Document:

EXHIBIT 10.4

 

Blackstone Management Partners IV
L.L.C.

H&F Administration IV, LLC 

Kohlberg Kravis Roberts & Co. L.P.

TPG GenPar III, L.P.

TPG GenPar IV, L.P.

 

December 15, 2004

 

 

Texas Genco LLC 

12301 Kurland Drive, 4th Floor

Houston, Texas 77034

 

Ladies
and Gentlemen:

 

This letter serves to confirm the retention
by Texas Genco LLC (the “Company”) of Blackstone Management Partners IV L.L.C.
(“BMP”), H&F
Administration IV, LLC
(“H&F”), Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and TPG GenPar
III, L.P. and TPG GenPar IV, L.P. (together, “TPG”) to provide management,
consulting and financial services to the Company and its divisions,
subsidiaries and affiliates (collectively, “Texas Genco”), as follows below.
BMP, H&F, KKR and TPG are collectively referred to herein as the “Sponsor
Management Entities” or “us”.

 

1.             The
Company has retained us, and we hereby agree to accept such retention, to
provide to Texas Genco, when and if called upon, certain management, consulting
and financial services of the type customarily performed by us.  The Company agrees to pay us an annual fee in
an amount equal to ten million dollars ($10,000,000.00) (the “Annual Fee”).  Commencing January 1, 2005, each payment
of the Annual Fee shall be payable in quarterly installments in arrears at the
end of each calendar quarter.  Amounts
payable by the Company to the Sponsor Management Entities pursuant to this
paragraph shall be paid to each respective Sponsor Management Entity pro rata
based on the percentage equity interests in the Company held by affiliates of
such Sponsor Management Entity (relative to the equity interests held by
affiliates of the other Sponsor Management Entities who own equity interests in
the Company) during the calendar quarter with respect to which such fee is owed.  In the event that the relative percentage
equity interests in the Company held by affiliates of such Sponsor Management
Entities vary throughout the calendar quarter with respect to which such fee is
owed, the amounts payable shall be allocated among the Sponsor Management
Entities based on average of their respective percentage equity interests over
the entire quarterly period.  All amounts
paid by the Company to the Sponsor Management Entities pursuant to this
paragraph shall be made by wire transfer of same-day funds to the respective
bank accounts designated by the Sponsor Management Entities, and shall not be
refundable under any circumstances.  For
purposes of this letter, to the extent any two or more Sponsor Management
Entities are each affiliated with the same entities that own equity interests
in the Company, such equity interests shall in each case be

 

 

measured
without any duplication for purposes of allocations of amounts between the
Sponsor Management Entities.

 

To the extent the Company is not permitted to pay the
Annual Fee by reason of any prohibition on such payment pursuant to the terms
of any debt financing agreement or instrument of the Company or any of its
subsidiaries, the payment by the Company to the Sponsor Management Entities of
the Annual Fee shall not be due and payable until immediately on the earlier of
(i) the first date on which the payment of such deferred Annual Fee is no
longer prohibited under the applicable agreement or instrument and the Company
is otherwise able to make such payment, and (ii) total or partial
liquidation, dissolution or winding up of the Company.

 

The parties hereto acknowledge and agree that an
objective of the Company is to maximize value for its direct and indirect
equityholders, which may include the consummation by the Company or a successor
entity of an initial Public Offering (as defined in the Company’s Amended and
Restated Limited Liability Company Agreement) (an “IPO”).  The services provided to the Company by the
Sponsor Management Entities will help to facilitate the consummation of an IPO,
should the Company determine to pursue such a transaction.  In the event an IPO is consummated, upon the
written request of the Sponsor Management Entities whose affiliates own a
majority of the equity interests in the Company held by affiliates of the
Sponsor Management Entities, in lieu and in termination of any further right to
receive the Annual Fee following the IPO, the Company shall pay on the date of
consummation of such IPO, an aggregate success fee of thirty million dollars
($30,000,000.00) in cash.  Such amount
shall be paid to each respective Sponsor Management Entity pro rata based on
the percentage equity interests in the Company held by affiliates of such
Sponsor Management Entity (relative to the equity interests held by affiliates
of the other Sponsor Management Entities who own equity interests in the
Company) on the day immediately prior to the consummation of the IPO.

 

2.             In
consideration for our structuring services rendered in connection with the
transactions contemplated in the Transaction Agreement, dated as of July 21,
2004 by and among the Company and the other parties thereto (the “Transaction
Agreement”, and such transactions, the “Transactions”), which such services
included, but were not limited to, financial advisory services and capital
structure review, the Company agrees to also pay a one-time transaction fee to
us in a total amount equal to fifty million dollars ($50,000,000.00), payable
immediately upon the completion of the Non-STP Acquisition (as defined in the
Transaction Agreement).  Such payment
shall be made to the Sponsor Management Entities as follows:

 

	
  BMP

  	
   

  	
  25.0

  	
  %

  
	
  H&F

  	
   

  	
  25.0

  	
  %

  
	
  KKR

  	
   

  	
  25.0

  	
  %

  
	
  TPG

  	
   

  	
  25.0

  	
  %

  

 

3.             Each
Sponsor Management Entity may also invoice the Company for additional fees in
connection with acquisition or divestiture transactions or in the event that
such Sponsor Management Entity, or any of its affiliates, perform
services for Texas Genco above and beyond those called for by this agreement.

 

2

 

4.             In
addition to any fees that may be payable to us under this agreement, the
Company also agrees to reimburse us and our affiliates, from time to time upon
request, for all reasonable out-of-pocket costs and expenses incurred,
including unreimbursed expenses incurred to the date hereof, in connection with
this retention and/or the Transactions, including travel expenses and fees and
expenses of any independent professionals and organizations, including independent
accountants, outside legal counsel and consultants.

 

5.             The
Company agrees to indemnify and hold us, our affiliates (including, without
limitation, affiliated investment entities) and their and our respective
partners, executives, officers, directors, employees, agents and controlling
persons (each such person, including us, being an “Indemnified Party”) harmless
from and against (i) any and all losses, claims, damages and liabilities
(including, without limitation, losses, claims, damages and liabilities arising
from or in connection with legal actions brought by or on behalf of the holders
or future holders of the outstanding securities of Texas Genco or creditors or
future creditors of Texas Genco), joint, several or otherwise, to which such
Indemnified Party may become subject under any applicable federal or state law,
or otherwise, related to or arising out of any activity contemplated by this
agreement or our retention pursuant to, and our or our affiliates’ performance
of the services contemplated by, this agreement and (ii) any and all
losses, claims, damages and liabilities, joint, several or otherwise, related
to or arising out of any action or omission or alleged action or omission
related to the Company or any of its direct or indirect subsidiaries or the
securities or obligations of any such entities. 
The Company will further, reimburse any Indemnified Party for all
expenses (including counsel fees and disbursements) upon request as they are
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising from any of
the foregoing, whether or not such Indemnified Party is a party and whether or
not such claim, action or proceeding is initiated or brought by the Company; provided,
however, that the Company will not be liable under the foregoing
indemnification provision (and amounts previously paid that are determined not
required to be paid by the Company pursuant to the terms of this paragraph
shall be repaid promptly) to the extent that any loss, claim, damage, liability
or expense is found in a final judgment by a court to have resulted from our
action or omission that is a criminal act that we had no reasonable cause to
believe was lawful or that constitutes fraud, willful misconduct or gross
negligence.  The Company agrees that no
Indemnified Party shall have any liability (whether direct or indirect, in
contract or tort or otherwise) to Texas Genco related to or arising out of our
retention pursuant to, or our affiliates’ performance of the services
contemplated by, this agreement except to the extent that any loss, claim,
damage, liability or expense is found in a final, non-appealable judgment by a
court to have resulted from our action or omission that is a criminal act that
we had no reasonable cause to believe was lawful or that constitutes fraud,
willful misconduct or gross negligence.

 

The Company also
agrees that, without our prior written consent, it will not settle, compromise
or consent to the entry of any judgment in any pending or threatened claim,
action or proceeding to which an Indemnified Party is an actual or potential
party and in respect of which indemnification could be sought under the
indemnification provision in the immediately preceding paragraph, unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding.

 

3

 

Promptly after receipt
by an Indemnified Party of notice of any suit, action, proceeding or
investigation with respect to which an Indemnified Party may be entitled to
indemnification hereunder, such Indemnified Party will notify the Company in
writing of the assertion of such claim or the commencement of such suit,
action, proceeding or investigation, but the failure to so notify the Company
shall not relieve the Company from any liability which it may have hereunder,
except to the extent that such failure has materially prejudiced the
Company.  If the
Company so elects within a reasonable time after receipt of such notice, the
Company may participate at its own expense in the defense of such suit, action,
proceeding or investigation.  Each
Indemnified Party may employ separate counsel to represent it or defend it in
any such suit, action, proceeding or investigation in which it may become
involved or is named as a defendant and, in such event, the reasonable fees and
disbursements of such counsel shall be borne by the Company; provided, however,
that the Company will not be required in connection with any such suit, action,
proceeding or investigation, or separate but substantially similar actions
arising out of the same general allegations or circumstances, to pay the fees and
disbursements of more than one separate counsel (other than local counsel) for
all Indemnified Parties in any single action or proceeding.  Whether or not the Company participates in
the defense of any claim, the Company and we shall cooperate in the defense
thereof and shall furnish such records, information and testimony, and attend
such conferences, discovery proceedings, hearings, trials and appeals, as may
be reasonably requested in connection therewith.

 

If the
indemnification provided for in clause (i) of the first sentence of this Section 5
is finally judicially determined by a court of competent jurisdiction to be
unavailable to an Indemnified Party, or insufficient to hold any Indemnified
Party harmless, in respect of any losses, claims, damages or liabilities (other
than any losses, claims, damages or liabilities found in a final judgment by a
court to have resulted from our action or omission that is a criminal act that
we had no reasonable cause to believe was lawful or that constitutes fraud,
willful misconduct or gross negligence), then the Company, on the one hand, in
lieu of indemnifying such Indemnified Party, and the applicable Sponsor
Management Entity (in respect of its related Indemnified Parties), on the other
hand, will contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received, or
sought to be received, by Texas Genco on the one hand and the applicable
Sponsor Management Entity, solely in such applicable Sponsor Management Entity’s
capacity as an advisor under this agreement, on the other hand in connection
with the transactions to which such indemnification, contribution or
reimbursement is sought, or (ii) if (but only if) the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) but also the relative fault of Texas Genco on the one hand and
the Indemnified Party on the other, as well as any other relevant equitable
considerations; provided, however, that in no event shall the
applicable Sponsor Management Entity’s aggregate contribution hereunder exceed
the amount of fees actually received by the applicable Sponsor Management
Entity in respect of the transaction at issue pursuant to this agreement.  The amount paid or payable by a party as a
result of the losses, claims, damages and liabilities referred to above will be
deemed to include any legal or other fees or expenses reasonably incurred in
defending any action or claim.  The
Company and we agree that it would not be just and equitable if contribution
pursuant to this paragraph were determined by pro rata allocation or by any
other method which does not take into account the equitable considerations
referred to in this

 

4

 

paragraph.  The indemnity, contribution and expense
reimbursement obligations that the Company has under this letter shall be in
addition to any liability the Company or Texas Genco may have, and
notwithstanding any other provision of this letter, shall survive the
termination of this agreement.

 

6.             Any
advice or opinions provided by us may not be disclosed or referred to publicly
or to any third party (other than Texas Genco’s legal, tax, financial or other
advisors), except in accordance with our prior written consent.

 

7.             Each
of the Sponsor Management Entities shall act as an independent contractor, with
duties solely to Texas Genco.  The
provisions hereof shall inure to the benefit of and shall be binding upon the
parties hereto and their respective successors and assigns.  Nothing in this agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns, and, to the extent expressly set forth
herein, the Indemnified Parties, any rights or remedies under or by reason of
this agreement.  Without limiting the
generality of the foregoing, the parties acknowledge that nothing in this
agreement, expressed or implied, is intended to confer on any present or future
holders of any securities of the Company or its subsidiaries or affiliates, or
any present or future creditor of the Company or its subsidiaries or
affiliates, any rights or remedies under or by reason of this agreement or any
performance hereunder.

 

8.             This
agreement shall be governed by and construed in accordance with the internal
laws of the State of New York.

 

9.             This
agreement shall continue in effect from year to year unless amended or
terminated by mutual consent; provided, however, that if the
affiliates of a Sponsor Management Entity shall cease to hold any equity
interests in Texas Genco, the consent of such Sponsor Management Entity shall
not be required for the termination of this agreement or any amendment to this
agreement that is not adverse to such Sponsor Management Entity.

 

10.           Each
party hereto represents and warrants that the execution and delivery of this
agreement by such party has been duly authorized by all necessary action of
such party.

 

11.           If
any term or provision of this agreement or the application thereof shall, in
any jurisdiction and to any extent, be invalid and unenforceable, such term or
provision shall be ineffective, as to such jurisdiction, solely to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable any remaining terms or provisions hereof or affecting the
validity or enforceability of such term or provision in any other
jurisdiction.  To the extent permitted by
applicable law, the parties hereto waive any provision of law that renders any
term or provision of this agreement invalid or unenforceable in any respect.

 

12.           Each
party hereto waives all right to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or otherwise) related to or
arising out of our retention pursuant to, or our performance of the services
contemplated by this agreement.

 

13.           Any
notices or other communications required or permitted by this agreement will be
sufficiently given if delivered personally or sent by facsimile with confirmed
receipt, or

 

5

 

by
overnight courier, addressed as follows or to such other address of which the
parties may have given written notice:

 

if to BMP:

 

c/o The
Blackstone Group

345 Park Avenue

31st Floor

New York, New York  10154

Attention:  David Foley

Facsimile: 
(212) 583-5913

 

if to H&F:

 

c/o Hellman &
Friedman LLC

One Maritime Plaza

12th Floor

San Francisco, CA  94123

Attention: 
Philip Hammarskjold

Facsimile: (415) 788-0176

 

if to KKR:

 

Kohlberg
Kravis Roberts & Co. L.P.

9 West 57th
Street

New York, New York  10019

Attention:
Marc Lipschultz

Facsimile: (212)
750-0003

 

if to TPG:

 

Texas Pacific
Group

345 California
Street

33rd
Floor

San Francisco,
CA  94104

Attention:
Michael MacDougall

Facsimile:  (415) 743-1501

 

if to Texas Genco LLC:

 

Texas Genco
LLC

12301 Kurland
Drive

4th
Floor

Houston,
TX  77034

Attention:  Chief Legal Officer

Facsimile:  (713) 207-6546

 

6

 

with a copy (which will not constitute
notice) to:

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York  10017

Attention: 
David J. Sorkin

Brian M. Stadler

Facsimile:  (212) 455-2502

 

14.           It
is expressly understood that the foregoing paragraphs 3-8, 11, 12 and 13
in their entirety, survive any termination of this agreement.

 

15.           This
agreement may be executed in counterparts (including by facsimile), each of
which shall be deemed an original agreement, but all of which together shall
constitute one and the same instrument.

 

7

 

If the foregoing
sets forth the understanding between us, please so indicate on the enclosed
signed copy of this letter in the space provided therefor and return it to us,
whereupon this letter shall constitute a binding agreement among us.

 

	
   

  	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BLACKSTONE MANAGEMENT PARTNERS

  IV L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  David Foley

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  David Foley

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  H&F ADMINISTRATION IV, LLC

  
	
   

  	
   

  	
  By:

  	
  Its Manager, H&F Investors III, Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Phillip Hammarskjöld

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Phillip Hammarskjöld

  
	
   

  	
   

  	
   

  	
  Title:  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KOHLBERG KRAVIS ROBERTS & CO. L.P.

  
	
   

  	
   

  	
  By:

  	
  KKR & CO. LLC, its general partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Marc Lipschultz

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Marc Lipschultz

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TPG GENPAR III, L.P.

  
	
   

  	
   

  	
  By:

  	
  TPG Advisors III, Inc., its General

  
	
   

  	
   

  	
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Michael MacDougall

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Michael MacDougall

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TPG GENPAR IV, L.P.

  
	
   

  	
   

  	
  By:

  	
  TPG Advisors IV, Inc., its General

  
	
   

  	
   

  	
  Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  s/
  Michael MacDougall

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Michael MacDougall

  
	
   

  	
   

  	
   

  	
  Title:

  

 

8

 

	
  AGREED
  TO AND ACCEPTED BY:

  
	
   

  	
   

  
	
   

  	
  Texas
  Genco LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

9EXHIBIT 10.6

 

EMPLOYMENT AGREEMENT

 

Jack A. Fusco

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is dated
as of December 15, 2004 (the “Effective Date”) by and between Texas Genco
LLC (the “Company”), Texas Genco Operating Services LLC, a wholly owned subsidiary
of the Company (the “Service Company”) and Jack A. Fusco (the “Executive”).

 

WHEREAS, pursuant to a Transaction Agreement dated as
of July 21, 2004, the Company has agreed to, among other things, acquire
Texas Genco Holdings, Inc. (“TGH”), in a multi-step transaction; and

 

WHEREAS, as of the Effective Date, the Company desires
to employ Executive and to enter into an agreement embodying the terms of such
employment and Executive desires to accept such employment and enter into such
an agreement.

 

NOW, THEREFORE, in consideration of the premises and
mutual covenants herein and for other good and valuable consideration, the
parties agree as follows:

 

1.                                       Term of
Employment.  Subject to the
provisions of Section 8 of this Agreement, Executive shall be employed by
the Company for a period commencing on December 15, 2004 and ending on December 31,
2009 (the “Employment Term”); provided, however, that commencing with December 31,
2009 and on each December 31 thereafter (each an “Extension Date”), the
Employment Term shall be automatically extended for an additional one year
period, unless the Company or Executive provides the other party hereto at
least 60 days prior written notice before the next Extension Date that the
Employment Term shall not be so extended (“Notice of Nonrenewal”).

 

2.                                       Position.

 

a.                                       During the Employment Term,
Executive shall serve as the Chairman and Chief Executive Officer of the
Company and of the Company’s significant subsidiaries.  In such position, Executive shall, subject to
any limitations or other directions determined from time to time by the Board
of Managers of the Company (the “Board”), have such duties and authority as are
consistent with the position of chairman and chief executive officer of a
company (and subsidiaries) of similar size and nature, including, without
limitation, authority to direct and manage strategic development and day-to-day
business operations of the Company and its subsidiaries.  Executive shall report directly to the Board.

 

b.                                      During the Employment Term,
Executive will devote Executive’s full business time to the performance of
Executive’s duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict or
interfere with the rendition of such services either directly or indirectly,
without the prior written consent of the Board; provided that nothing
herein shall preclude Executive, subject to the prior approval of the Board,
from accepting appointment to or continuing to serve on any board of

 

 

directors or trustees of any business corporation or any charitable
organization, or from serving on any charitable family foundations without the
prior approval of the Board, provided, further, in each case, and
in the aggregate, that such activities do not conflict or interfere with the
performance of Executive’s duties hereunder or conflict with Section 9.

 

3.                                       Base Salary.  During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of $600,000, payable in regular
installments in accordance with the Company’s usual payment practices.  Commencing in 2006, and annually thereafter,
the Board (or its Compensation Committee, as appropriate) shall review
Executive’s base salary in light of the performance of Executive and the
Company, and may, in its sole discretion, increase (but not decrease) such base
salary by an amount it determines to be appropriate.  Executive’s annual base salary, as in effect
from time to time, is hereinafter referred to as the “Base Salary.”

 

4.                                       Annual
Bonus.  During the Employment Term,
Executive shall be eligible to earn an annual bonus award in respect of each
fiscal year of the Company (or, for each of the first and last years of the
Employment Term, a pro rata bonus award based on the ratio that the number of
days of such fiscal year during the Employment Term bears to 365) (each an “Annual
Bonus”), in a target amount equal to 80% of Executive’s Base Salary (the “Target
Bonus”), with a maximum bonus opportunity of 160% (increasing in a linear
progression above 80% and up to 160% of Executive’s Base Salary), with no bonus
payable unless the Company achieves the threshold level of performance
established by the Board after consultation with Executive (for which the
threshold bonus will be 26% of Executive’s Base Salary), payable pursuant to
the terms of the applicable incentive compensation plan to be established by
the Board as soon as practicable after the Effective Date (the “Incentive Plan”).  Each Annual Bonus shall be payable promptly following
a determination by the Board (or a designated committee thereof) that the
applicable performance criteria have been satisfied, but in no event later than
30 days after the audited consolidated financial statements for the Company are
prepared for each such fiscal year.

 

5.                                       Equity
Participation.  Executive’s
equity participation in the Company shall be as set forth in the Equity Term
Sheet attached hereto as Exhibit A. Such terms shall be documented
pursuant to the Texas Genco LLC 2004 Unit Plan (the “Unit Plan”), Management
Unitholder’s Agreement, Unit Plan Award Agreements, and Amended and Restated
Limited Liability Company Agreement of the Company (the “LLC Agreement”), as
amended from time to time, each as executed by Executive, the Company, and its
members, as applicable, in such forms as are agreed to by the parties and
consistent with Exhibit A (collectively, the “Equity Documents”).  The Company and Executive each acknowledges
that the terms and conditions of the aforementioned Equity Documents govern
Executive’s acquisition, holding, sale or other disposition of Executive’s
equity in the Company, and all of Executive’s and the Company’s rights with
respect thereto, notwithstanding any provision of this Agreement to the
contrary.

 

6.                                       Employee Benefits.

 

a.                                       During the Employment Term,
Executive shall be entitled to (1) participation in the Company’s employee
401(k), health and welfare benefit plans and all fringe benefits and executive
perquisites as in effect from time to time, (2) 20 paid vacation days per
year and (3) sick leave, paid holidays and other paid time off in
accordance with the Company’s policies as in effect from time to time
(collectively “Employee Benefits”), on a basis no less

 

2

 

favorable than those benefits generally made available to other senior
executives of the  Company or to the
Company’s employees generally.

 

b.                                      For a period of nine months
following the Effective Date, Executive shall work both in the Company’s office
located in Houston, Texas and his home office in Annapolis, Maryland; provided,
however, that Executive understands that he may be required to work in the
Company’s Houston office at such times as the Board determines.  Until August 31, 2005, the Company shall
reimburse Executive for temporary living expenses to cover accommodation,
transportation between Annapolis and the Company’s Houston office and
miscellaneous living expenses (but not meal expenses).  The Company shall reimburse Executive for all
reasonable, standard and customary costs and expenses incurred by Executive
that are associated with (i) the physical move of Executive’s family and
belongings to Houston, Texas (e.g., packing, storing, transportation, and
unpacking of household items), (ii) the sale of Executive’s current home
and Executive’s purchase of a primary residence in Houston, Texas (e.g.,
brokers’ commissions, taxes, legal fees, inspection, appraisal and survey
charges, title search and insurance charges, closing costs, points and transfer
taxes), (iii) up to four trips for Executive’s family to Houston, Texas
for house hunting (e.g., air fare, hotel, car rental, meals), and (iv) an
amount which, after payment of any Federal, state or local taxes imposed
thereon, shall equal the amount of any Federal, state or local taxes imposed on
the Executive with respect to any of the payments described in clauses (i), (ii) or
(iii) of this sentence.  The Company
shall reimburse such costs and expenses promptly following Executive’s
submission of written documentation reasonably satisfactory to the Company
evidencing that Executive has incurred such costs and expenses.

 

7.                                       Business
Expenses.  During the
Employment Term, reasonable business expenses incurred by Executive in the
performance of Executive’s duties hereunder shall be reimbursed by the Company
in accordance with Company policies.  In addition, the Company shall pay to
Executive the additional benefits set forth on Exhibit B, attached hereto,
for the duration provided therein.

 

8.                                       Termination.  The Employment Term and Executive’s
employment hereunder may be terminated by either party at any time and for any
reason; provided that Executive will be required to give the Company at least
60 days advance written notice of any resignation of Executive’s
employment.  Notwithstanding any other
provision of this Agreement, the provisions of this Section 8 shall
exclusively govern Executive’s rights upon termination of employment with the
Company and its affiliates; provided, however, that Executive’s rights with
respect to his equity participation shall be governed solely by the Equity
Documents.

 

a.                                       By the Company For Cause or By
Executive Resignation Without Good Reason.

 

(i)  The Employment Term
and Executive’s employment hereunder may be terminated by the Company for Cause
(as defined below) and shall terminate automatically upon Executive’s
resignation without Good Reason (as defined in Section 8(c)); provided
that Executive shall be required to give the Company at least 60 days advance
written notice of a resignation without Good Reason.

 

(ii)  For purposes of this
Agreement, “Cause” shall mean (A) Executive’s willful and continued
failure substantially to perform Executive’s duties hereunder (other than as

 

3

 

a result of total or partial
incapacity actually suffered by Executive as a result of any illness or other
disability) for a period of 15 days following written notice by the Company to
Executive of such failure (where such notice specifically identifies the manner
in which the Company believes Executive has not substantially performed his
duties), (B) Executive’s conviction of, or plea of nolo  contendere
to, a crime constituting (x) a felony under the laws of the United States or
any state thereof or (y) a misdemeanor involving moral turpitude, (C) Executive’s
willful malfeasance or willful misconduct in connection with Executive’s duties
hereunder or any willful act or omission which is materially injurious to the
financial condition or business reputation of the Company or any of its
subsidiaries or affiliates, (D) Executive’s willful and material breach of
the provisions of Sections 9 or 10 of this Agreement; provided, however, that
Executive shall not be terminated for Cause under any of clauses (A), (C) or
(D) above unless there shall have been delivered to Executive a copy of a
resolution duly adopted by the Board, at a meeting of such Board (after
reasonable notice to Executive and an opportunity for Executive, together with
his counsel, to be heard at such meeting), finding that in the good faith
opinion of the Board, Executive had engaged in conduct of the type described in
any of clauses (A), (C) or (D) above and specifying the particulars
thereof.

 

(iii)  If Executive’s
employment is terminated by the Company for Cause, or if Executive resigns
without Good Reason, Executive shall be entitled to receive:

 

(A)      the
Base Salary through the date of termination;

 

(B)        any
Annual Bonus earned but unpaid as of the date of termination for any previously
completed fiscal year;

 

(C)        reimbursement
for any unreimbursed business expenses properly incurred by Executive in
accordance with Company policy prior to the date of Executive’s termination;
and

 

(D)       such
Employee Benefits, if any, as to which Executive may be entitled under the
employee benefit plans of the Company for Executive and his family (the amounts
described in clauses (A) through (D) hereof being referred to as the “Accrued
Rights”).

 

Following such termination of Executive’s employment
by the Company for Cause or resignation by Executive without Good Reason,
except as set forth in this Section 8(a)(iii), and Sections 13 and 14 of
this Agreement, Executive shall have no further rights to any compensation or
any other benefits under this Agreement; provided, however, that Executive’s
rights with respect to his equity participation shall be governed solely by the
Equity Documents.

 

b.                                      Disability or Death.

 

(i)  The Employment Term
and Executive’s employment hereunder shall terminate upon Executive’s death and
may be terminated by the Company if Executive becomes physically or mentally
incapacitated and is therefore unable for a period of six (6) consecutive
months or for an aggregate of nine (9) months in any twenty-four (24)
consecutive month period to perform Executive’s duties (such incapacity is
hereinafter referred to as “Disability”). 
Any question as to the existence of the Disability of Executive as to
which Executive and the Company cannot agree shall be determined in writing by
a qualified independent physician mutually acceptable to Executive and the
Company.  If Executive and the Company
cannot agree as to a qualified independent physician, each shall appoint such a
physician and those two

 

4

 

physicians shall select a third
who shall make such determination in writing. 
The determination of Disability made in writing to the Company and
Executive shall be final and conclusive for all purposes of this Agreement.

 

(ii)  Upon termination of
Executive’s employment hereunder for either Disability or death, Executive or
Executive’s estate (as the case may be) shall be entitled to receive:

 

(A)      the
Accrued Rights; and

 

(B)        a
lump sum payment of the pro rata portion (based upon the number of days in the
applicable fiscal year during which Executive was employed with the Company
through the date of such termination, relative to the number of days in the
applicable fiscal year) of any Annual Bonus, if any, that Executive would have
been entitled to receive pursuant to the Incentive Plan in respect of the
Fiscal Year in which such termination occurs, payable when such Annual Bonus
would have otherwise been payable had Executive’s employment not terminated,

 

Following Executive’s termination of employment due to
death or Disability, except as set forth in this Section 8(b)(ii), and
Sections 13 and 14 of this Agreement, Executive shall have no further rights to
any compensation or any other benefits under this Agreement; provided, however,
that Executive’s rights with respect to his equity participation shall be
governed solely by the Equity Documents.

 

c.                                       By the Company Without Cause or
Resignation by Executive for Good Reason.

 

(i)  The Employment Term
and Executive’s employment hereunder may be terminated by the Company without
Cause or by Executive’s resignation for Good Reason.

 

(ii)  For purposes of this
Agreement, “Good Reason” shall mean (A) any material breach by the Company
of this Agreement or failure by the Company to execute or deliver the Equity Documents,
(B) any sustained diminution, other than in an inconsequential or
immaterial aspect, in Executive’s authority, title, duties or responsibilities
(including, but not limited to, Executive no longer being chairman and chief
executive officer of the ultimate parent entity), (C) the assignment to
Executive of a material amount of different or additional duties that are
significantly inconsistent with Executive’s position, (D) a merger or
other business combination or a material divestiture of all or substantially
all of its assets, whereby the Company is no longer primarily in the energy
related business, or (E) the relocation of Executive, the Company’s
principal executive offices or all or substantially all of the Company’s
executive level employees without Executive’s consent, to any location outside
of the Houston, Texas metropolitan region. 
Executive shall have the right to terminate his employment for “Good
Reason” by giving the Company notice in writing of the reason for such
termination and the Employment Term shall terminate on the date of Executive’s
termination of employment; provided that either of the events described
in this Section 8(c)(ii) shall constitute Good Reason only if the
Company fails to cure such event within 30 days after receipt from Executive of
written notice of the event which constitutes Good Reason; provided, further,
that “Good Reason” shall cease to exist for an event on the 60th day
following the later of its occurrence or Executive’s knowledge thereof, unless
Executive has given the Company written notice thereof prior to such date.  Executive’s failure to resign in connection
with any event, or occurrence,

 

5

 

which constitutes Good Reason
shall not be deemed a waiver of any other event or occurrence thereafter which
constitutes Good Reason.

 

(iii)  If Executive’s
employment is terminated by the Company without Cause (other than by reason of
death or Disability) or if Executive resigns for Good Reason, Executive shall
be entitled to receive:

 

(A)      the
Accrued Rights;

 

(B)        subject to Executive’s continued compliance
with the provisions of Sections 9 and 10, a payment equal to two times the sum
of (x) the Base Salary at the rate in effect immediately prior to the Date of
Termination (without regard to any decrease which constitutes a breach of this
Agreement as described in clause (A) of Section 8(c)(ii) which
is the basis for Executive’s resignation for Good Reason) and (y) the Target
Bonus for the year in which such termination occurs, payable in equal monthly
installments over the twenty four (24) month period commencing on the date of
such termination; provided, however, that the aggregate amount
described in this subsection (B) shall be reduced by any amounts owed
by Executive to the Company and any amounts for any loans, or funds advanced,
to, Executive; provided, further, that if, on or after a Change
in Control (as defined in Exhibit A attached hereto), Executive’s
employment is (or has previously been) terminated by the Company without Cause
(other than by death or Disability) or if Executive resigns (or has previously
resigned) for Good Reason, a lump sum amount equal to the aggregate amount
remaining payable under this subsection (B) shall, as soon as
practicable, but in no event later than 15 days, after the later of the
effective date of such termination or such Change in Control, be paid to
Executive, subject to repayment unless Executive continues to comply with the
provisions of Sections 9 and 10; provided that such repayment shall be
paid in a lump sum upon demand by the Company, and shall be in an amount equal
to the lump sum payment made pursuant to this subsection (B) multiplied
by a fraction, the numerator of which is the number of months the Executive
fails to comply with the provisions of Sections 9 or 10 during the first 24
months following the effective date of Executive’s termination of employment,
and the denominator of which is the number of monthly installments comprising
the lump sum payment which was paid to Executive; and

 

(C)        subject to Executive’s continued compliance
with the provisions of Sections 9 and 10, continuation of welfare benefits for
Executive and his family (pursuant to the same benefit plans as in effect for
active executive employees of the 
Company) (i) for a period through the later of (x) the second
anniversary of the date of such termination, or (y) the date on which the
Employment Term would have otherwise expired, or (ii) if Executive
commences receiving coverage under comparable welfare benefit plans from any
subsequent employer (“Comparable Coverage”) prior to the occurrence of (x) or
(y) of the preceding clause, through the date such Comparable Coverage
commences.

 

Following Executive’s termination of employment by the
Company without Cause (other than by reason of Executive’s death or Disability)
or by Executive’s resignation for Good Reason, except as set forth in this Section 8(c)(iii),
and Sections 13 and 14 of this Agreement, Executive shall have no further
rights to any compensation or any other benefits

 

6

 

under this Agreement; provided, however,
that Executive’s rights with respect to his equity participation shall be
governed solely by the Equity Documents, which shall provide, among any
additional rights, that in the event Executive’s employment is terminated for
Good Reason under Section 8(c)(ii)(D) of this Agreement, all unvested
Options (as defined in Exhibit A attached hereto) shall vest and become
immediately exercisable.

 

d.                                      Expiration
of Employment Term. 
In the event
either party delivers a Notice of Nonrenewal, unless Executive’s employment is
earlier terminated pursuant to paragraphs (a), (b) or (c) of this Section 8,
Executive’s termination of employment hereunder (whether or not Executive
continues as an employee of the Company thereafter) shall be deemed to occur on
the close of business on the next scheduled Extension Date and Executive shall
be entitled to receive the Accrued Rights (including, without limitation, his
full Annual Bonus for his final year of employment).  Following such termination of Executive’s
employment hereunder as a result of either party’s election not to extend the
Employment Term, except as set forth in this Section 8(d), and in Sections
13 and 14, Executive shall have no further rights to any compensation or any
other benefits under this Agreement; provided, however, that Executive’s rights
with respect to his equity participation shall be governed solely by the Equity
Documents, and solely in respect of Executive’s rights under the Equity
Documents: (i) if the Company delivers a Notice of Nonrenewal, and
Executive subsequently terminates his employment with the Company, Executive’s
employment shall be deemed terminated by Executive for Good Reason; and (ii) if
the Executive delivers a Notice of Nonrenewal, and Executive subsequently
terminates his employment with the Company, Executive’s employment shall be
deemed terminated by Executive without Good Reason.  For the avoidance of doubt, any changes set
forth in this Section 8(d) relating to the termination of Executive’s
employment by Executive after either party delivers a Notice of Nonrenewal
shall apply only for purposes of the Equity Documents, and shall have no
further effect on this Agreement. 
Notwithstanding the foregoing, if the Company elects, in its sole
discretion, that Section 9 shall apply for a period of up to two years
following Executive’s termination of employment under this Section 8(d),
Executive shall be paid one hundred eighty percent (180%) of the Base Salary at
the rate in effect immediately prior to the termination of Executive’s
employment for such  period.  In order to make the election described in
the preceding sentence, the Company must deliver written notice to Executive,
at least 60 days prior to the end of the Term, which explains that the Company
has made such election and sets forth the period of time that Section 9
shall continue to apply (and that Executive shall continue to be paid 180% of
the Base Salary).

 

e.                                       Notice of Termination.  Any purported termination of employment by
the Company or by Executive (other than due to Executive’s death) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 12(h) hereof. 
For purposes of this Agreement, a “Notice of Termination” shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under
the provision so indicated.

 

f.                                         Board/Committee Resignation.  Upon termination of Executive’s employment
for any reason, Executive agrees to resign, as of the date of such termination
and to the extent applicable, from the Board (and any committees thereof), and
any board of directors or managers (and any committees thereof) of any of the
Company’s affiliates.

 

7

 

g.                                      Payments
to Executive. 
Except where provided otherwise, all payments required to be made by the
Company to Executive under this Section 8 in connection with the
termination of Executive’s employment shall be payable within 15 days after the
effective date of such termination; provided, however, that nothing shall
affect or impair such rights as Executive shall have pursuant to the Equity
Documents.

 

9.                                       Non-Competition.

 

a.                                       Executive acknowledges and
recognizes the highly competitive nature of the businesses of the Company and
its subsidiaries and accordingly agrees as follows:

 

(1)                                                                                  During
the Employment Term and, except as provided in Section 8(d), for a period
of two years following the date Executive ceases to be employed by the Company
(the “Restricted Period”), Executive will not, whether on Executive’s own
behalf or on behalf of or in conjunction with any person, firm, partnership,
joint venture, association, corporation or other business organization, entity
or enterprise whatsoever (“Person”), directly or indirectly:

 

(i)                                     engage
in any business that competes with the business of the Company or its
subsidiaries (including, without limitation, businesses which the Company or
its subsidiaries have specific plans to conduct in the future and as to which
Executive is aware of such planning) in any geographical area that is within
100 miles of any geographical area where the Company or its subsidiaries
materially operates, produces, sells, leases, rents, licenses or otherwise
provides material products or services (a “Competitive Business”);

 

(ii)                                  enter
the employ of, or render any services to, any Person (or any division or
controlled or controlling affiliate of any Person) who or which engages in a
Competitive Business;

 

(iii)                               acquire
a financial interest in, or otherwise become actively involved with, any
Competitive Business, directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent, trustee or consultant; or

 

(iv)                              interfere
with, or attempt to interfere with, business relationships (whether formed
before, on or after the date of this Agreement) between the Company or any of
its subsidiaries and customers, clients, or suppliers of the Company or its
subsidiaries.

 

(2)                                                                                  Notwithstanding
anything to the contrary in this Agreement, Executive may, directly or
indirectly own, solely as an investment, securities of any Person engaged in
the business of the Company or its subsidiaries which are publicly traded on a
national or regional stock exchange or on the over-the-counter market if
Executive (i) is not a controlling person of, or a member of a group which
controls, such Person and (ii) does not, directly or indirectly, own 5% or
more of any class of securities of such Person.

 

(3)                                                                                  During
the Restricted Period, Executive will not, whether on Executive’s own behalf or
on behalf of or in conjunction with any Person, directly or indirectly:

 

8

 

(i)                                     solicit
or encourage any employee of the Company or its subsidiaries to leave the
employment of the Company or its subsidiaries; or

 

(ii)                                  hire
any such employee who was employed by the Company or its subsidiaries as of the
date of Executive’s termination of employment with the Company or who left the
employment of the Company or its subsidiaries coincident with, or within one
year prior to or after, the termination of Executive’s employment with the
Company.

 

(4)                                                                                  During
the Restricted Period, Executive will not, directly or indirectly, solicit or
encourage to cease to work with the Company or its subsidiaries any consultant
then under contract with the Company or its subsidiaries.

 

b.                                      It is expressly understood and
agreed that although Executive and the Company consider the restrictions
contained in this Section 9 to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction that the time or
territory or any other restriction contained in this Agreement is an
unenforceable restriction against Executive, the provisions of this Agreement
shall not be rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable.  Alternatively, if any court of competent
jurisdiction finds that any restriction contained in this Agreement is
unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.

 

10.                                 Confidentiality;
Intellectual Property.

 

a.                                       Confidentiality.

 

(i) 
Executive will not at any time (whether during or after Executive’s employment
with the Company) (x) retain or use for the benefit, purposes or account of
Executive or any other Person outside the Company; or (y) disclose, divulge,
reveal, communicate, share, transfer or provide access to any Person outside
the Company (other than its professional advisers who are bound by
confidentiality obligations), any non-public, proprietary or confidential
information —including without limitation trade secrets, know-how, research and
development, software, databases, inventions, processes, formulae, technology,
designs and other intellectual property, information concerning finances,
investments, profits, pricing, costs, products, services, vendors, customers,
clients, partners, investors, personnel, compensation, recruiting, training,
advertising, sales, marketing, promotions, government and regulatory activities
and approvals — concerning the past, current or future business, activities and
operations of the Company, its subsidiaries or affiliates and/or any third
party that has disclosed or provided any of same to the Company on a
confidential basis (“Confidential Information”) without the prior written
authorization of the Board.

 

(ii)  “Confidential
Information” shall not include any information that is (a) generally known
to the industry or the public other than as a result of Executive’s breach of
this covenant or any breach of other confidentiality obligations by third
parties; (b) made legitimately available to Executive by a third party
without breach of any confidentiality obligation; or (c) required by law
to be disclosed; provided that Executive shall give prompt written
notice to the

 

9

 

Company of such requirement,
disclose no more information than is so required, and cooperate with any
attempts by the Company to obtain a protective order or similar treatment.

 

(iii)  Upon termination of
Executive’s employment with the Company for any reason, Executive shall (x)
cease and not thereafter commence use of any Confidential Information or
intellectual property (including without limitation, any patent, invention,
copyright, trade secret, trademark, trade name, logo, domain name or other
source indicator) owned or used by the Company, its subsidiaries or affiliates;
(y) immediately destroy, delete, or return to the Company, at the Company’s
option, all originals and copies in any form or medium (including memoranda,
books, papers, plans, computer files, letters and other data) in Executive’s
possession or control (including any of the foregoing stored or located in
Executive’s office, home, laptop or other computer, whether or not Company
property) that contain Confidential Information or otherwise relate to the
business of the Company, its affiliates and subsidiaries, except that Executive
may retain only those portions of any personal notes, notebooks and diaries
that do not contain any Confidential Information; and (z) notify and fully
cooperate with the Company regarding the delivery or destruction of any other
Confidential Information of which Executive is or becomes aware.

 

b.                                      Intellectual Property.

 

(i)  If Executive creates,
invents, designs, develops, contributes to or improves any works of authorship,
inventions, intellectual property, materials documents or other work product
(including without limitation, research, reports, software, databases, systems,
applications, presentations, textual works, content or audiovisual materials) (“Works”)
either alone or with third parties, at any time during Executive’s employment
by the Company and within the scope of such employment and/or with the use of
any Company resources (“Company Works”), Executive shall promptly and fully
disclose same to the Company and hereby irrevocably assigns, transfers and
conveys, to the maximum extent permitted by applicable law, all rights and
intellectual property rights therein (including rights under patent, industrial
property, copyright, trademark, trade secret, unfair competition and related
laws) to the Company to the extent ownership of any such rights does not vest
originally in the Company.

 

(ii)  Executive shall take
all requested actions and execute all requested documents (including any
licenses or assignments required by a government contract) at the Company’s
expense (but without further remuneration) to assist the Company in validating,
maintaining, protecting, enforcing, perfecting, recording, patenting or
registering any of the Company’s rights in the Company Works.  If the Company is unable for any other reason
to secure Executive’s signature on any document for this purpose, then
Executive hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as Executive’s agent and attorney in fact, to
act for and in Executive’s behalf and stead to execute any documents and to do
all other lawfully permitted acts in connection with the foregoing.

 

(iii)  Executive shall not
improperly use for the benefit of, bring to any premises of, divulge, disclose,
communicate, reveal, transfer or provide access to, or share with the Company
any confidential, proprietary or non-public information or intellectual
property relating to a former employer or other third party without the prior
written permission of such third party. 
Executive hereby indemnifies, holds harmless and agrees to defend the
Company and its officers, directors, partners, employees, agents and
representatives from any breach of the foregoing covenant.  Executive shall comply with all relevant
policies and guidelines of the

 

10

 

Company, including regarding
the protection of confidential information and intellectual property and
potential conflicts of interest. 
Executive acknowledges that the Company may amend any such policies and
guidelines from time to time, and that Executive remains at all times bound by
their most current version.

 

(iv)  The provisions of Section 10
shall survive the termination of Executive’s employment for any reason.

 

11.                                 Specific
Performance.  Executive
acknowledges and agrees that the Company’s remedies at law for a breach of any
of the provisions of Section 9 or Section 10 would be inadequate and
the Company would suffer irreparable damages as a result of such breach.  In recognition of this fact, Executive agrees
that, in the event of such a breach, in addition to any remedies at law, the
Company, without posting any bond, shall be entitled to cease making any
payments or providing any benefit otherwise required by this Agreement and
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available; provided, however, that if the Company does
not institute and prevail in an action to obtain such an equitable remedy,
the  Company shall re-pay and otherwise
reimburse Executive for the payments and benefits which the Company ceased
making or providing, and interest on such payments at the Company’s reference
lending rate with its principal bank lender. 
Notwithstanding anything contained in this Section 11, Executive’s
rights with respect to his equity participation shall be governed solely by the
Equity Documents.

 

12.                                 Miscellaneous.

 

a.                                       Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
conflicts of laws principles thereof.

 

b.                                      Entire Agreement/Amendments.  This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company.  There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties
with respect to the subject matter herein other than those expressly set forth
herein.  This Agreement may not be
altered, modified, or amended except by written instrument signed by the
parties hereto.  The Company may cause
the Service Company or another subsidiary to discharge the Company’s
obligations to Executive to make cash payments and provide benefits as set
forth in this Agreement (except with respect to any equity participation rights
pursuant to the Equity Documents), and any such discharge of the Company’s
obligations by the Service Company or another subsidiary shall not be deemed to
modify this Agreement.

 

c.                                       No Waiver.  The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party’s rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.

 

d.                                      Severability.  In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.

 

11

 

e.                                       Assignment.  This Agreement, and all of Executive’s rights
and duties hereunder, shall not be assignable or delegable by Executive or the
Company, except as set forth below.  Any
purported assignment or delegation by Executive in violation of the foregoing
shall be null and void ab initio
and of no force and effect.  This
Agreement may be assigned by the Company only to a Person which is a successor
in interest to substantially all of the business operations of the
Company.  Upon such assignment, the
rights and obligations of the Company hereunder shall become the rights and
obligations of such successor Person.

 

f.                                         Successors; Binding Agreement.  This Agreement shall inure to the benefit of
and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

 

g.                                      Set Off; Mitigation.  The Company’s obligation to pay Executive the
amounts provided and to make the arrangements provided hereunder shall not be
subject to set-off, counterclaim or recoupment, except for any amounts loaned
or advanced to Executive by the Company or its affiliates or otherwise as provided
in Section 8(c)(iii) hereof. 
Notwithstanding the foregoing, Executive shall not be required to
mitigate the amount of any payment provided for pursuant to this Agreement by
seeking other employment or otherwise and the amount of any payment provided for
pursuant to this Agreement shall not be reduced by any compensation earned as a
result of Executive’s other employment or otherwise.

 

h.                                      Notice.  For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered by hand or overnight
courier or three days after it has been mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth below in this Agreement, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.

 

	
  If to the Company:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Texas Genco LLC

  	
   

  	
   

  
	
  c/o Texas Genco
  Operating Services LLC

  	
   

  	
   

  
	
  12301 Kurland Avenue

  	
   

  	
   

  
	
  Houston, Texas 77034

  	
   

  	
   

  
	
  Telecopy:

  	
  (713) 945-3500

  	
   

  	
   

  
	
  Attention:

  	
  Chief Legal Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  with a copy to

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Simpson Thacher &
  Bartlett LLP

  	
   

  	
   

  
	
  425 Lexington Avenue

  	
   

  	
   

  
	
  New York, New York
  10017

  	
   

  	
   

  
	
  Telecopy:

  	
  (212) 455-2502

  	
   

  	
   

  
	
  Attention:

  	
  David J. Sorkin

  	
   

  	
   

  
	
   

  	
  Brian M. Stadler

  	
   

  	
   

  

 

12

 

	
  If to Executive:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To the most recent
  address of Executive set forth in the personnel records of the Company or the
  following address:

  
	
   

  
	
  Post Oak Lofts

  	
   

  	
   

  
	
  1901 Post Oak Blvd.

  	
   

  	
   

  
	
  Houston, Texas 77027

  	
   

  	
   

  
	
  Telephone:

  	
  (713) 552-1198

  	
   

  	
   

  
	
  Attention:

  	
  Jack A. Fusco

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  with a copy to

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Stroock &
  Stroock & Lavan LLP

  	
   

  	
   

  
	
  180 Maiden Lane

  	
   

  	
   

  
	
  New York, New York
  10038

  	
   

  	
   

  
	
  Telecopy:

  	
  (212) 806-7836

  	
   

  	
   

  
	
  Attention:

  	
  Mark S. Wintner

  	
   

  	
   

  
	
   

  	
  Martin H. Neidell

  	
   

  	
   

  

 

i.                                          Executive Representation.  Executive hereby represents to the Company
that the execution and delivery of this Agreement by Executive and the
performance by Executive of Executive’s duties hereunder shall not constitute a
breach of, or otherwise contravene, the terms of any employment agreement or
other agreement or policy to which Executive is a party or otherwise bound.

 

j.                                          Cooperation.  Executive shall provide Executive’s
reasonable cooperation in connection with any action or proceeding (or any
appeal from any action or proceeding) which relates to events occurring during
Executive’s employment hereunder, but shall be done to the extent reasonably
possible in a manner as to reduce interference in Executive’s new position
after his employment hereunder ends.  The
Company shall reimburse Executive for any reasonable out of pocket expenses he
incurs in connection with such cooperation. 
This provision shall survive any termination of this Agreement.

 

k.                                       Withholding Taxes.  The Company may withhold from any amounts
payable under this Agreement such Federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.

 

l.                                          Counterparts.  This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

 

13.                                 Excise
Taxes.

 

a.                                       If, after the Company becomes
taxable as a corporation for federal income tax purposes and the Company has
issued stock that is “readily tradeable on an established securities market” as
described in Section 280G of the Internal Revenue Code of 1986, as amended
(the “Code”), it shall be determined (as hereafter provided) that any payment,
benefit or distribution (or combination thereof) by the Company, any of its
affiliates, one or more trusts established by the Company for the benefit of
its employees, or any other person or entity, to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant

 

13

 

to the terms of this Agreement or otherwise pursuant to or by reason of
any other agreement, policy, plan, program or arrangement, including without
limitation any stock option, restricted stock award, stock appreciation right
or similar right, or the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (a “Payment”), would be subject
to the excise tax imposed by Section 4999 of the Code (or any successor
provision thereto) by reason of being “contingent on a change in ownership or
effective control or a change in the ownership of a substantial portion of the
assets” of the Company or an affiliate, within the meaning of Section 280G
of the Code (or any successor provision thereto) or to any similar tax imposed
by state or local law, or any interest or penalties with respect to such excise
tax (such tax or taxes, together with any such interest and penalties, are
hereafter collectively referred to as the “Excise Tax”), then the Company shall
make an additional payment (the “Gross-Up Payment”) to Executive such that,
after payment of all Excise Taxes and any other taxes payable in respect of
such Gross-Up Payment, Executive shall retain the same amount as if no Excise
Tax had been imposed.

 

b.                                      Subject to the provisions of Section 13(a) hereof,
all determinations required to be made under this Section 13, including
whether an Excise Tax is payable by Executive and the amount of such Excise
Tax, shall be made by the nationally recognized firm of certified public
accountants (the “Accounting Firm”) used by the Company prior to the change in
control (or, if such Accounting Firm declines to serve, the Accounting Firm
shall be a nationally recognized firm of certified public accountants selected
by Executive).  The Accounting Firm shall
be directed by the Company or Executive to submit its preliminary determination
and detailed supporting calculations to both the Company and Executive within
15 calendar days after the receipt of notice from Executive or the Company that
there has been a Payment, or any other such time or times as may be requested
by the Company or Executive.  If the
Accounting Firm determines that any Excise Tax is payable by Executive, the
Company shall make the Gross-Up Payment. 
If the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall, at the same time as it makes such determination, furnish
Executive with an opinion that he has substantial authority not to report any
Excise Tax on his federal, state, local income or other tax return. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive absent a contrary determination by the Internal Revenue Service or a
court of competent jurisdiction; provided, however, that no such
determination shall eliminate or reduce the Company’s obligation to provide any
Gross-Up Payment that shall be due as a result of such contrary determination.  As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision
thereto) and the possibility of similar uncertainty regarding state or local
tax law at the time of any determination by the Accounting Firm hereunder, it
is possible that the amount of the Gross-Up Payment determined by the
Accounting Firm to be due to (or on behalf of) Executive was lower than the
amount actually due (the “Underpayment”). 
In the event that the Company exhausts its remedies pursuant to Section 13(d) below,
and Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred as promptly as possible and notify the Company and Executive of such
calculations, and any such Underpayment (including the Gross-Up Payment to
Executive) shall be promptly paid by the Company to or for the benefit of
Executive within five (5) business days after receipt of such
determination and calculations. All fees and expenses of the Accounting Firm
shall be paid by the Company in connection with the calculations required by
this section.

 

14

 

c.                                       The federal, state and local
income or other tax returns filed by Executive (or any filing made by a
consolidated tax group which includes the Company) shall be prepared and filed
on a consistent basis with the determination of the Accounting Firm with
respect to the Excise Tax payable by Executive. 
Executive shall make proper payment of the amount of any Excise Tax, and
at the request of the Company, provide to the Company true and correct copies
(with any amendments) of his federal income tax return as filed with the
Internal Revenue Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment.

 

d.                                      Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of any Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than ten (10) business
days after Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which he gives
such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (w) give the Company any information which
is in Executive’s possession reasonably requested by the Company relating to
such claim, (x) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company, (y) cooperate with the
Company in good faith in order to effectively contest such claim, and (z)
permit the Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 13, the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, further, that if the Company directs
Executive to pay such claim and sue for a refund, the Company shall pay the
amount of such payment to Executive, and Executive shall use such amount
received to pay such claim, and the Company shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such
payment or with respect to any imputed income with respect to such payment
(including the applicable Gross-Up Payment); provided, further, that if
Executive is required to extend the statute of limitations to enable the
Company to contest such claim, Executive may limit this extension solely to
such contested amount. The Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or

 

15

 

contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

 

e.                                       If, after the receipt by
Executive of an amount paid or advanced by the Company pursuant to this Section 13,
Executive becomes entitled to receive any refund with respect to a Gross-Up
Payment, Executive shall (subject to the Company’s complying with the
requirements of Section 13(d)) promptly pay to the Company the amount of
such refund received (together with any interest paid or credited thereon after
taxes applicable thereto) (or, to the extent such payment would be deemed
prohibited by applicable law, shall be treated as a prepayment by the Company
of any amounts owed to Executive). If, after the receipt by Executive of an
amount advanced by the Company pursuant to Section 13(d), a determination
is made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such payment made to Executive thereunder
shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.

 

f.                                         The Company’s obligations under
this Section 13 shall survive any termination of Executive’s employment
with the Company, other than a termination by the Company for Cause.

 

14.                                 Indemnification.  During the Employment Term and thereafter,
the Company shall indemnify Executive to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable
expenses (including attorneys’ fees) in connection with any claim, action or
proceeding (whether civil or criminal) against Executive as a result of
Executive serving as an officer or director of the Company or in any capacity
at the request of the Company, in or with regard to any other entity, employee
benefit plan or enterprise (other than arising out of Executive’s act of
willful misconduct, gross negligence, misappropriation of funds, fraud or
breach of this Agreement).  This
indemnification shall be in addition to, and not in lieu of, any other
indemnification Executive shall be entitled to pursuant to the LLC Agreement,
the Company’s Certificate of Incorporation or otherwise.  Following Executive’s termination of
employment, the Company shall continue to cover Executive under the Company’s
directors and officer’s insurance, if any, for the period during which
Executive may be subject to potential liability for any claim, action or
proceeding (whether civil or criminal) as a result of his service as an officer
or director of the Company or in any capacity at the request of the Company, in
or with regard to any other entity, employee benefit plan or enterprise on the
same terms such coverage was provided during the Employment Term, at the
highest level then maintained for any then current or former officer.

 

[Signatures on next page.]

 

16

 

IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above written.

 

 

	
   

  	
  Texas Genco
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald
  M. McArthur

  	
   

  
	
   

  	
  Name: Donald
  M. McArthur

  	
   

  
	
   

  	
  Title: Vice
  President and Assistant Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Texas Genco
  Operating Services LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald
  M. McArthur

  	
   

  
	
   

  	
  Name: Donald
  M. McArthur

  	
   

  
	
   

  	
  Title: Vice
  President and Assistant Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Executive:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Jack A.
  Fusco

  	
   

  
	
   

  	
  Jack A.
  Fusco

  	
   

  

 

17

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