Document:

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                                                                    EXHIBIT 10.8

                            TAX ALLOCATION AGREEMENT

                                  BY AND AMONG

                          RELIANT ENERGY, INCORPORATED

                          AND ITS AFFILIATED COMPANIES

                                       AND

                             RELIANT RESOURCES, INC.

                          AND ITS AFFILIATED COMPANIES

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                            TAX ALLOCATION AGREEMENT

                  THIS TAX ALLOCATION AGREEMENT (this "Agreement") is entered
into as of December 31, 2000, by and among Reliant Energy, Incorporated ("REI"),
a Delaware corporation, each REI Affiliated Company (as defined below), Reliant
Resources, Inc. ("UNREGCO"), a Delaware corporation, and each UNREGCO Affiliated
Company (as defined below) in connection with the Restructuring and Spinoff (as
defined below).

                                    RECITALS

                  WHEREAS, REI is the common parent of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), which currently files a consolidated Federal
Income Tax (as defined below) return, and which, together with other affiliated
corporations, is a successor party to the Tax Sharing Agreement (as defined
below);

                  WHEREAS, as set forth in the Master Separation Agreement
entered into as of December 31, 2000 (the "Master Separation Agreement"), and
subject to the terms and conditions thereof, REI, UNREGCO and each member of the
REI Consolidated Group (as defined below) have determined it would be
appropriate and desirable for REI to reorganize its operations to separate
further its unregulated businesses from its regulated businesses (the
"Restructuring"), and as part of such restructuring, as more fully discussed in
the Master Separation Agreement, to form REGCO (as defined below) as the new
holding company for REI's regulated businesses;

                  WHEREAS REI contemplates that as part of the Restructuring,
REI will make an initial public offering (the "IPO") of UNREGCO common stock
that will reduce REI's ownership of UNREGCO to not less than the amount required
for REI to control UNREGCO within the meaning of Section 368(c) of the Code and,
for REI to satisfy the stock ownership requirement of Section 1504(a)(2) of the
Code with respect to the stock of UNREGCO;

                  WHEREAS subsequent to the IPO, REGCO will be formed and
MERGERCO2, a transitory wholly-owned subsidiary of REGCO, has been or will be
formed to merge with and into REI, with REI surviving as a wholly-owned
subsidiary of REGCO;

                  WHEREAS, in connection with the Restructuring, REI will
distribute its shares of UNREGCO common stock to REGCO (the "First
Distribution") and REGCO will distribute all of its shares of UNREGCO common
stock, on a pro rata basis, to the holders of the common stock of REGCO, subject
to the terms and conditions of the Master Separation Agreement (the
"Distribution");

                  WHEREAS, the First Distribution and the Distribution are
intended to qualify as tax free distributions under Section 355 of the Code;

                  WHEREAS, upon the Distribution, UNREGCO and REGCO will cease
to be members of the same affiliated group for Federal Income Tax purposes; and

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                  WHEREAS, in contemplation of the Distribution the parties
hereto have determined to enter into this Agreement, setting forth their
agreement with respect to certain Tax matters.

                  NOW THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

SECTION 1. DEFINITIONS

                  1.1 In General. As used in this Agreement, the following
capitalized terms shall have the following meanings:

                  "Adequate Assurances" means posting a bond or providing a
letter of credit reasonably acceptable to the Indemnitee; provided, however, if
the Indemnifying Party fails to post such bond or provide such letter of credit,
the Indemnifying Party shall provide cash equal to the Indemnity Amount to the
Indemnitee not less than thirty (30) days prior to the date on which such Tax
would become due and payable by the Indemnitee.

                  "Audit" includes any audit, assessment of Taxes, other
examination by any Tax Authority, proceeding, or appeal of such a proceeding
relating to Taxes, whether administrative or judicial, including proceedings
relating to competent authority determinations.

                  "Code" means the Internal Revenue Code of 1986, as amended,
including interpretations issued thereunder through (i) Treasury Regulations,
(ii) court decisions and (iii) revenue rulings, notices and other generally
applicable pronouncements of the Service.

                  "Consolidated Group" means an affiliated group under Section
1504(a) of the Code that files a Consolidated Return.

                  "Consolidated Return" means any Tax Return with respect to
Federal Income Taxes filed on a consolidated basis.

                  "Consolidated Return Regulations" means the Treasury
Regulations promulgated under Chapter 6 of Subtitle A of the Code, including, as
applicable, any predecessors or successors thereto.

                  "Consolidated Return Year" means any taxable year for which a
Consolidated Return is filed.

                  "Consolidated State Tax" means any Tax incurred by a Legal
Entity that is not a Federal Income Tax and that is filed on a combined,
unitary, or consolidated basis.

                  "Consolidated State Tax Return" means a Tax Return filed with
respect to a Consolidated State Tax liability.

                  "Control" means stock constituting a 50% or greater interest
under Section 355(e) of the Code.

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                  "DIT" means any "deferred intercompany transaction" or
"intercompany transaction" within the meaning of the Treasury Regulations (or
predecessors thereto).

                  "Distribution" has the meaning set forth in the Recitals to
this Agreement.

                  "Distribution Date" means the date on which the Distribution
is effective.

                  "Estimated Federal Installment Payment" has the meaning set
forth in Section 4.1(c).

                  "Estimated UNREGCO State Installment Payment" has the meaning
set forth in Section 4.1(e).

                  "Estimated REI State Installment Payment" has the meaning set
forth in Section 4.1(d)(i).

                  "Excluded Adjustment Payments" means (i) an increase in Tax
liability related to an UNREGCO Retained Tax liability as a result of a
Redetermination, (ii) an increase in an UNREGCO Consolidated State Tax liability
as a result of a Redetermination and (iii) an increase in Tax liability related
to a Temporary Tax Adjustment.

                  "Federal Income Tax" means any Tax imposed under Subtitle A of
the Code (including the Taxes imposed by Sections 11, 55, and 1201(a) of the
Code and any Tax imposed on a Consolidated Group), and any interest, additions
to Tax or penalties applicable or related thereto, and any other income-based
U.S. federal Tax which is hereinafter imposed upon corporations.

                  "Federal Income Tax Return" means a Tax Return filed with
respect to a Federal Income Tax liability.

                  "Filing Party" has the meaning set forth in Section 2.3(b) of
this Agreement.

                  "Final Determination" means with respect to any issue (i) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (ii) a closing agreement (whether or not
entered into under Section 7121 of the Code) or any other binding settlement
agreement (whether or not with the Service) entered into in connection with or
in contemplation of an administrative or judicial proceeding, or (iii) the
completion of the highest level of administrative proceedings if a judicial
contest is not or is no longer available. A "Final Determination" shall also
include an agreement that the parties mutually designate as a Final
Determination regarding any issue.

                  "First Distribution" has the meaning set forth in the Recitals
to this Agreement.

                  "First Spinoff" means the separation of UNREGCO from REI
through the First Distribution.

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                  "Foreign Country" means any country, or political subdivision
of a country, other than the United States of America.

                  "Foreign Legal Entity" means any Legal Entity that is
organized under the laws of a Foreign Country.

                  "Income Taxes" means (1) any Tax based upon, measured by, or
calculated with respect to (A) net income or profits (including any capital
gains tax, minimum tax and any tax on items of Tax preference, but not including
sales, use, real or personal property, gross or net receipts, transfer or
similar taxes) or (B) multiple bases if one or more of the bases upon which such
tax may be based, measured by, or calculated with respect to, is described in
clause (A) above, or (2) any U.S. state or local income and/or franchise tax.

                  "Indemnified Liability" has the meaning set forth in Section
6.3.

                  "Indemnifying Party" has the meaning set forth in Section
6.2(d) of this Agreement.

                  "Indemnitee" has the meaning set forth in Section 6.2(d) of
this Agreement.

                  "Indemnity Amount" has the meaning set forth in Section 6.5.

                  "Initial Private Letter Ruling" means the first private letter
ruling issued by the Service to REI or its successor, REGCO, in connection with
the First Spinoff and the Spinoff.

                  "Legal Entity" means a corporation, partnership, limited
liability company or other legal entity under the corporation, partnership,
limited liability company or other organizational laws of a state or other
jurisdiction.

                  "Master Separation Agreement" has the meaning set forth in the
Recitals to this Agreement.

                  "MERGERCO2" has the meaning set forth in the Recitals to this
Agreement.

                  "Non-Filing Party" means with respect to a particular Tax
Return (i) UNREGCO if the Legal Entity that filed such Tax Return was REI or a
member of the REI Group (or as successors, REGCO or a member of the REGCO Group)
or (ii) REI (or its successor REGCO) if the Legal Entity that filed such Tax
Return was UNREGCO or a member of the UNREGCO Group.

                  "Non-Filing Party Responsible Taxes" has the meaning set forth
in Section 7.3(a).

                  "Option Deduction Reallocation" has the meaning set forth in
Section 5.4(h).

                  "Other Tax Item Refund" has the meaning set forth in Section
5.2(c).

                  "Post-Distribution Period" means any taxable period beginning
after the Distribution Date.

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                  "Pre-Distribution Period" means any taxable period ending on
or prior to the Distribution Date.

                  "Pre-1997 Tax Liability" means the Tax liability of the former
NorAm Energy Corp. and any Legal Entity that was in the same Consolidated Group
as NorAm Energy Corp. prior to August 6, 1997, to the extent such Tax liability
(i) relates to a Tax period ending on or before, or that includes, August 6,
1997, and (ii) relates to a Legal Entity that is or was a member (or whose
successor is a member) of the UNREGCO Consolidated Group.

                  "Pro Forma UNREGCO Returns" has the meaning set forth in
Section 2.4(a).

                  "Prohibited Act" has the meaning set forth in Section 6.2(c).

                  "Prohibited Transaction" has the meaning set forth in Section
6.2(b).

                  "Redetermination" means any redetermination that occurs as the
result of an Audit by the Service (or the relevant state, local or foreign
governmental authority), a claim for refund, an amended Tax Return or otherwise,
and that is resolved by a Final Determination.

                  "Redetermination Interest" has the meaning set forth in
Section 5.6(e).

                  "Redetermination Tax" has the meaning set forth in Section
5.6(e).

                  "REGCO" has the meaning set forth in the Recitals to this
Agreement and is the Legal Entity referred to as Regco in the Master Separation
Agreement.

                  "REGCO Affiliated Company" means at a given time any
corporation that (i) would be a member of the affiliated group, as defined under
Section 1504(a) of the Code, on the assumption that REGCO is the common parent
of such affiliated group and (ii) is not a member of the UNREGCO Group.

                  "REGCO Consolidated Group" means with respect to a particular
Tax period a Consolidated Group in which REGCO is the common parent for all or a
portion of such Tax period.

                  "REGCO Group" means REGCO and each REGCO Affiliated Company.

                  "REI Affiliated Company" means at a given time any corporation
that (i) would be a member of the affiliated group, as defined under Section
1504(a) of the Code, on the assumption that REI is the common parent of such
affiliated group and (ii) is not a member of the UNREGCO Group.

                  "REI Consolidated Group" means with respect to a particular
Tax period a Consolidated Group in which REI is the common parent for all or a
portion of such Tax period.

                  "REI Consolidated State Tax" means a Consolidated State Tax
for a particular Tax period for which REI or a member of the REI Group (or its
successors REGCO or the

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REGCO Group) has the legal obligation to file a Tax Return with respect to such
Consolidated State Tax.

                  "REI Consolidated State Tax Return" means a Tax Return filed
with respect to an REI Consolidated State Tax.

                  "REI Estimated UNREGCO State Installment Payment" has the
meaning set forth in Section 4.1(e)(ii).

                  "REI Estimated UNREGCO State Installment Refund" has the
meaning set forth in Section 4.1(e)(ii).

                  "REI Group" means REI and each REI Affiliated Company.

                  "REI Stock Award" means an award of stock options, restricted
stock, performance shares or other equity-based award which is payable in, or
measured based on the value of, the common stock of REI (or its successor
REGCO).

                  "RES Temporary Tax Adjustment" means a Temporary Tax
Adjustment that is caused as a result of a Redetermination that resulted in an
increase or decrease to an item of income, deduction, gain or loss attributable
to Reliant Energy Services, Inc.

                  "Restricted Period" means the period beginning two years
before the Distribution Date and ending two years after the Distribution Date.

                  "Restructuring" has the meaning set forth in the Recitals to
this Agreement.

                  "Restructuring Tax" means any Tax imposed as a result of the
transactions contemplated by the Restructuring.

                  "Ruling Documents" means (1) the request for a ruling under
Section 355 and various other sections of the Code, that have been or will be
filed with the Service in connection with the First Spinoff or the Spinoff,
together with any supplemental filings or ruling requests or other materials
subsequently submitted on behalf of REI (or its successor, REGCO), its
subsidiaries and shareholders to the Service, the appendices and exhibits
thereto, and any rulings issued by the Service to REI in connection with the
First Spinoff or the Spinoff or (2) any similar filings submitted to, or rulings
issued by, any other Tax Authority in connection with the First Spinoff or the
Spinoff.

                  "Separate State Tax" means any Tax incurred by a Legal Entity
that is not a Federal Income Tax and that is filed on a separate company basis.

                  "Separate State Tax Return" means any Tax Return filed with
respect to a Separate State Tax liability.

                  "Separate UNREGCO Tax Item" has the meaning set forth in
Section 2.4(b).

                  "SFAS 109" has the meaning set forth in Section 5.6(b).

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                  "Service" means the Internal Revenue Service.

                  "Spinoff" means the separation of UNREGCO from REGCO through
the Distribution.

                  "Straddle Period" means any Tax period that begins before but
ends after the Distribution Date.

                  "Subpart F Tax" has the meaning set forth in Section 5.4(g).

                  "Tax" includes any charges, fees, levies, imposts, duties, or
other assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, estimated,
highway use, commercial rent, capital stock, paid up capital, recording,
registration, property, real property gains, value added, business license,
custom duties, or other tax or governmental fee of any kind whatsoever, imposed
or required to be withheld by any Tax Authority including any interest,
additions to tax, or penalties applicable or related thereto.

                  "Tax Adjustment" has the meaning set forth in Section 5.6(a).

                  "Tax Authority" means any governmental authority or any
subdivision, agency, commission or authority thereof or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or imposition of any Tax (including the Service).

                  "Tax Expert" means a partner specializing in Federal Income
Tax matters at a nationally recognized law firm or a partner specializing in
Federal Income Tax matters at a Big 5 accounting firm.

                  "Tax Item" means any item of income, gain, loss, deduction or
credit, or other attribute that may have the effect of increasing or decreasing
any Tax.

                  "Tax Law" means any federal, state, local or foreign law with
respect to Taxes, including the Code and Treasury Regulations.

                  "Tax Return" means any return, report, certificate, form or
similar statement or document (including, any related or supporting information
or schedule attached thereto and any information return, amended Tax Return,
claim for refund or declaration of estimated Tax) required to be supplied to, or
filed with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.

                  "Tax Sharing Agreement" means the Tax Sharing Agreement, dated
as of August 6, 1997, entered into by and among Houston Industries,
Incorporated, NorAm Energy Corp., and Houston Industries Energy, Inc.

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                  "Temporary Tax Adjustment" has the meaning set forth in
Section 5.6(b).

                  "Temporary Tax Adjustment Balance" has the meaning set forth
in Section 5.6(d).

                  "Temporary Tax Adjustment Payment" has the meaning set forth
in Section 5.6(g).

                  "Temporary Tax Adjustment Payment Balance" has the meaning set
forth in Section 5.6(f).

                  "Transition Services Agreement" refers to the agreement
entered into between the parties as of December 31, 2000.

                  "Treasury Regulations" means the final, temporary and proposed
income tax regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).

                  "UNREGCO" has the meaning set forth in the Recitals to this
Agreement.

                  "UNREGCO Affiliated Company" means at a given time any
corporation that would be a member of the affiliated group, as defined under
Section 1504(a) of the Code, on the assumption that UNREGCO is the common parent
of such affiliated group.

                  "UNREGCO Basket Interest" means UNREGCO Interest that is not
UNREGCO Non-Basket Interest.

                  "UNREGCO Consolidated Group" means with respect to a
particular Tax period a Consolidated Group in which UNREGCO is the common parent
for all or a portion of such Tax period.

                  "UNREGCO Consolidated State Tax" means a Consolidated State
Tax for a particular Tax period for which UNREGCO or a member of the UNREGCO
Group has the legal obligation to file a Tax Return with respect to such
Consolidated State Tax.

                  "UNREGCO Consolidated State Tax Return" means a Tax Return
filed with respect to an UNREGCO Consolidated State Tax.

                  "UNREGCO Estimated Federal Installment Payment" has the
meaning set forth in Section 4.1(c)(ii).

                  "UNREGCO Estimated Federal Installment Refund" has the meaning
set forth in Section 4.1(c)(ii).

                  "UNREGCO Estimated REI State Installment Payment" has the
meaning set forth in Section 4.1(d) (ii).

                  "UNREGCO Estimated REI State Installment Refund" has the
meaning set forth in Section 4.1(d)(ii).

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                  "UNREGCO Group" means UNREGCO and each UNREGCO Affiliated
Company.

                  "UNREGCO Interest" has the meaning set forth in Section
5.6(h)(i).

                  "UNREGCO Non-Basket Interest" means UNREGCO Interest that
relates to a Federal Income Tax that is incurred by the REI Consolidated Group
(or successor REGCO Consolidated Group) for a Pre-Distribution Period or
Straddle Period as a result of a Redetermination and that is related to a
transaction that UNREGCO or an UNREGCO Affiliated Company entered into on or
after January 1, 2001.

                  "UNREGCO Option Payment" means a payment UNREGCO is obligated
to make to REI pursuant to Section 5.4(h) as a result of an Option Deduction
Reallocation.

                  "UNREGCO Retained Tax Liability" means a Pre-1997 Tax
Liability, an NOL Carryback Refund, or an Other Tax Item Refund.

                  "UNREGCO Stock Award" means an award of stock options,
restricted stock, performance shares or other equity-based award which is
payable in, or measured based on the value of, the common stock of UNREGCO.

                  1.2 Construction Principles. As used in this Agreement, the
singular shall be deemed to include the plural and vice versa, and the captions
and section headings are inserted for convenience of reference only and are not
intended to have any significance for the interpretation of, or construction of,
the provisions of this Agreement.

SECTION 2.        PREPARATION AND FILING OF TAX RETURNS.

                  2.1 In General.

                  (a) (i) With respect to any Pre-Distribution Period and any
Straddle Period, except as provided in Section 2.1(a)(ii), REI (or its successor
REGCO) shall timely file or cause to be filed all Tax Returns required to be
filed that include any member or members of the REI Group, the REGCO Group or
the UNREGCO Group for any portion of such period; any such return that includes
a member of the UNREGCO Group shall be subject to the reasonable review and
approval of UNREGCO.

                      (ii) With respect to any Pre-Distribution Period and any
Straddle Period, UNREGCO (on behalf of itself and each UNREGCO Affiliated
Company) shall timely file or cause to be filed all Tax Returns for UNREGCO
Consolidated State Taxes and for Separate State Taxes of UNREGCO or any UNREGCO
Affiliated Company.

                  (b) REI (or its successor REGCO) shall timely file or cause to
be filed any Tax Return required to be filed that includes any member of the REI
Group or REGCO Group for any Post-Distribution Period. UNREGCO shall timely file
or cause to be filed any Tax Return required to be filed that includes any
member of the UNREGCO Group for any Post-Distribution Period.

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                  (c) Notwithstanding this Section 2.1, for the term of the
Transition Services Agreement, the allocation of responsibility for preparing
Tax Returns between REI (or its successor REGCO) and UNREGCO shall be as set
forth in the Transition Services Agreement.

                  2.2 Information and Cooperation.

                  (a) In addition to any obligation imposed elsewhere under this
Agreement, REI, REGCO and UNREGCO shall provide each other all documents and
information, and make available employees and officers of REI, REGCO and
UNREGCO, as reasonably requested by the other party, on a mutually convenient
basis during normal business hours, to aid the other party (i) in preparing any
Tax Return described in Section 2.1 of this Agreement to the extent the
information needed for completing such Tax Return relates to any
Pre-Distribution Period or Straddle Period, (ii) in preparing any Tax Return
required to be completed by REI (or its successor REGCO) under the Transition
Services Agreement, (iii) to contest any Audit of any such Tax Return, (iv) to
assist on a timely basis the other party to respond in a timely manner to
requests for information or similar inquiries from the Public Utility Commission
of Texas (or its successor) or a similar body from any other state in connection
with a rate case (or similar proceeding) and (v) in preparing the notice in
accordance with Section 5.6(e).

                  (b) In the case of any Tax Return for a Pre-Distribution
Period or a Straddle Period described in Section 2.1 of this Agreement, REI (or
its successor REGCO) will provide UNREGCO with a copy of that portion of each
such Tax Return to the extent it relates to UNREGCO or any UNREGCO Affiliated
Company, together with all related Tax accounting work papers, as soon as
practicable after such Tax Return becomes available. In addition, REI (or its
successor REGCO) will provide to employees of UNREGCO responsible for preparing
a Tax Return of UNREGCO or any UNREGCO Affiliated Company for any
Pre-Distribution Period, Straddle Period or Post-Distribution Period with access
to any private letter rulings, together with any requests therefor and related
documents and any other relevant information, as it relates to UNREGCO or an
UNREGCO Affiliated Company for any period prior to the Distribution Date, and
will provide UNREGCO with a copy of such rulings or documents to the extent that
the issues discussed therein are relevant to UNREGCO or a UNREGCO Affiliated
Company, not later than thirty (30) days after the receipt of a written request
therefor.

                  (c) Notwithstanding any other provision of this Agreement,
neither REI, any REI Affiliated Company, REGCO nor any REGCO Affiliated Company
shall be required to provide UNREGCO or any UNREGCO Affiliated Company access to
or copies of any information that relate to REI, any REI Affiliated Company,
REGCO or any REGCO Affiliated Company unless it also relates to UNREGCO or an
UNREGCO Affiliated Company. In the event that REI or REGCO determines that the
provision of any information to UNREGCO or any UNREGCO Affiliated Company could
be commercially detrimental, violate any law or agreement or waive any privilege
that may be asserted under applicable law including, any privilege arising under
or relating to the attorney-client relationship (including the attorney-client
(including the protections under Section 7525 of the Code) and work product
privileges), the accountant-client privilege, and any privilege relating to
internal evaluation processes, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.

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                  (d) Notwithstanding any other provision of this Agreement
(except that nothing in this Section 2.2(d) shall be interpreted to prevent or
relieve UNREGCO or any UNREGCO Affiliated Company from complying with Section
2.4), neither UNREGCO nor any UNREGCO Affiliated Company shall be required to
provide REI, any REI Affiliated Company, REGCO or any REGCO Affiliated Company
access to or copies of any information that relates to UNREGCO or any UNREGCO
Affiliated Company unless it also relates to REI, any REI Affiliated Company,
REGCO or any REGCO Affiliated Company. In the event that UNREGCO determines that
the provision of any information to REI, any REI Affiliated Company, REGCO or
any REGCO Affiliated Company could be commercially detrimental, violate any law
or agreement or waive any privilege that may be asserted under applicable law
including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-client (including the protections under
Section 7525 of the Code) and work product privileges), the accountant-client
privilege, and any privilege relating to internal evaluation processes, the
parties shall take all reasonable measures to permit the compliance with such
obligations in a manner that avoids any such harm or consequence.

                  2.3 Manner of Filing Tax Returns.

                  (a) REI (for itself and the REI Affiliated Companies), REGCO
(for itself and REGCO Affiliated Companies) and UNREGCO (for itself and the
UNREGCO Affiliated Companies) agree to file all Tax Returns for any
Pre-Distribution Period and any Straddle Period, and to take all other actions
in a manner consistent with the position that UNREGCO and the UNREGCO Affiliated
Companies are part of the REI Consolidated Group for Federal Income Tax purposes
for all Tax periods through and including the Distribution Date.

                  (b) Except as otherwise provided in this Section 2.3 and
Section 2.4 of this Agreement, the party that is required to file a Tax Return
under Section 2.1(a) or (b) of this Agreement (the "Filing Party") shall have
the exclusive right to determine (1) the manner in which such Tax Return shall
be prepared and filed, including the elections, methods of accounting,
positions, conventions and principles of taxation to be used and the manner in
which any Tax Item shall be reported, (2) whether any extensions may be
requested, (3) the elections that will be made in such Tax Return, (4) whether
any amended Tax Returns shall be filed, (5) whether any claims for refund shall
be made, (6) whether any refunds shall be paid by way of refund or credited
against any liability for the related Tax, and (7) whether to retain outside
specialists to prepare such Tax Return, whom to retain for such purpose and the
scope of any such retainer. Notwithstanding the foregoing, if UNREGCO requests
REI (or its successor REGCO) to make a particular determination under this
Section 2.3(b) with respect to a Tax Item of UNREGCO or an UNREGCO Affiliated
Company, REI (or its successor REGCO) shall not unreasonably withhold its
consent to such request.

                  2.4 Pro Forma UNREGCO Returns.

                  (a) Initial Preparation of Pro Forma UNREGCO Returns. For each
taxable year for which an REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Return is filed and UNREGCO or any UNREGCO
Affiliated Company is a member of the REI Consolidated Group (or successor REGCO
Group) for all or a portion of such taxable year, UNREGCO shall prepare (on its
own behalf and on the behalf of each UNREGCO Affiliated

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Company) a pro forma Federal Income Tax Return for UNREGCO and for each UNREGCO
Affiliated Company (the "Pro Forma UNREGCO Returns") covering all of the taxable
year or the portion of such taxable year in which UNREGCO or any UNREGCO
Affiliated Company is a member of the REI Consolidated Group (or successor REGCO
Group). The Pro Forma UNREGCO Returns shall be complete and accurate, and shall
be in such form and include such information as shall be determined from time to
time by REI (or its successor REGCO). The Pro Forma UNREGCO Returns shall be
prepared in accordance with subsections (b) and (c) of this Section 2.4 and
shall report the federal taxable income (including, for all purposes of this
Agreement, alternative minimum taxable income) for such taxable year (or the
portion thereof) that UNREGCO and each UNREGCO Affiliated Company would have
reported if each such company had not been included in the Consolidated Return
filed for the REI Consolidated Group (or successor REGCO Consolidated Group)
with respect to such taxable year (or portion thereof) and all prior Pro Forma
UNREGCO Returns filed after December 31, 2000, had been actual Tax Returns. The
provisions of the Code that require consolidated calculations, including,
without limitation, Sections 1201, 1211, 1212 and 1231, shall be applied
separately to UNREGCO and each UNREGCO Affiliated Company, but with any
simplifying conventions approved or suggested by the Tax Director of REI (or its
successor REGCO). The Pro Forma UNREGCO Returns shall include gains and losses
with respect to DITs if, and only if, and to the extent that, such gains or
losses are actually restored and reflected on the REI Consolidated Group (or
successor REGCO Consolidated Group) Consolidated Return.

                  (b) Standards for Positions Taken on Pro Forma UNREGCO
Returns. UNREGCO shall prepare the Pro Forma UNREGCO Returns by reporting the
Tax treatment of any item by utilizing such positions that, in UNREGCO's
discretion, are appropriate for UNREGCO and each UNREGCO Affiliated Company;
provided, that each position is more likely than not to be ultimately sustained;
and provided further that the positions reflected other than positions which are
Legal Entity specific in the context of an UNREGCO Tax Item within a
Consolidated Return of REI (or its successor REGCO) ("Separate UNREGCO Tax
Item") by UNREGCO on the Pro Forma UNREGCO Returns shall be consistent with the
elections made and the positions reflected on the relevant portion of the REI
Consolidated Group (or successor REGCO Consolidated Group) Consolidated Return
(including carryovers or carrybacks of net operating losses, net capital losses,
excess Tax credits or other Tax attributes from prior or subsequent taxable
years). UNREGCO may utilize a position on the Pro Forma UNREGCO Returns that
does not meet this standard but that does have a reasonable basis in law and in
fact, but only if UNREGCO has obtained, after prior notice to and consultation
with REI (or its successor REGCO), REI's (or its successor REGCO's) written
consent to utilize such position on Pro Forma UNREGCO Returns for such taxable
year. Except as otherwise required by Tax law and with respect to a Separate
UNREGCO Tax Item, UNREGCO may not utilize a position on the Pro Forma UNREGCO
Returns that is inconsistent with any position utilized on a Pro Forma UNREGCO
Return or REI Consolidated Group Consolidated Return for a prior taxable year.

                  (c) Standards for Methods and Elections on Pro Forma UNREGCO
Returns. The Pro Forma UNREGCO Returns shall reflect any elections made and Tax
methods used by REI (or its successor REGCO) with respect to the REI's
Consolidated Group (or successor REGCO's Consolidated Group) Consolidated Return
(other than with respect to a Separate UNREGCO Tax Item) that in the sole and
absolute discretion of REI (or its successor REGCO), but after prior good faith
consultation with UNREGCO (if requested by the Tax Director of UNREGCO),

                                      -12-
<PAGE>   14

should be made, taken or used consistently by the REI Consolidated Group (or
successor REGCO Group) in filing such Consolidated Return. UNREGCO may utilize
any other election, method or simplifying convention subject to REI's (or its
successor REGCO's) approval, which approval shall not be unreasonably withheld,
in preparing the Pro Forma UNREGCO Returns. Notwithstanding the foregoing,
UNREGCO may not utilize any election or Tax method in preparing the Pro Forma
UNREGCO Returns for a taxable year that is inconsistent with any election,
position or method utilized on a Pro Forma UNREGCO Return or REI Consolidated
Return for a prior taxable year if the effect of such treatment is to allow a
double deduction or benefit with respect to any item (or unless UNREGCO has
eliminated such double deduction or benefit in a manner acceptable to REI (or
its successor REGCO)).

                  (d) Delivery to REI of Pro Forma UNREGCO Returns; Assistance.
UNREGCO will deliver to REI (or its successor REGCO) the Pro Forma UNREGCO
Returns on or before August 1 of each year or later if mutually agreed.
Appropriate personnel of UNREGCO or a UNREGCO Affiliated Company that are
responsible for the preparation of the Pro Forma UNREGCO Returns shall be
available upon reasonable notice to meet with appropriate personnel of REI (or
successor REGCO) to discuss all aspects of such Tax Returns and upon request by
REI (or its successor REGCO) shall furnish or make available for inspection any
and all documents used in preparation of the Pro Forma UNREGCO Returns
(documents relied upon by UNREGCO in ascertaining whether any position is more
likely than not to be ultimately sustained or has a reasonable basis in law or
in fact shall be furnished only to the principal Tax legal officer of REI (or
its successor REGCO) under cover of the attorney-client privilege (including the
protections under Section 7525 of the Code) and work product doctrine).

                  (e) Adjustment by REI of Pro Forma UNREGCO Returns. REI (or
its successor REGCO), within 15 days of the due date of the REI Consolidated
Group's (or successor REGCO Consolidated Group's) Consolidated Return (taking
into account any extensions thereof that have been granted to REI (or its
successor REGCO)) shall adjust the Pro Forma UNREGCO Returns, as appropriate (i)
in accordance with the terms of this Agreement, (ii) consistent with the
elections, methods of accounting, positions, conventions and principles of
taxation (other than with respect to a Separate UNREGCO Tax Item) as reflected
on the most recently filed prior Tax Returns of the REI Consolidated Group
involving similar matters and (iii) after prior notice to and good faith
consultation with UNREGCO, to correct any error of fact or law thereon or any
error in mechanical calculation and any failure to reflect the principles set
forth in this Section 2.4; provided, however, that if REI (or its successor
REGCO) proposes an adjustment to a Pro Forma UNREGCO Return to which REI has not
previously consented to under Section 2.4(b) and UNREGCO objects to such
adjustment, REI (or its successor REGCO) and UNREGCO shall jointly select and
pay a Tax Expert to render a legal opinion as to whether the position advocated
by UNREGCO is more likely than not to be sustained. The adjustment proposed by
REI (or its successor REGCO) will only be made if the legal opinion from a Tax
Expert concludes that the position asserted by UNREGCO does not meet the more
likely than not standard. Similarly, except as stated in the following sentence,
any failure by REI (or its successor REGCO) to properly and fully adjust the Pro
Forma Returns within the 15-day period set forth in this Section 2.4(e) shall
not prevent REI (or its successor REGCO), in its sole and absolute discretion,
but after prior good faith consultation with the Tax Director of UNREGCO, from
making subsequent adjustments as circumstances warrant within the applicable
statute of limitation (determined as if the Pro Forma UNREGCO Returns were
actual Tax Returns that are

                                      -13-
<PAGE>   15

subject to any extensions that have been granted by REI (or its successor REGCO)
with respect to the REI Consolidated Group (or successor REGCO Consolidated
Group) Consolidated Return), nor relieve UNREGCO of liability for such
adjustments. The adjustment described in the preceding sentence shall not be
made if such adjustment would increase UNREGCO's obligations set forth in
Section 5.2, Section 5.3, Section 5.4(h) or Section 5.6, in accordance with the
procedures of this Section 2.4(e).

                  2.5 Agent.

                  (a) UNREGCO hereby irrevocably designates, and agrees to cause
each UNREGCO Affiliated Company to so designate, REI (and its successor REGCO)
as its sole and exclusive agent and attorney-in-fact to take such action
(including execution of documents) as REI (and its successor REGCO), in its sole
discretion, may deem appropriate in any and all matters (including Audits)
relating to any Consolidated Return or Consolidated State Tax Return filed on a
combined, unitary or consolidated basis described in Section 2.1(a) of this
Agreement or Section 2.1(b) if the filing of such Tax Return is the
responsibility of REI (or its successor REGCO) under the Transition Services
Agreement; provided, however, that REI (and its successor REGCO) shall not
exercise its rights as agent and attorney-in-fact in any manner that is
inconsistent with the rights granted to UNREGCO under this Agreement, and
nothing in this Section 2.5(a) shall limit the rights granted to UNREGCO under
this Agreement.

                  (b) REI (or its successor REGCO) hereby irrevocably
designates, and agrees to cause each REI Affiliated Company (or successor REGCO
Affiliated Company) to so designate, UNREGCO as its sole and exclusive agent and
attorney-in-fact to take such action (including execution of documents) as
UNREGCO, in its sole discretion, may deem appropriate in any and all matters
(including Audits) relating to any UNREGCO Consolidated State Tax Return
described in Section 2.1(b) of this Agreement; provided, however, that UNREGCO
shall not exercise its rights as agent and attorney-in-fact in any manner that
is inconsistent with the rights granted to REI (or its successor REGCO) under
this Agreement, and nothing in this Section 2.5(b) shall limit the rights
granted to REI (or its successor REGCO) under this Agreement.

SECTION 3.        REPRESENTATIONS AND COVENANTS.

                  3.1 REI Representations and Covenants. REI hereby represents,
warrants and covenants that:

                  (a) REI will review the information and representations made
in the Ruling Documents that will be submitted to the Service, and, REI
covenants that all of such information or representations that relate to REI or
any REI Affiliated Company, or the business or operations of either, will be
true, correct and complete to REI's knowledge and will identify to UNREGCO any
information or representations that are incorrect or incomplete.

                  (b) REI (or its successor REGCO) will not, and will cause each
REI Affiliated Company (and REGCO will cause each REGCO Affiliated Company) not
to, take any action, or fail or omit to take any action, that would cause any of
the information or representations made in the Ruling Documents that relate to
REI or any REI Affiliated Company (or as successors, REGCO or any REGCO
Affiliated Company) or the business or operations of each, to be untrue,

                                      -14-
<PAGE>   16

regardless of whether such information or representations are included in the
Initial Private Letter Ruling (or any supplemental ruling).

                  (c) REI covenants and agrees for itself and on behalf of REGCO
to comply with the covenants set forth in this Section 3.1, and REI covenants
and agrees to cause REGCO to expressly assume the obligations under this
Agreement required to be performed by REI, REGCO, or any REGCO Affiliated
Company.

                  3.2 UNREGCO Representations and Covenants. UNREGCO hereby
represents, warrants, and covenants that:

                  (a) UNREGCO will review the information and representations
made in the Ruling Documents that will be submitted to the Service, and UNREGCO
covenants that all of such information or representations that relate to UNREGCO
or any UNREGCO Affiliated Company, or the business or operations of either, will
be true, correct and complete to UNREGCO's knowledge and will identify to REI
(or its successor REGCO) any information or representations that are incorrect
or incomplete.

                  (b) UNREGCO will not, and will cause each UNREGCO Affiliated
Company not to, take any action, or fail or omit to take any action, that would
cause any of the information or representations made in the Ruling Documents
that relate to UNREGCO or any UNREGCO Affiliated Company or the business or
operations of each, to be untrue, regardless of whether such information or
representations are included in the Initial Private Letter Ruling (or any
supplemental ruling).

SECTION 4.        TAX ALLOCATION AND PAYMENTS.

                  4.1 In General. Except to the extent modified or supplemented
herein, the Tax Sharing Agreement shall continue in full force and effect. The
provisions of the Tax Sharing Agreement shall fix the rights and obligations of
the parties as to the matters covered thereby.

                  (a) Except as provided to the contrary in Section 5.2, Section
5.3, Section 5.4(h) or Section 5.6, and except for any Restructuring Taxes for
which REI or any REI Affiliated Company (or as successors, REGCO or any REGCO
Affiliated Company) is liable under Section 5 of this Agreement,

                     (i) UNREGCO shall be responsible for, and shall indemnify
and hold harmless REI (or its successor REGCO) against, any and all Taxes
incurred by UNREGCO or the UNREGCO Group, in accordance with past practices and
the principles set forth in the Tax Sharing Agreement, for any Pre-Distribution
Period and Straddle Period.

                     (ii) REI (or its successor, REGCO) shall be responsible
for, and shall indemnify and hold harmless UNREGCO against, any and all Taxes
incurred by REI or any REI Affiliated Company (other than Taxes attributable to
UNREGCO or any UNREGCO Affiliated Company) in accordance with past practices and
the principles set forth in the Tax Sharing Agreement for any Pre-Distribution
Period and Straddle Period.

                                      -15-
<PAGE>   17

                  (b) Except as provided to the contrary in Section 5.2, Section
5.3, Section 5.4(h) or Section 5.6, UNREGCO shall be responsible for all Taxes
that relate to the UNREGCO Group with respect to any Post-Distribution Period
and REGCO shall be responsible for all Taxes that relate to the REGCO Group with
respect to any Post-Distribution Period.

                  (c) Estimated Federal Tax Payments.

                     (i) In the case of any Federal Income Taxes for any
Pre-Distribution Period for the REI Consolidated Group (or successor REGCO
Consolidated Group), UNREGCO (on behalf of itself and each UNREGCO Affiliated
Company) shall provide to REI (or its successor REGCO) no later than 8 days
prior to the due date for each payment of an installment of estimated Federal
Income Taxes (as determined under Section 6655 of the Code or successor
provision then in effect) of the REI Consolidated Group (or successor REGCO
Consolidated Group) ("Estimated Federal Installment Payment") such information
pertaining to UNREGCO or an UNREGCO Affiliated Company as is necessary for REI
(or its successor REGCO) to compute the amount of such Estimated Federal
Installment Payment.

                     (ii) On or before the due date of such Estimated Federal
Installment Payment, REI (or its successor REGCO) shall inform UNREGCO of either
(A) the amount ("UNREGCO Estimated Federal Installment Payment") that UNREGCO
(on behalf of itself and each UNREGCO Affiliated Company) must pay REI (or its
successor REGCO) with respect to such Estimated Federal Installment Payment, or
(B) the amount ("UNREGCO Estimated Federal Installment Refund") REI (or its
successor REGCO) must pay UNREGCO with respect to such Estimated Federal
Installment Payment. REI (or its successor REGCO) shall compute the amount of
each UNREGCO Estimated Federal Installment Payment or the UNREGCO Estimated
Federal Installment Refund, as the case may be, so as to equal the portion of
the Estimated Federal Installment Payment that is allocable to UNREGCO and the
UNREGCO Affiliated Companies taking into account previous UNREGCO Estimated
Federal Installment Payments and UNREGCO Estimated Federal Installment Refunds
that have been made for the same Pre-Distribution Period. REI (or its successor
REGCO) shall calculate the portion of each Estimated Federal Installment Payment
of the REI Consolidated Group (or successor REGCO Consolidated Group) that is
allocable to UNREGCO and the UNREGCO Affiliated Companies by (C) computing the
sum of the estimated Federal Income Tax payments that UNREGCO and each UNREGCO
Affiliated Company would have been required to pay if each of UNREGCO and each
UNREGCO Affiliated Company had filed a Federal Income Tax Return on a separate
company basis for such estimated Federal Income Tax period and (D) taking into
account adjustments, if any, that are applicable on a Consolidated Return basis
to the REI Consolidated Group (or successor REGCO Consolidated Group)
Consolidated Return for such Pre-Distribution Period. UNREGCO shall pay REI (or
its successor REGCO) the UNREGCO Estimated Federal Installment Payment within 24
hours after the due date of the Estimated Federal Installment Payment to which
it relates, and REI (or its successor REGCO) shall pay UNREGCO the UNREGCO
Estimated Federal Installment Refund within 24 hours after the due date of the
Estimated Federal Installment Payment to which it relates.

                     (iii) If (A) the portion of the actual Federal Income Tax
Liability of the REI Consolidated Group (or successor REGCO Consolidated Group)
for a Pre-Distribution Period that is allocable, as determined by REI (or its
successor REGCO) in accordance with the

                                      -16-
<PAGE>   18

Tax Sharing Agreement and consistent with the past practices utilized by the REI
Tax Department in completing previous REI Consolidated Group Consolidated
Returns, to UNREGCO and the UNREGCO Affiliated Companies exceeds (B)(I) the sum
of the UNREGCO Estimated Federal Installment Payments for such Pre-Distribution
Period less (II) the sum of the UNREGCO Estimated Federal Installment Refunds
for such Pre-Distribution Period, then REI (or its successor REGCO) shall inform
UNREGCO of the amount of such excess on or before the due date of the REI
Consolidated Group (or successor REGCO Group) Consolidated Return (or successor
REGCO Consolidated Group) for such Pre-Distribution Period. UNREGCO (on behalf
of itself and each UNREGCO Affiliated Company) shall pay the amount of such
excess to REI (or its successor REGCO) within 24 hours after the due date of the
REI Consolidated Group (or successor REGCO Consolidated Group) Consolidated
Return.

                     (iv) If (A)(I) the sum of the UNREGCO Estimated Federal
Installment Payments for a Pre-Distribution period less (II) the sum of the
UNREGCO Estimated Federal Installment Refunds for such Pre-Distribution period
exceeds (B) the portion of the actual Federal Income Tax Liability of the REI
Consolidated Group (or successor REGCO Consolidated Group) for such
Pre-Distribution Period that is allocable, as determined by REI (or its
successor REGCO) in accordance with the Tax Sharing Agreement and consistent
with past practices utilized by the REI Tax Department in implementing previous
REI Consolidated Group Returns, to UNREGCO and the UNREGCO Affiliated Companies,
then REI (or its successor REGCO) shall pay the amount of such excess to UNREGCO
within 24 hours after the due date of the Consolidated REI Consolidated Group
(or successor REGCO Consolidated Group) Consolidated Return for such
Pre-Distribution Period.

                     (v) REI (or its successor REGCO) shall calculate the
portion of the actual Federal Income Tax Liability of the REI Consolidated Group
(or successor REGCO Consolidated Group) that is allocable to UNREGCO and the
UNREGCO Affiliated Companies for Sections 4.1(c)(iii) and (iv) consistent with
the UNREGCO Pro Forma Returns submitted in accordance with Section 2.4 and
consistent with the principles set forth in the penultimate sentence of Section
4.1(c)(ii).

                  (d) Estimated Payments of REI Consolidated State Taxes.

                     (i) In the case of any REI Consolidated State Tax for any
Pre-Distribution Period that includes a member of the UNREGCO Group, UNREGCO (on
behalf of itself and each UNREGCO Affiliated Company) shall provide to REI (or
its successor REGCO) no later than 8 days prior to the due date for each payment
of an installment of REI Consolidated State Tax ("Estimated REI State
Installment Payment") such information pertaining to UNREGCO or an UNREGCO
Affiliated Company as is necessary for REI (or its successor REGCO) to compute
the amount of such Estimated REI State Installment Payment.

                     (ii) On or before the due date of such Estimated REI State
Installment Payment, REI shall inform UNREGCO of either (A) the amount ("UNREGCO
Estimated REI State Installment Payment") that UNREGCO (on behalf of itself and
each UNREGCO Affiliated Company) must pay REI (or its successor REGCO) with
respect to such Estimated REI State Installment Payment, or (B) the amount
("UNREGCO Estimated REI State

                                      -17-
<PAGE>   19

Installment Refund") REI (or its successor REGCO) must pay UNREGCO with respect
to such Estimated REI State Installment Payment. REI (or its successor REGCO)
shall compute the amount of each UNREGCO Estimated REI State Installment Payment
or UNREGCO Estimated REI State Installment Refund, as the case may be, so as to
equal the portion of the Estimated REI State Installment Payment that is
allocable to UNREGCO and the UNREGCO Affiliated Companies taking into account
previous UNREGCO Estimated REI State Installment Payments and UNREGCO Estimated
REI State Installment Refunds that have been made for the same Pre-Distribution
Period. REI (or its successor REGCO) shall calculate the portion of each
Estimated REI State Installment Payment that is allocable to UNREGCO and the
UNREGCO Affiliated Companies by (C) computing the sum of the estimated REI
Consolidated State Tax payments that UNREGCO and each UNREGCO Affiliated Company
would have been required to pay if each of UNREGCO and each UNREGCO Affiliated
Company had filed an REI Consolidated State Tax Return on a separate company
basis for such estimated REI Consolidated State Tax period and (D) taking into
account adjustments, if any, that are applicable on a Consolidated State Tax
basis to the REI Consolidated State Tax Return for such Pre-Distribution Period.
UNREGCO shall pay REI (or its successor REGCO) the UNREGCO Estimated REI State
Installment Payment within 24 hours after the due date of the Estimated REI
State Installment Payment to which it relates, and REI (or its successor REGCO)
shall pay UNREGCO the UNREGCO Estimated REI State Installment Refund within 24
hours after the due date of the Estimated REI State Installment Payment to which
it relates.

                     (iii) If (A) the portion of the actual REI Consolidated
State Tax Liability for a Pre-Distribution Period that is allocable, as
determined by REI (or its successor REGCO) in accordance with the Tax Sharing
Agreement and consistent with the past practices utilized by the REI Tax
Department in completing previous REI Consolidated State Tax Returns, to UNREGCO
and the UNREGCO Affiliated Companies exceeds (B)(I) the sum of the UNREGCO
Estimated REI State Installment Payments for such Pre-Distribution Period less
(II) the sum of the UNREGCO Estimated REI State Installment Refunds for such
Pre-Distribution Period, then UNREGCO (on behalf or itself and each UNREGCO
Affiliated Company) shall pay the amount of such excess to REI (or its successor
REGCO) within 24 hours after the due date of the REI Consolidated State Tax
Return for such Pre-Distribution Period.

                     (iv) If (A)(I) the sum of the UNREGCO Estimated REI State
Installment Payments for a Pre-Distribution period less (II) the sum of the
UNREGCO Estimated REI State Installment Refunds for such Pre-Distribution period
exceeds (B) the portion of the actual REI Consolidated State Tax Liability for
such Pre-Distribution Period that is allocable, as determined by REI (or its
successor REGCO) in accordance with the Tax Sharing Agreement and consistent
with the past practices utilized by the REI Tax Department in completing
previous REI Consolidated State Tax Returns, to UNREGCO and the UNREGCO
Affiliated Companies, then REI (or its successor REGCO) shall pay the amount of
such excess to UNREGCO within 24 hours after the due date of the REI
Consolidated State Tax Return for such Pre-Distribution Period.

                     (v) For purposes of REI's (or its successor REGCO's)
determination under Section 4.1(d) of the portion of the actual REI Consolidated
State Tax liability that is allocable to UNREGCO and the UNREGCO Affiliated
Companies, REI (or its successor REGCO) shall allocate the amount by which the
net aggregate REI Consolidated State Tax liability for a particular
Pre-Distribution Period is increased or decreased because a Legal Entity

                                      -18-
<PAGE>   20

included in the REI Consolidated State Tax Return created a nexus in a
jurisdiction resulting in the imposition of an REI Consolidated State Tax by
such jurisdiction that would not otherwise had been imposed but for such nexus
either (A) completely to UNREGCO and the UNREGCO Affiliated Companies if such
Legal Entity is a member of the UNREGCO Group or (B) completely to the members
of the REI Group (or successor REGCO Group) if the Legal Entity is not a member
of the UNREGCO Group.

                  (e) Estimated Payments of UNREGCO Consolidated State Taxes.

                     (i) In the case of any UNREGCO Consolidated State Tax for
any Pre-Distribution Period that includes a member of the REI Group (or
successor REGCO Group), REI on behalf of itself and each REI Affiliated Company
(or its successors REGCO and each REGCO Affiliated Company) shall provide to
UNREGCO no later than 8 days prior to the due date for each payment of an
installment of UNREGCO Consolidated State Tax ("Estimated UNREGCO State
Installment Payment") such information pertaining to REI (or its successor
REGCO) or an REI Affiliated Company (or successor REGCO Affiliated Company) as
is necessary for UNREGCO to compute the amount of such Estimated UNREGCO State
Installment Payment.

                     (ii) On or before the due date of such Estimated UNREGCO
State Installment Payment, UNREGCO shall inform REI (or its successor REGCO) of
either (A) the amount ("REI Estimated UNREGCO State Installment Payment") that
REI on behalf of itself and each REI Affiliated Company (or its successors REGCO
and each REGCO Affiliated Company) must pay UNREGCO with respect to such
Estimated UNREGCO State Installment Payment, or (B) the amount ("REI Estimated
UNREGCO State Installment Refund") UNREGCO must pay REI with respect to such
Estimated UNREGCO State Installment Payment. UNREGCO shall compute the amount of
each REI Estimated UNREGCO State Installment Payment or the REI Estimated
UNREGCO State Installment Refund, as the case may be, so as to equal the portion
of the Estimated UNREGCO State Installment Payment that is allocable to REI and
the REI Affiliated Companies (or as successors REGCO and the REGCO Affiliated
Companies) taking into account previous REI Estimated UNREGCO State Installment
Payments and REI Estimated UNREGCO State Installment Refunds that have been made
for the same Pre-Distribution Period. UNREGCO shall calculate the portion of
each Estimated UNREGCO State Installment Payment that is allocable to REI and
the REI Affiliated Companies (or as successors REGCO and the REGCO Affiliated
Companies) by (C) computing the sum of the estimated UNREGCO Consolidated State
Tax payments that REI and the REI Affiliated Companies (or as successors REGCO
and the REGCO Affiliated Companies) would have been required to pay if each of
REI and each REI Affiliated Company (or as successors REGCO and each REGCO
Affiliated Company) had filed an UNREGCO Consolidated State Tax Return on a
separate company basis for such estimated UNREGCO Consolidated State Tax period
and (D) taking into account adjustments, if any, that are applicable on a
Consolidated State Tax basis to the UNREGCO Consolidated State Tax Return for
such Pre-Distribution Period. REI (or its successor REGCO) shall pay UNREGCO the
REI Estimated UNREGCO State Installment Payment within 24 hours after the due
date of the UNREGCO Estimated REI State Installment Payment to which it relates,
and UNREGCO shall pay REI the REI Estimated UNREGCO State Installment Refund
within 24 hours after the due date of the Estimated UNREGCO State Installment
Payment to which it relates.

                                      -19-
<PAGE>   21

                      (iii) If (A) the portion of the actual UNREGCO
Consolidated State Tax Liability for a Pre-Distribution Period that is
allocable, as determined by UNREGCO in accordance with the Tax Sharing Agreement
and consistent with the past practices utilized by the UNREGCO Tax Department in
completing previous UNREGCO Consolidated State Tax Returns, to REI and the REI
Affiliated Companies (or as successors REGCO and the REGCO Affiliated Companies)
exceeds (B)(I) the sum of the REI Estimated UNREGCO State Installment Payments
for such Pre-Distribution Period less (II) the sum of the REI Estimated UNREGCO
State Installment Refunds for such Pre-Distribution Period, then REI on behalf
or itself and each REI Affiliated Company (or as successors, REGCO and each
REGCO Affiliated Company) shall pay the amount of such excess to UNREGCO within
24 hours after the due date of the UNREGCO Consolidated State Tax Return for
such Pre-Distribution Period.

                      (iv) If (A)(I) the sum of the REI Estimated UNREGCO State
Installment Payments for a Pre-Distribution period less (II) the sum of the REI
Estimated UNREGCO State Installment Refunds for such Pre-Distribution period
exceeds (B) the portion of the actual UNREGCO Consolidated State Tax Liability
for such Pre-Distribution Period that is allocable, as determined by UNREGCO in
accordance with the Tax Sharing Agreement and consistent with the past practices
utilized by the UNREGCO Tax Department in completing previous UNREGCO
Consolidated State Tax Returns to REI, and the REI Affiliated Companies (or as
successors, REGCO and the REGCO Affiliated Companies), then UNREGCO shall pay
the amount of such excess to REI within 24 hours after the due date of the
UNREGCO Consolidated State Tax Return for such Pre-Distribution Period.

                      (v) For purposes of UNREGCO's determination under Section
4.1(e) of the portion of the actual UNREGCO Consolidated State Tax liability
that is allocable to REI and the REI Affiliated Companies (or as successors
REGCO and the REGCO Affiliated Companies), UNREGCO shall allocate the amount by
which the net aggregate UNREGCO Consolidated State Tax liability for a
particular Pre-Distribution Period is increased or decreased because a Legal
Entity included in the UNREGCO Consolidated State Tax Return created a nexus in
a jurisdiction resulting in the imposition of an UNREGCO Consolidated State Tax
by such jurisdiction that would not otherwise had been imposed but for such
nexus either (A) completely to UNREGCO and the UNREGCO Affiliated Companies if
such Legal Entity is a member of the UNREGCO Group or (B) completely to REI and
the members of the REI Group (or successor REGCO Group) if the Legal Entity is
not a member of the UNREGCO Group.

                  (f) Straddle Period Tax Payments.

                      (i) In the case of Federal Income Taxes for any Straddle
Period of the REI Consolidated Group (or its successor REGCO Consolidated
Group), UNREGCO (on its behalf and on behalf of each UNREGCO Affiliated Company)
or REI (or its successor REGCO), as the case may be, shall pay to REI (or its
successor REGCO) or UNREGCO, as the case may be, amounts (and at times)
determined in accordance with the principles of Section 4.1(c) assuming that the
relevant Tax period for purposes of applying Section 4.1(c) is the period that
begins on the first day of the Straddle Period and ends on the Distribution
Date. The actual Federal Income Tax Liability of UNREGCO and each UNREGCO
Affiliated Company shall be determined in accordance with Section 2.4.

                                      -20-
<PAGE>   22

                      (ii) In the case of any REI Consolidated State Taxes for
the Straddle Period, UNREGCO (on its behalf and on behalf of each UNREGCO
Affiliated Company) shall pay an amount to REI (or its successor REGCO), or REI
on its behalf and on behalf of each REI Affiliated Company (or its successor
REGCO and each REGCO Affiliated Company) shall pay an amount to UNREGCO, as the
case may be, amounts (and at times) determined in accordance with the principles
of Section 4.1(d) assuming that the relevant Tax period for purposes of applying
Section 4.1(d) is the period that begins on the first day of the Straddle Period
and ends on the Distribution Date. The actual REI Consolidated State Tax
liability attributable to UNREGCO and each UNREGCO Affiliated Company shall be
determined in accordance with Section 2.4.

                      (iii) In the case of UNREGCO Consolidated State Taxes for
the Straddle Period, REI on its behalf and on behalf of each REI Affiliated
Company (or its successors REGCO and each REGCO Affiliated Company) shall pay an
amount to UNREGCO, or UNREGCO shall pay an amount to REI (or its successor
REGCO), as the case may be, amounts (and at times) determined in accordance with
the principles of Section 4.1(e) assuming that the relevant Tax period for
purposes of applying Section 4.1(e) is the period that begins on the first day
of the Straddle Period and ends on the Distribution Date. The actual UNREGCO
Consolidated State Tax liability of REI and each REI Affiliated Company (or its
successor REGCO and each REGCO Affiliated Company) shall be determined in
accordance with Section 2.4.

                  4.2 Payments of Tax to Tax Authorities.

                  (a) Federal Income Taxes. REI (or its successor REGCO) shall
pay (or cause to be paid) to the Service when due the Federal Income Taxes, if
any, of the REI Consolidated Group due and payable for the Pre-Distribution
Periods and Straddle Periods. REI (or its successor REGCO) shall pay (or cause
to be paid) to the Service when due all Federal Income Taxes, if any, of the REI
Consolidated Group (or the successor REGCO Consolidated Group) due and payable
for all Post-Distribution Periods. UNREGCO shall pay (or cause to be paid) to
the Service when due all Federal Income Taxes, if any, of the UNREGCO
Consolidated Group for all Post-Distribution Periods.

                  (b) State Taxes. REI (or its successor, REGCO) shall pay (or
cause to be paid) to the appropriate Tax Authorities when due (i) all Separate
State Taxes, if any, that relate to REI or an REI Affiliated Company (or its
successors REGCO or a REGCO Affiliated Company) for any Pre-Distribution,
Straddle Period or Post-Distribution Period and (ii) all REI Consolidated State
Taxes, if any, for any Pre-Distribution Period, Straddle Period or
Post-Distribution Period. UNREGCO shall pay (or cause to be paid) to the
appropriate Tax Authorities when due (iii) all Separate State Taxes, if any,
that relate to UNREGCO or an UNREGCO Affiliated Company for any Pre-Distribution
Period, Straddle Period or Post-Distribution Period and (iv) all UNREGCO
Consolidated State Taxes, if any, that relate to any Pre-Distribution Period,
Straddle Period or Post-Distribution Period.

                                      -21-
<PAGE>   23

SECTION 5.        ALLOCATION OF CERTAIN TAX ITEMS.

                  5.1 Liability for Restructuring Taxes. Except as otherwise
provided by this Agreement, REI (or its successor REGCO) shall be responsible
for any and all Restructuring Taxes.

                  5.2 NOLs; Carryforwards and Carrybacks.

                  (a) REGCO shall notify UNREGCO after the Distribution Date of
any consolidated carryover item which may be partially or totally attributed to
and carried over by a UNREGCO Affiliated Company and will notify UNREGCO of
subsequent adjustments which may affect such carryover item.

                  (b) If (i) the UNREGCO Consolidated Group generates a net
operating loss in a Post-Distribution Period that it requests in writing to REI
(or its successor REGCO) be carried back to a Pre-Distribution Period or
Straddle Period of the REI Consolidated Group (or successor REGCO Consolidated
Group) and (ii) REI (or its successor REGCO) consents to such request, which
consent shall not be unreasonably withheld, then REI (or its successor REGCO)
shall amend the REI Consolidated Group Consolidated Return for such
Pre-Distribution Period or Straddle Period seeking a refund of Tax for such net
operating loss carryback ("NOL Carryback Refund"). Upon receipt of such refund,
REI (or its successor REGCO) shall pay the amount of such refund to UNREGCO
within 24 hours of REI's (or its successor REGCO's) receipt of such Tax refund.
The preceding principles shall be equally applicable to a net operating loss
generated in a Post-Distribution Period by the UNREGCO Group that can be carried
back to an REI Consolidated State Tax Return for a Pre-Distribution Period or
Straddle Period.

                  (c) To the extent the UNREGCO Consolidated Group generates any
other Tax Item in a Post-Distribution Period that is required by the Code or
Treasury Regulations to be carried back to a Pre-Distribution Period or Straddle
Period, then REI (or its successor REGCO) shall amend the REI Consolidated Group
Consolidated Return for such Pre-Distribution Period or Straddle Period seeking
a refund of Tax relating to such Tax Item ("Other Tax Item Refund"). Upon
receipt of such refund, REI (or its successor REGCO) shall pay the amount of
such refund to UNREGCO within 24 hours of REI's (or its successor REGCO's)
receipt of such Tax refund. The preceding principles shall be equally applicable
to the carry back of any other Tax Item generated in a Post-Distribution Period
by the UNREGCO Group to an REI Consolidated State Tax Return for a
Pre-Distribution Period or Straddle Period.

                  5.3 Adjustments.

                  (a) In General. Except for increases or decreases to Tax
subject to Section 5.3(b) or Section 5.3(c), if a Redetermination results in an
increase or decrease to the Tax liability reported on an REI Consolidated Group
(or successor REGCO Consolidated Group) Consolidated Return or an REI
Consolidated State Tax Return for a Pre-Distribution Period or the Straddle
Period, then

                      (i) the amounts required to be paid between REI (or its
successor REGCO) and UNREGCO pursuant to Section 4 shall not be recomputed for
such taxable period

                                      -22-
<PAGE>   24

to take into account any such increase or decrease to the Tax that occurs as a
result of such Redetermination,

                      (ii) payments previously made between REI (or its
successor REGCO) and UNREGCO pursuant to Section 4 shall not be adjusted to take
into account any such increase or decrease to the Tax that occurs as a result of
such Redetermination,

                      (iii) REI (or its successor REGCO) shall be liable for and
shall pay to the appropriate Tax Authority when due any increase in Tax for such
Pre-Distribution Period or Straddle Period that occurs as a result of such
Redetermination,

                      (iv) REI (or its successor REGCO) shall indemnify and hold
UNREGCO harmless from any increase in Tax for such Pre-Distribution Period or
Straddle Period that occurs as a result of such Redetermination,

                      (v) UNREGCO shall not be liable for and shall not pay any
increase in Tax for such Pre-Distribution Period or Straddle Period that occurs
as a result of such Redetermination,

                      (vi) REI (or its successor REGCO) shall be entitled to,
and shall retain, all refunds related to any decrease in Tax for such
Pre-Distribution Period or Straddle Period that occurs as a result of such
Redetermination,

                      (vii) UNREGCO shall not be entitled to, and shall not
retain, any refund related to any decrease in Tax for such Pre-Distribution
Period or Straddle Period that occurs as a result of such Redetermination and

                      (viii) with respect to increases or decreases in Tax
related to an Option Deduction Reallocation or to a Temporary Tax Adjustment,
REI (or its successor REGCO) and UNREGCO shall have the payment obligations to
the other as set forth in Section 5.4(h) or Section 5.6, respectively.

                  (b) UNREGCO Retained Tax Liability Exception. For an increase
or decrease to the Tax reported on an REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Return or an REI Consolidated State Tax Return
for a Pre-Distribution Period or a Straddle Period that occurs as a result of a
Redetermination and that relates to an UNREGCO Retained Tax Liability:

                      (i) Increases to Tax. REI (or its successor REGCO) shall
pay to the appropriate Tax Authority when due all increases in Tax for such
Pre-Distribution Period or Straddle Period that occur as a result of such
Redetermination, and

                         (A) within 15 days of making any payment under Section
5.3(b)(i), REI shall provide UNREGCO notice of the amounts of payment to be made
between UNREGCO and REI (or its successor REGCO) of UNREGCO's allocable share of
the Tax under Section 4 after the amounts required to be paid pursuant to
Section 4 are recomputed, and

                                      -23-
<PAGE>   25

                         (B) within 15 days of receiving the notice referred to
in Section 5.3(i)(A), UNREGCO shall pay REI (or its successor REGCO) an amount
equal to the increase, if any, in UNREGCO's allocable share of Tax under Section
4 referred to in Section 5.3(b)(i)(A).

                         (C) If UNREGCO disagrees with an item of information
provided on the notice referred to in Section 5.3(b)(i)(A), UNREGCO may invoke
the resolution procedures of Section 8.3.

                      (ii) Decreases to Tax. REI (or its successor REGCO) shall
not be entitled to, and shall not retain, any refund related to any decrease in
tax liability for such Pre-Distribution Period or Straddle Period that occurs as
a result of such Redetermination, and shall, within 15 days of receiving such
refund, pay such amount to UNREGCO.

                  (c) UNREGCO Consolidated State Tax Exception. If a
Redetermination results in an increase or decrease to the Tax reported on a
UNREGCO Consolidated State Tax Return for a Pre-Distribution Period or a
Straddle Period, then

                      (i) the amounts required to be paid between REI (or its
successor REGCO) and UNREGCO pursuant to Section 4 shall not be recomputed for
such taxable period to take into account any such increase or decrease to the
Tax that occurs as a result of such Redetermination,

                      (ii) payments previously made between REI (or its
successor REGCO) and UNREGCO pursuant to Section 4 shall not be adjusted to take
into account any such increase or decrease to the Tax that occurs as a result of
such Redetermination,

                      (iii) UNREGCO shall be liable for and shall pay to the
appropriate Tax Authority when due any increase in Tax for such Pre-Distribution
Period or Straddle Period that occurs as a result of such Redetermination,

                      (iv) UNREGCO shall indemnify and hold REI (or its
successor REGCO) harmless from any increase in Tax for such Pre-Distribution
Period or Straddle Period that occurs as a result of such Redetermination,

                      (v) REI (or its successor REGCO) shall not be liable for
and shall not pay any increase in Tax for such Pre-Distribution Period or
Straddle Period that occurs as a result of such Redetermination,

                      (vi) UNREGCO shall be entitled to, and shall retain, all
refunds related to any decrease in Tax for such Pre-Distribution Period or
Straddle Period that occurs as a result of such Redetermination,

                      (vii) REI (or its successor REGCO) shall not be entitled
to, and shall not retain, any refund related to any decrease in Tax for such
Pre-Distribution Period or Straddle Period that occurs as a result of such
Redetermination and

                      (viii) with respect to increases or decreases in Tax
related to an Option Reallocation Deduction or to a Temporary Tax Adjustment,
REI (or its successor REGCO) and

                                      -24-
<PAGE>   26

UNREGCO shall have the payment obligations to the other as set forth in Section
5.4(h) or Section 5.6, respectively.

                  (d) Characterization of Redetermination Payment. A payment by
UNREGCO to REI (or its successor REGCO) pursuant to this Section 5.3, Section
5.4(h) or Section 5.6 shall be treated as a distribution under Section 301 of
the Code by UNREGCO to REI at a time when UNREGCO and REI filed a Consolidated
Tax Return. A payment by REI (or its successor REGCO) to UNREGCO pursuant to
this Section 5.3 shall be treated as a nontaxable contribution by REI to the
capital of UNREGCO at a time when UNREGCO and REI filed a Consolidated Tax
Return.

         5.4 Allocation of Tax Items.

                  (a) General Rule. Except to the extent another provision of
this Agreement provides to the contrary, all Tax computations (1) for Tax
periods ending on the Distribution Date and (2) the immediate following Tax
period of UNREGCO or any UNREGCO Affiliated Company, shall be made pursuant to
the principles of Section 1.1502-76(b) of the Treasury Regulations or of a
corresponding provision under the laws of other jurisdictions, as determined by
REI (or its successor, REGCO), taking into account all reasonable suggestions
made by UNREGCO with respect thereto.

                  (b) Earnings and Profits. Within one hundred eighty (180) days
after receipt of a written request by UNREGCO, REGCO will advise UNREGCO in
writing of the allocation of earnings and profits of REGCO pursuant to Section
312(h) of the Code as a result of the Distribution. If UNREGCO disagrees with
such allocation, UNREGCO may invoke the resolution procedures of Section 8.3.

                  (c) Overall Foreign Loss and Separate Limitation Loss. Within
sixty (60) days after the filing of the Federal Income Tax Return for the REI
Consolidated Group (or its successor REGCO Consolidated Group) for the taxable
year that includes the Distribution Date REI (or its successor REGCO) shall
advise UNREGCO in writing of the allocation, consistent with the provisions of
Treasury Regulation Section 1.1502-9, between REI (or its successor REGCO) and
UNREGCO of the overall foreign loss and separate limitation loss as of the
Distribution Date; provided, however that REI (or its successor REGCO) shall
provide UNREGCO with estimates of such amounts as reasonably requested by
UNREGCO. If UNREGCO disagrees with such allocation, UNREGCO may invoke the
resolution procedures of Section 8.3.

                  (d) Alternative Minimum Tax Items. Within sixty (60) days of
the filing of the Federal Income Tax Return for the REI Consolidated Group (or
its successor REGCO Consolidated Group) for the taxable year that includes the
Distribution Date, REI (or its successor REGCO) will advise UNREGCO in writing
of the allocation, consistent with Proposed Treasury Regulation Section
1.1502-55 (and any subsequently finalized regulations) between REI (or its
successor REGCO) and UNREGCO of the consolidated positive adjusted current
earnings adjustment as of the Distribution Date; provided, however, that REI (or
its successor REGCO) shall provide UNREGCO with estimates of such amount as
reasonably requested by UNREGCO. If UNREGCO disagrees with such allocation,
UNREGCO may invoke the

                                      -25-
<PAGE>   27

resolution procedures of Section 8.3. REI (or its successor REGCO) shall also
provide UNREGCO with estimates of other alternative minimum Tax items as
reasonably requested by UNREGCO.

                  (e) Other Tax Item Allocations. The allocation of any other
Tax Item shall be made by REI (or its successor REGCO) either (i) in accordance
with applicable sections of the Code or Treasury Regulations, or (ii) if no
section of the Code or applicable Treasury Regulations provides for an
allocation of such Tax Item, in accordance with an equitable method mutually
agreed to in good faith by the parties. REI (or its successor REGCO) shall
advise UNREGCO in writing of any such allocation within 60 days after the filing
of the Federal Income Tax Return for the REI Consolidated Group (or its
successor REGCO Consolidated Group) for the taxable year that includes the
Distribution Date. If UNREGCO disagrees with such allocation, UNREGCO may invoke
the resolution procedures of Section 8.3.

                  (f) DITs. REI (or its successor REGCO) shall apply the
Consolidated Return Regulations and the Consolidated Returns filed by the REI
Consolidated Group (or successor REGCO Consolidated Group) pursuant to this
Agreement or the Tax Sharing Agreement, respectively, to determine the timing of
the recognition of Tax Items with respect to DITs and to determine which
Consolidated Group (and which member thereof) shall bear the Tax benefit or
burden of such Tax Items, and each Consolidated Group shall be responsible for
the Tax Items recognized by its respective members with respect to any DITs. REI
(or its successor REGCO) shall advise UNREGCO in writing of any such
determination within 60 days after the filing of the Federal Income Tax Return
for the REI Consolidated Group (or its successor REGCO Consolidated Group) for
the taxable year that includes the Distribution Date. If UNREGCO disagrees with
such determinations, UNREGCO may invoke the resolution procedures of Section
8.3.

                  (g) Subpart F. Notwithstanding any provision of this Agreement
to the contrary, to the extent the UNREGCO Consolidated Group must pay Tax
attributable to a Subpart F inclusion ("Subpart F Tax") under the Code that is
taken into account as a result of a Tax arising in the UNREGCO Consolidated
Group Consolidated Tax Return for the taxable year that begins on the day after
the Distribution Date (or in a later taxable year if there is a deficit in
earnings and profits that defers such Subpart F Tax to a taxable year after the
taxable year that begins on the day after the Distribution Date), REI (or its
successor REGCO) shall pay to UNREGCO a percentage of the Subpart F Tax equal to
the percentage of days of the 12-month Tax period to which such Subpart F Tax
relates based on the number of days in such 12-month Tax period before the
Distribution Date bears to the total days in such 12-month Tax period that
includes the Distribution Date, but only to the extent that the Subpart F Tax
issue relates to an income inclusion that is attributable to an item that
accrued ratably (utilizing principles similar to those of the ratable allocation
election of Treasury Regulation Section 1.1502-76(b)(2)(ii)(D), adjusting for
extraordinary items similar to those set forth in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C)) over the 12-month Tax period. Within 15 days after the
filing of the Tax Return for the taxable year that begins on the day after the
Distribution Date (or such later taxable year if there is a deficit in earnings
and profits that defers such Subpart F Tax to a taxable year after the taxable
year that begins on the day after the Distribution Date), UNREGCO shall notify
REI (or its successor REGCO) in writing as to the amount of payment, if any, REI
(or its successor REGCO) owes to UNREGCO under the preceding sentence. REI (or
its successor

                                      -26-
<PAGE>   28

REGCO) shall pay UNREGCO such amount within 15 days of receiving such notice. If
REI (or its successor REGCO) disagrees with such amount, REI (or its successor
REGCO) may invoke the resolution procedures of Section 8.3.

                  (h) Stock Awards. Any deduction attributable to (i) the
vesting or exercise after the Distribution Date of an UNREGCO Stock Award or REI
Stock Award under Section 83(h) of the Code or Treasury Regulation Section
1.83-6 or (ii) a disqualifying disposition with respect to either an UNREGCO
Stock Award or REI Stock Award under Section 421(b) of the Code shall be claimed
on the Consolidated Return of the REI Consolidated Group (or successor REGCO
Consolidated Group) in the case of an REI Stock Award and on the Consolidated
Return of the UNREGCO Consolidated Group in the case of an UNREGCO Stock Award.
In any case in which as a result of a Redetermination the allocation described
in the preceding sentence of this Section 5.4(h) is not sustained and the REI
Consolidated Group (or successor REGCO Consolidated Group) or the UNREGCO
Consolidated Group, as the case may be, is allocated a deduction as a result of
a Redetermination contrary to the provisions of this Section 5.4(h) ("Option
Deduction Reallocation"), then UNREGCO on behalf of the UNREGCO Consolidated
Group or REI (or successor REGCO) on behalf of the REI Consolidated Group (or
successor REGCO Consolidated Group), as the case may be, shall pay to the other
a sum, in cash, equal to the sum of (i) the amount of the deduction allocated
contrary to the first sentence of this Section 5.4(h) multiplied by the sum of
(A) the highest marginal Tax rate as provided under Section 11 of the Code and
(B) 2.925% and (ii) interest and/or penalties, if any, that are included as part
of the Redetermination. If the REI Consolidated Group (or successor REGCO
Consolidated Group) or the UNREGCO Consolidated Group, as the case may be,
receives a deduction as a result of an Option Deduction Reallocation, then REI
(or its successor REGCO) or UNREGCO, as the case may be, shall inform UNREGCO or
REI (or its successor REGCO), as the case may be, within 15 days of receiving
such deduction the amount of such payment that REI (or its successor REGCO) or
UNREGCO, as the case may be, is obligated to pay to UNREGCO or REI or its
successor REGCO), as the case may be, pursuant to the preceding sentence. REI
(or its successor REGCO) or UNREGCO, as the case may be, shall pay such amount
to UNREGCO or REI (or its successor REGCO), as the case may be, within 15 days
after it provides notice of such amount. If UNREGCO or REI (or its successor
REGCO), as the case may be, does not agree with such amount, UNREGCO or REI (or
its successor REGCO), as the case may be, may invoke the resolution procedures
of Section 8.3. REI (or its successor REGCO) and the REI Affiliated Companies
(or the successor REGCO Affiliated Companies) shall indemnify and hold harmless
UNREGCO and the UNREGCO Affiliated Companies, and UNREGCO and the UNREGCO
Affiliated Companies shall indemnify and hold harmless REI (or its successor
REGCO) and the REI Affiliated Companies (or the successor REGCO Affiliated
Companies), from and against any Taxes, penalties or interest required to be
paid as a result of the breach by REI (or its successor REGCO) and the REI
Affiliated Companies (or the successor REGCO Affiliated Companies) or UNREGCO
and the UNREGCO Affiliated Companies, as the case may be, of any obligation
under this Section 5.4(h). Further, if, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of this Section 5.4(h) shall become impracticable or impossible, the parties
hereto shall use their best efforts to find an alternative means to achieve the
same or substantially the same result as that contemplated by this Section
5.4(h).

                                      -27-
<PAGE>   29

                  5.5 Foreign Taxes. Notwithstanding any provision of this
Agreement to the contrary, this Agreement shall not apply to Taxes that are
imposed by a Foreign Country on a Foreign Legal Entity.

                  5.6 Temporary Tax Adjustments.

                  (a) Tax Adjustment. Upon a Redetermination of an REI
Consolidated Group (or successor REGCO Consolidated Group) Consolidated Return
Tax for a Pre-Distribution Period or the Straddle Period and subject to Section
5.6(h), a "Tax Adjustment" is caused if such Redetermination results in any
increase or decrease to the amount of an item of income or of deduction, gain,
or loss as compared to the amount of such item reported on the REI Consolidated
Group (or successor REGCO Consolidated Group) Consolidated Tax Return.

                  (b) Temporary Tax Adjustment. Subject to Section 5.6(h), a Tax
Adjustment is a "Temporary Tax Adjustment" if such Tax Adjustment

                     (i) constitutes a temporary difference or a tax
carryforward under paragraphs 3(c), 8(b), or 13 of Statement of Financial
Accounting Standard 109 ("SFAS 109");

                     (ii) is expected, at the time of such Redetermination, to
result in a corresponding and offsetting decrease or increase to the amount of
an item of income or of deduction, gain or loss as compared to the amount of
such item that would otherwise have been expected (but for the Redetermination)
to have been recognized by the UNREGCO Consolidated Group during a
Post-Distribution Period;

                     (iii) does not relate to the income tax basis of a
nondepreciable, nonamortizable or nondepletable asset or to the basis of stock
of any company (whether domestic or foreign) in which UNREGCO holds an equity
interest irrespective of the application of paragraph 34 of SFAS 109; and

                     (iv) does not relate to a Pre-1997 Tax Liability or an
Option Deduction Reallocation.

                  (c) Value of Tax Adjustment and of Temporary Tax Adjustment.
The value of a Tax Adjustment equals the product of

                     (i) the amount of the increase or decrease to the item of
income, deduction, gain or loss as compared to the amount of such item reported
on the REI Consolidated Group (or successor REGCO Consolidated Group)
Consolidated Tax Return and

                     (ii)(A) if such Tax Adjustment is not an RES Temporary Tax
Adjustment, the highest marginal Federal Income Tax rate applicable to
corporations in effect during the Pre-Distribution Period or Straddle Period to
which the Redetermination that produced such Tax Adjustment relates

                         (B) if such Tax Adjustment is an RES Temporary Tax
Adjustment, the sum of

                                      -28-
<PAGE>   30

                         (I) 2% and

                         (II) the highest marginal Federal Income Tax rate
applicable to corporations in effect during the Pre-Distribution Period or
Straddle Period to which the Redetermination that produced such Tax Adjustment
relates.

A Tax Adjustment that constitutes an (i) increase to an item of expense or loss
as compared to the amount of such item reported on the REI Consolidated Group
(or successor REGCO Consolidated Group) Consolidated Tax Return or a (ii)
decrease to an item of income or gain as compared to the amount of such item
reported on the REI Consolidated Group (or successor REGCO Consolidated Group)
Consolidated Tax Return shall constitute a negative amount. A Tax Adjustment
that constitutes a (i) decrease to an item of expense or loss as compared to the
amount of such item reported on the REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Tax Return or an (ii) increase to an item of
income or gain as compared to the amount of such item reported on the REI
Consolidated Group (or successor REGCO Consolidated Group) Consolidated Tax
Return shall constitute a positive amount. The value of a Temporary Tax
Adjustment equals its value as a Tax Adjustment.

                  (d) Temporary Tax Adjustment Balance.

                      (i) At any given time, the "Temporary Tax Adjustment
Balance" equals the sum of the values of the Temporary Tax Adjustments that have
been caused by Redeterminations of the REI Consolidated Group (or successor
REGCO Consolidated Group) Consolidated Return for a Pre-Distribution Period or
Straddle Period.

                      (ii) For purposes of computing the Temporary Tax
Adjustment Balance pursuant to this Section 5.6(d),

                          (A) positive values and negative values shall offset
one another and

                          (B) the Temporary Tax Adjustment Balance may be a
negative amount.

                  (e) Notice. Within 15 days after each Redetermination of an
REI Consolidated Group (or successor REGCO Consolidated Group) Consolidated
Return relating to a Pre-Distribution Period or Straddle Period, REI (or its
successor REGCO) shall provide written notice to UNREGCO setting forth

                      (i) a brief description of each Tax Adjustment caused by
such Redetermination,

                      (ii) whether each enumerated Tax Adjustment is a Temporary
Tax Adjustment,

                      (iii) the value of each Temporary Tax Adjustment and the
identification of the taxable year to which the Temporary Tax Adjustment
relates,

                                      -29-
<PAGE>   31

                      (iv) the value of the Temporary Tax Adjustment Balance at
the time such notice is prepared, including the effect of the Temporary Tax
Adjustment related to the Redetermination with respect to such notice,

                      (v) the value of the Temporary Tax Adjustment Payment
Balance at the time such notice is prepared, including the effect of the
Temporary Tax Adjustment related to the Redetermination with respect to such
notice,

                      (vi) the amount of additional Federal Income Tax
(excluding interest and penalties) that the REI Consolidated Group (or successor
REGCO Consolidated Group) must pay, or the amount of Federal Income Tax
(excluding interest and penalties) that is refunded to the REI Consolidated
Group (or successor REGCO Consolidated Group), for each taxable year
(collectively, "Redetermination Tax") that applies to such Redetermination,

                      (vii) the amount of interest that the REI Consolidated
Group (or successor REGCO Consolidated Group) must pay (represented as a
positive amount), or the amount of interest that is refunded to the REI
Consolidated Group (or successor REGCO Consolidated Group) (represented as a
negative amount), for each taxable year (collectively, "Redetermination
Interest") that applies to such Redetermination,

                      (viii) the portion of Redetermination Interest for each
taxable year that applies to such Redetermination that constitutes UNREGCO
Basket Interest and UNREGCO Non-Basket Interest, and

                      (ix) the amount of any payment that one party is obligated
to pay the other pursuant to Section 5.6(g) or 5.6(h) after applying Section
5.6(e)(iii)-(viii).

If UNREGCO disagrees with any item on such notice, UNREGCO may invoke the
resolution procedures of Section 8.3.

         (f) Temporary Tax Adjustment Payment Balance.

                      (i) At any given time, the "Temporary Tax Adjustment
Payment Balance" equals the sum of the values of the payments that have been
made pursuant to Section 5.6(g).

                      (ii) The value of a payment that is made pursuant to
Section 5.6(g) equals the amount of the payment.

                      (iii) A payment from UNREGCO to REI (or its successor
REGCO) pursuant to Section 5.6(g) shall be treated as a positive amount, and a
payment from REI (or its successor REGCO) to UNREGCO pursuant to Section 5.6(g)
shall be treated as a negative amount.

                      (iv) For purposes of computing the Temporary Tax
Adjustment Payment Balance pursuant to this Section 5.6(g),

                                      -30-
<PAGE>   32

                         (A) positive values and negative values shall offset
one another and

                         (B) the Temporary Tax Adjustment Payment Balance may be
a negative amount.

                  (g) Temporary Tax Adjustment Payment. Within 15 days after REI
(or its successor REGCO) provides a notice pursuant to Section 5.6(e), REI (or
its successor REGCO) shall make a payment to UNREGCO, or UNREGCO shall make a
payment (the "Temporary Tax Adjustment Payment") to REI (or its successor
REGCO), as the case may be, in an amount such that after the value of such
Temporary Tax Adjustment Payment is added to the existing Temporary Tax
Adjustment Payment Balance, the following is true:

                      (i) if the Temporary Tax Adjustment Balance is less than
negative one million ($-1,000,000), then the Temporary Tax Adjustment Payment
Balance equals the amount, represented by a negative value, by which the
Temporary Tax Adjustment Balance is less than negative one million
($-1,000,000),

                      (ii) if the Temporary Tax Adjustment Balance equals an
amount greater than or equal to negative one million ($-1,000,000) and less than
or equal to positive fifteen million ($15,000,000), then the Temporary Tax
Adjustment Payment Balance equals zero and

                      (iii) if the Temporary Tax Adjustment Balance equals an
amount that is greater than positive fifteen million ($15,000,000), then the
Temporary Tax Adjustment Payment Balance equals the amount by which the
Temporary Tax Adjustment Balance is greater than positive fifteen million
($15,000,000).

Exhibit 1 illustrates examples of calculations under Section 5.6.

                  (h) Interest Payments.

                      (i) UNREGCO Interest. For each taxable year that applies
to a Redetermination relating to a Pre-Distribution Period or Straddle Period of
the REI Consolidated Group (or successor REGCO Consolidated Group), the portion
of Redetermination Interest that constitutes UNREGCO Interest shall be
determined as follows:

                         (A) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are negative and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are positive, then

                             (I) if the Redetermination Interest is a positive
amount, no amount of such Redetermination Interest constitutes UNREGCO Interest,
and

                             (II) if the Redetermination Interest is a negative
amount, all of such Redetermination Interest constitutes UNREGCO Interest.

                                      -31-
<PAGE>   33

                         (B) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are positive and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are negative, then

                             (I) if the Redetermination Interest is a positive
amount, all of such Redetermination Interest constitutes UNREGCO Interest, and

                             (II) if the Redetermination Interest is a negative
amount, none of such Redetermination Interest constitutes UNREGCO Interest.

                         (C) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are positive and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are positive, then

                             (I) if the Redetermination Interest is a positive
amount, then UNREGCO Interest equals the product of (1) the value of the
Redetermination Interest and (2) the absolute value of the quotient of the sum
of the values of Temporary Tax Adjustments for such taxable year divided by the
Redetermination Tax for such taxable year, and

                             (II) if the Redetermination Interest is a negative
amount, then none of such Redetermination Interest constitutes UNREGCO Interest.

                         (D) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are negative and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are negative, then

                             (I) if the Redetermination Interest is a positive
amount, then none of such Redetermination Interest constitutes UNREGCO Interest,
and

                             (II) if the Redetermination Interest is a negative
amount, then UNREGCO Interest equals the product of (1) the value of the
Redetermination Interest and (2) the absolute value of the quotient of the sum
of the values of Temporary Tax Adjustments for such taxable year divided by the
Redetermination Tax for such taxable year.

                  (ii) UNREGCO Basket Interest. UNREGCO Basket Interest shall
constitute a Temporary Tax Adjustment, regardless of whether the conditions of
Section 5.6(a) or (b) are met. The value of UNREGCO Basket Interest equals the
amount of such UNREGCO Basket Interest. UNREGCO Basket Interest that represents
a portion of the Redetermination Interest that the REI Consolidated Group (or
successor REGCO Consolidated Group) paid shall be treated as a positive amount,
and UNREGCO Basket Interest that represents a portion of the Redetermination
Interest that the REI Consolidated Group (or successor REGCO Consolidated Group)
received as a refund shall be treated as a negative amount.

                  (iii) UNREGCO Non-Basket Interest.

                         (A) UNREGCO Non-Basket Interest shall not constitute a
Temporary Tax Adjustment. The value of UNREGCO Non-Basket Interest equals the
amount of such UNREGCO Non-Basket Interest. UNREGCO Non-Basket Interest that
represents a portion

                                      -32-
<PAGE>   34

of the Redetermination Interest that the REI Consolidated Group (or successor
REGCO Consolidated Group) paid shall be treated as a positive amount, and
UNREGCO Non-Basket Interest that represents a portion of the Redetermination
Interest that the REI Consolidated Group (or successor REGCO Consolidated Group)
received as a refund shall be treated as a negative amount.

                      (B) Within 15 days after REI (or its successor REGCO)
provides a notice pursuant to Section 5.6(e), then

                          (I) if the value of the UNREGCO Non-Basket Interest
for a taxable year that applies to the Redetermination is positive, UNREGCO
shall make a payment to REI (or its successor REGCO) equal to the value of the
UNREGCO Non-Basket Interest for such taxable year, and

                          (II) if the value of the UNREGCO Non-Basket Interest
for a taxable year that applies to the Redetermination is negative, REI (or its
successor REGCO) shall make a payment to REI (or its successor REGCO) equal to
the absolute value of the UNREGCO Non-Basket Interest for such taxable year.

                  5.7 Continuing Covenants. REI (for itself and each REI
Affiliated Company), REGCO (for itself and each REGCO Affiliated Company) and
UNREGCO (for itself and each UNREGCO Affiliated Company) agree (1) not to take
any action reasonably expected to result in a new or changed Tax Item that is
detrimental, and (2) to take any action reasonably requested by the other party
that would reasonably be expected to result in a new or changed Tax Item that
produces a benefit or avoids a detriment, provided that such action does not
result in any additional cost not fully compensated for by the requesting party.
The parties hereby acknowledge that the preceding sentence is not intended to
limit, and therefore shall not apply to, the rights of the parties with respect
to matters otherwise covered by this Agreement.

SECTION 6.        INDEMNIFICATION PROVISIONS.

                  6.1 General Indemnification. UNREGCO and each UNREGCO
Affiliated Company shall jointly and severally indemnify REI, each REI
Affiliated Company, REGCO, each REGCO Affiliated Company and their respective
directors, officers and employees, and hold them harmless from and against any
and all Taxes for which UNREGCO or any UNREGCO Affiliated Company is liable
under this Agreement and any loss, cost, damage or expense, including reasonable
attorneys' fees and costs, that is attributable to, or results from, the failure
of UNREGCO, any UNREGCO Affiliated Company or any of their respective directors,
officers, or employees to make any payment required to be made under this
Agreement. REI, each REI Affiliated Company, REGCO and each REGCO Affiliated
Company shall jointly and severally indemnify UNREGCO, each UNREGCO Affiliated
Company and their respective directors, officers and employees, and hold them
harmless from and against any and all Taxes for which REGCO or any REGCO
Affiliated Company is liable under this Agreement and any loss, cost, damage or
expense, including reasonable attorneys' fees and costs, that is attributable
to, or results from the failure of REI, any REI Affiliated Company, REGCO any
REGCO Affiliated Company or any of their directors, officers or employees to
make any payment required to be made under this Agreement.

                                      -33-
<PAGE>   35

                  6.2 Spinoff Indemnification.

                  (a) In General. Notwithstanding anything herein or in the Tax
Sharing Agreement to the contrary, the provisions of this Section 6 shall govern
all matters among the parties hereto related to an Indemnified Liability (as
defined in Section 6.3 below) and an Indemnity Amount (as defined in Section 6.5
below).

                  (b) Continued Conduct of Business. During the Restricted
Period, each of REI, each REI Affiliated Entity, REGCO, each REGCO Affiliated
Entity, UNREGCO and each UNREGCO Affiliated Entity agree that it (i) will not
cause or permit to be caused a change in its Control (ii) nor cease the active
conduct of its trade or business within the meaning of Section 355(b) of the
Code to the extent the existence of such trade or business was necessary to a
conclusion reached by the Service in the Initial Private Letter Ruling, unless
expressly required or permitted pursuant to the Master Separation Agreement or
unless, for actions after the Distribution Date, REI (or its successor REGCO) or
UNREGCO first obtains, and permits the other party (UNREGCO or REI (or its
successor REGCO), as the case may be) to review, a supplemental ruling from the
Service, that such action or non-action referred to in this Section 6.2(b), will
not affect the qualification of the First Spinoff and the Spinoff under Section
355 of the Code.

                  (c) Ruling Requirement for Major Transactions Undertaken
during the Restricted Period. During the Restricted Period, REI, REGCO, and
UNREGCO will not enter into any of the following transactions, or enter into any
other transaction ("Prohibited Transaction") which, by itself or in the
aggregate, may cause the First Distribution or Distribution to be treated as
part of a plan pursuant to which one or more persons acquire directly or
indirectly stock representing Control of REI, REGCO or UNREGCO, as the case may
be, within the meaning of Code Section 355(e):

                      (i) merge or consolidate with or into any other
corporation;

                      (ii) liquidate or partially liquidate (within the meaning
of such terms as defined in Section 346 and Section 302, respectively, of the
Code);

                      (iii) sell or transfer all or substantially all its assets
(within the meaning of Rev. Proc. 77-37, 1977-2 C.B. 568) in a single
transaction or series of related transactions;

                      (iv) redeem or otherwise repurchase any of REGCO or
UNREGCO's capital stock; or

                      (v) make any change in its equity structure (including
stock issuances, pursuant to the exercise of options or otherwise, option
grants, the adoption of, or authorization of shares under a stock option plan,
capital contributions or acquisition but not including the Distribution),

(actions (i), (ii), (iii), (iv) and (v) and the Prohibited Transactions are
collectively referred to as the "Prohibited Acts"), unless expressly required or
permitted pursuant to the Master Separation Agreement or unless for actions
after the Distribution Date, REI (or its successor REGCO) or UNREGCO first
obtains, and permits the other party (UNREGCO or REGCO, as the case may

                                      -34-
<PAGE>   36

be) to review, a supplemental ruling from the Service, that such transaction,
and any transaction related thereto, will not affect the qualification of the
First Spinoff and the Spinoff under Section 355 of the Code.

                  (d) Indemnification Obligation. If REI, REGCO or UNREGCO
breaches any representations set forth in Section 3 of this Agreement or takes
any action or enters into any agreement to take any action, including, without
limitation, any breach of Sections 6.2(b) and (c), and the First Spinoff or
Spinoff shall fail to qualify under Section 355 of the Code as a result of such
action or actions, then such party (the "Indemnifying Party") shall indemnify
and hold harmless the other party against any and all federal, state and local
taxes, interest, penalties and additions to Tax imposed upon or incurred by REI,
the REI Consolidated Group, REGCO, the REGCO Consolidated Group, UNREGCO or the
UNREGCO Consolidated Group, as the case may be, (each such party an
"Indemnitee") as a result of the failure of the First Spinoff or the Spinoff to
so qualify to the extent provided herein.

                  6.3 Indemnified Liability - First Spinoff and Spinoff. For
purposes of this Agreement, the term "Indemnified Liability" means any liability
imposed upon or incurred by (1) REI, any member of the REI Group, REGCO or any
member of the REGCO Group for which REI, REGCO or any other member of the REI
Group or REGCO Group is indemnified and held harmless under Section 6.2, or (2)
UNREGCO or any member of the UNREGCO Group, for which UNREGCO or any other
member of the UNREGCO Group is indemnified and held harmless under Section 6.2,
but in either case (1) or (2) shall not refer to the amount of such liability.

                  6.4 Amount of Indemnified Liability for Income Taxes - First
Spinoff and Spinoff. The amount of an Indemnified Liability for a federal or
state Tax incurred by an Indemnitee based on or determined with reference to
income shall be deemed to be the amount of Tax computed by multiplying (i) the
taxing jurisdiction's highest effective Tax rate applicable to Indemnitee for
the character of the Tax Item subject to Tax as a result of the failure of the
First Spinoff and/or Spinoff to qualify under Section 355 of the Code for the
taxable period in which the First Spinoff and/or Spinoff occurs, times (ii) the
gain or income of Indemnitee which is subject to Tax in the taxing jurisdiction
as a result of the failure of the First Spinoff and/or Spinoff to qualify under
Section 355 of the Code, and (iii) in the case of a state, times the percentage
representing the extent to which such gain or income is apportioned or allocated
to such state; provided, however, that in the case of a state Tax determined as
a percentage of Federal Income Tax liability, the amount of Indemnified
Liability shall be deemed to be the amount of Tax computed by multiplying (x)
that state's highest effective rate applicable to Indemnitee for the character
of the Tax Item subject to Tax as a result of the failure of the First Spinoff
and/or Spinoff to qualify under Section 355 of the Code for the taxable period
in which the First Spinoff and/or Spinoff occurs, times (y) the amount of deemed
Federal Income Tax (whether or not incurred) imposed upon Indemnitee from the
failure of the First Spinoff and/or Spinoff to qualify under Section 355 of the
Code computed in accordance with this Section 6.4, times (z) the percentage
representing the extent to which the gain or income required to be recognized on
the First Spinoff and/or Spinoff is apportioned to such state.

                  6.5 Indemnity Amount - First Spinoff and Spinoff. With respect
to any Spinoff Indemnified Liability, the amount which the Indemnifying Party
shall pay to Indemnitee

                                      -35-
<PAGE>   37

as indemnification (the "Indemnity Amount") shall be the sum of (i) the amount
of the Indemnified Liability, as determined under Section 6.4, (ii) any
penalties and interest imposed with respect to the Indemnified Liability and
(iii) an amount such that when the sum of the amounts set forth in clauses (i),
(ii) and this clause (iii) of this Section 6.5 are reduced by all Taxes imposed
as a result of the receipt of such sum, (taking into account any related current
credits or deductions payable by the Indemnitee or any of its Affiliated
Companies under any law or governmental authority) the reduced amount is equal
to the sum of the amounts set forth in clauses (i) and (ii) of this Section 6.5.

                  6.6 Indemnity Alternate Remedy - First Spinoff and Spinoff.
Each of REI (or its successor REGCO) and UNREGCO, recognizes that any failure by
it or any REI Affiliated Company (or REGCO Affiliated Company) or UNREGCO
Affiliated Company to comply with its obligations under this Section 6 may
result in additional Taxes which could cause irreparable harm to REI (or its
successor REGCO) and its shareholders, the REI Affiliated Companies (or REGCO
Affiliated Companies), and/or UNREGCO and the UNREGCO Affiliated Companies, and
that such entities may be inadequately compensated by monetary damages for such
failure. Accordingly, if (A) (i) a party shall fail to comply with any
obligation under this Section 6 which would be reasonably foreseeable to result
in any additional Taxes, and (ii) such party shall fail to provide the other
party with a written legal opinion of a Tax Expert that the failure to comply
with such obligation will not result in any increase in Taxes of REGCO and its
shareholders, any REI Affiliated Company (or REGCO Affiliated Company), UNREGCO
or any UNREGCO Affiliated Company, as the case may be, and such opinion is
provided to such party for its review and approval, which approval will not be
unreasonably withheld, or if (B) it is probable in the written legal opinion of
a Tax Expert that the failure by such party to comply with any such obligation
under this Section 6 will result in an Indemnified Liability under this
Agreement and the Indemnifying Party fails to provide Adequate Assurances to the
Indemnitee of its ability to pay the Indemnity Amount under this Agreement, then
REI (or its successor REGCO) or UNREGCO, as the case may be, shall be entitled
to injunctive relief in addition to all other remedies.

                  6.7 Indemnity Payments.

                  (a) In General. Except as otherwise provided under this
Agreement, to the extent that the Indemnifying Party has an indemnification or
payment obligation to the Indemnitee pursuant to this Agreement, the Indemnitee
shall provide the Indemnifying Party with its calculation of the amount of such
indemnification payment. Such calculation shall provide sufficient detail to
permit the Indemnifying Party to reasonably understand the calculations. All
indemnification payments shall be made to the Indemnitee or to the appropriate
Tax Authority as specified by the Indemnitee within the time prescribed for
payment in this Agreement, or if no period is prescribed, within thirty (30)
days after delivery by the Indemnitee to the Indemnifying Party of written
notice of a payment, or if such liability is contested pursuant to Section 7.3
of this Agreement, within thirty (30) days of the incurrence of such an amount
based on a Final Determination, together with a computation of the amounts due.
Any disputes with respect to indemnification payments shall be resolved in
accordance with Section 8.11 below.

                                      -36-
<PAGE>   38

                  (b) Electronic Payments. Any payment required under this
Agreement in an amount in excess of one million dollars ($1,000,000.00) shall be
made by electronic funds transfer of immediately available funds.

                  6.8 Prompt Performance. All actions required to be taken by
any party under this Agreement shall be performed within the time prescribed for
performance in this Agreement, or if no period is prescribed, such actions shall
be performed promptly.

                  6.9 Interest. Payments pursuant to this Agreement that are not
made within the period prescribed in Section 6.7(a) shall bear interest for the
period from and including the date immediately following the last date of the
period through and including the date of payment at a per annum rate equal to
the prime rate as published in The Wall Street Journal on the date of
determination, plus two percent (2%). Such interest will be payable at the same
time as the payment to which it relates and shall be calculated on the basis of
a year of 365 days and the actual number of days for which due.

                  6.10 Tax Records. The parties to this Agreement hereby agree
to retain and provide on proper demand by any Taxing Authority (subject to any
applicable privileges) the books, records, documentation and other information
relating to any Tax Return until the later of (a) the expiration of the
applicable statute of limitations (giving effect to any extension, waiver or
mitigation thereof), (b) the date specified in an applicable records retention
agreement entered into with the Service and (c) in the event any claim is made
under this Agreement for which such information is relevant, until a Final
Determination with respect to such claim. Notwithstanding the prior sentence, no
party may destroy any such records without the approval of all other parties to
this Agreement.

SECTION 7.        AUDITS AND CONTEST RIGHTS.

                  7.1 In General

                  (a) Upon the termination of UNREGCO and the UNREGCO Affiliated
Companies as members of the REI Consolidated Group, the Tax Sharing Agreement
and this Agreement shall apply with respect to any period (or portion thereof)
in which the income of the terminating member is included in an REI Consolidated
Return. Subject to Section 2.2(c) of this Agreement, the terminating member
shall cooperate and provide reasonable access to books, records and other
information needed in connection with Audits, administrative proceedings,
litigation and other similar matters related to periods in which the member was
a member of the REI Consolidated Group.

                  (b) Except as otherwise provided in this Agreement, the
respective Filing Party shall have the right to control, contest, and represent
the interests of REI, any REI Affiliated Company, REGCO, any REGCO Affiliated
Company, UNREGCO or any UNREGCO Affiliated Company in any Audit relating to any
Tax Return that the Filing Party is responsible for filing under Section 2.1 of
this Agreement and to resolve, settle or agree to any deficiency, claim or
adjustment proposed, asserted or assessed in connection with or as a result of
any such Audit. Except as otherwise provided in this Agreement, the Filing
Party's rights shall extend to any

                                      -37-
<PAGE>   39

matter pertaining to the management and control of an Audit, including execution
of waivers, choice of forum, scheduling of conferences and the resolution of any
Tax Item.

                  7.2 Notice. If, after the date of this Agreement, REI (or any
REI Affiliated Company), REGCO (or any REGCO Affiliated Company) or UNREGCO (or
any UNREGCO Affiliated Company) receives written notice of, or relating to, an
Audit from a Tax Authority that asserts, proposes or recommends a deficiency,
claim or adjustment that, if sustained, could result in a Redetermination of
Taxes for which the other party is responsible under this Agreement, then the
party receiving such notice shall provide a copy of such notice to such other
party within ten (10) days of receipt thereof.

                  7.3 Contests.

                  (a) If any Tax Authority asserts, proposes or recommends a
deficiency, claim or adjustment that, if sustained, could lead to a
Redetermination that (i) could result in Taxes for which the Non-Filing Party is
responsible under this Agreement, (ii) could result in an increased Tax
liability for the Non-Filing Party for future Tax periods or (iii) could result
in a payment obligation for the Non-Filing Party under this Agreement
(collectively, "Non-Filing Party Responsible Taxes"), then upon request by the
Non-Filing Party, the Filing Party shall contest, or continue to contest, any
deficiency, claim or adjustment and the Filing Party shall keep the Non-Filing
Party informed in a timely manner reasonably in advance of all actions taken or
proposed to be taken by the Filing Party in connection with such deficiency,
claim or adjustment.

                  (b) In the case of an Audit with respect to any Tax Item for
which a Redetermination could result in Non-Filing Party Responsible Taxes, the
Filing Party shall:

                                    (1) in the case of any material
                  correspondence or filing submitted to the Tax Authority or any
                  judicial authority that relates to the merits of such
                  deficiency, claim or adjustment (i) reasonably in advance of
                  such submission, but subject to applicable time constraints
                  imposed by such Tax Authority or judicial authority, provide
                  the Non-Filing Party with a draft copy of the portion of such
                  correspondence or filing that relates to such deficiency,
                  claim or adjustment, (ii) incorporate, subject to applicable
                  time constraints imposed by such Tax Authority or judicial
                  authority and the review and approval by the Filing Party, the
                  Non-Filing Party's comments and changes on such draft copy of
                  such correspondence or filing, and (iii) provide the
                  Non-Filing Party with a final copy of the portion of such
                  correspondence or filing that relates to such deficiency,
                  claim or adjustment;

                                    (2) provide the Non-Filing Party with notice
                  reasonably in advance of, and the Non-Filing Party shall have
                  the right to attend, any meetings with the Tax Authority
                  (including meetings with examiners) or hearings or proceedings
                  before any judicial authority to the extent they relate to
                  such deficiency, claim or adjustment; and

                                    (3) at the Filing Party's reasonable request
                  (or upon the Filing Party's consent to a request by the
                  Non-Filing Party, which consent shall not be

                                      -38-
<PAGE>   40

                  unreasonably withheld), the Non-Filing Party shall assume
                  responsibility for (i) contesting and presenting the merits
                  with respect to any deficiency, claim or adjustment that, if
                  sustained, would result in Non-Filing Party Responsible Taxes,
                  or (ii) resolving, settling or agreeing to any such
                  deficiency, claim or adjustment. Any such request (or consent)
                  by the Filing Party shall be subject to the Non-Filing Party's
                  continued compliance with the conditions of Section 7.4 of
                  this Agreement and to such other conditions as the Filing
                  Party and Non-Filing Party reasonably agree.

                  7.4 Limitations.

                  (a) In General. Except with respect to a deficiency, claim or
adjustment that relates to a Redetermination that could result in Non-Filing
Party Responsible Taxes, the Filing Party shall have no obligation to contest,
or to continue to contest, any deficiency, claim or adjustment in accordance
with Section 7.3, and the Non-Filing Party shall have no right to control or
participate under Section 7.3 of this Agreement unless:

                           (I) the Non-Filing Party shall have agreed to be
bound by a Final Determination of such deficiency, claim or adjustment;

                           (II) the Non-Filing Party shall have agreed to pay,
and shall be currently paying, all reasonable out of pocket costs and expenses
incurred by the Filing Party to contest such deficiency, claim or assessment
including reasonable outside attorneys', accountants' and investigatory fees and
disbursements;

                           (III) the Non-Filing Party shall have advanced to the
Filing Party, on an interest-free basis (and with no additional net after-Tax
cost to the Filing Party), the amount of Tax in controversy (but not in excess
of the lesser of (A) the amount of Tax for which the Non-Filing Party could be
liable under this Agreement or (B) the amounts actually expended by the Filing
Party for this item) to the extent necessary for the contest to proceed in the
forum selected by the Non-Filing Party;

                           (IV) the Non-Filing Party shall have provided to the
Filing Party all documents and information, and shall have made available
employees and officers of the Non-Filing Party, as may be necessary, useful or
reasonably required by the Filing Party in contesting such deficiency, claim or
adjustment; and

                           (V) the contest of such deficiency, claim or
adjustment shall involve no material danger of the sale, forfeiture or loss of,
or the creation of any lien on, any asset of the Filing Party (except if the
Non-Filing Party shall have adequately bonded such lien or otherwise made
provision to protect the interests of the Filing Party in a manner reasonably
satisfactory to the Filing Party).

                  (b) Settlement. Notwithstanding Section 7.4(a), the Filing
Party, with respect to Tax Returns that it is responsible for filing under
Section 2.1, may resolve, settle or agree to any deficiency, claim or adjustment
proposed, asserted or assessed in connection with any Audit of such Tax Returns,
if, with respect to any Non-Filing Party Responsible Taxes, the Filing Party has
provided the Non-Filing Party with a reasonable opportunity to review a copy of
that portion

                                      -39-
<PAGE>   41

of the settlement or compromise proposal which relates to the claim for which
the Filing Party is seeking indemnification hereunder; provided, that if (a) the
Filing Party fails to provide the Non-Filing Party such a reasonable opportunity
to review such portion of such proposal, or (b) after such reasonable
opportunity to review such proposal the Non-Filing Party in writing reasonably
withholds its consent to all or part of such settlement or compromise proposal,
then, the Non-Filing Party shall not be obligated to indemnify the Filing Party
hereunder to the extent of the amount attributable to the loss to which such
settlement or compromise relates as to which the Non-Filing Party has reasonably
withheld its consent, or with respect to any other loss for which a successful
contest is foreclosed because of such settlement or compromise as to which the
Non-Filing Party has reasonably withheld its consent. If the Filing Party
effects a settlement or compromise of such contest, notwithstanding that the
Non-Filing Party has reasonably withheld its consent thereto, the Filing Party
shall repay to the Non-Filing Party such amounts that the Non-Filing Party
advanced pursuant to Section 7.4(a)(3) hereof as relate to such claim, to the
extent that the Non-Filing Party has reasonably withheld its consent to the
settlement or compromise thereof (together with interest at the prime rate as
published in the Wall Street Journal on any such amount paid by the Non-Filing
Party from the date paid by Lessee to the date repaid by the Filing Party).

                  (c) Waiver. Notwithstanding any other provision of this
Section 7.4, the Filing Party may resolve, settle, or agree to any deficiency,
claim or adjustment for any taxable period if the Filing Party waives it right
to indemnity, if any, with respect to such Tax Item. In such event, the Filing
Party shall promptly reimburse the Non-Filing Party for all amounts previously
advanced by the Non-Filing Party to the Filing Party in connection with such
deficiency, claim or adjustment under Section 7.4(a)(3) of this Agreement. In
addition, the Filing Party shall reimburse the Non-Filing Party for any Tax
Detriment that directly results from the settlement of such deficiency, claim or
adjustment. No waiver by the Filing Party under this Section 7.4(c) with respect
to any deficiency, claim or adjustment relating to any single Tax Item,
position, issue or transaction or relating to any single Tax for any one taxable
period shall operate as a waiver with respect to any other deficiency, claim or
adjustment.

                  7.5 Failure to Notify, Etc. The failure of the Filing Party
promptly to notify the Non-Filing Party of any matter relating to a particular
Tax for a taxable period or to take any action specified in Section 7.3 of this
Agreement shall not relieve the Non-Filing Party of any liability and/or
obligation which it may have to the Filing Party under this Agreement with
respect to such Tax for such taxable period except to the extent that the
Non-Filing Party's rights hereunder are materially prejudiced by such failure
and in no event shall such failure relieve the Non-Filing Party of any other
liability and/or obligation which it may have to the Filing Party.

                  7.6 Remedies. Except as otherwise provided in this Agreement,
the parties hereby agree that the sole and exclusive remedy for a breach by the
Filing Party of the Filing Party's obligations to the Non-Filing Party with
respect to a deficiency, claim or adjustment relating to the redetermination of
a Tax Item of the Non-Filing Party for a taxable period shall first be a
reduction in the amount that would otherwise be payable by the Non-Filing Party
for such taxable period and then an increase in amount that would otherwise be
payable by the Filing Party for such taxable period, in either case because of
the breach. The parties further agree that no claim against the Filing Party and
no defense to the Non-Filing Party's liabilities to the Filing Party under this
Agreement shall arise from the resolution by the Filing Party of any deficiency,

                                      -40-
<PAGE>   42

claim or adjustment relating to the Redetermination of any Tax Item of the
Filing Party for which the Non-Filing Party is not liable under this Agreement.

SECTION 8.        MISCELLANEOUS.

                  8.1 Effectiveness. This Agreement shall become effective as of
January 1, 2001.

                  8.2 Renegotiation for Delayed Distribution. If the
Distribution does not occur on or before December 31, 2001, REI (or its
successor REGCO) and UNREGCO shall negotiate any changes to this Agreement that
may be necessary in light of the fact that the Distribution did not occur in
2001.

                  8.3 Resolution Procedures.

                  (a) If another section of this Agreement grants to REI (or its
successor REGCO) or to UNREGCO the right to invoke the resolution procedures of
this Section 8.3 to disagree with an amount, allocation, characterization or
other item of information provided to it by the other party and if within 15
days of receiving notice of such amount, allocation, characterization or other
item of information, REI (or its successor REGCO) or UNREGCO, as the case may
be, invokes the resolution procedures of this Section 8.3 by sending written
notice to the other party, then

                      (i) the parties shall jointly select a Tax Expert to
determine the correct amount, allocation or other information that is in
dispute,

                      (ii) the parties shall share the costs of such Tax Expert
equally,

                      (iii) the parties agree to be bound by the decision
reached by the Tax Expert,

                      (iv) the due date of a payment based on or equal to an
amount, allocation or other information that is being determined by the Tax
Expert pursuant to this Section 8.3(a) shall be extended to the date that is 5
days after the Tax Expert renders a decision as to the correct amount,
allocation, characterization or other item of information and

                      (v) if the otherwise applicable due date of payment is
extended pursuant to Section 8.3(a)(iv), then the party making such payment
shall add to the amount of such payment (as determined in accordance with the
determination by the Tax Expert under this Section 8.3(a)) interest for the
period of such extension. The amount of interest that accrues during such
extension period shall be computed in accordance with the procedures set forth
in Section 6.9.

                  (b) If another section of this Agreement grants to REI (or its
successor REGCO) or to UNREGCO, as the case may be, the right to invoke the
resolution procedures of this Section 8.3 to disagree with an amount,
allocation, characterization or other item of information provided to it by the
other party and REI (or its successor REGCO) or UNREGCO, as the case may be,
does not invoke the resolution procedures of this Section 8.3 within 15 days of
receiving

                                      -41-
<PAGE>   43

notice of such amount, allocation, characterization or other item of
information, then the amount, allocation, characterization or other item of
information provided to REI (or its successor REGCO) or to UNREGCO by the other
party shall be deemed conclusive and correct as between REI (or its successor
REGCO) and UNREGCO.

                  8.4 Notices. Unless expressly provided herein, all notices,
claims, certificates, requests, demands and other communications hereunder shall
be in writing and shall be deemed to be duly given (i) when personally delivered
or (ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv) if
sent by facsimile or other generally accepted means of electronic transmission,
on the date confirmation of transmission is received (provided that a copy of
any notice delivered pursuant to this clause (iv) shall also be sent pursuant to
clause (ii) or (iii)), addressed to the attention of the addressee's General
Counsel at the address of its principal executive office or to such other
address or facsimile number for a party as it shall have specified by like
notice.

                  8.5 Changes in Law.

                  (a) Any reference to a provision of the Code or a law of
another jurisdiction shall include a reference to any applicable successor
provision or law.

                  (b) If, due to any change in applicable law or regulations or
their interpretation by any court of law or other governing body having
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such provision.

                  8.6 Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
not be assigned by any party hereto.

                  8.7 Affiliated Companies. REI (or as successors, REGCO and any
REGCO Affiliated Company) shall cause to be performed, and hereby guarantees the
performance of, all actions, agreements and obligations set forth herein to be
performed by any REI or REGCO Affiliated Company, and UNREGCO shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any UNREGCO Affiliated Company.

                  8.8 Authorization, Etc. Each of the parties hereto hereby
represents and warrants that it has the power and authority to execute, deliver
and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party and

                                      -42-
<PAGE>   44

that the execution, delivery and performance of this Agreement by such party
does not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.

                  8.9 Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof.

                  8.10 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Texas as to all matters regardless of the law that might otherwise govern
under the principles of conflicts of law applicable thereto.

                  8.11 Dispute Resolution. Except for disputes, controversies or
claims within the scope of Section 8.3, the resolution of any and all disputes
arising from or in connection with this Agreement shall be governed by and
settled in accordance with the provisions of Article IX of the Master Separation
Agreement.

                  8.12 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.

                  8.13 Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction (or
an arbitrator or arbitration panel) to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions set forth herein
shall remain in full force and effect, and shall in no way be affected,
impaired, or invalidated. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any of such which may
be hereafter declared invalid, void, or unenforceable. In the event that any
such term, provision, covenant or restriction is held to be invalid, void or
unenforceable, the parties hereto shall use their best efforts to find and
employ an alternate means to achieve the same or substantially the same result
as that contemplated by such terms, provisions, covenant, or restriction.

                  8.14 No Third Party Beneficiaries. This Agreement is solely
for the benefit of REI, REI Affiliated Companies, REGCO, the REGCO Affiliated
Companies, UNREGCO and the UNREGCO Affiliated Companies. This Agreement should
not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, cause of action or other rights in excess of those existing
without this Agreement.

                  8.15 Waivers, Etc. No failure or delay on the part of the
parties in exercising any power or right 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 right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing.

                                      -43-
<PAGE>   45

                  8.16 Setoff. All payments to be made by any party under this
Agreement may be netted against payments due to such party under this Agreement,
but otherwise shall be made without setoff, counterclaim or withholding, all of
which are hereby expressly waived.

                                      -44-
<PAGE>   46

                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.

                               RELIANT ENERGY, INCORPORATED
                               On behalf of Itself and Its Affiliated Companies

                               By:
                                  --------------------------------------------
                               Name:
                               Title:

                               RELIANT RESOURCES, INC.
                               On behalf of Itself and Its Affiliated Companies

                               By:
                                  ---------------------------------------------
                               Name:
                               Title:

                                      -45-
<PAGE>   47

TAX ALLOCATION AGREEMENT
EXAMPLES OF CALCULATIONS PURSUANT TO SECTIONS 5.6 (c), (d), (f), AND (g).
(ALL AMOUNTS IN $000)

EXAMPLE 1

FACTS:

1.   As a result of a Redetermination ("First Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 1999 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("First Temporary Tax
     Adjustment") with a negative value arises from an increase of $22,857 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 1999. The First Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. The First Redetermination is the
     first Redetermination that has occurred since the effective date of the Tax
     Allocation Agreement, and the only Temporary Tax Adjustment resulting from
     the First Redetermination is the First Temporary Tax Adjustment.

2.   As a result of a Redetermination ("Second Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 2000 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("Second Temporary Tax
     Adjustment") with a positive value arises from a decrease of $142,857 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 2000. The Second Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. No Redetermination with respect to
     an REI Consolidated Group Consolidated Return occurred after the First
     Redetermination and before the Second Redetermination. The only Temporary
     Tax Adjustment resulting from the Second Redetermination is the Second
     Temporary Tax Adjustment.

CALCULATIONS FOR FIRST REDETERMINATION:

Step 1:  calculate value of First Temporary Tax Adjustment pursuant to
         Section 5.6(c):

<TABLE>

<S>                                                                                        <C>
               First Redetermination increase to items of expense from the
               amount reported on the REI Consolidated Group Consolidated
               Return for the year 1999                                                    $(22,857)

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such First Temporary Tax Adjustment
               relates                                                                           35%
                                                                                           --------
               Value of First Temporary Tax Adjustment                                     $ (8,000)
                                                                                           --------

</TABLE>

                                        1

<PAGE>   48

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                        <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the First Redetermination pursuant to
               Section 5.6(c)                                                              $     0

               Value of First Temporary Tax Adjustment pursuant to Section 5.6(c)          $(8,000)
               (First Redetermination, Step 1)                                             -------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)                 $(8,000)
                                                                                           -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to
         Section 5.6(f):

<TABLE>

<S>                                                                                        <C>
               The cumulative value of the Temporary Tax Adjustment Payments
               that have occurred  prior to the First Redetermination pursuant
               to 5.6(f)(i)                                                                $     0

               First Redetermination - Temporary Tax Adjustment Payment from REI
               to Unregco (First Redetermination, Step 4)                                  $(7,000)
                                                                                           -------

               Temporary Tax Adjustment Payment Balance (post First Redetermination)       $(7,000)
                                                                                           -------

</TABLE>

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                        <C>
               Temporary Tax Adjustment Payment Balance immediately before First
               Redetermination                                                             $     0

               Temporary Tax Adjustment Balance (First Redetermination, Step 2)            $(8,000)
                                                                                           -------

               Amount by which Temporary Tax Adjustment Balance is less than
               (-$1,000), represented as a negative amount                                 $(7,000)

               Temporary Tax Adjustment Payment from REI to Unregco                        ($7,000)
                                                                                           -------

</TABLE>

                                        2

<PAGE>   49

CALCULATIONS FOR SECOND REDETERMINATION:

Step 1:  calculate value of Second Temporary Tax Adjustment pursuant to Section
         5.6(c):

<TABLE>

<S>                                                                                        <C>
               Second Redetermination decrease to items of expense from the
               amount reported on the REI Consolidated Group
               Consolidated Return for the year 2000                                       $142,857

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such Temporary Tax Adjustment relates               35%
                                                                                           --------

               Value of Second Temporary Tax Adjustment                                    $ 50,000
                                                                                           --------
</TABLE>

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                        <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the Second Redetermination pursuant to Section
               5.6(c) (First Redetermination, Step 2)                                      $(8,000)

               Value of Second Temporary Tax Adjustment pursuant to Section
               5.6(c) (Second Redetermination, Step 1)                                     $50,000
                                                                                           -------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)                 $42,000
                                                                                           -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to Section
         5.6(f):

<TABLE>

<S>                                                                                        <C>
               Temporary Tax Adjustment Payment Balance (First Redetermination, Step 3)    $ (7,000)

               Temporary Tax Adjustment Payment (Second Redetermination, Step 4)           $ 34,000
                                                                                           --------

               Temporary Tax Adjustment Payment Balance (post Second Redetermination)      $ 27,000
                                                                                           --------
</TABLE>

                                        3

<PAGE>   50

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                        <C>
               Temporary Tax Adjustment Balance (Second Redetermination, Step 2)           $ 42,000

               Temporary Tax Adjustment Payment Balance (First Redetermination, Step 3)    $ (7,000)

               Amount by which Temporary Tax Adjustment Balance is greater than $15,000    $ 27,000
                                                                                           --------

               Temporary Tax Adjustment Payment from Unregco to REI                        $ 34,000
                                                                                           --------
</TABLE>

                                       4
<PAGE>   51

TAX ALLOCATION AGREEMENT
EXAMPLES OF CALCULATIONS PURSUANT TO SECTIONS 5.6 (c), (d), (f), AND (g).
(ALL AMOUNTS IN $000)

EXAMPLE 2

FACTS:

1.   As a result of a Redetermination ("First Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 1999 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("First Temporary Tax
     Adjustment") with a negative value arises from an increase of $22,857 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 1999. The First Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. The First Redetermination is the
     first Redetermination that has occurred since the effective date of the Tax
     Allocation Agreement, and the only Temporary Tax Adjustment resulting from
     the First Redetermination is the First Temporary Tax Adjustment.

2.   As a result of a Redetermination ("Second Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 2000 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("Second Temporary Tax
     Adjustment") with a positive value arises from a decrease of $14,286 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 2000. The Second Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. No Redetermination with respect to
     an REI Consolidated Group Consolidated Return occurred after the First
     Redetermination and before the Second Redetermination. The only Temporary
     Tax Adjustment resulting from the Second Redetermination is the Second
     Temporary Tax Adjustment.

CALCULATIONS FOR FIRST REDETERMINATION:

Step 1:  calculate value of First Temporary Tax Adjustment pursuant to Section
         5.6(c):

<TABLE>

<S>                                                                                                   <C>
               First Redetermination increase to items of expense from the amount
               reported on the REI Consolidated Group Consolidated Return for
               the year 1999                                                                          $(22,857)

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such First
               Temporary Tax Adjustment relates                                                             35%
                                                                                                      --------

               Value of First Temporary Tax Adjustment                                                $ (8,000)
                                                                                                      --------
</TABLE>

                                       1
<PAGE>   52

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                                  <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the First Redetermination pursuant to Section 5.6(c)                 $     0

               Value of First Temporary Tax Adjustment pursuant to Section 5.6(c) (First
               Redetermination, Step 1)                                                               $(8,000)
                                                                                                      -------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)                            $(8,000)
                                                                                                      -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to Section
         5.6(f):

<TABLE>

<S>                                                                                                   <C>
               The cumulative value of the Temporary Tax Adjustment Payments
               that have occurred prior to the First Redetermination pursuant
               to 5.6(f)(i)                                                                           $     0

               First Redetermination - Temporary Tax Adjustment Payment from REI to Unregco
               (First Redetermination, Step 4)                                                        $(7,000)
                                                                                                      -------

               Temporary Tax Adjustment Payment Balance (post First Redetermination)                  $(7,000)
                                                                                                      -------
</TABLE>

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                                   <C>
               Temporary Tax Adjustment Payment Balance immediately before First Redetermination      $     0

               Temporary Tax Adjustment  Balance (First Redetermination, Step 2)                      $(8,000)
                                                                                                      -------

               Amount by which Temporary Tax Adjustment Balance is less than                          $(7,000)
               (-$1,000), represented as a negative amount

               Temporary Tax Adjustment Payment from REI to Unregco                                   $(7,000)
                                                                                                      -------
</TABLE>

                                       2
<PAGE>   53

CALCULATIONS FOR SECOND REDETERMINATION:

Step 1:  calculate value of Second Temporary Tax Adjustment pursuant to Section
         5.6(c):

<TABLE>

<S>                                                                                       <C>
               Second Redetermination decrease to items of expense from the
               amount reported on the REI Consolidated Group
               Consolidated Return for the year 2000                                      $14,286

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such Second
               Temporary Tax Adjustment relates                                                35%
                                                                                          -------

               Value of Second Temporary Tax Adjustment                                   $ 5,000
                                                                                          -------
</TABLE>

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                       <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the Second Redetermination pursuant to
               Section 5.6(c) (First Redetermination, Step 2)                             $(8,000)

               Value of Second Temporary Tax Adjustment pursuant to
               Section 5.6(c) (Second Redetermination, Step 1)                            $ 5,000
                                                                                          -------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)                $(3,000)
                                                                                          -------

</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to Section
         5.6(f):

<TABLE>

<S>                                                                                       <C>
               Temporary Tax Adjustment Payment Balance (First Redetermination,
               Step 3)                                                                    $(7,000)

               Temporary Tax Adjustment Payment (Second Redetermination, Step 4)          $ 5,000
                                                                                          -------

               Temporary Tax Adjustment Payment Balance (post Second
               Redetermination)                                                           $(2,000)
                                                                                          -------
</TABLE>

                                       3
<PAGE>   54

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                          <C>
               Temporary Tax Adjustment Balance (Second Redetermination, Step 2)             $(3,000)
                                                                                             -------
               Temporary Tax Adjustment Payment Balance (First Redetermination, Step 3)      $(7,000)

               Amount by which Temporary Tax Adjustment Balance is less than $(1,000),
               represented as a negative amount                                              $(2,000)
                                                                                             -------

               Temporary Tax Adjustment Payment from Unregco to REI                          $ 5,000
                                                                                             -------
</TABLE>

                                       4

<PAGE>   55

TAX ALLOCATION AGREEMENT
EXAMPLES OF CALCULATIONS PURSUANT TO SECTIONS 5.6 (c),(d),(f), AND (g).
(ALL AMOUNTS IN $000)

EXAMPLE 3

FACTS:

1.   As a result of a Redetermination ("First Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 1999 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("First Temporary Tax
     Adjustment") with a positive value arises from a decrease of $ 142,857 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Returns for the year 1999. The First Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. The First Redetermination is the
     first Redetermination that has occurred since the effective date of the Tax
     Allocation Agreement, and the only Temporary Tax Adjustment resulting from
     the First Redetermination is the First Temporary Tax Adjustment.

2.   As a result of a Redetermination ("Second Redetermination") for the REI
     Consolidated Group Consolidated Returns for the year 2000 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("Second Temporary Tax
     Adjustment") with a negative value arises from an increase of $ 22,857 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 2000. The Second Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. No Redetermination with respect to
     an REI Consolidated Group Consolidated Return occurred after the First
     Redetermination and before the Second Redetermination. The only Temporary
     Tax Adjustment resulting from the Second Redetermination is the Second
     Temporary Tax Adjustment.

CALCULATIONS FOR FIRST REDETERMINATION:

Step 1:  calculate value of First Temporary Tax Adjustment pursuant to Section
         5.6(c):

<TABLE>

<S>                                                                                    <C>
               First Redetermination decrease to items of expense from the amount
               reported on the REI Consolidated Group Consolidated Return for
               the year 1999                                                           $142,857

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-distribution Period to which the
               Redetermination that produced such First
               Temporary Tax Adjustment relates                                              35%
                                                                                       --------

               Value of First Temporary Tax Adjustment                                 $ 50,000
                                                                                       --------
</TABLE>

                                       1
<PAGE>   56

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                    <C>
               The cumulative value of the Temporary Tax Adjustments that
               have occurred prior to the First Redetermination pursuant to
               Section 5.6(c)                                                          $     0

               Value of First Temporary Tax Adjustment pursuant to
               Section 5.6(c) (First Redetermination, Step 1)                          $50,000
                                                                                       -------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)             $50,000
                                                                                       -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to Section
         5.6(f):

<TABLE>

<S>                                                                                    <C>
               The cumulative value of the Temporary Tax Adjustment Payments
               that have occurred prior to the First Redetermination pursuant
               to 5.6(f)(i)                                                            $     0

               First Redetermination - Temporary Tax Adjustment Payment from
               Unregco to REI (First Redetermination, Step 4)                          $35,000
                                                                                       -------

               Temporary Tax Adjustment Payment Balance (post First Redetermination)   $35,000
                                                                                       -------
</TABLE>

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                    <C>
               Temporary Tax Adjustment Balance immediately before First
               Redetermination                                                         $     0

               Temporary Tax Adjustment Balance (First Redetermination, Step 2)        $50,000
                                                                                       -------

               Amount by which Temporary Tax Adjustment Balance is greater             $35,000
               than $15,000

               Temporary Tax Adjustment Payment from Unregco to REI                    $35,000
</TABLE>

                                       2
<PAGE>   57

CALCULATIONS FOR SECOND REDETERMINATION:

Step 1:  calculate value of Second Temporary Tax Adjustment pursuant to Section
         5.6(c):

<TABLE>

<S>                                                                                  <C>
               Second Redetermination increase to items of expense from the
               amount reported on the REI Consolidated Group
               Consolidated Return for the year 2000                                 $(22,857)

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such Second
               Temporary Tax Adjustment relates                                            35%
                                                                                     --------

               Value of Second Temporary Tax Adjustment                              $ (8,000)
                                                                                     --------
</TABLE>

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                  <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the Second Redetermination pursuant to
               Section 5.6(c) (First Redetermination, Step 2)                        $50,000

               Value of Second Temporary Tax Adjustment pursuant to Section 5.6(c)
               (Second Redetermination, Step 1)                                      $(8,000)
                                                                                     --------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)           $42,000
                                                                                     -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to Section
         5.6(f):

<TABLE>

<S>                                                                                  <C>
               Temporary Tax Adjustment Payment Balance (First Redetermination,
               Step 3)                                                               $ 35,000

               Temporary Tax Adjustment Payment (Second Redetermination, Step 4)     $ (8,000)
                                                                                     --------

               Temporary Tax Adjustment Payment Balance (post Second                 $ 27,000
               Redetermination)                                                      --------
</TABLE>

                                       3
<PAGE>   58

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section
         5.6(g)(i), (ii), or (iii):

<TABLE>

<S>                                                                                       <C>
               Temporary Tax Adjustment Balance (Second Redetermination,
               Step 2)                                                                    $ 42,000
                                                                                          --------

               Temporary Tax Adjustment Payment Balance (First Redetermination,
               Step 3)                                                                    $ 35,000

               Amount by which Temporary Tax Adjustment Balance is greater
               than $15,000                                                               $ 27,000
                                                                                          --------

               Temporary Tax Adjustment Payment from REI to Unregco                       $ (8,000)
                                                                                          --------
</TABLE>

                                       4

<PAGE>   59

TAX ALLOCATION AGREEMENT
EXAMPLES OF CALCULATIONS PURSUANT TO SECTIONS 5.6 (c), (d), (f), AND (g).
(ALL AMOUNTS IN $000)

EXAMPLE 4

FACTS:

1.   As a result of a Redetermination ("First Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 1999 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("First Temporary Tax
     Adjustment") with a negative value arises from an increase of $22,857 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 1999. The First Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. The First Redetermination is the
     first Redetermination that has occurred since the effective date of the Tax
     Allocation Agreement, and the only Temporary Tax Adjustment resulting from
     the First Redetermination is the First Temporary Tax Adjustment.

2.   As a result of a Redetermination ("Second Redetermination") for the REI
     Consolidated Group Consolidated Return for the year 2000 (a
     Pre-Distribution Period), a Temporary Tax Adjustment ("Second Temporary Tax
     Adjustment") with a positive value arises from a decrease of $28,571 to
     items of expense from the amount reported on the REI Consolidated Group
     Consolidated Return for the year 2000. The Second Temporary Tax Adjustment
     is not an RES Temporary Tax Adjustment. No Redetermination with respect to
     an REI Consolidated Group Consolidated Return occurred after the First
     Redetermination and before the Second Redetermination. The only Temporary
     Tax Adjustment resulting from the Second Redetermination is the Second
     Temporary Tax Adjustment.

CALCULATIONS FOR FIRST REDETERMINATION:

Step 1:  calculate value of First Temporary Tax Adjustment pursuant to
         Section 5.6(c):

<TABLE>

<S>                                                                                   <C>
               First Redetermination increase to items of expense from the
               amount reported on the REI Consolidated Group Consolidated
               Return for the year 1999                                                    $(22,857)

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such First Temporary Tax Adjustment
               relates                                                                           35%
                                                                                           --------
               Value of First Temporary Tax Adjustment                                     $ (8,000)
                                                                                           --------
</TABLE>

                                        1

<PAGE>   60

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                        <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the First Redetermination pursuant to
               Section 5.6(c)                                                              $     0

               Value of First Temporary Tax Adjustment pursuant to Section 5.6(c)
               (First Redetermination, Step 1)                                             $(8,000)
                                                                                           -------
               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)                 $(8,000)
                                                                                           -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to
         Section 5.6(f):

<TABLE>

<S>                                                                                        <C>
               The cumulative value of the Temporary Tax Adjustment Payments
               that have occurred  prior to the First Redetermination pursuant
               to 5.6(f)(i)                                                                $     0

               First Redetermination - Temporary Tax Adjustment Payment from REI
               to Unregco (First Redetermination, Step 4)                                  $(7,000)
                                                                                           -------
               Temporary Tax Adjustment Payment Balance (post First Redetermination)       $(7,000)
                                                                                           -------
</TABLE>

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                        <C>
               Temporary Tax Adjustment Payment Balance immediately before First
               Redetermination                                                             $     0

               Temporary Tax Adjustment Balance (First Redetermination, Step 2)            $(8,000)
                                                                                           -------
               Amount by which Temporary Tax Adjustment Balance is less than
               (-$1,000), represented as a negative amount                                 $(7,000)

               Temporary Tax Adjustment Payment from REI to Unregco                        $(7,000)
                                                                                           -------
</TABLE>

                                        2

<PAGE>   61

CALCULATIONS FOR SECOND REDETERMINATION:

Step 1:  calculate value of Second Temporary Tax Adjustment pursuant to Section
         5.6(c):

<TABLE>

<S>                                                                                     <C>
               Second Redetermination decrease to items of expense from the
               amount reported on  the REI Consolidated Group
               Consolidated Return for the year 2000                                       $28,571

               Highest Federal Income Tax Rate applicable to corporations in
               effect during the Pre-Distribution Period to which the
               Redetermination that produced such Temporary Tax Adjustment relates              35%
                                                                                           -------
               Value of Second Temporary Tax Adjustment                                    $10,000
                                                                                           -------
</TABLE>

Step 2:  determine Temporary Tax Adjustment Balance pursuant to Section 5.6(d):

<TABLE>

<S>                                                                                        <C>
               The cumulative value of the Temporary Tax Adjustments that have
               occurred prior to the Second Redetermination pursuant to Section
               5.6(c) (First Redetermination, Step 2)                                      $(8,000)

               Value of Second Temporary Tax Adjustment pursuant to Section 5.6(c)
               (Second Redetermination, Step 1)                                            $10,000
                                                                                           -------

               Temporary Tax Adjustment Balance pursuant to Section 5.6(d)                 $ 2,000
                                                                                           -------
</TABLE>

Step 3:  calculate Temporary Tax Adjustment Payment Balance pursuant to Section
         5.6(f):

<TABLE>

<S>                                                                                        <C>
               Temporary Tax Adjustment Payment Balance (First Redetermination, Step 3)    $(7,000)

               Temporary Tax Adjustment Payment (Second Redetermination, Step 4)           $ 7,000
                                                                                           -------
               Temporary Tax Adjustment Payment Balance (post Second Redetermination)      $     0
                                                                                           -------
</TABLE>

                                        3
<PAGE>   62

Step 4:  calculate Temporary Tax Adjustment Payment pursuant to Section 5.6(g):

<TABLE>

<S>                                                                                        <C>

               Temporary Tax Adjustment Balance (Second Redetermination, Step 2)           $ 2,000

               Temporary Tax Adjustment Payment Balance (First Redetermination, Step 3)    $(7,000)

               Needed value for Temporary Tax Adjustment Balance pursuant to
               Section 5.6(g)(ii)                                                          $     0
                                                                                           -------
               Temporary Tax Adjustment Payment from Unregco to REI                        $ 7,000
                                                                                           -------
</TABLE><PAGE>   1
                                                                     EXHIBIT 4.1

                 CERTIFICATE OF DESIGNATION AND DETERMINATION OF
                            RIGHTS AND PREFERENCES OF
                    CONVERTIBLE PREFERRED STOCK, SERIES A, OF
                                POWERBRIEF, INC.

         PowerBrief, Inc., a Texas corporation (the "Company"), does hereby
certify that:

         FIRST:   The name of the Company is PowerBrief, Inc.

         SECOND: By unanimous vote of the Board of Directors of the Company (the
"Board of Directors"), with one director abstaining, at a meeting duly called
and held, the following resolutions were duly adopted:

         RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation of the Company, as amended through
the date hereof, (the "Articles of Incorporation"), a series of the class of
authorized Preferred Stock, with a par value of $0.001 per share, of the Company
be hereby created, and that the designation of amount thereof and the voting
powers, preferences and relative, optional and other special rights of the
shares of such series, and the qualifications, limitations and restrictions of
such series, be as set forth below:

         1. Designation. The designation of the Series of Preferred Stock
authorized hereby shall be "Convertible Preferred Stock, Series A ("Series A
Preferred Stock") with a par value of $0.001 per share, and 5,000,000 shares are
hereby authorized for issuance.

         2. Ranking. The Series A Preferred Stock shall rank as to dividends
senior to the Common Stock, par value $0.001 per share, of the Company (the
"Common Stock") and any other class or series of capital stock of the Company
(collectively with the Common Stock, the "Junior Securities").

         3. Dividends. The holders of Series A Preferred Stock shall be entitled
to receive cumulative cash dividends at a rate per annum (the "Dividend Rate")
of (i) $.0896 per share (subject to appropriate adjustments in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares). Such dividends shall be payable quarterly on the last
business day of March, June, September and December of each year, commencing
March 31, 2001 (each a "Dividend Payment Date") to holders of record as they
appear on the register for the Series A Preferred Stock (the "Preferred Stock
Register") on the March 15, June 15, September 15, and December 15, as
appropriate, immediately preceding such Dividend Payment Date.

         At the option of the Company and except as provided below with respect
to the payment of cash in respect of fractional shares, dividends on the Series
A Preferred Stock may be paid, instead of in cash, in whole or in part, on
declaration of the Board of Directors, in additional shares of the Series A
Preferred Stock (the "Dividend Shares"); provided, however, that if no such
declaration is made on or before a Dividend Payment Date, the quarterly dividend
shall

<PAGE>   2

automatically accrue in Dividend Shares on the Dividend Payment Date. To the
extent dividends are payable in whole or in part in Dividend Shares, such
Dividend Shares shall be valued at $1.12 per share (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares) with a liquidation value
of $1.12 per share (subject to appropriate adjustments in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares) and shall have all rights and preferences of the Series A Preferred
Stock hereunder, including dividends payable at the rate specified in the
preceding paragraph, subject to the option of the Company to pay such dividends
in Dividend Shares of the Series A Preferred Stock in lieu of cash.
Notwithstanding any other provisions hereof, certificates representing Dividend
Shares shall not be issued to the holder entitled thereto until requested by
such holder in writing.

         Dividends shall accrue from the date of original issue of the Series A
Preferred Stock, except that dividends on Dividend Shares of the Series A
Preferred Stock shall accrue from the date such Dividend Shares are issued. To
the extent that all or any part of dividends in Dividend Shares of the Series A
Preferred Stock would result in the issuance of a fractional Dividend Share of
such series, then such amount shall be paid in cash.

         No dividend or distribution in cash, shares of capital stock or other
property shall be paid or declared and set apart for payment on any date on or
in respect of any Junior Securities, and the Company shall not redeem, purchase
or otherwise acquire for value any Junior Securities while shares of Series A
Preferred Stock remain outstanding.

         No dividend may be paid or declared and set apart for payment on any
share of Series A Preferred Stock unless at the same time a ratable dividend in
cash or Dividend Shares, as the case may be, is paid or set apart for payment on
all shares of Series A Preferred Stock then outstanding.

         4. Preference on Liquidation, etc.

                  (a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, before any payment or distribution of
the assets of the Company (whether capital or surplus), or proceeds thereof,
shall be made to or set apart for the holders of shares of any Junior
Securities, the holders of shares of Series A Preferred Stock shall be entitled
to receive payment of $1.12 per share (subject to appropriate adjustments in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) held by them, plus an amount equal to
all accrued and unpaid dividends thereon. If, upon any liquidation, dissolution
or winding-up of the Company, the assets of the Company, or proceeds thereof,
distributed among the holders of shares of Series A Preferred Stock shall be
insufficient to pay in full the respective preferential amounts on shares of
Series A Preferred Stock, then such assets, or the proceeds thereof, shall be
distributed among the holders of Series A Preferred Stock ratably in accordance
with the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full.

                                      -2-
<PAGE>   3

                  (b) After payment of the full amount of the liquidation
preference to which the holders of Series A Preferred Stock are entitled, the
remaining assets of the Company available for distribution to stockholders shall
be distributed among the holders of the Series A Preferred Stock and the Common
Stock pro rata based on the number of shares of Common Stock held by each
(assuming conversion of all such Series A Preferred Stock pursuant to the
provisions of Section 10 hereof).

                  (c) For purposes of this Section 4, a liquidation,
dissolution, or winding up of the Company shall be deemed to occur if the
Company shall sell, convey, or otherwise dispose of all or substantially all of
its property or business or merge with or into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), provided that
this Section 4(c) shall not apply to a transaction in which the stockholders of
the Company immediately prior to the transaction own 50% or more of the voting
power of the surviving corporation following the transaction.

         5. Retirement of Shares. Shares of Series A Preferred Stock that have
been issued and have been redeemed, repurchased or reacquired in any manner by
the Company shall be retired and not reissued and shall resume the status of
authorized but unissued and non-designated shares of preferred stock of the
Company.

         6. Voting. Each holder of Series A Preferred Stock shall be entitled to
the number of votes equal to the number of whole shares of Common Stock into
which such shares of Series A Preferred Stock could be converted pursuant to the
provisions of Section 10 hereof at the record date for the determination of the
shareholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of shareholders
is solicited. Each holder of Series A Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Company (as in effect at the time in question)
and applicable law, and shall be entitled to vote, together with the holders of
Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote, except as may be provided by applicable law. Except as
otherwise expressly provided herein or as required by law, and except for the
vote of the Series A Preferred Stock provided for in Section 7 and Section 8
hereof, the holders of Series A Preferred Stock and the holders of Common Stock
shall vote together and not as separate classes.

         7. Special Voting Rights. The holders of Series A Preferred Stock,
voting as a separate series, shall be entitled by written consent or at the next
annual meeting of stockholders or the next special meeting of stockholders, or
at a special meeting of holders of Series A Preferred Stock called as
hereinafter provided, to elect two directors. The foregoing voting rights shall
not diminish the right of the holders of Series A Preferred Stock to participate
with holders of Common Stock and holders, if any, of any other capital stock of
the Company entitled to vote for the election of directors in the election of
any other directors.

         Such voting right may be exercised initially by consent in writing of
the holders of a majority of the Series A Preferred Stock at the time
outstanding or at a special meeting of holders

                                      -3-
<PAGE>   4

of Series A Preferred Stock or at any annual or special stockholders' meeting. A
special meeting for the exercise of such right shall be called by the Secretary
of the Company within ten days after receipt of a written request therefor,
signed by the holders of record of at least 10% of the votes of the then
outstanding shares of Series A Preferred Stock; however, no such special meeting
shall be held during the 90-day period preceding the date fixed for the annual
meeting of stockholders.

         Any director who shall have been elected by holders of Series A
Preferred Stock as a series pursuant to this subsection shall hold office for a
term expiring at the next annual meeting of stockholders, and during such term
may be removed at any time, either for or without cause, only by the affirmative
votes of holders of record of a majority of the votes of the then outstanding
shares of Series A Preferred Stock given at a special meeting of such
stockholders called for the purpose or by written consent of a majority of the
outstanding shares of Series A Preferred Stock. Any vacancy created by such
removal may also be filled at such meeting or by such a consent. A meeting for
the removal of a director elected by holders of Series A Preferred Stock as a
series and the filling of the vacancy created thereby shall be called by the
Secretary of the Company within ten days after receipt of a written request
therefor, signed by the holders of not less than 25% of the votes of the then
outstanding shares of Series A Preferred Stock. Such meeting shall be held at
the earliest practicable date thereafter.

         Any vacancy caused by the death, resignation, or expiration of term of
a director who shall have been elected by the holders of Series A Preferred
Stock as a series pursuant to this subsection may be filled only by the holders
of Series A Preferred Stock by written consent of a majority of the Series A
Preferred Stock then outstanding, at any annual or special stockholders'
meeting, or at a meeting called for such purpose. Such meeting of the holders of
Series A Preferred Stock shall be called by the Secretary of the Company at the
earliest practicable date after any such death or resignation and in any event
within ten days after receipt of a written request therefor, signed by the
holders of record of at least 10% of the votes of the then outstanding shares of
Series A Preferred Stock.

         If any meeting of the holders of Series A Preferred Stock required by
this subsection to be called shall not have been called within ten days after
personal service of a written request therefor upon the Secretary of the Company
or within 15 days after mailing the same within the United States of America by
registered mail addressed to the Secretary of the Company at its principal
office, then holders of record of at least 10% of the votes of the then
outstanding shares of Series A Preferred Stock may designate in writing one of
their number to call such a meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders. Any holder of
Series A Preferred Stock so designated shall have access to the stock books of
the Company for the purpose of causing meetings of stockholders to be called
pursuant to these provisions.

         Any meetings of holders of Series A Preferred Stock to vote as a series
for the election or removal of directors shall be held at such place or places
designated in the Company's Bylaws for meeting of its stockholders or at such
other place as the holders of at least 10% of the votes of the then outstanding
shares of Series A Preferred Stock may designate. At such meeting, the

                                      -4-
<PAGE>   5

presence in person or by proxy of holders of a majority of the votes of the then
outstanding shares of Series A Preferred Stock shall be required to constitute a
quorum; in the absence of a quorum, a majority of the holders present in person
or by proxy shall have power to adjourn the meeting from time to time without
notice, other than announcement at the meeting, until a quorum shall be present.

         8. Other Rights and Amendments. Except as otherwise provided by law,
without the written consent of a majority of the outstanding shares of Series A
Preferred Stock or the vote of holders of a majority of the outstanding shares
of Series A Preferred Stock (voting as a class) at a meeting of the holders of
Series A Preferred Stock called for such purpose, the Company will not (i)
amend, alter, repeal or waive any provision of the bylaws, the Articles of
Incorporation or this Certificate of Designation so as to adversely affect the
preferences, rights, powers or other terms of the Series A Preferred Stock, (ii)
create, authorize or issue any class or series of stock having rights,
preferences or privileges senior to or on parity with the Series A Preferred
Stock, or (iii) increase the authorized number of shares of Series A Preferred
Stock.

         9. Issuance. The Company will not issue more than 3,000,000 shares of
Series A Preferred Stock (excluding shares which may be issued as Dividend
Shares in lieu of cash dividends in accordance with Section 3 hereof).

         10. Conversion. The outstanding shares of Series A Preferred Stock
shall be convertible into Common Stock as follows:

         10.1 Optional Conversion.

                  (a) At the option of the holder thereof, each share of Series
A Preferred Stock shall be convertible, at any time or from time to time, into
fully paid and nonassessable shares of Common Stock as provided herein.

                  (b) Each holder of Series A Preferred Stock who elects to
convert the same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Series A Preferred Stock or Common Stock, and shall give
written notice to the Company at such office that such holder elects to convert
the same and shall state therein the number of shares of Series A Preferred
Stock being converted. Thereupon the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled upon such conversion.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares of Series A Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.

         10.2 Conversion Price. Each share of Series A Preferred Stock shall be
convertible in accordance with Section 10.1 hereof into the number of shares of
Common Stock that results from dividing the liquidation value for Series A
Preferred Stock (including the stated liquidation

                                      -5-
<PAGE>   6

preference and accrued but unpaid dividends) by the conversion price for Series
A Preferred Stock that is in effect at the time of conversion (the "Conversion
Price"). The initial Conversion Price for the Series A Preferred Stock shall be
$0.112 per share. The Conversion Price of the Series A Preferred Stock shall be
subject to adjustment from time to time as provided below.

         10.3 Adjustment Upon Common Stock Event. Upon the happening of a Common
Stock Event (as hereinafter defined), the Conversion Price of the Series A
Preferred Stock shall, simultaneously with the happening of such Common Stock
Event, be adjusted by multiplying the Conversion Price of Series A Preferred
Stock in effect immediately prior to such Common Stock Event by a fraction, (a)
the numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Common Stock Event, and (b) the
denominator of which shall be the number of shares of Common Stock issued and
outstanding immediately after such Common Stock Event, and the product so
obtained shall thereafter be the Conversion Price for Series A Preferred Stock.
The Conversion Price for Series A Preferred Stock shall be readjusted in the
same manner upon the happening of each subsequent Common Stock Event. As used
herein, the term "Common Stock Event" means (i) the issue by the Company of
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock or (iii) a combination of
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock.

         10.4 Adjustment for Other Dividends and Distributions. If at any time
or from time to time after the date upon which any shares of Series A Preferred
Stock were first issued (the "Original Issue Date") the Company pays a dividend
or makes any other distribution to the holders of the Common Stock payable in
securities of the Company other than shares of Common Stock, then in each such
event provision shall be made so that the holders of the Series A Preferred
Stock shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable upon conversion thereof, the amount of securities of
the Company that they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event (or such record date,
as applicable) and had they thereafter, during the period from the date of such
event (or such record date, as applicable) to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 10 with respect to the rights of the holders of the Series A Preferred
Stock or with respect to such other securities by their terms.

         10.5 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than by a Common Stock
Event or a stock dividend, reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 10), then in any such event each
holder of Series A Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of

                                      -6-
<PAGE>   7

Series A Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof. The Company shall give each holder of Series A Preferred Stock at
least 10 days prior written notice of any event requiring adjustment pursuant to
this Section 10.5.

         10.6 Sale of Shares Below Conversion Price.

                  (a) Adjustment Formula. If at any time or from time to time
after the Original Issue Date the Company issues or sells, or is deemed by the
provisions of this Section 10.7 to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in Section 10.3 hereof, a dividend or
distribution as provided in Section 10.4 hereof or a recapitalization,
reclassification or other change as provided in Section 10.5 hereof, for (i) an
Effective Price (as hereinafter defined) that is less than the Conversion Price
for Series A Preferred Stock in effect immediately prior to such issue or sale
and for (ii) Aggregate Consideration Received to the Company in excess of
$750,000, then, and in each such case, the Conversion Price for Series A
Preferred Stock shall be reduced, as of the close of business on the date of
such issue or sale, to the Effective Price per share for such Additional Shares
of Common Stock.

                  (b) Certain Definitions. For the purpose of making any
adjustment required under this Section 10.6:

                  (1) "Additional Shares of Common Stock" shall mean all shares
         of Common Stock issued by the Company, whether or not subsequently
         reacquired or retired by the Company and whether or not restricted at
         the time of issuance or sale (or deemed issuance or sale), other than
         (A) shares of Common Stock issued or issuable upon conversion of Series
         A Preferred Stock and (B) Excluded Securities.

                  (2) The "Aggregate Consideration Received" by the Company for
         any issue or sale (or deemed issue or sale) of securities shall (A) to
         the extent it consists of cash, be computed at the gross amount of cash
         received by the Company; (B) to the extent it consists of property
         other than cash, be computed at the fair value of that property as
         determined in good faith by the Board of Directors; and (C) if
         Additional Shares of Common Stock, Convertible Securities or Rights or
         Options to purchase either Additional Shares of Common Stock or
         Convertible Securities are issued or sold together with other stock or
         securities or other assets of the Company for a consideration that
         covers both, be computed as the portion of the consideration so
         received that may be reasonably determined in good faith by the Board
         of Directors to be allocable to such Additional Shares of Common Stock,
         Convertible Securities or Rights or Options.

                  (2) "Convertible Securities" shall mean stock or other
         securities convertible into or exchangeable for shares of Common Stock,
         other than Excluded Securities.

                                      -7-
<PAGE>   8

                  (3) The "Effective Price" of Additional Shares of Common Stock
         shall mean the quotient determined by dividing the total number of
         Additional Shares of Common Stock issued or sold, or deemed to have
         been issued or sold, by the Company under this Section 10.6, into the
         Aggregate Consideration Received, or deemed to have been received, by
         the Company under this Section 10.6, for the issue of such Additional
         Shares of Common Stock.

                  (4) "Excluded Securities" shall mean, collectively (i) shares
         of Common Stock issued or issuable upon conversion of the Series A
         Preferred Stock (including additional shares of Series A Preferred
         Stock that may have been heretofore issued or may be issued after the
         date hereof as a stock dividend in the Series A Preferred Stock), (ii)
         up to 21,525,120 shares of Common Stock issuable or issued to
         employees, consultants, independent contractors, or directors of the
         Company directly or pursuant to a stock option plan or restricted stock
         plan approved by the Board of Directors of the Company, or (iii) shares
         of Common Stock issuable upon exercise of warrants outstanding or
         assumed as of the date of this Certificate.

                  (5) "Rights or Options" shall mean warrants, options or other
         rights to purchase or acquire shares of Common Stock or Convertible
         Securities, other than Excluded Securities.

                  (c) Deemed Issuances. For the purpose of making any adjustment
to the Conversion Price of the Series A Preferred Stock required under this
Section 10.6, if the Company issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion
Price, then the Company shall be deemed to have issued, at the time of the
issuance of such Rights, Options or Convertible Securities, that number of
Additional Shares of Common Stock that is equal to the maximum number of shares
of Common Stock issuable upon exercise or conversion of such Rights, Options or
Convertible Securities upon their issuance and to have received, as the
Aggregate Consideration Received for the issuance of such shares, an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such Rights or Options or Convertible Securities, plus, in
the case of such Rights or Options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise in full of such Rights or Options,
plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion or exchange thereof; provided that:

                  (a) if the minimum amounts of such consideration cannot be
         ascertained, but are a function of antidilution or similar protective
         clauses, then the Company shall be deemed to have received the maximum
         amounts of consideration without reference to such clauses, and the
         Company shall be deemed to have received an amount other than the
         maximum amount from time to time upon the occurrence of the dilutive or
         antidilutive event;

                                      -8-
<PAGE>   9

                  (b) if the minimum amount of consideration payable to the
         Company upon the exercise of Rights or Options or the conversion or
         exchange of Convertible Securities is reduced over time or upon the
         occurrence or non-occurrence of specified events other than by reason
         of antidilution or similar protective adjustments, then the Effective
         Price shall be recalculated using the figure to which such minimum
         amount of consideration is reduced; and

                  (c) if the minimum amount of consideration payable to the
         Company upon the exercise of such Rights or Options or the conversion
         or exchange of Convertible Securities is subsequently increased, then
         the Effective Price shall again be recalculated using the increased
         minimum amount of consideration payable to the Company upon the
         exercise of such Rights or Options or the conversion or exchange of
         such Convertible Securities.

         No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price that would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that were actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of any
such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion or exchange of such Convertible
Securities, provided that such readjustment shall not apply to prior conversions
of Series A Preferred Stock.

         10.7 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for Series A Preferred Stock, the Company,
at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series A Preferred Stock at the holder's address as shown in the Company's
books.

         10.8 Fractional Shares. No fractional shares of Common Stock shall be
issued upon any conversion of Series A Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the Company
shall pay the holder cash equal to the product of such

                                      -9-
<PAGE>   10

fraction multiplied by the Common Stock's fair market value as determined in
good faith by the Board of Directors as of the date of conversion.

         10.9 Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

         10.10 Notices. Any notice required by the provisions of this Section 10
to be given to the holders of shares of the Series A Preferred Stock shall be
deemed given upon the earlier of actual receipt or deposit in the United States
mail, by certified or registered mail, return receipt requested, postage
prepaid, addressed to each holder of record at the address of such holder
appearing on the books of the Company.

         10.10 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
Stock against impairment.

         11. Redemption of the Series A Preferred Stock.

                  (a) Redemption Date and Price. At any time after second
anniversary of the Original Issue Date, but on a date (the "Redemption Date")
within thirty (30) days after receipt by the Company of a written request (a
"Redemption Election") from any holder of Series A Preferred Stock (a "Redeeming
Holder") that all or some of the shares held by such Redeeming Holder be
redeemed, the Company shall, to the extent it may lawfully do so, redeem that
number of shares specified in the Redemption Election in accordance with the
procedures set forth in this Section 11 by paying in cash therefor a sum per
share equal to $1.12 per share of Series A Preferred Stock (subject to
appropriate adjustments in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) plus all
accrued but unpaid dividends on such shares (the "Redemption Price").

                  (b) Procedure. Within ten (10) days following its receipt of
the Redemption Election, the Company shall mail a written notice, first class
postage prepaid, to the Redeeming Holder at the address last shown on the
records of the Company for the Redeeming Holder, specifying the number of shares
eligible to be redeemed from the Redeeming Holder, the Redemption Date, the
applicable Redemption Price and the place at which payment may be obtained, and
calling upon the Redeeming Holder to surrender to the Company, in the manner

                                      -10-
<PAGE>   11

and at the place designated, the Redeeming Holder's certificate or certificates
representing the shares to be redeemed (the "Redemption Notice"). On or after
the Redemption Date, the Redeeming Holder shall surrender to the Company the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. As promptly as practicable after receipt of the
surrendered certificate or certificates (and in no event more than three days
following the Redemption Date) the Company shall issue and deliver to or upon
the written order of such Redeeming Holder, at such office or other place
designated by the Redeeming Holder, a check for cash with respect the shares so
redeemed. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.

                  (c) Effect of Redemption; Insufficient Funds. From and after
any Redemption Date, unless there shall have been a default in payment of the
Redemption Price, all rights of the Redeeming Holder (except the right to
receive the Redemption Price upon surrender of the applicable share certificate
or certificates) shall cease with respect to the shares designated to be
redeemed on such Redemption Date, and such shares shall not thereafter be
transferred on the books of the Company or be deemed to be outstanding for any
purpose whatsoever. If the funds of the Company legally available for redemption
of shares of Series A Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Series A Preferred Stock to be redeemed on
such date, those funds which are legally available will be used to redeem the
maximum possible number of such shares. If shares of more than one Redeeming
Holder are to be redeemed on any Redemption Date, those funds which are legally
available will be used to redeem the maximum possible number of shares,
allocated ratably among the holders of such shares to be redeemed based upon the
total Redemption Price applicable to the shares of Series A Preferred Stock
designated to be redeemed by each Redeeming Holder. The shares of Series A
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when additional
funds of the Company are legally available for the redemption of shares of
Series A Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the Company has become obliged to redeem on any
Redemption Date but which it has not redeemed.

         12. General Provisions.

                  (a) The term "Person" as used herein means any corporation,
partnership, trust, organization, association, or other entity or individual.

                  (b) The term "outstanding", when used with reference to shares
of stock, shall mean issued shares, excluding shares held by the Company or a
subsidiary.

                  (c) The headings of the paragraphs, subparagraphs, clauses and
subclauses of this Certificate of Designation are for convenience of reference
only and shall not define, limit or affect any of the provisions hereof.

                                      -11-
<PAGE>   12

         THIRD: The foregoing resolutions were duly adopted as of March 22, 2001
by all necessary action on the part of the Company.

Dated:  March 22, 2001                                  POWERBRIEF, INC.

                                                        -----------------------
                                                        Ernest D. Rapp
                                                        Chief Executive Officer

                                      -12-

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