CHANGE IN CONTROL
AGREEMENT
This Change in
Control Agreement (“Agreement”) is by and between
Reliant Energy, Inc. (the “Company”), Reliant Energy
Corporate Services, LLC (the “Employer”), and
[NAME] (“Executive”).
The Company and
the Employer consider it essential to the interests of the
Company’s stockholders to secure the continued employment of
key management personnel. The Board of Directors of the Company
recognizes that the possibility of a Change in Control (as defined
below) exists and that the uncertainty this raises may result in
the departure or distraction of management personnel to the
detriment of the Company and its stockholders. In order to
encourage the continued attention and dedication of key management
personnel, this Agreement is being entered into by the Company, the
Employer and Executive.
The Company, the
Employer and Executive agree as follows:
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1.
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Definitions
:
Capitalized terms are
defined in Exhibit A .
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2.
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Severance
Benefits :
If
Executive experiences a Covered Termination, subject to the Waiver
and Release requirement in Section 2(f) below, Executive will be
entitled to receive from the Employer the following severance
benefits:
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(a)
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Severance Payment Based on
Salary. An amount equal to the sum of three
times Salary plus three times Executive’s target award under
the AICP for the year in which the Covered Termination date
occurs.
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(b)
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Severance Payment Based on
Bonus.
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(1)
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Current Performance
Year . An amount equal to the
product of (A) the Salary and (B) the Target Bonus
Percentage, with the product of (A) and (B) prorated
based on the number of days Executive was employed during the bonus
year in which Executive’s Covered Termination date
occurs.
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(2)
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Prior Performance
Year. An
Executive whose Covered Termination date occurs before the date on
which awards under the AICP are paid out for the prior calendar
year, or the date on which the Company announces that awards under
the AICP will not be paid, then Executive will be entitled to an
amount equal to the product of (A) the Salary and (B) the
Target Bonus Percentage (or, if greater, the actual amount of the
bonus determined under the AICP for such prior calendar year). Any
prepayments of such AICP awards made during the prior calendar year
will be deducted from the amount calculated under the preceding
sentence of Section 2(b)(2).
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Subject to the
Waiver and Release requirement in Section 2(f) below, the severance
benefits provided for in Sections 2(a) and 2(b) above will be paid
in one lump sum cash payment as soon as practicable after
Executive’s Covered Termination date, but in no event shall
such payment be made later than March 15th of the calendar
year immediately following the calendar year in which occurs
(i) Executive’s Covered Termination date or (ii) if
earlier in the event Section 4(d) applies with respect to a Covered
Termination for Good Reason, the date the Cure Period (as defined
in Section 4(d) ends.
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(c)
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Welfare Benefit
Coverage.
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(1)
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Active Coverage
. The
Employer will provide, or will cause to be provided, continued
Welfare Benefit Coverage (as in effect from time to time for
similarly situated active employees) for Executive and
Executive’s eligible dependents at the active employee rate
for a period of 2 years following the date of
Executive’s Covered Termination.
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(2)
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Post Retirement
Coverage . If Executive would be entitled to
post-retirement medical coverage within 2 years following
Executive’s Covered Termination date if Executive had
remained employed, the Company or the Employer will provide the
coverage as follows:
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(A)
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the
coverage provided will be the coverage in effect immediately before
Executive’s Covered Termination date; and
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(B)
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coverage will begin on the later of
(i) the date on which the post-retirement medical coverage would
have become available or (ii) the date on which the benefits
under Section 2(c)(1) end; and
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(C)
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the
post-retirement medical coverage so provided will be that as in
effect from time to time for retired employees (which coverage may
be amended or terminated at any time by the Company or the
Employer).
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(3)
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Reduction for Other
Coverage . Benefits otherwise
receivable by Executive pursuant to this Section 2(c) will be
reduced to the extent Executive becomes eligible to receive
benefits pursuant to a government-sponsored health insurance or
health care program.
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(d)
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Outplacement
. The Employer will
provide or cause to be provided outplacement services for a period
of 12 months following Executive’s Covered Termination
date in connection with Executive’s efforts to obtain new
employment. Executive must notify the Employer or the outplacement
firm designated by the Employer, in writing, within 180
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days after
Executive’s Covered Termination date if Executive wishes to
utilize this outplacement benefit. In no event will the period of
outplacement services extend beyond the one-year anniversary of
Executive’s Covered Termination date, regardless of the date
Executive gives the notice required hereunder. Executive shall not
be entitled to a cash payment in lieu of such services.
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(e)
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Financial Planning.
The Employer
will provide, or cause to be provided, continued access for the
remainder of the calendar year in which Executive’s Covered
Termination occurs or for 60 days (if greater), to the
financial planning services available to executive employees on his
Covered Termination date. Executive shall not be entitled to a cash
payment in lieu of such services.
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(f)
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Waiver and Release
Requirement . The foregoing notwithstanding,
payment of the benefits under this Section 2 is subject to
Executive’s timely execution and return of the Waiver and
Release to the Company, without subsequent revocation during the
seven-day period following such execution date (the “Waiver
and Release Revocation Period”), as provided in this
Section 2(f). The Company shall provide Executive the Waiver
and Release no later than 15 days after Executive’s
Covered Termination date. Executive shall have 22 days
following receipt of the Waiver and Release to consider, execute
and return the Waiver and Release to the Company and shall then
have the right to revoke the Waiver and Release during the Waiver
and Release Revocation Period. If Executive fails to timely execute
and return the Waiver and Release to the Company or revokes such
Waiver and Release during the Waiver and Release Revocation Period,
then Executive shall forfeit, and shall not be entitled to, any of
the benefits described in this Section 2.
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(g)
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Notice of Change in
Control .
Promptly after the closing date of a Change in Control, the Company
shall provide Executive with written notice of the occurrence and
date of the Change in Control (such notice shall be in the form and
manner determined appropriate by the Company in its discretion).
Such notice also shall expressly advise Executive of the impact of
the Change in Control under this Agreement, including the potential
that certain deadlines or other requirements may apply with respect
to some or all of the payments and benefits under this Agreement
and accordingly that Executive should review the Agreement to be
aware of any such applicable deadlines and requirements.
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3.
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Change in
Control Equity-Based Benefits : Immediately upon any
Change in Control, Executive will be entitled to receive benefits
with respect to any equity-based compensation in accordance with
the applicable plans and agreements.
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4.
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Internal
Revenue Code 409A :
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(a)
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Compliance
. It is the intent of
the parties that the provisions of this Agreement comply with Code
Section 409A and the Treasury regulations and guidance issued
thereunder. Accordingly, the parties intend that this Agreement be
interpreted and operated consistent with such requirements of Code
Section 409A in order to avoid the application of penalty
taxes under Code Section 409A to the extent reasonably
practicable. The Company shall neither cause nor permit:
(i) any payment, benefit or consideration to be substituted
for a benefit that is payable under this Agreement if such action
would result in the failure of any amount that is subject to Code
Section 409A to comply with the applicable requirements of Code
Section 409A; or (ii) any adjustments to any equity
interest to be made in a manner that would result in the equity
interest’s becoming subject to Code Section 409A unless,
after such adjustment, the equity interest is in compliance with
the requirements of Code Section 409A to the extent
applicable. A Covered Termination is an “involuntary
separation from service” for purposes of Code
Section 409A.
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(b)
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Waiting Period for Specified
Employees . Notwithstanding any provision of
this Agreement to the contrary, if Executive is a “Specified
Employee” (as that term is defined in Code Section 409A)
as of Executive’s Covered Termination date, then any amounts
or benefits which are payable under this Agreement upon
Executive’s “Separation from Service” (within the
meaning of Code Section 409A), which are subject to the
provisions of Code Section 409A and not otherwise excluded
under Code Section 409A, and would otherwise be payable during
the first six-month period following such Separation from Service,
shall be paid on the first business day that (i) is at least
six months after the date after Executive’s Covered
Termination date or (ii) follows Executive’s date of
death, if earlier (the “Waiting Period”). The severance
benefits in Sections 2(a) and (b) are excluded from
Section 409A under the “short-term deferral
exclusion” and thus the Waiting Period does not apply such
benefits.
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(c)
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Reimbursements and In-Kind
Benefits . All reimbursements and in-kind
benefits provided pursuant to this Agreement shall be made in
accordance with Treasury
Regulation Section 1.409A-3(i)(1)(iv) such that any
reimbursements or in-kind benefits will be deemed payable at a
specified time or on a fixed schedule relative to a permissible
payment event. Specifically, (i) the amounts reimbursed and
in-kind benefits provided under this Agreement, other than total
reimbursements that are limited by a lifetime maximum under a group
health plan, during Executive’s taxable year may not affect
the amounts reimbursed or in-kind benefits provided in any other
taxable year, (ii) the reimbursement of an eligible expense
shall be made on or before the last day of Executive’s
taxable year following the taxable year in which the expense was
incurred, and (iii) the right to reimbursement or an in-kind
benefit is not subject to liquidation or exchange for another
benefit.
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(d)
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Limited Section 409A
Gross-Up . In the event that the Internal
Revenue Service imposes on Executive the additional tax under Code
Section 409A (the “409A
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Tax”) as
a direct result of any of the payments or benefits provided under
this Agreement (the “409A Payment”), then, subject to
the following paragraph of this Section 4(d), the Company
agrees to pay to Executive an additional amount (the “409A
Gross-Up Payment”) equal to the amount of the 409A Tax based
solely on the 409A Payment, along with any interest or penalties
related to the 409A Tax, plus any federal, state and local income
and employment taxes on the 409A Gross-Up Payment, such that the
net amount retained by Executive with respect to the 409A Payment
after the deduction of the 409A Tax (along with such interest and
penalties) is equal to the 409A Payment. The 409A Gross-Up Payment
shall not include or be based upon, and no such gross-up payment
shall be provided with respect to, any 409A Tax imposed on any
payments or benefits as a result of the 409A Payment due to
application of the plan aggregation rule under Treasury
Regulation Section 1.409A-1(c)(2). In all events, any 409A
Gross-Up Payment shall be made by the last day of Executive’s
taxable year following the taxable year in which the related taxes
are remitted to the applicable taxing authority.
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IN THE EVENT EXECUTIVE’S
COVERED TERMINATION IS DUE TO GOOD REASON, EXECUTIVE SHALL NOT BE
ELIGIBLE FOR THE 409A GROSS-UP PAYMENT UNLESS, NOT LATER THAN 90
DAYS AFTER LEARNING OF THE ACTION (OR INACTION) THAT IS THE BASIS
FOR A TERMINATION OF EMPLOYMENT FOR GOOD REASON (THE
“EVENT”), EXECUTIVE ADVISES THE COMPANY IN WRITING THAT
THE EVENT CONSTITUTES GROUNDS FOR A TERMINATION OF HIS EMPLOYMENT
FOR GOOD REASON, IN WHICH EVENT THE COMPANY SHALL HAVE 30 DAYS TO
CORRECT THE EVENT (“CURE PERIOD”). IF THE COMPANY DOES
NOT TIMELY CORRECT THE EVENT DURING THE CURE PERIOD AND EXECUTIVE
TERMINATES HIS EMPLOYMENT (SUCH THAT EXECUTIVE HAS A
“SEPARATION FROM SERVICE” (AS DEFINED IN CODE SECTION
409A AND THE TREASURY REGULATIONS AND GUIDANCE ISSUED THEREUNDER))
WITHIN 29 DAYS AFTER THE END OF THE CURE PERIOD, SUCH TERMINATION
OF EMPLOYMENT SHALL BE DEEMED TO BE A COVERED TERMINATION FOR GOOD
REASON AND EXECUTIVE SHALL BE ENTITLED TO THE 409A GROSS-TAX
PAYMENT .
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5.
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Certain
Additional Payments : Whether or not
Executive becomes entitled to the payments or benefits pursuant to
Section 2 of this Agreement, if any of the payments or
benefits received or to be received by Executive (including any
payment or benefit received or to be received in connection with a
Change in Control or Executive’s termination of employment,
whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement) (all such payments and benefits,
excluding the Gross-Up Payment described below, being hereinafter
referred to as the “Total Payments”) will be subject to
the tax under Section 4999 of the Code (the “Excise
Tax”), the Company will pay to the Executive an additional
amount (the “Gross-Up Payment”) such that the net
amount retained by the Executive, after deduction of any Excise Tax
on the Total
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Payments and
any federal, state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, and after taking into account the
phase out of itemized deductions and personal exemptions
attributable to the Gross-Up Payment, is equal to the Total
Payments. In the event that the amount of the Total Payments does
not exceed 110% of the largest amount that would result in no
portion of the Total Payments being subject to the Excise Tax (the
“Safe Harbor”), then the preceding provisions of this
Section will not apply and such reduction shall be made from the
severance amounts in Section 2(a) and (b) above so that the
amount of the Total Payments is equal to the Safe
Harbor.
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For
purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments will be treated as
“parachute payments” (within the meaning of
Section 280G(b)(2) of the Code) unless, in the opinion of tax
counsel (“Tax Counsel”) reasonably acceptable to
Executive and selected by the accounting firm which was,
immediately prior to the Change in Control, the Company’s
independent auditor (the “Auditor”), such payments or
benefits (in whole or in part) do not constitute parachute
payments, including by reason of Section 280G(b)(4)(A) of the
Code, (ii) all “excess parachute payments” within
the meaning of Section 280G(b)(l) of the Code will be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel,
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the
meaning of Section 280G(b)(4)(B) of the Code) in excess of the
base amount allocable to such reasonable compensation (within the
meaning of Section 280G of the Code), or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Auditor in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, (1) the
Executive will be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and
locality of the Executive’s residence on the date of the
Covered Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and
local taxes and (2) Executive will be deemed to be subject to the
loss of itemized deductions and personal exemptions to the maximum
extent provided by the Code for each dollar of incremental
income.
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In
the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up
Payment, Executive must repay to the Company, within five
(5) business days following the later of the time that the
amount of such reduction in the Excise Tax is finally determined or
Executive receives any refund related thereto, the portion of the
Gross-Up Payment attributable to such reduction (plus that portion
of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up
Payment being repaid by Executive, to the extent that such
repayment results in a reduction in the Excise Tax and a
dollar-for-dollar reduction in Executive’s taxable income and
wages for purposes of federal, state and local income and
employment taxes. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the
Gross-Up Payment (including by reason of any payment the existence
or amount of which
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cannot be
determined at the time of the Gross-Up Payment), the Company will
make an additional Gross-Up Payment in respect of such excess (plus
any interest, penalties or additions payable by the Executive with
respect to such excess) within five (5) business days
following the time that the amount of such excess is finally
determined. Executive and the Company must each reasonably
cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total
Payments.
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Notwithstanding anything in this
Section 5 to the contrary, in accordance with Treasury
Regulation Section 1.409A-3(i)(1)(v), in no event shall
the Company pay Executive (or pay on Executive’s behalf) any
amount to which Executive is entitled under this Section 5
later than the end of Executive’s taxable year next following
Executive’s taxable year in which Executive remits the Excise
Tax or tax (as applicable) to the Internal Revenue Service (or in
the case of costs and expenses payable under this Section, no later
than the end of Executive’s taxable year next following
Executive’s taxable year in which the taxes that are the
subject of the audit or litigation are remitted to the Internal
Revenue Service, or where as a result of such audit or litigation
no taxes are remitted, the end of Executive’s taxable year
next following Executive’s taxable year in which the audit is
completed or there is a final and nonappealable settlement or other
resolution of the litigation).
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6.
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Confidentiality
: Executive
agrees that he will not, while employed by the Company or the
Employer or an Affiliate and thereafter, disclose or make available
to any other person or entity, or use for his own personal gain,
any Confidential Information, except for such disclosures as are
required in the performance of his duties hereunder or as may
otherwise be required by law or legal process (in which case
Exe
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