      Subordination
of Other Obligations.  Any Indebtedness of the Borrower or
any Guarantor now or hereafter held by any Guarantor (the “Obligee Guarantor”)
is hereby subordinated in right of payment to the Guaranteed Obligations, and
any such indebtedness collected or received by the Obligee Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for the
Lender and shall forthwith be paid over to

 34
 

 

the Lender to be credited
and applied against the Guaranteed Obligations but without affecting, impairing
or limiting in any manner the liability of the Obligee Guarantor under any
other provision hereof.

SECTION 10.07                                      Continuing
Guarantee.  This Guaranty is a
continuing guaranty and shall remain in effect until all of the Guaranteed
Obligations shall have been indefeasibly paid in full.  Each Guarantor hereby irrevocably waives any
right to revoke this Guaranty as to future transactions giving rise to any
Guaranteed Obligations.

SECTION 10.08                                      Authority
of Guarantors or the Borrower.  It is
not necessary for the Lender to inquire into the capacity or powers of any
Guarantor or the Borrower or the officers, directors or any agents acting or
purporting to act on behalf of any of them.

SECTION 10.09                                      Financial
Condition of the Borrower.  Any
Guaranty may be made to the Borrower or continued from time to time, without
notice to or authorization from any Guarantor regardless of the financial or
other condition of the Borrower at the time of any such grant or
continuation.  The Lender shall have no
obligation to disclose or discuss with any Guarantor its assessment, or any
Guarantor’s assessment, of the financial condition of the Borrower.  Each Guarantor has adequate means to obtain
information from the Borrower on a continuing basis concerning the financial
condition of the Borrower and its ability to perform its obligations under the
Transaction Documents, and each Guarantor assumes the responsibility for being
and keeping informed of the financial condition of the Borrower and of all
circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations.  Each Guarantor hereby waives
and relinquishes any duty on the part of the Lender to disclose any matter,
fact or thing relating to the business, operations or conditions of the
Borrower now known or hereafter known by the Lender.

SECTION 10.10                                      Bankruptcy,
etc.

(a) So long as any
Guaranteed Obligations remain outstanding, no Guarantor shall, without the
prior written consent of Lender, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency case or proceeding of
or against the Borrower or any other Guarantor or admit in writing or in any
legal proceeding that it is unable to pay its debts as they become due.  The obligations of Guarantors hereunder shall
not be reduced, limited, impaired, discharged, deferred, suspended or
terminated by any case or proceeding, voluntary or involuntary, involving the
bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of the Borrower or any other Guarantor or by any defense which the
Borrower or any other Guarantor may have by reason of the order, decree or
decision of any court or administrative body resulting from any such
proceeding.

(b) Each Guarantor
acknowledges and agrees that any interest on any portion of the Guaranteed
Obligations which accrues after the commencement of any case or proceeding
referred to in clause (a) above (or, if interest on any portion of the
Guaranteed Obligations ceases to accrue by operation of law by reason of the
commencement of such case or proceeding, such interest as would have accrued on
such portion of the

 35
 

 

Guaranteed
Obligations if such case or proceeding had not been commenced) shall be
included in the Guaranteed Obligations because it is the intention of
Guarantors and the Lender that the Guaranteed Obligations which are guaranteed
by Guarantors pursuant hereto should be determined without regard to any rule
of law or order which may relieve the Borrower of any portion of such
Guaranteed Obligations.  Guarantors will
permit any trustee in bankruptcy, receiver, debtor in possession, assignee for
the benefit of creditors or similar person to pay the Lender, or allow the
claim of the Lender in respect of, any such interest accruing after the date on
which such case or proceeding is commenced.

(c) In the event
that all or any portion of the Guaranteed Obligations are paid by the Borrower,
the obligations of Guarantors hereunder shall continue and remain in full force
and effect or be reinstated, as the case may be, in the event that all or any
part of such payment(s) are rescinded or recovered directly or indirectly from
the Lender as a preference, fraudulent transfer or otherwise, and any such
payments which are so rescinded or recovered shall constitute Guaranteed
Obligations for all purposes hereunder.

 36
 

 

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

	
   

  	
  BORROWER

  
	
   

  	
   

  
	
   

  	
  RELIANT ENERGY POWER
  SUPPLY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lloyd A. Whittington

  	
   

  
	
   

  	
   

  	
  Lloyd A. Whittington

  
	
   

  	
   

  	
  Vice President and Treasurer

  

 

U.S. Federal Tax
Identification No.:  20-4823108

 37

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  MERRILL LYNCH CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Carol J.E. Feeley

  	
   

  
	
   

  	
   

  	
  Name: Carol J.E. Feeley

  
	
   

  	
   

  	
  Title: Vice President

  

 38

 

	
  

  	
  GUARANTORS

  
	
   

  	
   

  
	
   

  	
  RERH HOLDINGS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Daniel N. Hannon

  	
   

  
	
   

  	
   

  	
  Daniel N. Hannon

  
	
   

  	
   

  	
  Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
  RELIANT ENERGY RETAIL HOLDINGS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Daniel N. Hannon

  	
   

  
	
   

  	
   

  	
  Daniel N. Hannon

  
	
   

  	
   

  	
  Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
  RELIANT ENERGY RETAIL SERVICES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lloyd A. Whittington

  	
   

  
	
   

  	
   

  	
  Lloyd A. Whittington

  
	
   

  	
   

  	
  Vice President and Treasurer

  

 

EXHIBIT A

[FORM OF ASSIGNMENT AND ASSUMPTION]

This Assignment and Assumption (the “Assignment and
Assumption”) is dated as of the Effective Date set forth below and is
entered into by and between Merrill Lynch Capital Corporation (the “Assignor”)
and [Insert name of Assignee] (the “Assignee”).  Capitalized terms used but not defined herein
shall have the meanings given to them in the Working Capital Facility
identified below  (as amended, the “Working
Capital Facility”), receipt of a copy of which is hereby acknowledged by
the Assignee.  The Standard Terms and
Conditions set forth in Annex 1 attached hereto are hereby agreed to and
incorporated herein by reference and made a part of this Assignment and
Assumption as if set forth herein in full.

For an agreed
consideration, the Assignor hereby irrevocably sells and assigns to the
Assignee, and the Assignee hereby irrevocably purchases and assumes from the
Assignor, subject to and in accordance with the Standard Terms and Conditions
and the Working Capital Facility, as of the Effective Date inserted by the
Lender as contemplated below (i) all of the Assignor’s rights and
obligations in its capacity as the Lender under the Working Capital Facility
and any other documents or instruments delivered pursuant thereto to the extent
related to such outstanding rights and obligations of the Assignor under the
Working Capital Facility identified below (including any guarantees included
therein) and (ii) to the extent permitted to be assigned under applicable
law, all claims, suits, causes of action and any other right of the Assignor
(in its capacity as the Lender) against any Person, whether known or unknown,
arising under or in connection with the Working Capital Facility, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims
and all other claims at law or in equity related to the rights and obligations
sold and assigned pursuant to clause (i) above (the rights and obligations
sold and assigned pursuant to clauses (i) and (ii) above being referred to
herein collectively as the “Assigned Interest”).  Such sale and assignment is without recourse
to the Assignor and, except as expressly provided in this Assignment and
Assumption, without representation or warranty by the Assignor.

	
  1.

  	
  Assignor:

  	
  Merrill Lynch Capital Corporation

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Assignee:

  	
   

  	
   

  
	
   

  	
   

  	
  [and is an Affiliate/Approved Fund of the Assignor]

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Borrower:

  	
  Reliant Energy Power Supply, LLC

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Working Capital Facility:

  	
  The $300,000,000 Working Capital Facility dated as
  of September 24, 2006 among Reliant Energy Power Supply, LLC, Merrill
  Lynch Capital Corporation, as Lender, and the Guarantors parties thereto.

  

 

 

	
  5.

  	
  Assigned Interest:

  	
   

  

 

 

	
  Amount of

  Commitment Assigned

  	
   

  	
  Amount of Loans

  Assigned

  	
   

  	
  Percentage Assigned

  of

  Commitment/Loans

  	
   

  
	
  $

  	
   

  	
   

  	
   

  	
  100%

  	
   

  

 

Effective Date: 
                     
    , 20     [TO BE INSERTED BY
THE LENDER AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN
THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed
to:

	
   

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  MERRILL LYNCH CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
					

 

 2
 

 

[Consented
to:](1)

	
  RELIANT ENERGY POWER SUPPLY, LLC

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
				

 

(1)           To be added only if the consent of
the Borrower is required by the terms of the Working Capital Facility.

 3

ANNEX 1

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1.           Representations
and Warranties.

1.1         Assignor.  The Assignor (a) represents and warrants
that (i) it is the legal and beneficial owner of the Assigned Interest,
(ii) the Assigned Interest is free and clear of any lien, encumbrance or
other adverse claim and (iii) it has full power and authority, and has
taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby; and
(b) assumes no responsibility with respect to (i) any statements,
warranties or representations made in or in connection with the Working Capital
Facility or any other Transaction Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Working
Capital Facility or any other Transaction Document or any collateral
thereunder, (iii) the financial condition of the Borrower, any of its
Subsidiaries or Affiliates or any other Person obligated in respect of the
Working Capital Facility or any other Transaction Document or (iv) the
performance or observance by the Borrower, any of its Subsidiaries or
Affiliates or any other Person of any of their respective obligations under the
Working Capital Facility or any other Transaction Document.

1.2.        Assignee.  The Assignee (a) represents and warrants
that (i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby and to become a Lender under
the Working Capital Facility, (ii) it satisfies the requirements, if any,
specified in the Working Capital Facility that are required to be satisfied by
it in order to acquire the Assigned Interest and become a Lender,
(iii) from and after the Effective Date, it shall be bound by the
provisions of the Working Capital Facility as a Lender thereunder and, to the
extent of the Assigned Interest, shall have the obligations of a Lender
thereunder, and (iv) it has received a copy of the Working Capital
Facility, together with copies of the most recent financial statements
delivered pursuant to Section 6.01 of the CSRA as incorporated by reference in
Section 5.03 of the Working Capital Facility, as applicable, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Assumption and to
purchase the Assigned Interest on the basis of which it has made such analysis
and decision independently and without reliance on the Lender and
(b) agrees that (i) it will, independently and without reliance on
the Assignor or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Working Capital Facility,
and (ii) it will perform in accordance with their terms all of the
obligations which by the terms of the Working Capital Facility are required to
be performed by it as a Lender.

2.           Payments.   From and after the Effective Date, the
Lender shall cause the Borrower to make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignor for amounts which have accrued to

but excluding the Effective Date and to the Assignee
for amounts which have accrued from and after the Effective Date.

3.           General
Provisions.  This Assignment and
Assumption shall be binding upon, and inure to the benefit of, the parties
hereto and their respective successors and assigns.  This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument.  Delivery of an executed
counterpart of a signature page of this Assignment and Assumption by telecopy
shall be effective as delivery of a manually executed counterpart of this
Assignment and Assumption.  This
Assignment and Assumption shall be governed by, and construed in accordance
with, the law of the State of New York.

 2

EXHIBIT B

[FORM OF PROMISSORY NOTE]

PROMISSORY NOTE

	
  $[               ]

  	
  [            ],
  20[   ]

  
	
   

  	
  New York, New York

  

 

FOR VALUE RECEIVED,
Reliant Energy Power Supply, LLC, a Delaware limited liability company (the “Borrower”),
hereby promises to pay to Merrill Lynch Capital Corporation (the “Lender”),
at the office of the Lender as shall be notified to the Borrower from time to
time, the principal sum of [DOLLAR AMOUNT] dollars (or such lesser amount as
shall equal the aggregate unpaid principal amount of the Loans made by the
Lender to the Borrower under the Working Capital Facility), in lawful money of
the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Working Capital Facility, and to
pay interest on the unpaid principal amount of each such Loan, at such office,
in like money and funds, for the period commencing on the date of such Loan
until such Loan shall be paid in full, at the rates per annum and on the dates
provided in the Working Capital Facility.

The date, amount, Type,
interest rate and duration of Interest Period (if applicable) of each Loan made
by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, endorsed by the Lender on the schedule attached
hereto or any continuation thereof, provided that the failure of the
Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
under the Working Capital Facility or hereunder in respect of the Loans made by
the Lender.

This Note evidences Loans
made by the Lender under the Working Capital Facility dated as of September 24,
2006 (as modified and supplemented and in effect from time to time, the “Working
Capital Facility”) among the Borrower, the Lender and the Guarantors party
thereto.  Terms used but not defined in
this Note have the respective meanings assigned to them in the Working Capital
Facility.

The Working
Capital Facility provides for the acceleration of the maturity of this Note
upon the occurrence of certain events and for prepayments of Loans upon the
terms and conditions specified therein.

Except as
permitted by Section 9.04 of the Working Capital Facility, this Note may
not be assigned by the Lender to any other Person.

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

	
   

  	
  RELIANT ENERGY POWER SUPPLY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 2
 

SCHEDULE OF LOANS

This Note
evidences Loans made, continued or converted under the within-described
Working Capital Facility to the Borrower, on the dates, in the principal
amounts, of the Types, bearing interest at the rates and having Interest
Periods (if applicable) of the durations set forth below, subject to the
continuations, conversions and payments and prepayments of principal set forth
below:

	
  Date

  	
   

  	
  Principal

  Amount of

  Loan

  	
   

  	
  Type of

  Loan

  	
   

  	
  Interest

  Rate

  	
   

  	
  Duration of

  Interest Period

  (if any)

  	
   

  	
  Amount

  Paid,

  Prepaid,

  Continued or

  Converted

  	
   

  	
  Notation

  Made by

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 3

EXHIBIT C

[FORM OF BORROWING
REQUEST]

[                  ],
20[    ]

Merrill Lynch
Capital Corporation
4 World Trade Center
22nd Floor
New York, New York  10080
Attention:  Gillian Prince

Re:                               Reliant
Energy Power Supply, LLC

Reliant Energy Power Supply, LLC (the “Borrower”), delivers this
Borrowing Request in accordance with Section 2.03 of the Working Capital
Facility, dated as of September 24, 2006, by and among the Borrower, the Lender
party thereto and the Guarantors party thereto (the “Working Capital Facility”).  All terms used herein and not defined herein
have the meaning assigned thereto in the Working Capital Facility.

The Borrower hereby requests that a Borrowing be made as follows:

1.             The aggregate amount of the
Borrowing being requested hereby is $[        ].

2.             It is hereby requested that a
Borrowing set forth in paragraph 1 above be made by 3:00 p.m., New York
City time, on [                   ]
(which shall be a Business Day).

3.             The Borrowing is to be [an ABR] [a
Eurodollar] Borrowing.

4.             If
the Borrowing is a Eurodollar Borrowing, the initial Interest Period therefor
is one month.

5.             The
location and number of the Borrower’s account to which funds are to be
disbursed are [                                  ],
[                                        ].

6.             The
Borrower hereby confirms that the conditions set forth in Section 4.02 of
the Working Capital Facility are satisfied as of the date hereof (unless
otherwise specified therein).

	
  

  	
  RELIANT ENERGY
  POWER SUPPLY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  

 

EXHIBIT
D

[FORM OF INTEREST ELECTION REQUEST]

[                  ],
20[    ]

Merrill Lynch
Capital Corporation
4 World Trade Center
22nd Floor
New York, New York  10080
Attention:  Gillian Prince

Re:                               Reliant
Energy Power Supply, LLC

Reliant Energy Power Supply, LLC (the “Borrower”), delivers this
Interest Election Request in accordance with Section 2.03 of the Working
Capital Facility, dated as of September 24, 2006, by and among the Borrower,
the Lender party thereto and the Guarantors party thereto (the “Working
Capital Facility”).  All terms used
herein and not defined herein have the meaning assigned thereto in the Working
Capital Facility.

The Borrower hereby requests the continuation or conversion of Loans
under the Working Capital Facility as follows (complete as appropriate):

o              On                     ,
20   , the Borrower requests that the Eurodollar Loans having
Interest Periods that expire on such date and in a principal amount of $[                      ]
be continued as Eurodollar Loans with an Interest Period of one month’s
duration; and

o              On                  ,
20   , the Borrower requests that the Eurodollar Loans having
Interest Periods that expire on such date and in a principal amount of $[                      ]
be converted into ABR Loans.

o              On                  ,
20   , the Borrower requests that ABR Loans be converted into
Eurodollar Loans in a principal amount of $[                    ]
having Interest Periods of one month’s duration.

	
  

  	
  RELIANT ENERGY
  POWER SUPPLY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

EXHIBIT E

[FORM OF WCF JOINDER AGREEMENT]

[TO BE ATTACHED IN ACCORDANCE WITH SECTION 4.01(a) OF
THE WORKING CAPITAL FACILITY]

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