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EXHIBIT A

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EXHIBIT B

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EXHIBIT C

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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE . . RELIANT ENERGY CHANNELVIEW, . L.P., et al., . . Debtors. . . . . . . . . . . . . . . . . . . . IN RE: Case No. 07-11160 (MFW)

824 N. Market Street Sixth Floor Wilmington DE 19801 March 18, 2008 10:30 p.m.

TRANSCRIPT OF HEARING BEFORE THE HONORABLE MARY F. WALRATH UNITED STATES BANKRUPTCY JUDGE APPEARANCES: For the Debtor: Richards, Layton & Finger, P.A. By: MARK D. COLLINS, ESQ. ROBERT J. STEARN, JR., ESQ. One Rodney Square Wilmington, DE 19801 Pepper Hamilton LLP By: DAVID B. STRATTON, ESQ. 1313 Market Street, Suite 5100 Wilmington, DE 19899 JAMES D. DECKEN 3399 Peachtree Road, NE Atlanta, GA 30326 Fried Frank Harris Shriver & Jacobson By: BRIAN D. PFEIFFER, ESQ. One New York Plaza New York, NY 10004 Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C. By: RACHEL WERKHEISER, ESQ. 919 North Market Street, 16th Floor P.O. Box 8705 Wilmington, DE 19899-8705

For the Creditors Committee:

For Alvarez & Marsal Securities, LLC:

For Bank of New York, Agent:

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For Equistar Chemicals, LP:

Blank Rome LLP By: BONNIE GLANTZ FATELL, ESQ. 1201 Market Street, Suite 800 Wilmington, DE 19801 Morris, Nichols, Arsht & Tunnell By: DEREK ABBOTT, ESQ. 1201 N. Market Street P. O. Box 1347 Wilmington, DE 19899-1347 Bifferato Gentilotti LLC By: GARVAN MCDANIEL, ESQ. 800 N. King Street Plaza Level Wilmington, DE 19801 Bingham McCutchen LLC By: JONATHAN B. ALTER, ESQ. One State Street Hartford, CT 06103

For Fortistar LLC:

For Kelson Energy VI, LLC:

For Reliant Energy, Inc.:

Stroock & Stroock & Lavan, LLP By: LAWRENCE HANDELSMAN, ESQ. 180 Maiden Lane New York, NY 10038-4982 Morris, Nichols, Arsht & Tunnell By: THOMAS BRIGGS, ESQ. 1201 N. Market Street P. O. Box 1347 Wilmington, DE 19899-1347 Morris James LLP By: THOMAS M. HORAN, ESQ. 500 Delaware Avenue, Suite 1500 PO Box 2306 Wilmington, DE 19899-2306 McGuireWoods LLP By: DOUGLAS M. FOLEY, ESQ. AARON MCCULLOUGH, ESQ. World Trade Center 101 West Main Street, Suite 9000 Norfolk, VA 23510

For Reliant Energy Power/ Reliant Energy:

For Siemens Power Generation, Inc.:

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For United States Trustee:

Office of the United States Trustee By: MARK KENNEY, ESQ. 844 King Street, Room 2207 Wilmington, DE 19899

Audio Operator:

Nicole Schaefer

Proceeding recorded by electronic sound recording, transcript produced by transcription service _______________________________________________________________

DIANA DOMAN TRANSCRIBING 10 Foster Avenue Gibbsboro, NJ 08026 Email: [email protected] Office: (856) 435-7172 Fax: (856) 435-7124

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INDEX WITNESSES For the Debtors William H. Hardie, III Andrew Johannesen EXHIBITS D-1 Hardie summary biography 11 28 Ident. 13 Evid. 25 Direct Cross Redirect Recross

STATEMENT Mr. Collins Mr. Alter Ms. Fatell 5 48 49

ARGUMENTS Mr. Collins Mr. Abbott Mr. Handelsman Mr. Stratton Mr. Pfeiffer 6, 34, 43 35, 42 37 39, 44 41

DECISION The Court 46

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Collins - Statement 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Good morning. Good morning, Your Honor. For the

MR. COLLINS:

record, Mark Collins of Richards, Layton & Finger on behalf of the debtors. Your Honor, turning to today's agenda, I would

note for the record that agenda items one, two and three have been continued to the next omnibus hearing date in these cases. Agenda items four, five and six have been approved by Your Honor pursuant to certifications of no objection submitted by debtor's counsel. And then that leads us to agenda item number

seven, which is the debtor's motion seeking to establish cure amounts for various executory contracts and unexpired leases that are to be assumed and assigned in connection with the sale of the business which will be heard by the Court on April 9th. Your Honor, we did receive three informal responses, which all have been resolved by consent. They were submitted to us

by GE, Betz, B-E-T-Z, Industrial Ground and Universal Building Services. amount. I think we had all of them listed at a zero cure

They came back and did establish certain invoices that A few thousands of dollars is not

were outstanding.

significant so we've agreed to include them with that now agreed upon amount in a revised order. We also agreed with both Equistar and Siemens that we would continue the hearing with respect to them to the April 9th hearing. I also understand, Your Honor, that the client, the

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Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 debtors have been in contact with the one contract party who has a number of individual contracts, maybe a handful or so. And they have also reached agreement to the identity of the accounts and the cure amount. And what we would like to do,

Your Honor, is to add them to the cure list by consent of the parties, and then submit that revised form of order under certification of no objection if that is acceptable to Your Honor. THE COURT: That is fine. Thank you, Your Honor. Unless Your

MR. COLLINS:

Honor has any questions, that will be the presentation on that motion. THE COURT: All right. I'll look for the

certification of counsel. MR. COLLINS: Thank you, Your Honor. Now that then

turns us to agenda item number eight, and that is our motion to establish certain bid protections for Kelson Energy. Your Honor, as noted in the motion, after almost a year of searching and negotiating for potential purchasers of the debtors' assets, the debtors were able to locate and reach a definitive sale agreement with Kelson Energy for the purpose of the debtors' power facility. The purchase price under the, in It is not

the asset purchase agreement is $468,000,000.

subject to any due diligence requirements or any financing contingencies. It is the debtor's belief that this amount,

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Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that. this purchase price amount will fully pay the outstanding debt to our secured lenders, which is approximately $340,000,000, and all third-party unsecured claims which we estimate to be approximately $20,000,000. When we first entered into the agreement with Kelson, the debtors were of the view that we need not go through another formal auction process, given the duration of this chapter 11 case and the fact that the debtors have had the luxury of time to complete a thorough sale process. Obviously, many other

chapter 11 cases come in looking for a very expedited sale process. And it's almost mandatory and expected I think by the

Court that you then go through that additional process of a formal auction just to ensure for the Court's confidence and the confidence of all parties that the debtors are obtaining the highest and best value. We thought it not necessary given how long this case has been in chapter 11, but nevertheless, we did receive a motion from Equistar to continue the hearing from what was originally set for today to April 9th, so that has pushed out this sale process, you know, somewhat. And we also received a request by

the creditors committee to establish a bid deadline and then a holding date for an auction should, in fact, we receive a qualifying bid. And the debtors, and I believe Kelson are agreeable to And if I could hand up a form of order to Your Honor,

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Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that would reflect the changes that we have made, both at the request of the secured lenders with respect to insuring that the payment of any break-up fee or expense reimbursement to Kelson would only be made after the lenders were paid in full. And that also incorporates the creditors committee's comments regarding the date for a bid deadline and an auction date. THE COURT: Okay. May I approach, Your Honor?

MR. COLLINS: THE COURT:

You may. So turning, Your Honor, to paragraph

MR. COLLINS:

six, that was the paragraph that was negotiated with the secured lenders which makes clear really two things. One is

that the break-up fee is not payable should there be a foreclosure or other type of credit bid by the lenders without any type of additional consideration. And it also makes clear

I believe that the payment to Kelson is only made after their claims were satisfied. And I believe that resolves the informal concerns raised by the secured creditors. THE COURT: I understand. Okay. Then paragraphs

MR. COLLINS:

Thank you, Your Honor.

seven and eight provide the details for the submission of bids. I would note for the record, and this was something that Kelson's counsel wanted me to put on the record, if you look in paragraph seven, we note that a bid must be accompanied by, and

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Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this is under sub A, evidence of such competing bidder's financial wherewithal. And what we mean by that, Your Honor,

is obviously the wherewithal to consummate the transaction and not be subject to outstanding financing contingencies. So that

would be expected as part of any bid that would be submitted by that bid deadline. Your Honor, when -- and we can get into this a little bit in testimony and argument if there is any with respect to these dates -- what we would propose, Your Honor, is that April 3 be set as the bid deadline, 5:00 Eastern time on April 3rd. And

then we would have if -- auction -- if any qualifying bids are received, an auction would be held at Richards, Layton & Finger on April 7th, starting at 10 a.m. And I think with those changes, we have the consent of the creditors committee and the lenders to the entry of this order. THE COURT: All right. Your Honor, just turning to the bid

MR. COLLINS:

protections themselves, we are seeking a break-up fee of approximately three percent, equal to $15,000,000 payable only upon a closing of an alternative transaction, reimbursement of reasonable and documented expenses up to $2,000,000, a requirement that any topping bid must be $5,000,000 more than Kelson's bid, plus the break-up fee in the expense reimbursement amount. As a condition of any alternative

transaction, such transaction must close within 45 days from

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Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the date of signing a definitive agreement.

alternative transaction bidder must provide a deposit equal to or greater than the deposit placed by Kelson which is $40,000,000. Your Honor, I note that we did receive one objection to this motion. That was from Fortistar. We do have issues with

standing of Fortistar to be here and object to the bid protections we are seeking to grant to Kelson. that I guess when Fortistar seeks to be heard. We'll deal with But what I

thought we would do, Your Honor, is have testimony of two witnesses on behalf of the debtors. First, William Hardie of

Houlihan Lokey Howard & Zukin, who will testify about the factual aspects of the sale process as well as provide expert testimony on what we believe are the reasonableness of the bid protections that we are seeking approval of today. We would then also have Andrew Johannensen, an officer of the debtors, testify as to the good faith and arms length nature of the negotiations between the debtors' estates and Kelson with respect to these bid protections. THE COURT: All right. Do you want to proceed? I'd like to call Mr.

MR. COLLINS: Hardie to the stand. THE COURT: can be sworn.

Yes, Your Honor.

Okay.

Please remain standing, sir.

You

WILLIAM HARDIE, DEBTORS' WITNESS, SWORN

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. COLLINS: Q A Q A Q A Good morning, Mr. Hardie. Good morning. By whom are you employed? Houlihan Lokey Howard & Zukin. What types of services does Houlihan Lokey provide? As it relates to today's hearing, we are or I am III. DIRECT EXAMINATION THE CLERK:

Would you state your name for the record

and would you spell it? MR. HARDIE: It's William H. Hardie, H-A-R-D-I-E, the

principally engaged in the financial restructuring group.

I'm

a managing director in the firm's New York office, and I also run the firm's energy and utility practice group. In addition

to those services, we provide traditional investment banking services in non-bankruptcy settings, fairness opinions, solvency opinions, things of that nature. Q A Q A Q Ands how long have you been employed with Houlihan Lokey? Since December of 1999. And by whom is Houlihan Lokey employed by in these cases? Reliant Energy, the debtors' parent company. And why was the -- why is it that the parent entity hired

Houlihan Lokey rather than the debtors entities? A We were engaged I believe in April of 2007 to assist

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Reliant in evaluating what the alternatives it had with respect to this particular project and commenced a sale process for the project in May I believe of last year of `07, and were hopeful at that time of concluding a sale of the project without the necessity of having the project file bankruptcy, and so it wasn't contemplated at the time we were engaged that there in fact would be a bankruptcy. Q And during that pre-petition time period, was it

considered somewhat likely that it would be a stock transaction rather than a potential asset sale? A Q It was, yes. Okay. And did that focus change once it was clear that

the debtor entities need to file chapter 11? A After the debtors filed chapter 11, it was our advice to

the company that we look to conclude the transaction as an asset sale so as to provide potential purchasers with the benefit of a 363 sale order, which is something that, you know, in our experience is beneficial to selling assets in bankruptcy and consequently, the decision was made to convert this sale, the form of the sale to an asset sale. Q And have you been involved in the sale process since its

inception back in the early part of last year? A Q I have, yes. Okay. And you are leading the engagement for Houlihan

Lokey, is that correct?

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes, I am. Can you briefly describe for the Court your educational

background? A I have a degree in economics from the University of

Alabama and a law degree from Vanderbilt University. Q And can you briefly describe your work history prior to

joining Houlihan Lokey? A I practiced law for roughly nine years at a combination of

Winthrop Stinson in New York and Jones Walker in New Orleans, and then went to work for a subsidiary of Marvel Entertainment Group by the name of Fleer Skybox, and then subsequently joined Houlihan Lokey. Q Okay. Thank you. Now, have you been retained as an

investment banker for other troubled companies in the past? A Roughly 30, 35 engagements in the period that I've been

with Houlihan Lokey, yes. MR. COLLINS: Your Honor, we have marked, pre-marked

as Debtors' Exhibit 1 some additional information regarding Mr. Hardie's case history, if I could present that to the Court? THE COURT: BY MR. COLLINS: Q Mr. Hardie, can you identify the document that I've placed You may. Thank you.

in front of you? A This is a summary biography that I put together in

connection with prior expert testimony on behalf of other

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 clients. Q

And turning to page two of this document, does it identify

energy-related entities you've worked on behalf of? A Yes, it does. Our firm has been very fortunate over the

last four or five years as a lot of the merchant energy industry has gone through restructurings to be successful in being involved with a number of those restructurings. And as

the head of that group, I've been involved with all of them. Q Okay. And can you describe some of the services you have

provided on behalf of these entities? A Depending upon the circumstances, you know, they would

either involve a restructuring of the debt involved with a particular project, the sale of the project, refinancing of the project depending upon the circumstances. In, you know,

obviously the circumstances of a particular restructuring dictate what the potential outcomes would be. Q Okay. I note on page two that Enron Corporation is listed

as well as Calpine. A That's right. In each of those situations, we were In the case of Enron, we were active

representing creditors.

in monitoring and participating in the sale process of, you know, literally billions of dollars of various kinds of energy assets from power plants, wind farms, regulated pipelines, you know, power barges in South and Central America. It's fairly

well documented that that was a fairly large hodge-podge of

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 energy related assets. In Calpine, I led the engagement on behalf of the second lien creditors there. And again, we supervised the sale of

probably a dozen merchant energy projects in various stages of development and operation as that company looked to prune its portfolio of assets as part of its emergence from bankruptcy. In addition, you'll see on here National Energy and Gas Transmission which was a subsidiary of PacGas, Pacific Gas and Electric. There, we, on behalf of the secured creditors,

essentially supervised the liquidation of that business, the sale of all of its merchant as well as contracted power plants over roughly a two-year bankruptcy process. Other names on the

page under the energy section, you know, involved the sale or restructuring of merchant energy assets. Q A Okay. And what do you mean by merchant energy assets?

Essentially, power plants whose energy is largely

uncontracted, so that they would sell into the merchant market on a daily basis. Q And is Reliant Energy Channelview a merchant energy

provider? A It's partially merchant in that certain quantities of its

energy are committed to Equistar along with its steam, and certain quantities of its energy are available for sale into the merchant market. Q And how many, just really very quickly, in that middle

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

column of energy related restructuring experiences, how many of those entities are merchant energy providers? A Certain of the assets at Allegheny Energy were merchant. As I mentioned, Enron had

A&P Funding involved three merchant projects.

Calpine had, the bulk of its assets were merchant. probably a half a dozen or so merchant projects.

Klamath Falls

is a cogen facility up in Oregon that had a certain amount of its power that was available for merchant sale. Energy was a merchant project. Mayflower

Mirant America, certain of its NEGT, as I

assets were merchant; others were contracted.

mentioned, had roughly half its portfolio was contracted, and the other half was merchant. Southaven, which is a power Those

project in Mississippi, is a merchant project as well. would be the ones. Q And again, you were involved in each of those

representations by Houlihan Lokey? A As I said, I've led the engagement for each of these

projects. Q Okay. Thank you. Now, have you ever been qualified as an

expert by a Bankruptcy Court or other Court? A I have. As is reflected at the bottom of page two, in the I was

Entergy New Orleans case, I was qualified as an expert.

qualified to provide expert valuation testimony there, as well as testimony with respect to the restructuring of that particular utility. Frontier Vision, which was a subsidiary of

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Adelphia, provided expert valuation testimony.

which was a crane case in Pennsylvania, provided expert valuation testimony, as well as testimony on DIP financing. Holt Group, testimony there on I believe it was DIP financing. Mirant America's, provided expert, provided an expert report. Was actually never required to testify in Court, although did testify in deposition on various valuation issues associated with those assets. NEGT, provided expert testimony on energy There was no valuation fight there.

restructurings generally.

And then the last two cases, the Nelson Pharmaceuticals (sic) and Trump, those were contested valuations where I provided testimony. Q Okay. And when did you first begin representing entities

in the energy sector? A In connection with Enron, which was I guess December of

`01 they filed I believe. Q Thank you. Now, turning to this case, were you personally

involved in the sale process that led to the negotiation and ultimate execution of the asset purchase agreement with Kelson? A Q Intimately involved. And can you provide the Court with an overview of the

process that you led as well as with the business people at the debtor entities? A Sure. As I indicated, starting really in late spring of

last year, we created marketing materials in the form of a

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teaser memorandum which we sent out to roughly 120 people that we believed to be the most relevant potential purchasers of this particular asset based on prior asset sale processes in which they had participated and portfolios which they owned and investments that they had, that they had made. In response to

that, we received requests for a relatively detailed confidential information memorandum from 45ish folks, and we provided information memorandums to that group of roughly 45 people. In response to a request for preliminary non-binding

bids, I believe we got, I want to say about a dozen preliminary proposals. Those parties were then provided with access to a

relatively detailed electronic data room for the purpose of doing diligence. Q And can you provide the Court with the time period in

which you received those initial dozen bids or so? A It would have been I believe in the June-July time frame

of last year. Q A Q A Okay. I apologize. Uh-huh. We've been working on this one for a while. We provided It's been a while.

site visits to I believe half dozen of the people that we put through the second stage of the process, and ultimately received different -- we received four mark-ups to what was then a stock purchase agreement for the sale of the asset from

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

the various parties who we had put through the second stage of the process. The balance of the parties I think dropped out And then

essentially after the second round of diligence.

spent really from, you know, call it, well, right after the debtor filed until we signed the contract with Kelson, spent a tremendous amount of time trying to reach agreement with a couple of the parties, particularly Kelson and Fortistar. Q Now, turning back to last fall and winter, did Fortistar

emerge as one of the leading potential purchaser of the debtors' assets? A They provided a very attractive proposal to the debtors

and we worked literally hundreds of man hours between ourselves and counsel for the company in trying to reach agreement with them over the terms of the sale of the assets to them. Ultimately, were never able to pin down mutually acceptable terms with them, nor get comfortable with the existence of their financing. As is, you know, fairly well documented,

there has been a fair amount of dislocation in the capital markets, both in the summer of 2007 which certainly didn't help our sale process, and then again currently, and as a result, we, in fact, relatively recently, I believe it was in February, Fortistar came to us and indicated that they had essentially lost their partners for their financing. And it was on the

basis of that, as well as our inability to ever reach a deal with them on the final terms and conditions that we advised the

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

client that the best course of action would be to sign up with Kelson. Q And do you believe the debtors did everything possible to

facilitate a definitive and agreed-upon asset purchase agreement with Fortistar? A Absolutely. I mean, we spent countless hours in

conference rooms in New York trying to bang out a deal with them. You know, as I said, in the -- earlier, I mean,

literally hundreds of man hours trying to reach an agreement with them. Q And at this same time, really, I guess at the end of `07

and early `08, did the debtors starting receiving encouragement or maybe even a stronger word, like a request by the secured creditors and the creditors committee to turn their time and attention to other potential bidders? A We had been keeping both secured creditors as well as We had been keeping the

the -- sorry, let me rephrase it.

advisors to the secured creditors and the unsecured creditors committee informed at various points in time during the sale process as to how we were doing in terms of the number of people we were talking to, where we were in the various stages of negotiation and diligence with each of them, so as to make sure that they understood where we were. At a particular point

during the winter, we ultimately disclosed to both of those groups who the finalists were in terms of their identity and

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the prices at which we were having negotiations with them.

as it became clear to us, I think it also became clear to them that the likelihood of reaching a definitive agreement with Fortistar on terms that we considered acceptable was difficult, if not questionable. And then ultimately, when we got

uncomfortable with the financing that was lost by Fortistar, it was both creditor bodies' strong suggestion that we essentially sign up with Kelson and put an end to the process, before we ran the risk of losing Kelson. Q And what was attractive about Kelson as a potential

purchaser of these assets? A Several things. One, they were very quickly able to

negotiate what I consider to be a fairly market deal with us over the terms and conditions of the sale. They are very We've been

active buyers of merchant energy assets currently.

involved in other transactions where they are either one of or the successful purchaser, and so we were able to reach a commercial deal with them in terms of the terms and conditions. They offered a price that we considered to be well within the range of fair value for the assets, and a price that would in fact pay out all of the creditors here in full. require any outside financing. And they don't

Their equity sponsor if you

will, their owner, The Harbinger, has more than sufficient capital to pay the full purchase price here without the necessity of any financing. And as part of negotiating the

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 transaction here, in addition to the $40,000,000 deposit we

were successful in negotiating from them, we got the guarantee from their parent, Harbinger, to the obligations of Kelson as purchaser. Q Now, was it the debtors' intention to hold a formal Court-

supervised auction process following the execution of the asset purchase agreement with Kelson? A No. As you indicated to the Court previously, it was

certainly my hope, and I think Reliant's hope that we would be successful in convincing the Court that on the basis of all the effort that went forward in getting Kelson signed up that there was no necessity for a further auction. You know, this project

has been shopped as hard as I've ever seen a power plant shopped over the span of almost a year now. Q And is it that reason why the asset purchase agreement

requires the debtors to seek approval of the bid protection following a Court ordering of an auction process? A That's right. I mean, everybody was cognizant of the fact

that a potential outcome of a hearing on the contract was that the Court would order an auction. And so we essentially pre-

negotiated, if you will, the terms of the bid procedures and the bid protections in the event that we were unsuccessful in convincing the Court that an auction was not necessary given the pre-bankruptcy and post-bankruptcy marketing of the asset. Q And you're aware that the creditors committee has

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 requested that the Court establish a bid deadline and an

auction date to be held in case we do receive qualifying bids? A Q Yes, I am. Now, can you briefly describe what the sale protections

are being requested for approval today? A There's a break-up fee of I believe $15,000,000. There is

an expense reimbursement of up to $2,000,000. is a minimum initial overbid of $5,000,000. Q

And then there

And are those, the break-up fee and the expense

reimbursement only payable upon consummation of an alternative transaction? A Q That's my understanding, yes. In your opinion, are these sale protections reasonable and

customary for a transaction of this size? A I believe they are. I mean, as I indicated earlier, I

mean, we've -- I've personally been involved in the sale in bankruptcy of probably, you know, 30, 35 power projects over the last couple of years through Calpine and Mirant and NEGT and Enron, and they are, you know, depending upon the size of the transaction and how much effort went into the marketing of the asset in advance of seeking the bid protections, I think they are consistent with what my experience would be in that context. Q And were you involved in the negotiations that led to the

bid protections that are currently before the Court?

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Hardie - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A

Yeah, I was directly involved with those, the negotiation

of that, yes. Q And do you believe those negotiations were held in good

faith and at arms length? A It was certainly my attempt to minimize to the greatest

extent possible the bid protections and, you know, through the back and forth with the folks at Kelson, we arm wrestled it out to the point where it is as it is provided in the contract today. Q Now, do you recall whether or not Fortistar in any of its

earlier offers also required the granting of bid protections should the Court require that an auction process be held? A In fact, it was specifically requested by Fortistar on the

advice of their bankruptcy counsel that it was their view, their counsel's view that the likelihood of being able to successfully convince the Court that no bankruptcy auction was necessary was relatively low, and that it was their view that we should pre-negotiate that in the event that the Court were to order an auction. Q Now, what benefit does the Kelson offer provide to the

debtors' estates? A Well, obviously, it sets a floor price and floor terms and

conditions for the sale of the assets, you know, at a price that would see that all the creditors here are paid in full and that there's money for the equity.

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Hardie - Direct/Hardie - Cross 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. ABBOTT: Q A Q Good morning, Mr. Hardie. Good morning. Just to follow up a couple of the points to which you How are you? may. THE COURT: MR. ABBOTT: You may. For the record, Derek Abbott of Morris questions. THE COURT: MR. ABBOTT: Thank you. Any cross? Q

In your opinion, would Kelson have entered into the asset

purchase agreement without being afforded the sale protections that are set forth in Schedule 8.1.B of the APA? A Q A Q Absolutely not. And has Kelson put down a good faith deposit? They have - $40,000,000. Okay. Thank you. MR. COLLINS: Your Honor, I have no further

Your Honor, I have a little bit, if I

Nichols, here for Fortistar. CROSS-EXAMINATION

testified, is it your understanding that the debtor is now going to run an auction process to solicit competing bids to the Kelson bid? A It's my understanding that the creditors committee has

asked that we afford interested parties a period of time, I

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Hardie - Cross 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 believe until April 3rd to submit bids to compete with Kelson, and that in the event that any qualifying bids are received, that we would then conduct an auction down here in Wilmington on the 7th in Mr. Collins' office. Q And do you understand the debtors, in providing for that

auction process, to be seeking to maximize the value for these assets in any sale or other transaction? A It's been our goal throughout the sale process to get the

highest and best price for these assets so as to ensure that the creditors are paid in full, yes. Q And you'll continue to do that throughout this auction

process, won't you? A Q Absolutely. Okay. Was Fortistar -- I think you've testified to this,

but just to make it perfectly clear, was Fortistar involved in discussions and negotiations with the company prior to the company's execution of the Kelson APA? A Absolutely. We were negotiating with Fortistar, you know,

up until I believe mid-February, at which point they came to us and said, look, we've lost our financing partners here and we need to go find other ones. And it was my advice to the client

that given the fairly tumultuous circumstances that exist in the capital markets at this point that we sign up Kelson before they figured out that they were the only buyer with money here. Q Do you expect to try to encourage Fortistar to continue

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Hardie - Cross 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

their interest in these assets and perhaps bid at the auction? A Absolutely. And as you know, I was providing them with

diligence information this morning. Q Now, you testified that you're, I think, intimately And you further

involved in the negotiations with Kelson.

testified that they would not have had entered into this agreement without the debtors having an obligation to seek bid protections, correct? A Q That's right. All right. Do you have an understanding as you sit there

today, and I'm not asking for your legal opinion, whether they have the ability to walk away from this contract if the Court doesn't grant those bid protections here this morning? A I -- that would be a legal conclusion which I would just

as soon not speculate on. Q A Q Yeah. I'm not asking for a legal conclusion.

Uh-huh. I just want your business understanding as the principal

negotiator I think you testified to in this deal about whether they have an out if they don't get these bid protections. A My business understanding is that our obligation is to It's been

request that the Court approve the bid protections.

my experience that that is the typical way these things are negotiated is no one can force the Court to order anything, and that you're obligated to request it and advocate it, which I

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Hardie - Cross/Johannesen - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. COLLINS: Q A Mr. Johannesen, by whom are you employed? I am vice president and treasurer at Reliant Energy and N. DIRECT EXAMINATION

believe we should, and that hopefully, the Court will award it. Q Right, but do you have a view about what happens if the

Court doesn't? A I don't believe they have an out, no. MR. ABBOTT: THE COURT: may step down. THE WITNESS: MR. COLLINS: Thank you, Your Honor. Your Honor, the second witness we'd No further questions, Your Honor. Anybody else? All right, thank you. You

like to call is Andrew Johannesen, an officer with the debtor entities. THE COURT: Okay.

ANDREW JOHANNESEN, DEBTORS' WITNESS, SWORN THE CLERK: Please be seated. State your name for

the record and spell it. THE WITNESS: Andrew Johannesen. J-O-H-A-N-N-E-S-E-

several of its subsidiaries, including Reliant Energy Channelview Texas, the general partner of Reliant Energy Channelview, L.P. Q And is that one of the debtors in these chapter 11 cases?

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Johannesen - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes, it is.

And what are your duties and responsibilities on behalf of

the debtor entities? A They include oversight of the financing, of the project

financings of the debtor companies, and more recently have included oversight of the restructuring, bankruptcy and sales processes. Q And have you been involved, personally been involved in

the debtors' efforts to market and sell their assets? A Q I have. And in what capacity did you participate in the sale

process? A I've had oversight of the sales process and have been the

primary contact and interface with Houlihan as well as the other advisors and attorneys who are working on the transaction. Q In your opinion, has it been a fairly exhaustive sale

process? A Yes, it has. I worked on a number of sales processes, and

this has been I think as exhaustive as any in terms of the breadth with which we reached out or through our advisors reached out to potential parties, spoke with parties, conducted diligence, and negotiated with multiple parties. Q Now, on a daily or a weekly basis, can you tell the Court

how involved you were in the sale process?

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Johannesen - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Yeah, we had -- over the course of the, several months,

really frequent, often times multiple times a day if not multiple times, at least multiple times a week with all the respective advisers and attorneys involved in the deal. Q So you have personally spent quite a bit of time on the

last year on this sale process? A Q A Q A Q Yes, I have. Now, are you familiar with Fortistar? I am. And when did you first become introduced to Fortistar? Through the Channelview divestiture efforts. And in your opinion, were they one of the leading

potential purchasers for these assets? A They were. There were a handful of companies that were

attractive buyer candidates after the process we had gone through. Q And they were one of those companies.

And as the business person most intimately involved in the

sale process on behalf of the debtors, do you believe that the debtors did everything possible to facilitate and document a definitive agreement with Fortistar? A I do. We were responsive to numerous diligence requests We traveled to New York

to I believe multiple site visits.

City on multiple occasions for face to face negotiating sessions. Again, in the context of other transactions, we were

as active as we've ever been in terms of doing what we could to

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Johannesen - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 further a transaction. Q And do you recall roughly the time period in which the

debtors turned their attention to Kelson and to start negotiating a definitive asset purchase agreement with Kelson? A They'd been involved in the process all along, but late in

`07, our focus was primarily to Fortistar and in very early `08, we really began to reengage, you know, with Kelson. And I

would say by late, mid to late January were actively engaged in having frequent conversations with Kelson. Q And how would you describe the pace of the negotiations

with Kelson? A I would describe them as reasonably rapid and quick.

Again, as these type of transactions go, we engaged with them on a very serious basis in mid to late January and in approximately a month's time had come to an agreement and executed a contract. So they were very, both sides were very

engaged and moved at a very reasonable pace. Q And does the Kelson asset purchase agreement have either a

financing contingency or a due diligence contingency at this point? A Q A Q It has neither. And do you recall what the purchase price is? $468,000,000. And do you believe that purchase price will be sufficient

to satisfy the secured lenders in full as well as third party

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Johannesen - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 unsecured claims? A Q Yes, I do. Now, were you involved in the negotiations of the bid

protections that are contained in the asset purchase agreement? A Q Yes, I was. And do you believe those negotiations were had in good

faith and at arms length? A Q They were. And do you believe that the granting of bid protections to

Kelson will in fact benefit the debtors' estates? A I do. Kelson is provided a contract that's, it's been

executed; they've been provided a floor price that has been testified previously will satisfy the creditors in full. do think that there's significant benefits here. Q And will the debtors continue to have interest in So I

potential competing bidders who would be willing to provide the same terms and conditions of a sale like Kelson has before but in greater amounts? A Yes, absolutely. And we'll do everything we can to help

folks complete additional diligence or provide whatever information they need to make that assessment. Q A And is that type of work happening as we speak? Yes, it is. We're engaged with various parties and are in

the process of facilitating those discussions, providing additional information and so forth.

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Johannesen - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. THE COURT: the witness? UNIDENTIFIED ATTORNEY: MR. STRATTON: No, Your Honor. Thank you. Q And was it your understanding that the secured creditors

were anxious to see the debtors execute a sale transaction? A It was my understanding, yes. Previous testimony spoke to

some of that.

We had understood through our attorneys that the

cash collateral order extension that went through mid-March would be the last that the lenders would grant on a consensual basis, and understood that they're preparing to contest any subsequent requests. We'd actually received notices of

deposition in anticipation of that hearing. Q And would that have been a costly and time-consuming

process? A Q It would have, yes. Thank you. MR. COLLINS: I have no further questions, Your

Anybody wish to cross-examine

Your Honor, David Stratton for the We don't have any

Official Committee of Unsecured Creditors. questions for the witness.

We just reserve our rights with

respect to the testimony concerning the sale price and the payment of all third-party claims. get into that today. THE COURT: Thank you. All right. Thank you. You may step I don't think we need to

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Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that. down.

I'll hear argument then, unless any other party has any All right. MR. COLLINS: I'll hear argument. Your Honor, very briefly, I think the

witnesses?

testimony's uncontested that this was a very exhaustive sale process run over the past 10 months or so. of potential purchasers were contacted. Literally hundreds

Many conducted

negotiations -- many conducted on-site visits, and the debtors worked throughout the fall and winter to document an asset transaction that would pay all of our creditors in full which was the goal when we first filed this case back in August of last year. We did believe in the value of this enterprise and were very pleased that notwithstanding the length of time that it has taken to be here today, that we do in fact have a transaction that has limited, if any, contingencies in it with respect to financing or due diligence and the ability to close. Obviously, the granting of the DIP protections will ensure that Kelson remains bound by the terms of the asset purchase agreement. It does set a floor by which all future bidders

must now compete against, and it may provide incentive for other bidders to meet the deadlines that are now being requested of the Court so that the process does not continue to drag out for weeks or months in the future. We've already seen Fortistar reemerge; we're happy to see But by having deadlines and dates and a sale hearing

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Collins - Argument/Abbott - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

date put in place, we think that will only further incentivize parties to either appear and bid or decide that they are unable to do so. Obviously, the return of $468,000,000 to the debtors' estates is significant. We'll pay our secured lenders in full

plus interest at the default rate plus early termination fees and the like and also pay our unsecured creditors in full. So Your Honor, we think it's, the debtors have done what they needed to do in order to find a purchaser who is able to consummate a transaction and that the bid protections being requested today are fair and reasonable as testified by Mr. Hardie. THE COURT: MR. ABBOTT: again for Fortistar. Okay. Thank you, Your Honor. Derek Abbott

Your Honor, I think both the testimony

and Mr. Collins' argument explains exactly why the bid protections are unnecessary. There's been a lengthy process.

There are active bidders; there are interested bidders including my client who's receiving diligence information even this morning. Your Honor, Mr. Collins suggested that approving the bid protections ensures that Kelson will remain bound but, Your Honor, I think you heard Mr. Hardie testify that he doesn't think they have a out if the Court doesn't grant this expense reimbursement and break it free of the bid protection package.

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Abbott - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Mr. Collins did not argue that they can terminate. thinks that it shows they remain bound.

But Your Honor, as we

read the contract, they remain bound regardless of whether this Court enters these bid protections. Your Honor, Mr. Collins also talked about deadlines and process and timing, and it's clear that Fortistar's been involved in this for quite some time. We're comfortable with

the deadlines that the debtors have proposed, but Your Honor, those deadlines and whatever incentive that may provide Fortistar to get a bid in -- not that they need that particular incentive, but to the extent it does, Your Honor, it's completely divorced from the bid protections. protections don't serve any role there. And the bid

It's this auction

process that the debtors have agreed to now and the time line that Mr. Collins referred to that do that. I don't think Your

Honor, under the circumstances, given that Fortistar was involved pre-petition as the uncontroverted testimony shows, and their willingness to bid, that the debtors can meet the O'Brien standards and the Court can award this break-up fee in these circumstances. Your Honor, I don't really have much further to add. Obviously, we're interested; we're here. We hope to be

involved in this process, but we don't think that the bid protections will do anything for the estate that's not already there. The asset purchase agreement's been signed. There's an

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Handelsman - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

auction process in cue, and we think that will help the estate, but simply the payment of this additional money to Kelson doesn't do that, Your Honor. it should be approved. THE COURT: Thank you. Yes? Lawrence And we don't think as a result,

MR. HANDELSMAN:

Good morning, Your Honor.

Handelsman, Stroock and Stroock and Lavan. Reliant Energy, the parent company.

I'm counsel to

Just a few points, and

maybe it's to state the obvious, but I think it needs to be stated. No party in interest has objected to these bid The only objector is Fortistar who in other

protections.

contexts I might call a disappointed bidder, but they're not because they haven't bid yet. They're someone who as the

testimony indicates we spent a lot of time, hundreds of man hours as Mr. Hardie testified trying to get to a contract and couldn't wholly aside from their financing abilities. say they'd like to bid again, and we welcome that. But this, the Kelson contract as people have also testified pays all creditors. The only economic parties in Now they

interest here with respect to the residual amount are my client, Reliant, and Equistar. another day, April 9th, I guess. have objected here. And those issues are for But neither of those parties

This is not the kind of case we talk and

we reflexively think about the impact on the estate and the O'Brien case and is it necessary to bring in other bidders.

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Handelsman - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The estate is really protected here by the Kelson contract.

The parties in interest who will get the benefit of

a higher bid if one exists are Reliant and possibly Equistar. And as I said, I think from the Court's perspective, it is very telling that neither the secured lenders nor the committee has objected to these bid procedures. We have in response to the

committee's request, you know, are in the process of soliciting additional bids. have. We hope we get them on the time frame that we

And for those reasons, I would urge you to approve this

bid protection since it is, this is not a case -- this would -denial of the -- put it another way -- the only party disadvantaged by the bid protection in this courtroom today is Fortistar. And what, all they're trying to do is save

$15,000,000 or whatever the amount is that they'd have to overbid. And that's laudable from their perspective, but this

estate really should get the benefit of the bid protections to make sure that this process goes forward, that Kelson is there, that the floor and incentive that it provides remains in place. And as I said, I don't think the traditional thinking when the purchase price and any effect of the amount of the bid protections has on a, on the bankruptcy estate is really germane here given the specific facts of this case. THE COURT: Well, except that are the bid protections

really necessary to keep Kelson here? MR. HANDELSMAN: Well, Your Honor, there are -- I

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Handelsman - Argument/Stratton - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

believe that the statements about the asset purchase agreement are correct, that our obligation was in the event of an auction to seek, use our commercially reasonable efforts to seek bid protections. On the other hand, there arise during the course

of closing a deal like this many unforeseen possibilities that could given Kelson the ability to walk away that we can't even fathom at the moment, and if they, if they're looking for an exit, most people can find one. And we want to make sure that

they're not looking for an exit and if somebody else comes in and bids more, as I've said, that's for our benefit, not -- it will have no effect on the secured lenders or on the committee's constituents, and we shouldn't deal with that. This really should be looked at almost as a -- and I don't want to overstate this -- as a non-bankruptcy sale where these bid protections are really between the ultimate economic party in interest and the buyer. THE COURT: Thank you. Good morning, Your Honor. David

MR. STRATTON:

Stratton, Pepper Hamilton for the Official Committee of Unsecured Creditors. Let me start out where Mr. Handelsman ended because I think he makes a very good point. Outside of a bankruptcy sale

where the proceeds of a sale are fought over if you will by unsecured and secured creditors, they break up the bid protection package where there's going to be further shopping

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Stratton - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of an offer, at least based on my experience, is pretty much the norm.

And so I think we are more in that universe than we

are in the O'Brien Energy universe where it's strictly what's going to be left for the estate. At least that's our hope.

The object now is to maximize value, so I think -- and fortunately the debtors agree with that -- and so I think we need an auction process. The schedule they proposed is

aggressive, but it will give Fortistar an opportunity to make a bid or not, and we'll see if they're going to get off the fence and get a financing partner lined up and get in the game or not, and then we'll have an auction if they do or if others make bids as well. The break-up fee provisions, the bid protection provisions we think are reasonable. They're within the standards

established informally by this Court with respect to the percentages of the purchase price, and we believe they should be approved. The one provision that's not in the order and I don't think it needs to be added because I'm sure we can get an agreement on the record is that, and I think I speak for the secured lender as well as the committee and the secured lender would expect that, to be advised of the terms of any competing bids and the debtors' analysis of whether or not any of those bids are qualified bids prior to the decision of whether or not to be an auction.

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Pfeiffer - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

With that understanding, Your Honor, we would support the relief requested today. THE COURT: Thank you. May I respond briefly, Your Honor?

MR. HANDELSMAN:

Unless there's another supporter who's going to stand up. THE COURT: I'll hear from the lenders. Good morning, Your Honor. Brian

MR. PFEIFFER:

Pfeiffer from Fried Frank Harris Shriver & Jacobson on behalf of the Bank of New York as administrative agent for the lenders. Your Honor, with the changes to the order regarding the break-up fee and expense reimbursement, the administrative agent has no objections to the bid procedures in large measure because they don't, they will not or should not affect the ultimate recoveries of the secured lenders. But with respect to the prospect of an auction, while the agent is, the agent does not have an objection to the schedule that's been put forth by the debtors which is to have a, you know, have a bid deadline that's a few weeks out and then an auction immediately thereafter, the agent would have an objection to any kind of auction process which pushed out the dates and pushed out the prospect of the sale hearing because you know, as Mr. Hardie noted, the lenders and the agent have ben particularly frustrated with this process. They believe

it's gone on way too long, especially in these markets I think.

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You know, the risk of loss here is being borne by the lenders, and while it's great that Reliant may want to chase some additional equity returns, it's of critical import to all the creditors here that they get the deal done. So again, while the agent is fine with the schedule as proposed, any schedule that was to really push out the sale hearing date would be problematic from the agent's standpoint. Thank you, Your Honor. THE COURT: MR. ABBOTT: Thank you. Thank you, Your Honor. Derek Abbott

again, just very briefly. correct.

Your Honor, Mr. Handelsman is

Fortistar's principal motivation is to lower the There's no question about that.

hurdles to its initial bid. That's how business works.

The flip side of that, Your Honor, is that to the extent that we do overbid, whatever amount remains in the absence of these bid protections would go to the estate, and Mr. Handelsman's clients and the other stakeholders in the case. Second, Mr. Handelsman talked about sort of getting away from the traditional thinking. thinking; I call it the law. I don't call it traditional

Mr. Stratton said well, we're

really outside the bankruptcy sale norm, but I, last I checked, we're in a Bankruptcy Court talking about a sale. So I don't

think the Court can simply say well, this isn't the circumstance where the Third Circuit law ought to apply. I

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Abbott - Argument/Collins - Argument 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 think the Court's got an obligation to uphold O'Brien. think they've met the standard, and can't.

And I would ask the

Court certainly to approve the auction process which is what we wanted, but not to approve the bid protections because I don't see any value to the estate here. No one has stood up here and

said that Kelson can walk if they're not approved, and that's my request of the Court. MR. COLLINS: Thanks. Thank you, Your Honor. First we had

Very briefly, Your Honor.

the testimony of Mr. Johannesen where he confirmed that it was the debtor's business judgment that the bid protections be granted and be approved here today. We also had the testimony

of both Mr. Hardie and Mr. Johannesen that the inclusion of the bid protections in the asset purchase agreement were incredibly important to Kelson, and in fact they stated, or Mr. Hardie stated that he did not believe that they would have entered into the asset purchase agreement without the inclusion of those bid protections. I would also note, Your Honor, that both 8.1(d) of the Asset Purchase Agreement which is the requirement of the debtors to file a motion seeking approval of the bid protections, along with Schedule 8.1(d) was an overall agreement between the debtors and Kelson over how you would structur