This seems to work fine, albeit I wasn't able to reproduce the error you were getting of uninitialised value. If you still get the error, maybe try dumping both @nup and @genpass to separate text files and look for special control characters. Also, make sure the number of elements in each array tally with what your expecting.

#!/usr/bin/perl -w
use strict;
use warnings;

my @genpass;

my $pass = "new.pass";
open (PASS, ">", $pass) or die "Cannot open $pass: $!";

my $p = 1;
while ( $p < 53 ){
    @genpass = generatePassword(10);
    print PASS "@genpass \n";
    $p++;
}
close PASS;

open (PASS, $pass) or die "Cannot open $pass: $!";
@genpass = (<PASS>);
chomp @genpass;
print scalar (@genpass) , " <- genpass\n";

my $users = "new.users";
#open (USERS, "<", $users) or die "Cannot open $users: $!";
my @nup = (<DATA>);
print scalar (@nup) , " <- nup\n";
#close USERS;

open (USERS, ">", $users) or die "Cannot open $users: $!";
foreach my $line (@nup){
    $line =~ s/xyz456/$genpass[0]/;  
    print USERS $line;
    shift(@genpass);
}
 
close USERS;

sub generatePassword {
    my $length = shift;
    my $password = "";
    my $possible = 'abcdefghijkmnpqrstuvwxyz23456789ABCDEFGHJKLMNPQRST
+UVWXYZ';
    while (length($password) < $length) {
        $password .= substr($possible, (int(rand(length($possible)))),
+ 1);
    }
    return $password;
}

__DATA__
dn: uid=1234567,ou=people,dc=abc,o=oursite.com
objectClass: posixAccount
objectClass: shadowAccount
objectClass: account
objectClass: top
uid:  1234567
cn:  1234567
uidNumber:  31472
gidNumber:  7546
gecos:  First Last,ABCDEFG297,#######
homeDirectory: /home/1234567
loginShell:  /bin/csh
userPassword: xyz456   

dn: uid=1234567,ou=people,dc=abc,o=oursite.com
objectClass: posixAccount
objectClass: shadowAccount
objectClass: account
objectClass: top
uid:  1234567
cn:  1234567
uidNumber:  31472
gidNumber:  7546
gecos:  First Last,ABCDEFG297,#######
homeDirectory: /home/1234567
loginShell:  /bin/csh
userPassword: xyz456  

dn: uid=1234567,ou=people,dc=abc,o=oursite.com
objectClass: posixAccount
objectClass: shadowAccount
objectClass: account
objectClass: top
uid:  1234567
cn:  1234567
uidNumber:  31472
gidNumber:  7546
gecos:  First Last,ABCDEFG297,#######
homeDirectory: /home/1234567
loginShell:  /bin/csh
userPassword: xyz456
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