<PAGE>
As filed with the Securities and Exchange Commission on August 12, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NRG ENERGY, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 4911 41-1724239
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
----------------------------
</TABLE>
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
(612) 373-5300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
MICHAEL J. YOUNG
CORPORATE SECRETARY
NRG ENERGY, INC.
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
(612) 373-5300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------------
Copy to:
STACY J. KANTER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed basis or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) FEE
- --------------------------- -------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
7 1/2% Senior Notes due
2007 ...................... $250,000,000 100% $250,000,000 $75,758
- --------------------------- -------------- -------------- ---------------- --------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Estimated in accordance with Rule 457 (c) of the Securities Act, solely
for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 12, 1997
PROSPECTUS
OFFER FOR ALL OUTSTANDING
7 1/2% SENIOR NOTES DUE 2007 [NRG LOGO]
IN EXCHANGE FOR
7 1/2% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
NRG ENERGY, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , , 1997,
UNLESS EXTENDED
NRG Energy, Inc., a Delaware corporation ("NRG"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (as the same
may be amended or supplemented from time to time, the "Prospectus") and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount of up to $250,000,000 of
7 1/2% Senior Notes due 2007 which have been registered under the Securities
Act of 1933 (the "New Notes") of NRG for a like principal amount of the
issued and outstanding 7 1/2% Senior Notes due 2007 (the "Old Notes" and,
with the New Notes, the "Notes") of NRG from the holders (the "Holders")
thereof. The terms of the New Notes are identical in all material respects to
the terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes.
The Notes are redeemable at any time, at the option of NRG at a redemption
price equal to the principal amount thereof plus accrued interest plus a
Make-Whole Premium (as defined herein). See "Description of Notes -- Optional
Redemption." Upon a Change of Control (as defined herein), NRG may be
required to purchase the Notes at a redemption price equal to 101% of the
principal amount thereof plus accrued interest. See "Description of Notes --
Change of Control." The Notes are senior unsecured obligations of NRG, which
conducts substantially all of its business through numerous project
subsidiaries and project affiliates. As a result, all existing and future
liabilities of the direct and indirect subsidiaries and affiliates of NRG
will be effectively senior to the Notes. See "Risk Factors -- Holding Company
Structure." The Indenture under which the Notes will be issued does not
restrict the incurrence of additional indebtedness by NRG or its subsidiaries
and affiliates.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on
the Old Notes, from June 17, 1997. Accordingly, registered Holders of New
Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from June 17, 1997. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of accrued interest on such
Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of NRG contained in the Registration Rights Agreement, dated as
of June 12, 1997 (the "Registration Rights Agreement"), among NRG and the
other signatories thereto. Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission") issued to third
parties, New Notes issued pursuant to the Exchange Offer in exchange for the
Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of NRG
within the meaning of Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act")), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the
distribution of such New Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any Holder is an affiliate of NRG or is engaged
in or intends to engage in or has any arrangement with any person to
participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. NRG has agreed that, starting on the Expiration Date (as defined
herein) and ending on the close of business on the 90th day following the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
NRG will not receive any proceeds from this Exchange Offer. NRG has agreed to
bear the expenses of this Exchange Offer. Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
In the event NRG terminates the Exchange Offer and does not accept for
exchange any Old Notes, NRG will promptly return the Old Notes to the Holders
thereof. See "The Exchange Offer."
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the New Notes. NRG does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the New
Notes will develop. To the extent that a market for the New Notes does
develop, the New Notes could trade at a discount from their principal amount.
See "Risk Factors -- Lack of a Public Market for the Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN RISKS
WHICH HOLDERS WHO TENDER THEIR OLD NOTES SHOULD CONSIDER IN CONNECTION WITH
THIS EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
AVAILABLE INFORMATION
NRG has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the New Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to NRG and the
New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits thereto and the financial statements, notes and
schedules filed as a part thereof. Upon the effectiveness of the Registration
Statement, NRG will become subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Registration Statement (and the exhibits and schedules thereto), as well as
the periodic reports and other information filed by NRG with the Commission,
may be inspected and copied at the Public Reference Section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade
Center, 15th Floor, Suite 1300, New York, New York 10048 and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois at the prescribed rates. Such
information may also be accessed electronically by means of the Commission's
home page on the Internet (http://www.sec.gov). Any statements contained in
this Prospectus as to the contents of any contract or document filed as an
exhibit to the Registration Statement are not necessarily complete, and each
such statement is qualified in all respects by such reference.
In addition, NRG has agreed to furnish or cause to be furnished to
registered holders (and, at the request thereof, owners of beneficial
interests in the Notes) annual consolidated financial statements of NRG
prepared in accordance with United States generally accepted accounting
principles ("GAAP") (together with notes thereto, a report thereon by an
independent accountant of established national reputation and a management's
discussion and analysis of financial condition and results of operations),
such statements to be so furnished within 120 days after the end of the fiscal
year covered thereby. In addition, NRG will furnish or cause to be furnished
to registered holders (and, at the request thereof owners of beneficial
interests in the Notes) unaudited condensed consolidated balance sheets and
statements of income and cash flows of NRG for each of the first three fiscal
quarters of each fiscal year and the corresponding quarter of the prior year,
such statements to be so furnished within 90 days after the end of the fiscal
quarter covered thereby.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by and should be read
in conjunction with the more detailed information and the consolidated
financial statements of NRG, including the notes thereto, appearing elsewhere
in this Prospectus. Unless the context otherwise requires, references herein
to NRG mean NRG Energy, Inc. and its direct and indirect subsidiaries. The
subsidiaries of NRG that are engaged in the acquisition, development and
operation of, and ownership of interests in, power generation and thermal
energy production and transmission facilities and other facilities described
herein are sometimes referred to individually as a "project subsidiary" and
collectively as NRG's "project subsidiaries." In circumstances in which NRG
owns less than a majority of the interests in the joint venture, partnership
or other entity that owns or leases a facility, directly or indirectly, such
joint venture, partnership or other entity is referred to individually as a
"project affiliate" and collectively as the "project affiliates." References
herein to ownership by NRG or one of its project subsidiaries of interests in
a project or facility refer to ownership of interests in such project
affiliates.
THE COMPANY
NRG is one of the leading participants in the independent power generation
industry. Established in 1989 and wholly-owned by Northern States Power
Company ("NSP"), NRG is principally engaged in the acquisition, development
and operation of, and ownership of interests in, independent power production
and cogeneration facilities, thermal energy production and transmission
facilities and resource recovery facilities. The power generation facilities
in which NRG had interests as of August 1, 1997 (including those under
construction) had a total design capacity of 7,010 megawatts ("MW"), of which
NRG had or will have operational responsibility for 4,582 MW and net
ownership of or leasehold interests in 2,097 MW. In addition, NRG has
substantial interests in district heating and cooling systems and steam
generation and transmission operations; at December 31, 1996, these thermal
businesses had a steam capacity of approximately 3,550 million British
thermal units ("mmBtus"). NRG's refuse-derived fuel ("RDF") plants processed
more than 808,000 tons of municipal solid waste into approximately 644,000
tons of RDF in 1996.
NRG has experienced significant growth in the last three years, expanding
from 33 MW net ownership as of December 31, 1993 to 2,097 MW net ownership as
of August 1, 1997. This growth resulted primarily from a number of domestic
and international investments and acquisitions, principally the Gladstone
Power Station in Australia ("GPS" or "Gladstone"), the Mitteldeutsche
Braunkohlengesellschaft mbH ("MIBRAG") and Schkopau ("Schkopau") Projects in
Germany, the Minneapolis Energy Center ("MEC") and NRG Generating (U.S.) Inc.
("NRGG"), all as described below. NRG's total operating revenues and equity
in earnings of projects increased from $91.1 million and $27.2 million,
respectively, in 1994 to $104.5 million and $32.8 million, respectively, in
1996. In evaluating and acquiring its project interests, NRG has a flexible,
multi-disciplinary team approach that draws on its facility operations and
engineering expertise, fuel procurement and management skills, environmental
experience, labor and government relations expertise and legal and financial
skills.
As of August 1, 1997, NRG had interests in 26 power generation facilities
worldwide (not including those facilities in which NEO Corporation ("NEO")
has an interest), including projects under construction. Of these facilities,
11 are located in the United States (531 MW design capacity, with NRG holding
176 MW net ownership), 4 are located in Germany (1,160 MW design capacity,
with NRG holding 267 MW net ownership), 4 are located in Australia (4,039 MW
design capacity, with NRG holding 1,244 MW net ownership), two are located in
Colombia (299 MW design capacity, with NRG holding 16 MW net ownership), and
one is located in each of the Czech Republic (382 MW design capacity, with
NRG holding 214 MW net ownership), Jamaica (74 MW design capacity, with NRG
holding 7 MW net ownership), Peru (155 MW design capacity, with NRG holding
5.5 MW net ownership) and Honduras (80 MW design capacity, with NRG holding 6
MW net ownership). In 1996, NRG and Vattenfall AB of Sweden ("Vattenfall")
acquired 96.6% of the outstanding common shares of Compania Boliviana de
Energia Electrica SA -- Boliviana Power Company Limited ("COBEE"), the second
largest electric utility
3
<PAGE>
company in Bolivia, which will have a design capacity of 218 MW after a 56 MW
expansion in 1998. In addition, through its wholly-owned project subsidiary,
NEO, NRG had interests on August 1, 1997 in 28 small hydroelectric and
landfill gas-fired power generation facilities located in the United States
with total design capacity of 72 MW, of which NRG has net ownership of 35 MW.
In May 1997, NRG consummated the largest acquisition in its history,
acquiring a 25.37% interest in the assets of a 2,000 MW brown coal fired
thermal power station and adjacent coal mine located in Victoria, Australia
and known as Loy Yang A. The State of Victoria sold the Loy Yang A assets as
part of its privatization program to a partnership formed by affiliates of NRG
and of CMS Generation (a wholly-owned subsidiary of CMS Enterprises), together
with Horizon Energy Investment Limited (an investment vehicle of Macquarie
Bank), for a total price of approximately AUS$4.7 billion (or US$3.7 billion
as of May 12, 1997). While most of the purchase price was raised through
project-financed loans and leveraged leases that are non-recourse to the
sponsors, NRG's equity investment was approximately US$257 million. NRG funded
its investment and related financing costs from a bridge loan arranged by
Salomon Loan Fund Inc (the "Bridge Financing"), together with an equity
investment by NSP and cash on hand.
In June 1997, NRG closed the financing for the refurbishment and expansion
of the Energy Center Kladno plant in Kladno, the Czech Republic ("Kladno").
NRG owns a 34% interest in the existing 28 MW coal-fired project, which also
supplies thermal energy. This financing will fund the refurbishment of the
existing facility as well as the construction of a new 354 MW expansion
project. NRG holds a 57.85% interest in the expansion project, and El Paso
Energy International and Stredoceska Energeticka ("STE"), the regional Czech
electric distribution company, hold the balance.
In 1996, NRG acquired a 41.86% equity interest in O'Brien Environmental
Energy, Inc. ("O'Brien"), which emerged from bankruptcy and was renamed NRG
Generating (U.S.) Inc. ("NRGG"). NRG holds 41.86% of the common stock of NRGG,
and NRG employees serve as NRG's designees on the board of directors of NRGG.
The remaining 58.14% of the common stock of NRGG remained with the
then-existing equity holders in O'Brien and is now publicly traded. NRGG is a
public company and its shares are listed in the NASDAQ small cap issues under
the symbol "NRGG." NRGG has interests in three domestic operating projects
with an aggregate capacity of approximately 196 MW. These are: (i) sole
ownership of the 52 MW Newark Boxboard Project, a gas-fired cogeneration
facility that sells electricity to Jersey Central Power and Light Company
("JCP&L") and steam to Newark Boxboard Company; (ii) sole ownership of the 122
MW E.I. du Pont Parlin Project, a gas-fired cogeneration facility that sells
electricity to JCP&L and steam to E.I. du Pont de Nemours and Company; and
(iii) an 83% interest in a 22 MW standby/peak sharing facility which provides
electricity and standby capabilities for the Philadelphia Municipal Authority.
In addition, NRGG has a 33.33% interest in the 150 MW Grays Ferry Project, a
gas-fired cogeneration project which is under construction in Philadelphia,
Pennsylvania.
In addition to power generation, NRG has interests in four district heating
and cooling systems, located in Minneapolis, San Francisco, Pittsburgh and San
Diego, that provide steam for heating and chilled water for cooling. NRG
acquired the San Diego facility in June 1997. NRG also owns or operates two
steam transmission facilities and two resource recovery/RDF facilities, all
located in Minnesota.
At any time, NRG has a number of projects under consideration or in
development and is in various stages of negotiations regarding other potential
projects in the United States and abroad. NRG is currently developing a number
of significant domestic and international projects. These include a 45%
interest in the West Java Project, a 400 MW coal-fired project in Indonesia in
partnership with Ansaldo Energia and P.T. Kiani Metra; a 27.75% interest in
the 390 MW Alto Cachapoal greenfield hydroelectric complex in central Chile in
partnership with Nordic Power Invest AB and Construtora Andrade Gutierrez
S.A.; and a 50% interest in the Enfield Energy Centre, a 350 MW power project
under development in Enfield, England. In addition, NRG and two partners have
filed a plan in federal bankruptcy court to acquire the fossil-fueled
generating assets of Cajun Electric Power Cooperative of Baton Rouge,
Louisiana ("Cajun"). Also, in 1996 NRG purchased, at a substantial discount,
the senior secured debt of
4
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Mid-Continent Power Company, Inc. ("MCPC"). On June 18, 1997, MCPC filed a
Chapter 11 petition in federal bankruptcy court in Tulsa, Oklahoma and
concurrently filed a plan of reorganization proposing to transfer ownership
of all of MCPC's assets to NRG in exchange for forgiveness of debt. Because
of the many complexities inherent in the development, financing and
acquisition of such projects, there can be no assurance that any of these
transactions will be consummated.
NRG's headquarters and principal executive offices are located at 1221
Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403. Its telephone number
is (612) 373-5300.
STRATEGY
NRG intends to continue to grow through a combination of acquisitions and
greenfield development of power generation and thermal energy production and
transmission facilities and related assets in the United States and abroad. In
the United States, NRG's near-term focus will be primarily on the acquisition
of existing power generation capacity and thermal energy production and
transmission facilities, particularly in situations in which its expertise can
be applied to improve the operating and financial performance of the
facilities. NRG is also working with several industrial companies to develop
energy projects that would provide both electricity and steam for their
production facilities. In addition, to the extent that the replacement of
aging power generating capacity or growth in demand creates the need for new
power generation facilities in the United States, NRG intends to pursue
opportunities to participate in the development of such facilities. NRG is
also studying the opportunities that may be created by the current
restructuring of the domestic electric utility industry, particularly the
divestiture by some utility companies of their generating assets.
In the international market, NRG will continue to pursue development and
acquisition opportunities in those countries in which it believes that the
legal, political and economic environment is conducive to increased foreign
investment. NRG intends to continue to capitalize on opportunities created by
the privatization of existing government-owned power generating capacity. In
addition, due to the significant existing demand for new power generating
capacity in the international market, NRG intends to engage in the development
of international "greenfield" projects, which are projects that are developed,
permitted, financed and constructed by the developer.
Although NRG exercises flexibility in structuring its investments in
projects, NRG's goal is to own a 20% to 50% equity interest in, and to have
operating control or influence over, the projects in which it invests. Where
appropriate, NRG will include a local or host country partner, in order to
enhance its knowledge of the region or country and to leverage its human and
financial resources.
As part of NRG's global tax strategy, NRG intends to maintain its earnings
from foreign investments offshore, for permanent reinvestment in other foreign
projects. For this reason, NRG intends to utilize the cash in its domestic
operations to make the payments with respect to the Notes. This cash is
expected to include payments of interest and principal to be received from its
wholly-owned Dutch subsidiary, NRGenerating International BV ("NRGBV"), with
respect to loans from NRG to that company.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer ............ NRG is offering to exchange up to
$250,000,000 aggregate principal amount of
7 1/2% Senior Notes due 2007 (the "New
Notes") for a like principal amount of its
7 1/2% Senior Notes due 2007 (the "Old
Notes" and, collectively with the New Notes,
the "Notes") that are properly tendered and
accepted. The terms of the New Notes and the
Old Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights
relating to the Old Notes described below
under " --Summary Description of the New
Notes."
Tenders; Expiration Date;
Withdrawal ................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997, or
such later date and time to which it is
extended. The tender of Old Notes pursuant
to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any
Old Note not accepted for exchange for any
reason will be returned without expense to
the tendering Holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer -- Terms of the Exchange
Offer; Period for Tendering Old Notes," and
"Withdrawal of Tenders."
Procedures for Tendering Old
Notes ......................... Each Holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile together with
either certificates for such Old Notes or a
Book-Entry Confirmation (as defined herein)
of such Old Notes into the Book-Entry
Transfer Facility (as defined herein), if
such procedure is available, and any other
required documentation to the exchange agent
(the "Exchange Agent") at the address set
forth herein. By executing the Letter of
Transmittal, each Holder will represent to NRG,
among other things, that (i) the New Notes
acquired pursuant to the Exchange Offer by the
Holder and any other person are being obtained
in the ordinary course of business of the
person receiving such New Notes, (ii) neither
the Holder nor such other person is
participating in, intends to participate in or
has an arrangement or understanding with any
person to participate in the distribution of
such New Notes and (iii) neither the Holder nor
such other person is an "affiliate," as
defined under Rule 405 of the Securities
Act, of NRG. Each broker-dealer that
receives New Notes for its own account in
exchange for Old Notes, where such Old Notes
were acquired by such broker or dealer as a
result of market-making activities or other
trading activities, must acknowledge that it
will deliver a prospectus in connection with
any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging
and by delivering a prospectus, a broker or
dealer will not be deemed to admit that it
is an "underwriter" within the meaning
6
<PAGE>
of the Securities Act. See "The Exchange
Offer --Procedures for Tendering Old Notes"
and "Plan of Distribution."
Special Procedures for
Beneficial Owners ............ Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered Holder promptly and
instruct such registered Holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered Holder. The
transfer of registered ownership may take
considerable time. See "The Exchange Offer
-- Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures. Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who can not deliver
their Old Notes or any other documents
required by the Letter of Transmittal to the
Exchange Agent must tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Federal Income Tax Consequences
............................... The exchange pursuant to the Exchange Offer
should not result in any income, gain or
loss to the Holders or NRG for federal
income tax purposes. See "Certain Federal
Income Tax Considerations."
Use of Proceeds ............... NRG will not receive any proceeds from this
Exchange Offer.
Exchange Agent ................ Norwest Bank Minnesota, National Association
is serving as the exchange agent (the
"Exchange Agent") in connection with the
Exchange Offer.
7
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. NRG does not currently
anticipate that it will register Old Notes under the Securities Act. See
"Description of Notes -- Registration Rights." Based on interpretations by the
staff of the Commission issued to third parties, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by Holders thereof (other than any such Holder which
is an "affiliate" of NRG within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
arrangement with any person to participate in the distribution of such New
Notes. Each Holder, other than a broker-dealer, must acknowledge that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If any Holder is an affiliate of NRG or is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i)
could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. NRG has agreed that, starting on the Expiration Date and ending on
the close of business on the 90th day following the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. NRG does not currently intend to register or
qualify the sale of the New Notes in any such jurisdictions. See "The Exchange
Offer -- Consequences of Failure to Exchange Old Notes."
8
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes. The New Notes will bear interest from the most
recent date to which interest has been paid on the Old Notes or, if no
interest has been paid on the Old Notes, from June 17, 1997. Accordingly,
registered Holders of New Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has been
paid or, if no interest has been paid, from June 17, 1997. Old Notes accepted
for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer. In the event
of a registration default under the Registration Rights Agreement, NRG will
pay special interest ("Special Interest") to each Holder of Transfer
Restricted Securities (as defined herein). See "Description of Notes --
Special Interest."
Notes Offered ................. Up to $250,000,000 principal amount of
7 1/2% Senior Notes due 2007.
Maturity Date ................. June 15, 2007.
Interest Payment Dates ........ June 15 and December 15, commencing December
15, 1997.
Ranking ....................... The New Notes will be senior unsecured
obligations of NRG and will rank pari passu
with all other senior unsecured indebtedness
of NRG. See "Description of Notes." All
existing and future liabilities of the
direct and indirect subsidiaries and
affiliates of NRG will be effectively senior
to the Notes.
Ratings ....................... The New Notes have been assigned ratings of
"BBB-" by Standard & Poor's Ratings Group
and "Baa3" by Moody's Investors Service,
Inc. See "Ratings."
Optional Redemption ........... The New Notes may be redeemed at the option
of NRG at any time, in whole or in part, on
not less than 30 nor more than 60 days
notice, at a redemption price equal to the
principal amount thereof plus accrued
interest plus a Make-Whole Premium. See
"Description of Notes -- Optional
Redemption."
Sinking Fund .................. None.
Change of Control ............. Upon a Change of Control, each holder of New
Notes will have the right, subject to
certain conditions, to require NRG to
repurchase such holder's New Notes, in whole
or in part, at 101% of the principal amount
thereof, plus accrued interest, if any, to
the date of purchase in accordance with the
procedures set forth in the Indenture
pursuant to which the New Notes will be
issued (the "Indenture"). A Change of
Control will not be deemed to have occurred
if, after giving effect thereto, the Senior
Notes are rated BBB-or better by Standard &
Poor's Ratings Group and Baa3 or better by
Moody's Investors Service, Inc. See
"Description of Notes -- Change of Control."
9
<PAGE>
Exchange Offer; Registration
Rights ....................... Holders of New Notes (other than as set
forth below) are not entitled to any
registration rights with respect to the New
Notes. Pursuant to the Registration Rights
Agreement, NRG agreed, for the benefit of
the Holders of Old Notes, to file an
Exchange Offer Registration Statement (as
defined). The Registration Statement of
which this Prospectus is a part constitutes
the Exchange Offer Registration Statement.
Under certain circumstances, certain Holders
of Notes (including Holders who may not
participate in the Exchange Offer or who may
not freely resell New Notes received in the
Exchange Offer) may require NRG to file, and
cause to become effective, a shelf
registration statement under the Securities
Act, which would cover resales of Notes by
such Holders. See "Description of Notes --
Registration Rights."
Use of Proceeds ............... NRG will not receive any proceeds from this
Exchange Offer. The net proceeds to NRG from
the offering of the Old Notes (the
"Offering"), after deducting discounts and
expenses, were approximately $246.0 million.
NRG used such net proceeds to repay
outstanding debt under the Bridge Financing
and for other general corporate purposes.
See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial
Condition and Results of Operations --
Liquidity and Capital Resources."
RISK FACTORS
Holders of the Old Notes should consider carefully the information set
forth under the caption "Risk Factors" and all other information set forth in
this Prospectus before making a decision to tender their Old Notes in the
Exchange Offer.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below as of December 31,
1993, 1994, 1995 and 1996, and for the years then ended, have been derived
from NRG's audited consolidated financial statements. The summary consolidated
financial data set forth below as of March 31, 1996 and 1997, and for the
three-month periods then ended, and as of December 31, 1992 and for the year
then ended, have been derived from NRG's unaudited consolidated financial
statements. Certain financial information for the years ended December 31,
1993 and 1994 have been reclassified to conform to the financial presentation
for the year ended December 31, 1995. Interim results and the results for
1992, in the opinion of management of NRG, include all adjustments (consisting
solely of normal recurring adjustments) necessary to present fairly the
financial information for such periods; however, such interim results are not
necessarily indicative of the results that may be expected for any other
interim period or for a full year. The following data should be read in
conjunction with the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---------- --------- --------- --------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned
operations(1) .................. $39,647 $48,529 $63,970 $64,180 $ 71,649 $18,662 $21,665
Equity in operating earnings of
unconsolidated affiliates(2)(3) 1,321 2,695 27,155 23,639 32,815 5,904 8,492
---------- --------- --------- --------- ---------- --------- ---------
Total operating revenues ...... 40,968 51,224 91,125 87,819 104,464 24,566 30,157
OPERATING COSTS AND EXPENSES
Cost of operations--wholly-owned
operations ..................... 22,870 27,122 34,861 32,535 36,562 9,700 12,222
Depreciation and amortization .. 5,060 6,475 8,675 8,283 8,378 2,083 2,176
General, administrative, and
development .................... 14,930 11,448 19,993 34,647 39,248 10,610 8,833
---------- --------- --------- --------- ---------- --------- ---------
Total operating costs and
expenses ...................... 42,860 45,045 63,529 75,465 84,188 22,393 23,231
---------- --------- --------- --------- ---------- --------- ---------
OPERATING INCOME (LOSS) .......... (1,892) 6,179 27,596 12,354 20,276 2,173 6,926
OTHER INCOME (EXPENSE)
Equity in gain from project
termination settlements ........ -- -- 9,685 29,850 -- -- --
Other income (expense), net .... (1,753) 1,028 1,411 4,896 9,477 1,908 2,018
Interest expense ................ (1,662) (2,679) (6,682) (7,089) (15,430) (3,225) (4,063)
---------- --------- --------- --------- ---------- --------- ---------
Total other income (expense) .. (3,415) (1,651) 4,414 27,657 (5,953) (1,317) (2,045)
---------- --------- --------- --------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES............................. (5,307) 4,528 32,010 40,011 14,323 856 4,881
INCOME (BENEFIT) TAXES(4) ........ (2,187) 1,905 2,472 8,810 (5,655) (1,691) (1,922)
---------- --------- --------- --------- ---------- --------- ---------
NET INCOME (LOSS) ................ $(3,120) $ 2,623 $29,538 $31,201 $ 19,978 $ 2,547 $ 6,803
========== ========= ========= ========= ========== ========= =========
</TABLE>
- ------------
(1) All of these revenues are from 100% owned operations. In accordance
with its strategy described herein, when NRG does not own 100% of a
project, it owns 50% or less in all cases except COBEE and Kladno.
(2) NRG accounts for its investments in projects where ownership is
between 20% and 50%, and where there is no effective and legal
control, using the equity method of accounting; COBEE and Kladno are
also accounted for using the equity method of accounting even though
NRG currently owns more than a 50% interest in both projects because
NRG intends to sell down below the 50% level. Equity in earnings of
unconsolidated project affiliates includes NRG's proportionate share
of all net income or losses attributable to project investments
accounted for using the equity method.
(3) Includes pretax charges of $5.0 million, $5.0 million and $1.5
million in 1994, 1995 and 1996, respectively, to write-down the
carrying value of certain energy projects.
(4) NRG is included in the consolidated federal income tax and state
franchise tax returns of NSP. NRG calculates its tax position on a
separate company basis under a tax sharing agreement with NSP and
receives payment from NSP for tax benefits and pays NSP for tax
liabilities.
11
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net property, plant
and equipment ..... $46,694 $108,934 $107,634 $111,919 $129,649 $111,703 $135,652
Net equity
investments in
projects .......... 16,400 20,046 164,863 221,129 365,749 207,859 371,132
Long-term debt,
including current
maturities......... 10,499 93,451(1) 93,339(1) 90,034(1) 212,141(1) 214,465(1) 211,536(1)
Stockholder's
equity ............ 40,267 97,722 234,722 319,764 421,914 324,600 443,462
</TABLE>
- ------------
(1) Includes debt relating to MEC, including current maturities, which is
non-recourse to NRG. As of March 31, 1997 this debt was $76.4
million.
OTHER DATA (UNAUDITED):
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- ---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
NRG's net power generating
capacity(MW) ................. 33 33 992 999 1,326 1,021 1,365(1)
NRG's net thermal energy
generating capacity:
mmBtus per hour .............. 695 1,865 1,961 2,318 2,654 2,654 2,654
MWt equivalent ............... 204 547 575 679 822 822 822
Consolidated EBITDA (2) ...... $1,415 $13,682 $47,367 $55,383 $38,131 $6,164 $11,120
Consolidated interest expense . $1,662 $ 2,679 $ 6,682 $ 7,089 $15,430 $3,225 $ 4,063
Consolidated interest expense
coverage ratio (3) ........... 0.85x 5.11x 7.09x 7.81x 2.47x 1.91x 2.74x
Consolidated debt service (4) $2,562 $ 4,272 $ 9,169 $10,394 $18,323 $3,794 $ 4,668
Consolidated debt service
coverage ratio (5) ........... 0.55x 3.20x 5.17x 5.33x 2.08x 1.62x 2.38x
Consolidated ratio of earnings
to fixed charges(6)........... (7) 2.32x 2.98x 1.56x(9) 1.75x(10) 4.48x(10) (8)
</TABLE>
- ------------
(1) Does not include NRG's net power generating capacity in Loy Yang A
and Kladno.
(2) EBITDA equals the sum of income (loss) before income taxes, interest
expense (net of capitalized interest) and depreciation and
amortization expense. Management believes that some investors consider
EBITDA an accepted indicator of a company's ability to service debt.
EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be considered in
isolation or as a substitute for net income, cash flows from operations
or other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. See Statements of Cash Flows in the Consolidated Financial
Statements included elsewhere in this Prospectus.
(3) The interest expense coverage ratio equals EBITDA divided by interest
expense.
(4) Debt service consists of the previous twelve months of interest
expense and principal payments on long-term debt.
(5) The debt service coverage ratio equals EBITDA divided by debt
service.
(6) The ratio of earnings to fixed charges is calculated by dividing
earnings by fixed charges. For this purpose "earnings" means income
(loss) before income taxes less undistributed equity in operating
earnings of inconsolidated affiliates less equity in gain from
project termination settlements plus cash distributions from project
termination settlements plus fixed charges. "Fixed charges" means
interest expense plus interest capitalized plus amortization of debt
issuance costs plus a reasonable approxmimation of the interest
factor of rental expense.
(7) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(8) Due primarily to undistributed equity earnings exceeding income
before income taxes, NRG was unable to fully cover fixed charges.
Earnings did not cover fixed charges by $1,832.
(9) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
(10) The 1996 ratio of earnings to fixed charges calcuation includes the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would
have been unable to fully cover fixed charges and earnings would not
have covered fixed charges by $3,504 for 1996 and by $3,635 for the
three months ended March 31, 1996.
12
<PAGE>
SUMMARY PRO FORMA CONDENSED FINANCIAL DATA
The unaudited pro forma condensed financial data set forth below give
effect to (i) the acquisition by NRG of a 25.37% equity interest in Loy Yang A
and the financing thereof and (ii) the offering of the Old Notes (the
"Offering"). The pro forma statement of income data for the year ended
December 31, 1996 and the three months ended March 31, 1997 give effect to
such transactions as if they had occurred at the beginning of the periods
presented. The pro forma balance sheet data as of March 31, 1997 gives effect
to such transactions as if they had occurred on March 31, 1997. The pro forma
condensed financial data do not purport to be indicative of the combined
financial position or results of operations of future periods or indicative of
the results that would have occurred had the transactions referred to above
been consummated on the dates indicated. The following data should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 71,649 -- $ 71,649
Equity in earnings of unconsolidated affiliates 32,815 $ 15,300 (1) 48,115
Operating costs and expenses .................... (84,188) -- (84,188)
Other income (expense) .......................... 9,477 -- 9,477
Interest expense ................................ (15,430) (18,750)(2) (34,180)
Income taxes .................................... 5,655 4,373 (3) 10,028
------------ -------------- -----------
Net Income....................................... $ 19,978 $ 923 $ 20,901
============ ============== ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang A for twelve
months based upon historical data adjusted for certain management
assumptions.
(2) Represents accrued interest on $250 million principal amount of the
Old Notes for twelve months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
13
<PAGE>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 21,665 -- $ 21,665
Equity in earnings of unconsolidated affiliates 8,492 $ 3,825 (1) 12,317
Operating costs and expenses .................... (23,231) -- (23,231)
Other income and (expense) ...................... 2,018 -- 2,018
Interest expense ................................ (4,063) (4,688)(2) (8,751)
Income taxes .................................... 1,922 1,093 (3) 3,015
------------ ------------- ------------
Net Income....................................... $ 6,803 $ 230 $ 7,033
============ ============= ============
BALANCE SHEET DATA:
ASSETS
Current assets .................................. $ 69,197 $ 49,100 (4) $ 118,297
Property plant and equipment net ................ 135,652 -- 135,652
Investments in projects and other assets ....... 491,763 261,800 (5) 753,563
------------ ------------- ------------
Total assets ................................... $696,612 $310,900 $1,007,512
============ ============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Long-term and short-term debt ................... $211,536 $250,000 (6) $ 461,536
Other liabilities ............................... 41,614 -- 41,614
Stockholder's equity ............................ 443,462 60,900 (7) 504,362
------------ ------------- ------------
Total liabilities and stockholder's equity .... $696,612 $310,900 $1,007,512
============ ============= ============
</TABLE>
- ------------
(1) Represents estimated equity earnings for three months from Loy Yang A
based upon historical data adjusted for certain management
assumptions.
(2) Represents interest expense on $250 million principal amount of the
Old Notes for three months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
(4) Represents net cash provided in excess of the amount needed for the
investment in Loy Yang A and total financing costs.
(5) Net investment in Loy Yang A of $257 million plus total financing
costs associated with the Offering and the Bridge Financing to be
amortized over the life of the Old Notes.
(6) Represents the aggregate principal amount of the Old Notes.
(7) Represents equity contribution of $60.9 million by NSP.
14
<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully the following risk factors
as well as the other information contained in this Prospectus in evaluating an
investment in the New Notes, although the risk factors set forth below (other
than "--Consequences of Failure to Exchange Old Notes") are generally
applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. NRG does not currently
anticipate that it will register Old Notes under the Securities Act. See
"Description of Notes--Registration Rights." Based on interpretations by the
staff of the Commission issued to third parties, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by Holders thereof (other than any such Holder which
is an "affiliate" of NRG within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
arrangement with any person to participate in the distribution of such New
Notes. Each Holder, other than a broker-dealer, must acknowledge that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If any Holder is an affiliate of NRG or is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i)
could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. NRG has agreed that, starting on the Expiration Date and ending on
the close of business on the 90th day following the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. NRG does not currently intend to register or
qualify the sale of the New Notes in any such jurisdiction. See "The Exchange
Offer--Consequences of Failure to Exchange Old Notes."
HOLDING COMPANY STRUCTURE
The Notes will be exclusively the obligations of NRG and not of any of its
project subsidiaries or project affiliates. Because substantially all of the
operations of NRG are conducted by its project subsidiaries and project
affiliates, NRG's cash flow and its ability to service its indebtedness,
including its ability to pay the interest on and principal of the Notes when
due, are dependent upon cash dividends and distributions or other transfers
from its project and other subsidiaries and project affiliates to NRG. As of
December 31, 1996, NRG's project subsidiaries and project affiliates had total
assets of $4.1 billion, total indebtedness of $1.6 billion and an aggregate
debt-to-total capitalization ratio of approximately 63%. The debt agreements
of NRG's project and other subsidiaries and project affiliates generally
15
<PAGE>
restrict their ability to pay dividends, make distributions or otherwise
transfer funds to NRG. The restrictions in such agreements generally require
that, prior to and after giving effect to the payment of dividends,
distributions or other transfers, (i) such subsidiaries or project affiliates
meet certain financial performance or coverage ratios, (ii) no default or
event of default shall have occurred, and (iii) the subsidiary or project
affiliate proposing to pay the dividend, distribution or other transfer must
provide for the payment of other current or prospective obligations,
including operating expenses, debt service and reserves. See "Business --
Project Financing." NRG's subsidiaries and project affiliates are separate
and distinct legal entities that have no obligation, contingent or otherwise,
to pay any amounts due pursuant to the Notes or to make any funds available
therefor, whether by dividends, loans or other payments, and do not guarantee
the payment of interest on, or principal of, the Notes. NRG owns a minority
interest in most of its international and domestic projects, and therefore is
unable unilaterally to cause dividends or distributions to be made to NRG
from these operations.
Any right of NRG to receive any assets of any of its subsidiaries or
project affiliates upon any liquidation or reorganization of such subsidiaries
or project affiliates (and the consequent right of holders of the Senior Notes
to participate in the distribution of, or to realize proceeds from, those
assets) will be effectively subordinated to the claims of any such
subsidiary's or project affiliate's creditors (including trade creditors and
holders of debt issued by such subsidiary or project affiliate).
The Indenture imposes no limitations on the ability of subsidiaries or
project affiliates to incur additional indebtedness or to permit contractual
restrictions on the distribution of cash from NRG's subsidiaries or project
affiliates to NRG.
LEVERAGE
As of March 31, 1997, NRG had total indebtedness of $211.5 million at the
corporate holding company level which results in a total
debt-to-capitalization ratio of 32%; the Indenture imposes no limitations on
the ability of NRG to incur additional indebtedness at this level. The
substantial amount of debt at the level of the corporate holding company and
at the levels of the project subsidiaries and project affiliates presents the
risk that NRG might not generate sufficient cash to service its indebtedness,
including the Notes, or that its leveraged capital structure could limit its
ability to finance the acquisition and development of additional projects, to
compete effectively or to operate successfully under adverse economic
conditions. See "Capitalization," "Selected Consolidated Financial Data" and
"Selected Pro Forma Condensed Financial Data."
NRG has entered into a $175 million revolving credit facility with a
syndicate of banks led by ABN AMRO Bank ("ABN AMRO"), which matures on March
17, 2000. It imposes certain requirements on NRG, including requirements as to
the maintenance of (i) a minimum level of consolidated tangible net worth and
(ii) a minimum ratio of consolidated tangible net worth to consolidated
capitalization.
DEPENDENCE ON, AND CONTROL BY, NORTHERN STATES POWER
NSP is NRG's sole stockholder. Since NRG's formation, NSP has provided all
NRG's equity funding for its business and operations. NRG's only other source
of funding has been its borrowings and internally-generated cash flow from
NRG's existing projects and investments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance that NSP will contribute
additional equity capital to NRG in the future. In the absence of continued
equity contributions, there can be no assurance that NRG will have access to
sufficient capital to fund its obligations with respect to its existing
projects or to undertake new acquisition and development projects.
As NRG's sole stockholder, NSP has the power to control the election of the
directors and all other matters submitted for stockholder approval and may be
deemed to have control over the management and affairs of NRG. Currently,
there are no outside directors on NRG's board of directors. In circumstances
involving a conflict of interest between NSP, as the sole stockholder (and,
with respect to certain projects, a significant customer of and supplier to
NRG, see, "Certain Transactions"), on the one hand, and the holders of the
Notes as creditors of NRG on the other, there can be no assurance that NSP
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would not exercise its power to control NRG in a manner that would benefit
NSP to the detriment of the holders of the Notes. NSP has policies in place,
pursuant to applicable law, to ensure that its ratepayers are protected from
affiliate transactions that may be adverse to the ratepayers' interests. The
Indenture imposes no limitations on NRG's ability to pay dividends or to make
other payments to NSP or on NRG's ability to enter into transactions with NSP
or other affiliates of NRG.
In addition, NSP is an important customer of, and supplier to, certain of
NRG's businesses in the United States. See "Certain Transactions -- Operating
Agreements." NRG purchases steam production services from NSP for its Waldorf
and Washco steam transmission lines and sells RDF to NSP from its Newport
resource recovery facility. NRG provides management, operation and maintenance
services for the Elk River resource recovery facility and disposes of the Elk
River facility's RDF ash at NSP's Becker ash landfill. See "Certain
Transactions." The failure of NSP to comply with its obligations to NRG under
the agreements governing such sales and services could have a material adverse
effect on NRG's revenues from these projects.
RISKS OF DOING BUSINESS OUTSIDE THE UNITED STATES
A key component of NRG's business strategy is the development or
acquisition of projects outside the United States. See "Business -- Strategy."
The economic and political conditions in certain countries where NRG has
interests or in which it is or could be exploring development or acquisition
opportunities present risks of delays in permitting and licensing,
construction delays and interruption of business, as well as risks of war,
expropriation, nationalization, renegotiation or nullification of existing
contracts and changes in law or tax policy, that are greater than in the
United States. The uncertainty of the legal environment in certain foreign
countries in which NRG may develop or acquire projects could make it more
difficult to obtain non-recourse project financing on suitable terms and could
impair NRG's ability to enforce its rights under agreements relating to such
projects.
Operations in foreign countries also can present currency exchange,
inflation, convertibility and repatriation risks. See "Business -- Strategy."
In certain countries in which NRG may develop or acquire projects in the
future, economic and monetary conditions and other factors could affect NRG's
ability to convert its earnings to United States dollars or other hard
currencies or to move funds offshore from such countries. Furthermore, the
central bank of any such country may have the authority in certain
circumstances to suspend, restrict or otherwise impose conditions on foreign
exchange transactions or to approve distributions to foreign investors.
Although NRG generally seeks to structure its power purchase agreements and
other project revenue agreements to provide for payments to be made in, or
indexed to, United States dollars or a currency freely convertible into United
States dollars, there can be no assurance that NRG will be able to achieve
this structure in all cases or that a power purchaser or other customer will
be able to obtain sufficient dollars or other hard currency to pay such
obligations.
As part of privatizations or other acquisition opportunities, NRG may make
investments in ancillary businesses not directly related to power generation,
thermal energy production and transmission or resource recovery and in which
NRG management may not have had prior experience. In such cases, NRG's policy
is to attract partners with the necessary expertise. However, no assurance can
be given that such persons will be available as co-venturers in every case. In
addition, as a condition to participating in privatizations and refurbishments
of formerly state-owned businesses, NRG may be required to undertake
transitional obligations relating to union contracts, employment levels and
benefits obligations for employees, which could prevent or delay the
achievement of desirable operating efficiencies and financial performance.
ACQUISITION AND DEVELOPMENT UNCERTAINTIES
The development projects and acquisitions in which NRG may invest in the
future, including those described herein, may be large and complex, and NRG
may not be able to complete the development or acquisition of any such
project. Development projects and acquisitions require NRG to expend
significant sums for engineering, permitting, legal, financial advisory and
other expenses in preparation for competitive bids that NRG may not win or
before it can be determined whether a project is feasible, economically
attractive or capable of being financed. There can be no assurance that the
projects that
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NRG pursues, and on which it may spend significant sums, will prove to be
desirable project investments, or that NRG will be able to win any such
competitive bids, obtain new power purchase agreements, overcome any local
opposition, and obtain the necessary agreements, contracts, licenses,
certifications and permits necessary for the successful development of new
projects and acquisition of interests in existing projects. Even if NRG is
successful in the development or acquisition of an interest in a project, NRG
may require substantial additional debt or equity financing for such
projects, which additional financing may not be available on acceptable
terms, if at all. Most acquisition agreements and power purchase agreements
permit the seller or customer, respectively, to terminate the agreement or
impose penalties if the acquisition or operation of the project (as the case
may be) is not achieved by a specified date. NRG may fail to acquire or
develop projects despite having incurred significant expenses.
COMPETITION
The independent power industry is characterized by numerous strong and
capable competitors, some of which have more extensive developmental or
operating experience, more extensive experience in the acquisition and
development of power generation capacity, larger staffs and greater financial
resources than NRG. Further, in recent years, the domestic independent power
industry has been characterized by strong and increasing competition which has
contributed to a reduction in prices offered by utilities for power produced
by independent power producers and has resulted in lower returns to project
investors. See "Risk Factors -- Effects of Ongoing Changes in the U.S. Utility
Industry" and "Business -- Competition."
Many of NRG's competitors also are seeking attractive acquisition
opportunities, both in the United States and abroad. This competition may
adversely affect NRG's ability to make investments or acquisitions on terms
favorable to NRG. Many foreign and domestic utilities are now engaging in
"competitive bid" solicitations for new capacity demands or acquisitions.
RISKS INVOLVED IN MAKING MINORITY INVESTMENTS IN PROJECTS
NRG conducts its business primarily through direct and indirect
subsidiaries and joint ventures. Most of NRG's current project investments
consist of minority interests in project affiliates (i.e., where NRG
beneficially owns 50% or less of the ownership interests). A substantial
portion of future investments in projects also may take the form of minority
interests. See "Business --Strategy." As a result, NRG's ability to control
the development, construction, acquisition or operation of such projects may
be limited. The Indenture does not contain any limitations on the ability of
NRG to make minority investments.
Although NRG seeks to exert a degree of influence with respect to the
management and operation of projects in which it is a minority investor by
negotiating to receive certain limited governance rights (such as rights to
veto significant actions or to obtain positions on management committees), NRG
may not always succeed in such negotiations. See "Business -- Operating
Arrangements." NRG may be dependent on its co-venturers to construct and
operate such projects. There can be no assurance that such co-venturers would
have the same level of experience, technical expertise, human resources
management and other attributes that NRG possesses. Any such co-venturer may
have conflicts of interest, including those relating to its status as a
provider of goods or services to the project. The approval of co-venturers
also may be required for distributions of funds from projects to NRG.
UNCERTAINTY OF ACCESS TO CAPITAL FOR FUTURE PROJECTS
Any projects that NRG develops in the future and any projects that it may
seek to acquire generally will require substantial capital investment.
Continued access to debt capital from outside sources on acceptable terms is
necessary to assure the success of future projects and acquisitions. NRG's
ability to arrange financing on a substantially non-recourse basis and the
costs of such capital are dependent on numerous factors, including general
economic and capital market conditions, credit availability from banks and
other financial institutions, investor confidence in NRG, its partners and in
the local independent power market, the success of current projects, the
perceived quality of new projects and provisions of tax and securities laws
that are conducive to raising capital in this manner. In order to
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access capital on a substantially non-recourse basis in the future, NRG may
have to make larger equity investments in, or provide more financial support
for, its project subsidiaries. To date, NRG's equity capital for its projects
has been provided by equity contributions from NSP and, to a lesser extent,
internally-generated cash flow from its projects. There can be no assurance
that NRG will be successful in structuring the financing for its projects on
a substantially non-recourse basis or that NRG will obtain sufficient
additional equity capital from NSP, project cash flow or additional
borrowings by NRG to enable it to fund the equity commitments required for
future projects.
CONSTRUCTION AND START-UP RISKS
As with any major industrial construction effort, the construction,
expansion or refurbishment of a power generation, thermal energy production
and transmission facility or resource recovery facility involves many risks,
including supply interruptions, work stoppages, labor disputes, weather
interferences, unforeseen engineering, environmental and geological problems
and unanticipated cost overruns. The commencement of operation of such
newly-constructed, expanded or refurbished facilities also involves many
risks, including the breakdown or failure of equipment or processes and test
performance below expected levels of output or efficiency. New plants may
employ recently developed and technologically complex equipment, especially in
the case of newer environmental emission control technology. While insurance
is maintained to protect against certain risks, warranties are obtained from
vendors for limited periods and contractors are obligated to meet certain
performance levels, the proceeds of such insurance, warranties or performance
guarantees may not be adequate to cover lost revenues, increased expenses or
liquidated damages payments. As a result, a project may operate at a loss and
be unable to fund principal and interest payments under its project financing
agreements, which may allow the affected lenders to accelerate such debt.
In addition, many power and thermal energy purchase agreements permit the
customer to terminate the agreement, retain security posted by the developer
as liquidated damages or change the payments to be made to the project
subsidiary or the project affiliate in the event certain milestones, such as
commencing commercial operation of the project, are not met by specified
dates. In the event such a termination right is exercised, a project may not
commence generating revenues, the default provisions in a financing agreement
may be triggered (rendering such debt immediately due and payable) and the
project may be rendered insolvent as a result.
OPERATING RISKS
The operation of a power generation facility, thermal energy production and
transmission facility, resource recovery facility or mining facility involves
many risks, including the breakdown or failure of generation equipment or
other equipment or processes, labor disputes, fuel interruption and operating
performance below expected levels. Operation below expected capacity levels
may result in lost revenues or increased expenses, including higher
maintenance costs and penalties. As a result, a facility may be unable to
perform its obligations under its purchase agreements, triggering the default
provisions in a financing agreement (rendering such debt immediately due and
payable) and the project may be rendered insolvent as a result.
Certain power purchase agreements of NRG's project subsidiaries or project
affiliates permit the purchaser to terminate the agreement, modify the
payments required under the agreement, recover payments previously made under
the agreement or require such project subsidiaries or project affiliates to
pay liquidated damages under the agreement in certain circumstances. See
"Business -- Independent Power Production and Cogeneration." While insurance
is maintained to protect against certain risks, warranties are obtained from
vendors for limited periods and contractors are obligated to meet certain
performance levels, the proceeds of such insurance, warranties or performance
guarantees may not be adequate to cover lost revenues, increased expenses or
liquidated damages payments. As a result, default provisions in the project
subsidiary's or project affiliate's financing agreements may be triggered,
which might allow the affected lenders to accelerate such debt.
Payments under power purchase agreements for domestic projects that satisfy
the requirements for "qualifying facility" status under the Public Utility
Regulatory Policies Act ("PURPA") and that are based
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upon actual short-run (as opposed to forecasted long-run) "avoided cost" (or
the cost that would otherwise have been paid for power from the purchasing
utility's highest-cost generating facility, see "Business"), are subject to
significant variations based upon a number of factors outside of the control
of the owners of such facilities, including weather, economic conditions, and
the particular operating profile and generating capacity position of the
purchasing utility. A project affiliate of NRG owns a 50% interest in a joint
venture that owns the Sunnyside waste coal-fired power generation facility in
Carbon County, Utah. The Sunnyside facility has experienced a shortfall in
project cash flow attributable primarily to decreased revenues due to avoided
energy rates being significantly lower than originally forecasted. In the
absence of a restructuring of the project's debt, a debt service reserve
fund, which has been used to make up cash shortfalls, is expected to be
depleted within twelve months. There can be no assurance as to the actions
the partnership which owns the Sunnyside facility may take at that time. See
"Business -- Independent Power Production and Cogeneration -- Sunnyside."
NRG has provided guarantees relating to certain equity and operating
obligations of its project subsidiaries. One example is NRG's guarantee of the
obligations of its project subsidiary that operates the Gladstone facility for
up to AUS$25 million, indexed to the Australian consumer price index ("ACPI")
(US$21.5 million, based on exchange rates and ACPI in effect at March 31,
1997), under the project subsidiary's operating and maintenance agreement with
the owners of the facility. If NRG were required to satisfy all these
guarantees and other obligations, such event would have a material adverse
effect on NRG's condition, financial and otherwise. See "Business --
Description of NRG's Projects" and "Business -- Independent Power Production
and Cogeneration -- Gladstone Power Station."
DEPENDENCE ON CERTAIN CUSTOMERS AND PROJECTS
A power generation, thermal energy production and transmission or resource
recovery facility typically relies on a single supplier each for the provision
of fuel, water and other services required for operation of the facility and
on a single customer or a few customers to purchase all of the facility's
output, in each case under long-term agreements that provide the support for
any project debt used to finance such facilities. The failure of any one
customer or supplier to fulfill its contractual obligations to the facility
could have a material adverse effect on such facility's financial results. As
a result, the financial performance of such facilities is dependent on the
continued performance by customers and suppliers of their obligations under
such long-term agreements and, in particular, on the credit quality of the
project's customers. Each of the Waldorf and Newport projects produced more
than ten percent of NRG's net revenues for 1996. See "Business -- Principal
Customers of Operating Subsidiaries." In addition, on a pro forma basis Loy
Yang A would have produced more than ten percent of NRG's net revenues for
1996.
GOVERNMENTAL REGULATION
NRG is subject to a number of complex and stringent environmental and other
laws and regulations affecting many aspects of its present and future
operations, including the disposal of various forms of waste and the
construction or permitting of new facilities. See "Regulation." Such laws and
regulations generally require NRG to obtain and comply with a wide variety of
licenses, permits and other approvals, and may in some cases be enforced by
both public officials and private individuals. There can be no assurance that
existing laws or regulations will not be revised or that new laws or
regulations will not be adopted or become applicable to NRG which could have
an adverse impact on its operations. There can be no assurance that NRG will
be able to recover all or any increased costs of compliance from its customers
or that its business and financial condition will not be materially and
adversely affected by future changes in environmental laws or regulations. In
addition, regulatory compliance for the construction of new facilities is a
costly and time-consuming process, and intricate and rapidly changing
environmental regulations may require major expenditures for permitting and
create the risk of expensive delays or material impairment of project value if
projects cannot function as planned due to changing regulatory requirements or
local opposition.
PURPA and the Public Utility Holding Company Act of 1935, as amended
("PUHCA"), are two of the laws (including the regulations thereunder) that
affect NRG's operations. PURPA provides to qualifying
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facilities ("QFs") certain exemptions from federal and state laws and
regulations, including organizational, rate and financial regulation. PUHCA
regulates public utility holding companies and their subsidiaries. NRG is not
and will not be subject to regulation as a holding company under PUHCA as
long as the domestic power plants it owns are QFs under PURPA or are exempted
as exempt wholesale generators ("EWGs"), and so long as its foreign utility
operations are exempted as EWGs or foreign utility companies or are otherwise
exempted under PUHCA. QF status is conditioned on meeting certain criteria,
and could be jeopardized, for example, by the loss of a steam customer or
reduction of steam purchases below the amount required by PURPA. See
"Regulation."
CHANGES IN STATE MUNICIPAL SOLID WASTE ("MSW") FLOW CONTROL LAWS
RDF projects, such as NRG's Newport facility and NSP's Elk River facility,
which is operated by NRG, historically were assured an adequate supply of MSW
through state and local flow control legislation, which directed that MSW be
disposed of in certain facilities. In May 1994, the United States Supreme
Court held that MSW is a commodity in interstate commerce and, accordingly,
that flow control legislation that prohibited shipment of MSW out of state is
unconstitutional. Since this Supreme Court holding, the RDF facilities owned
or operated by NRG have faced increased competition from landfills in
surrounding states. As a result of such competition, MSW processed at the
Newport facility decreased approximately 5% in 1995, from approximately
378,000 tons in 1994 to 360,000 tons in 1995. In 1996, however, due to
assistance from NRG and a reduction of tipping fees under contracts entered
into between haulers and the Ramsey and Washington Counties, waste deliveries
reversed their downward trend. However, in the absence of valid flow control
legislation, there can be no assurance that this improved trend will continue.
See "Business -- Resource Recover Facilities."
EFFECTS OF ONGOING CHANGES IN THE U.S. UTILITY INDUSTRY
The U.S. electric utility industry currently is experiencing increasing
competitive pressures, primarily in wholesale markets, as a result of consumer
demands, technological advances, greater availability of natural gas and other
factors. The Federal Energy Regulatory Commission ("FERC") has proposed
regulatory changes to increase access to the nationwide transmission grid by
utility and non-utility purchasers and sellers of electricity. A number of
states are considering or implementing methods to introduce and promote retail
competition. Proposals have been introduced in Congress to repeal PURPA and
PUHCA, and the FERC has publicly indicated support for the PUHCA repeal
effort. Additionally, some utilities have brought litigation aimed at forcing
the renegotiation or termination of contracts requiring payments to owners of
qualifying facilities based upon past estimates of avoided cost that are now
substantially in excess of market prices. There can be no assurance that, in
the future, utilities, with the approval of state public utility commissions,
will not seek to abrogate their existing power purchase agreements. See
"Regulation."
If the repeal of PURPA or PUHCA occurs, either separately or as part of
legislation designed to encourage the broader introduction of wholesale and
retail competition, the significant competitive advantages that independent
power producers currently enjoy over certain regulated utility companies would
be eliminated or sharply curtailed, and the ability of regulated utility
companies to compete more directly with independent power companies would be
increased. To the extent competitive pressures increase and the pricing and
sale of electricity assumes more characteristics of a commodity business, the
economics of domestic independent power generation projects may come under
increasing pressure, and the availability of long-term power purchase
agreements, which can serve as the basis for project financings, may decrease.
Deregulation may not only continue to fuel the current trend toward
consolidation among domestic utilities but may also encourage the
disaggregation of vertically-integrated utilities into separate generation,
transmission and distribution businesses. As a result, additional significant
competitors could become active in the independent power industry. In
addition, independent power producers may find it increasingly difficult to
negotiate long-term power sales agreements with solvent utilities, which may
affect the profitability and financial stability of independent power
projects.
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LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued in June 1997 to a small number of institutional investors
and are eligible for trading in the Private Offering, Resale, and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screenbased, automated market for trading of securities
eligible for resale under Rule 144A. The New Notes are new securities for
which there currently is no market. Although the Initial Purchasers (as
defined herein) have informed NRG that they currently intend to make a market
in the New Notes, they are not obligated to do so and any such market making
may be discontinued at any time without notice. NRG does not intend to list
the New Notes or the Old Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no
assurance as to the development or liquidity of any market for the New Notes
or the Old Notes.
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Offering Memorandum Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Offering Memorandum
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of NRG to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions; industry
capacity; demographic changes; competition; changes in technology; changes in
political, social and economic conditions; changes in local laws and
regulations; changes in electricity usage patterns and practices; changes in
fuel pricing, including coal, oil and oil products and natural gas; and
various other factors beyond NRG's control.
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USE OF PROCEEDS
NRG will not receive any proceeds from the issuance of the New Notes
offered pursuant to the Exchange Offer. In consideration for issuing the New
Notes as contemplated in this Prospectus, NRG will receive in exchange Old
Notes in like principal amount, the terms of which are identical in all
material respects to the New Notes except for certain transfer restrictions
and registration rights. The Old Notes surrendered in exchange for New Notes
will be retired and cancelled and cannot be reissued. Accordingly, issuance of
the New Notes will not result in any increase in the indebtedness of NRG.
The net proceeds to NRG from the offering of the Old Notes, after deducting
discounts and expenses, were approximately $246.0 million. NRG used those net
proceeds to repay outstanding debt under the Bridge Financing and for other
general corporate purposes. The Bridge Financing was used for the acquisition
of NRG's interest in the Loy Yang Project. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Certain Indebtedness."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The Old Notes were sold by NRG on June 17, 1997 (the "Closing Date") to
Salomon Brothers Inc, ABN AMRO Chicago Corporation and Chase Securities Inc.
(the "Initial Purchasers") pursuant to a Purchase Agreement, dated June 12,
1997, entered into by and among NRG and the Initial Purchasers (the "Purchase
Agreement"). Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), NRG will accept for exchange Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time on , 1997; provided, however, that if NRG, in its
sole discretion, has extended the period of time for which the Exchange Offer
is open, the term "Expiration Date" means the latest time and date to which
the Exchange Offer is extended.
As of the date of this Prospectus, $250,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of
Old Notes known to NRG. NRG's obligation to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "--Conditions to the Exchange Offer" below.
NRG expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral or written
notice of such extension to the Holders thereof as described below. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by NRG. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
NRG expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Conditions to the Exchange Offer." NRG will give oral
or written notice of any extension, amendment, non-acceptance or termination
to the Holders of the Old Notes as promptly as practicable, such notice in the
case of any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING
The tender to NRG of Old Notes by a Holder thereof as set forth below and
the acceptance thereof by NRG will constitute a binding agreement between the
tendering Holder and NRG upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal. Except
as set forth below, a Holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to Norwest Bank Minnesota, National Association (the
"Exchange Agent") at one of the addresses set forth below under "--Exchange
Agent" for receipt on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depositary Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
procedures described below.
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THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO NRG.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
as described below (see "--Guaranteed Delivery Procedures") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures of a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program (collectively, "Eligible Institutions"). If Old
Notes are registered in the name of a person other than a signer of the Letter
of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or
be accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by NRG, duly executed by the registered
Holder with the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be determined by NRG in its
sole discretion, which determination will be final and binding. NRG reserves
the absolute right to reject any and all tenders of any particular Old Notes
not properly tendered or to not accept any particular Old Note if acceptance
would, in the judgment of NRG or its counsel, be unlawful. NRG also reserves
the absolute right to waive any defects, irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer as to any particular Old Notes
either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by NRG will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes for exchange must be cured within such reasonable period
of time as NRG may determine. None of NRG, the Exchange Agent or any other
person will be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor will
any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered Holder or Holders that appear
on the Old Notes.
If the Letter of Transmittal or any Old Note or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
NRG, proper evidence satisfactory to NRG of their authority to so act must be
submitted with the Letter of Transmittal.
25
<PAGE>
By tendering, each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If any Holder is an affiliate of NRG, is engaged in or intends to
engage in or has any arrangement with any person to participate in the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
NRG will accept, promptly after the Expiration Date, all Old Notes properly
tendered and will issue the New Notes promptly after acceptance of the Old
Notes. See "--Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, NRG will be deemed to have accepted properly tendered Old
Notes for exchange, when, as and if NRG has given oral or written notice
thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a new Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from June 17,
1997. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any payment in
respect of accrued interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after
consummation of the Exchange Offer. In the event of a Registration Default
under and as defined in the Registration Rights Agreement, NRG will pay
Special Interest to each Holder of Transfer Restricted Securities (as defined
herein). See "Description of Notes -- Special Interest."
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required
26
<PAGE>
documents, must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "--Exchange Agent" on or
prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by NRG (by telegram,
telex, facsimile transmission, mail or hand delivery), setting forth the name
and address of the Holder of Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange, Inc. ("NYSE") trading days after the
date of execution of the Notice of Guaranteed Delivery, the certificates for
all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of its addresses set forth below under
"--Exchange Agent" prior to the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes), and (iii) (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
NRG, whose determination shall be final and binding on all parties. Any Old
Note so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Note which has been
tendered for exchange but which is not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer procedures described above, such Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described under
"--Procedures for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, NRG will not be
required to accept for exchange, or issue New Notes in exchange for, any Old
Notes and may terminate or amend the Exchange Offer if at any time before the
acceptance of such Old Notes for exchange or the exchange of the New Notes for
such Old Notes, any of the following events occur:
27
<PAGE>
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in
the ability of NRG to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer, or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government or governmental
authority, agency or court, domestic or foreign, that in the reasonable
judgment of NRG might directly or indirectly result in any of the
consequences referred to in clauses (i) or (ii) above or, in the
reasonable judgment of NRG, might result in the Holders of New Notes
having obligations with respect to resales and transfers of New Notes
which are greater than those described in the interpretation of the
Commission referred to on the cover page of this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of NRG to complete the transactions contemplated by the Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States,
or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of NRG and its subsidiaries taken as a whole that, in the
reasonable judgment of NRG, is or may be adverse to NRG, or NRG shall have
become aware of facts that, in the reasonable judgment of NRG, have or may
have adverse significance with respect to the value of the Old Notes or
the New Notes;
which, in the reasonable judgment of NRG in any case, and regardless of the
circumstances (including any action by NRG) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of NRG and may be
asserted by NRG regardless of the circumstances giving rise to any such
condition or may be waived by NRG in whole or in part at any time and from
time to time in its sole discretion. The failure by NRG at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, NRG will not accept for exchange any Old Note tendered, and no
New Notes will be issued in exchange for any such Old Note, if at such time
any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
28
<PAGE>
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as the
Exchange Agent of the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
<S> <C>
By Hand Delivery:
By Registered or Certified Mail: Norwest Bank Minnesota National Association
Norwest Bank Minnesota, National Association Northstar East 12th Floor
P.O. Box 1517 608 2nd Avenue
Minneapolis, Minnesota 55480-1517 Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
By Overnight Delivery:
Norwest Bank Minnesota National Association By Facsimile
Norwest Center (612) 667-4927
6th and Marquette Avenue Confirm by Telephone:
Minneapolis, Minnesota 55479-0069 (612) 667-9764
Attention: Corporate Trust Operations
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
NRG will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by NRG and are estimated in the aggregate to be $400,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer tax in connection therewith, except that Holders who instruct
NRG to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of
any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. NRG does not currently anticipate that it will register Old
Notes under the Securities Act. See "Description of Notes--Registration
Rights." Based on interpretations by the staff of the Commission issued to
third parties, New Notes
29
<PAGE>
issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by Holders thereof (other
than any Holder which is an "affiliate" of NRG within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the
distribution of such New Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any Holder is an affiliate of NRG, is engaged
in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied
with. NRG does not currently intend to register or qualify the sale of the
New Notes in any such jurisdictions.
30
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
NRG as of March 31, 1997 and as adjusted to give effect to the equity
contribution of $60.9 million from NSP in connection with the acquisition of
Loy Yang A and the Offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED
---------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Long-term debt:
Existing funded debt(1)................................. $211,536 $211,536
Notes .................................................. 250,000
---------- -------------
Total long-term debt................................... 211,536 461,536
---------- -------------
Stockholder's equity:
Common stock; $1 par value; 1,000 shares authorized;
1,000 shares issued and outstanding ................... 1 1
Additional paid-in capital ............................. 371,013 431,913(2)
Retained earnings ...................................... 73,104 73,104
Currency translation adjustments ....................... (656) (656)
---------- -------------
Total stockholder's equity ............................ 443,462 504,362
---------- -------------
Total capitalization ................................. $654,998 $965,898
========== =============
<FN>
- ------------
(1) Includes $4.9 million of current portion of long-term debt and $76.4
million of debt relating to MEC, including current maturities, which is
non-recourse to NRG.
(2) Reflects the $60.9 million contribution by NSP in connection with the
acquisition of Loy Yang A.
</TABLE>
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1993, 1994, 1995 and 1996 and for the years then ended, have been derived from
the audited consolidated financial statements of NRG. Certain financial
information for the years ended December 31, 1993 and 1994 have been
reclassified to conform to the financial presentation for the year ended
December 31, 1995. The selected consolidated financial data set forth below as
of March 31, 1996 and 1997, and for the three-month periods then ended, and as
of December 31, 1992 and for the year then ended, have been derived from the
unaudited consolidated financial statements of NRG. Interim results and the
results for 1992, in the opinion of management of NRG, include all adjustments
(consisting solely of normal recurring adjustments) necessary to present
fairly the financial information for such periods; however, such interim
results are not necessarily indicative of the results that may be expected for
any other interim period or for a full year. The following data should be read
in conjunction with the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---------- --------- --------- --------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations(1) . $39,647 $48,529 $63,970 $64,180 $ 71,649 $18,662 $21,665
Equity in operating earnings of
unconsolidated affiliates(2)(3).......... 1,321 2,695 27,155 23,639 32,815 5,904 8,492
---------- --------- --------- --------- ---------- --------- ---------
Total operating revenues ................ 40,968 51,224 91,125 87,819 104,464 24,566 30,157
OPERATING COSTS AND EXPENSES
Cost of operations--wholly-owned
operations .............................. 22,870 27,122 34,861 32,535 36,562 9,700 12,222
Depreciation and amortization ............ 5,060 6,475 8,675 8,283 8,378 2,083 2,176
General, administrative, and development 14,930 11,448 19,993 34,647 39,248 10,610 8,833
---------- --------- --------- --------- ---------- --------- ---------
Total operating costs and expenses ..... 42,860 45,045 63,529 75,465 84,188 22,393 23,231
---------- --------- --------- --------- ---------- --------- ---------
OPERATING INCOME (LOSS) ................... (1,892) 6,179 27,596 12,354 20,276 2,173 6,926
OTHER INCOME (EXPENSE)
Equity in gain from project termination
settlements ............................. -- -- 9,685 29,850 -- -- --
Other income (expense), net .............. (1,753) 1,028 1,411 4,896 9,477 1,908 2,018
Interest expense ......................... (1,662) (2,679) (6,682) (7,089) (15,430) (3,225) (4,063)
---------- --------- --------- --------- ---------- --------- ---------
Total other income (expense) ............ (3,415) (1,651) 4,414 27,657 (5,953) (1,317) (2,045)
---------- --------- --------- --------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ........ (5,307) 4,528 32,010 40,011 14,323 856 4,881
INCOME (BENEFIT) TAXES(4) ................. (2,187) 1,905 2,472 8,810 (5,655) (1,691) (1,922)
---------- --------- --------- --------- ---------- --------- ---------
NET INCOME (LOSS).......................... $(3,120) $ 2,623 $29,538 $31,201 $ 19,978 $ 2,547 $ 6,803
========== ========= ========= ========= ========== ========= =========
</TABLE>
- ------------
(1) All of these revenues are from 100% owned operations. In accordance
with its strategy described herein, when NRG does not own 100% of a
project, it owns 50% or less in all cases except COBEE and Kladno.
(2) NRG accounts for its investments in projects where ownership is between
20% and 50%, and where there is no effective and legal control, using
the equity method of accounting; COBEE and Kladno are also accounted
for using the equity method of accounting even though NRG currently
owns more than a 50% interest in both projects because NRG intends to
sell down below the 50% level. Equity in earnings of unconsolidated
project affiliates includes NRG's proportionate share of all net income
or losses attributable to project investments accounted for using the
equity method.
(3) Includes pretax charges of $5.0 million, $5.0 million and $1.5 million
in 1994, 1995 and 1996, respectively, to write-down the carrying value
of certain energy projects.
(4) NRG is included in the consolidated federal income tax and state
franchise tax returns of NSP. NRG calculates its tax position on a
separate company basis under a tax sharing agreement with NSP and
receives payment from NSP for tax benefits and pays NSP for tax
liabilities.
32
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net property, plant and equipment . $46,694 $108,934 $107,634 $111,919 $129,649 $111,703 $135,652
Net equity investments in projects 16,400 20,046 164,863 221,129 365,749 207,859 371,132
Long-term debt, including current
maturities ........................ 10,499 93,451(1) 93,339(1) 90,034(1) 212,141(1) 214,465(1) 211,536(1)
Stockholder's equity ............... 40,267 97,722 234,722 319,764 421,914 324,600 443,462
</TABLE>
- ------------
(1) Includes debt relating to MEC, including current maturities, which is
non-recourse to NRG. As of March 31, 1997 this debt was $76.4 million.
OTHER DATA (UNAUDITED):
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- ---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
NRG's net power generating
capacity (MW).......................... 33 33 992 999 1,326 1,021 1,365(1)
NRG's net thermal energy generating
capacity:
mmBtus per hour ....................... 695 1,865 1,961 2,318 2,654 2,654 2,654
MWt ................................... 204 547 575 679 822 822 822
Consolidated EBITDA (2) ................ $1,415 $13,682 $47,367 $55,383 $38,131 $6,164 $11,120
Consolidated interest expense .......... 1,662 2,679 6,682 7,089 15,430 3,225 4,063
Consolidated interest expense coverage
ratio (3) ............................. 0.85x 5.11x 7.09x 7.81x 2.47x 1.91x 2.74x
Consolidated debt service (4) .......... $2,562 4,272 9,169 10,394 18,323 3,794 4,668
Consolidated debt service coverage
ratio (5) ............................. 0.55x 3.20x 5.17x 5.33x 2.08x 1.62x 2.38x
Consolidated ratio of earnings to fixed
charges (6)............................ (7) 2.32x 2.98x 1.56x(9) 1.75x(10) 4.48x(10) (8)
</TABLE>
- ------------
(1) Does not include NRG's net power generation capacity in Loy Yang A and
Kladno.
(2) EBITDA equals the sum of income (loss) before income taxes, interest
expense (net of capitalized interest) and depreciation and amortization
expense. Management believes that some investors consider EBITDA an
accepted indicator of a company's ability to service debt. EBITDA is not
a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute
for net income, cash flows from operations or other income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity. See Statements
of Cash Flows in the Consolidated Financial Statements included elsewhere
in this Prospectus.
(3) The interest expense coverage ratio equals EBITDA divided by interest
expense.
(4) Debt service consists of the previous twelve months of interest expense
and principal payments on long-term debt.
(5) The debt service coverage ratio equals EBITDA divided by debt service.
(6) The ratio of earnings to fixed charges is calculated by dividing
earnings by fixed charges. For this purpose "earnings" means income
(loss) before income taxes less undistributed equity in operating
earnings of unconsolidated affiliates less equity in gain from project
termination settlements plus cash distributions from project
termination settlements plus fixed charges. "Fixed charges" means
interest expense plus interest capitalized plus amortization of debt
issuance costs plus a reasonable approximation of the interest factor
of rental expense.
(7) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(8) Due primarily to undistributed equity earnings exceeding income before
income taxes, NRG was unable to fully cover fixed charges. Earnings did
not cover fixed charges by $1,832.
(9) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
<PAGE>
(10) The 1996 ratio of earnings to fixed charges calculation includes the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would have
been unable to fully cover fixed charges and earnings would not have
covered fixed charges by $3,504 for 1996 and by $3,635 for the three
months ended March 31, 1996.
33
<PAGE>
SELECTED PRO FORMA CONDENSED FINANCIAL DATA
The unaudited pro forma condensed financial data set forth below give
effect to (i) the acquisition by NRG of a 25.37% equity interest in Loy Yang A
and the financing thereof and (ii) the Offering. The pro forma statement of
income data for the year ended December 31, 1996 and the three months ended
March 31, 1997 gives effect to such transactions as if they had occurred at
the beginning of the periods presented. The pro forma balance sheet data as of
March 31, 1997 gives effect to such transactions as if they had occurred on
March 31, 1997. The pro forma condensed financial data do not purport to be
indicative of the combined financial position or results of operations of
future periods or indicative of the results that would have occurred had the
transactions referred to above been consummated on the dates indicated. The
following data should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 71,649 -- $ 71,649
Equity in earnings of unconsolidated affiliates 32,815 $ 15,300 (1) 48,115
Operating costs and expenses .................... (84,188) -- (84,188)
Other income (expense) .......................... 9,477 -- 9,477
Interest expense ................................ (15,430) (18,750)(2) (34,180)
Income taxes .................................... 5,655 4,373 (3) 10,028
------------ -------------- -----------
Net Income....................................... $ 19,978 $ 923 $ 20,901
============ ============== ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang A for twelve months
based upon historical data adjusted for certain management assumptions.
(2) Represents accrued interest on $250 million principal amount of the Old
Notes for twelve months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
34
<PAGE>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 21,665 -- $ 21,665
Equity in earnings of unconsolidated affiliates 8,492 $ 3,825 (1) 12,317
Operating costs and expenses .................... (23,231) -- (23,231)
Other income and (expense) ...................... 2,018 -- 2,018
Interest expense ................................ (4,063) (4,688)(2) (8,751)
Income taxes .................................... 1,922 1,093 (3) 3,015
------------ ------------- ------------
Net Income....................................... $ 6,803 $ 230 $ 7,033
============ ============= ============
BALANCE SHEET DATA:
ASSETS
Current assets $ 69,197 $ 49,100 (4) $ 118,297
Property plant and equipment net ................ 135,652 135,652
Investments in projects and other assets ....... 491,763 261,800 (5) 753,563
------------ ------------- ------------
Total assets .................................. $696,612 $310,900 $1,007,512
============ ============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Long-term and short-term debt ................... $211,536 $250,000 (6) $ 461,536
Other liabilities ............................... 41,614 -- 41,614
Stockholder's equity ............................ 443,462 60,900 (7) 504,362
------------ ------------- ------------
Total liabilities and stockholder's equity ... $696,612 $310,900 $1,007,512
============ ============= ============
</TABLE>
- ------------
(1) Represents estimated equity earnings for three months from Loy Yang A
based upon historical data adjusted for certain management assumptions.
(2) Represents interest expense on $250 million principal amount of the Old
Notes for three months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
(4) Represents net cash provided in excess of the amount needed for the
investment in Loy Yang A and total financing costs.
(5) Net investment in Loy Yang A of $257 million plus total financing costs
associated with the Offering and the Bridge Financing to be amortized
over the life of the Old Notes.
(6) Represents the aggregate principal amount of the Old Notes.
(7) Represents equity contribution of $60.9 million by NSP.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with NRG's
consolidated financial statements appearing elsewhere in this Offering
Memorandum. In addition, as a result of the recent Loy Yang acquisition, NRG's
future results could differ significantly from NRG's historical results. See
"Selected Pro Forma Condensed Financial Data" and "Business."
GENERAL
NRG has developed a complex organizational structure involving foreign
holding companies, corporations, partnerships and joint ventures through which
NRG holds interests in its international projects. These entities are
organized to maximize available cash flows (by reducing and deferring foreign
and U.S. taxes) and to reduce current and deferred taxes. As part of NRG's
global tax strategy, NRG intends to maintain offshore, for permanent
reinvestment in other projects, its dividends and distributions from foreign
investments, except to the limited extent required to make payments of
interest or principal on loans from NRG. Any repatriation of dividends from
foreign investments may result in adverse U.S. income tax consequences.
NRG's policy is to pay for offshore development expenses from available
offshore cash. NRG generally funds offshore investments as equity, which can
come from a variety of sources, including capital infusions from NSP,
borrowings by NRG and internal cash generation. In certain circumstances, a
portion of project equity funding is treated as a loan by NRG to the project
subsidiary or affiliate on market-based interest rate and repayment terms.
In light of NRG's global tax policy as described above, cash flows from
ongoing domestic operations and repayments of principal and interest by
foreign project subsidiaries and project affiliates to NRG are expected to be
the primary source of cash to service NRG's corporate obligations, including
with respect to the Notes. To date, NRG's consolidated operating revenues from
domestic operations have been derived primarily from the production and
transmission of thermal energy (steam and chilled water) and from the
operation of resource recovery facilities that process MSW into RDF. Other
operating revenues arose from fees earned in providing management and
engineering services to a number of operating facilities. NRG's operating
expenses also are largely attributable to domestic activities except for
general, administrative and development expenses, which in 1994, 1995 and 1996
were incurred primarily in pursuit of international investment and acquisition
activities.
NRG accounts for investments in projects where ownership is between 20% and
50%, and where there is no effective and legal control, using the equity
method of accounting. Under the equity method, NRG's investment in an entity
is recorded on the balance sheet at cost and is adjusted to recognize NRG's
proportional share of all earnings or losses of the entity. Distributions
received reduce the carrying amount of NRG's investment in the entity. For
income statement purposes, NRG records as equity in earnings its proportional
share of net income or losses which are attributable to those projects that
are accounted for using the equity method. Certain reclassifications have been
made to the 1994 financial data included herein to conform to the 1995 and
1996 presentation. These reclassifications had no effect on net income or
stockholder's equity as previously reported.
The costs of developing a project are expensed until the project meets the
major milestones of (1) a signed power purchase agreement or the equivalent
and (2) approval by the Board of Directors of NRG. There were several projects
under development at March 31, 1997 that met NRG's policy for capitalization
of development costs. At March 31, 1997, NRG had a total of $9.6 million in
capitalized costs related to Alto Cachopoal ($0.4 million), Collinsville ($1.0
million), Kladno ($6.6 million), Energy Developments Limited ($0.1 million)
and West Java ($1.5 million).
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
For the three months ended March 31, 1997, NRG had operating revenues of
$30.2 million, compared to operating revenues of $24.6 million for the three
months ended March 31, 1996, an
36
<PAGE>
increase of 23%. NRG's operating revenues from wholly-owned operations for
the period ended March 31, 1997 were $21.7 million, an increase of $3.0
million, or 16%, over the same period in 1996. The increase was primarily
attributable to increases in MEC sales volume, rates charged to customers and
pass-through fuel costs, management fee and cost reimbursement revenue from
NRG wholly-owned service subsidiaries, and reduced gas curtailment at Grand
Forks AFB. Revenues from the thermal business increased $2.2 million and the
RDF business increased $0.6 million, due to increases in MSW deliveries at
the Newport Facility. For the three months ended March 31, 1997, revenues
from wholly-owned operations consisted primarily of revenue from district
heating and cooling (47%), resource recovery activities (30%), other thermal
projects (17%) and NEO (1%).
Equity in earnings of unconsolidated project affiliates was $8.5 million
for the three months ended March 31, 1997 compared to $5.9 million for the
three months ended March 31, 1996, an increase of 44%. New revenue sources
from NRGG and COBEE provided equity earnings of $1.8 million and $0.5 million,
respectively, for the period ended March 31, 1997. Additionally, new equity
investments in Latin Power and NEO contributed an additional $0.5 million in
equity income in the first quarter of 1997.
Cost of operations in wholly-owned operations was $12.2 million for the
three months ended March 31, 1997, an increase of $2.5 million, or 25.8%, over
the same period in 1996, due primarily to increased MEC sales volume, service
labor costs and fuel costs. Cost of operations as a percentage of revenues
from wholly-owned operations increased to 56% from 52% primarily because of
higher fuel and labor costs.
General, administrative and development costs were $8.8 million for the
three months ended March 31, 1997, compared to $10.6 million for the three
months ended March 31, 1996, a decrease of $1.8 million, or 17.0%. This
decrease was due to a reduction in business development expenses of $2.5
million, from $5.2 million for the three months ended March 31, 1996, to $2.7
million for the three months ended March 31, 1997. This reduction was
primarily caused by the large number of projects that reached the milestones
that allowed such expenses to be capitalized.
Interest expense for the three months ended March 31, 1997, as compared
with the same period in 1996, increased by $0.9 million, from $3.2 million to
$4.1 million. This increase primarily was due to the issuance of $125 million
aggregate principal amount of 7.625% Senior Notes Due 2006 (the "1996 Senior
Notes") at the end of January 1996. Therefore, the 1996 Senior Notes were
outstanding the entire first three months of 1997 compared to two months in
1996.
Net income for the three months ended March 31, 1997, was $6.8 million, an
increase of $4.3 million, or 172%, compared to net income of $2.5 million in
the same period in 1996. This increase was due to the factors described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, NRG had operating revenues of $104.5
million, compared to operating revenues of $87.8 million in 1995, an increase
of 19%. NRG's operating revenues from wholly-owned operations for the year
ended December 31, 1996 were $71.6 million, an increase of $7.5 million, or
12%, over the prior year. The increase was primarily attributable to continued
expansion of NEO's methane gas business and increased revenues from MEC. For
the year ended December 31, 1996, revenues from wholly-owned operations
consisted primarily of revenue from district heating and cooling (39%),
resource recovery activities (33%), other thermal projects (19%) and NEO (5%).
Equity in earnings of unconsolidated project affiliates, excluding gains on
project termination settlements, was $32.8 million for the year ended December
31, 1996, compared to $23.6 million for the year ended December 31, 1995, an
increase of 39%. In 1996, new revenue sources from the Schkopau and NRGG
projects provided equity earnings of $6.4 million and $2.3 million,
respectively. Additionally, Latin Power provided $1.6 million of increased
equity earnings in 1996 as compared to 1995 because of the startup of a new
project. These were offset by an expected decrease in equity earnings of $9.2
million for the MIBRAG mining and power generation project, primarily due to
expected decreases in coal and briquette sales. Equity in earnings of
Gladstone was $10.8 million in 1996, down slightly from 1995 earnings of $11.2
million. Equity in earnings in 1996 and 1995 reflect an investment write-down
of $1.5
37
<PAGE>
million and $5.0 million, respectively, relating to the enhanced coal project
of NRG's wholly-owned subsidiary, Scoria, Inc. ("Scoria"). On December 31,
1996, NRG's investment balance in the Scoria project was reduced to zero.
Cost of operations in wholly-owned operations was $36.6 million in 1996, an
increase of $4.1 million, or 12.6%, compared to 1995, due primarily to
increased fuel costs resulting from increased MEC sales volume and per unit
fuel prices. Cost of operations as a percentage of revenues from wholly-owned
operations remained constant at 51% for 1995 and 1996.
General, administrative and development costs were $39.2 million in 1996,
compared to $34.6 million in 1995, an increase of $4.6 million, or 12.9%. The
majority of the increase from 1995 to 1996 was due to additional general and
administrative expenses incurred in the growth and development of NEO totaling
$5.8 million, in contrast with NEO's general and administrative expenses of
$1.8 million for the prior year. Business development expenses for the year
ended December 31, 1996 totaled $19.4 million, as compared with $17.6 million
for the same period in 1995.
Other income, net increased by $4.6 million in 1996 due primarily to
additional interest income earned from investing the proceeds of the 1996
Senior Note Offering, which was completed in January 1996.
The effective tax rate (benefit) for the year ended December 31, 1996 was
(39.5%), as compared to 22% for the same period ended December 31, 1995. The
decrease in the effective tax rate in 1996 was due to a change in NRG's income
sources, with more earnings derived from U.S. operations in 1995, primarily
the $29.9 million pre-tax gain on the disposition of the San Joaquin power
purchase agreements. Because of NRG's intention to reinvest earnings of
foreign operations offshore, no provision was recorded for income taxes due
upon repatriation.
Net income for the year ended December 31, 1996 was $20.0 million, a
decrease of $11.2 million, or 36%, compared to net income of $31.2 million in
1995. This decrease was due to the fact that $29.9 million of that 1995 net
income was attributable to the one-time payment for the buy-out of the San
Joaquin power sales contract in that year, as well as to the other factors
described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
For the year ended December 31, 1995, NRG had operating revenues of $87.8
million, compared to operating revenues of $91.1 million in 1994, a decrease
of 4%. NRG's operating revenues from wholly-owned operations for the year
ended December 31, 1995, were $64.2 million, essentially unchanged from $64.0
million in the prior year. Revenues from wholly-owned operations consisted
primarily of revenue from district heating and cooling (39%), resource
recovery activities (36%), other thermal projects (21%) and NEO (1%).
Equity in earnings of unconsolidated project affiliates was $23.6 million
for the year ended December 31, 1995, compared to $27.2 million for the year
ended December 31, 1994, a decrease of 13%. Equity in earnings of $22.2
million from the MIBRAG mining and power generation project increased $2.8
million in 1995 primarily due to increased power and coal sales. Equity in
earnings of Gladstone was $11.2 million in 1995 as compared to $7.7 million
for the prior year, due to the inclusion of a full year's earnings in 1995
compared to nine months of the prior year. San Joaquin Cogeneration earnings
decreased from $6.1 million in 1994 to $2.0 million in equity earnings in 1995
because of the shutdown of the facilities at the end of February 1995, and the
termination of the power purchase agreements with Pacific Gas & Electric
("PG&E"). The Sunnyside waste coal facility acquired in late 1994 experienced
initial operating problems, a six-week shutdown for major repairs and
refurbishments, and a reduction in power revenue due to lower than anticipated
avoided costs of the power purchaser, PacifiCorp, resulting in a loss of $2.7
million in 1995 equity in earnings. Finally, equity in earnings in 1995
reflects an investment write-down of $5.0 million related to Scoria while 1994
equity in earnings reflects investment write-downs of $3.5 million for Scoria
and $1.5 million related to the proposed Louisiana Energy Services ("LES")
uranium enrichment facility in which NRG owns a 6.73% interest. NRG's
investment in LES has been reduced to zero.
38
<PAGE>
Cost of operations in wholly-owned operations was $32.5 million in 1995, a
decrease of $2.3 million, or 6.7%, compared to 1994, due primarily to lower
resource recovery landfill charges and reduced district heating fuel costs.
Cost of operations as a percentage of revenues from wholly-owned operations
decreased to 51% in 1995 from 55% in 1994.
General, administrative and development costs were $34.6 million in 1995,
as compared to $20.0 million in 1994, an increase of $14.6 million, or 73.0%.
Business development expenses made up approximately $8.8 million of this
increase. The balance of the increase was attributable to establishing and
maintaining NRG's foreign offices and domestic support functions. In 1995, NRG
aggressively expanded staff and activity in seeking new projects. Project
development activity was redirected and expanded in 1995 as NRG completed its
initial investments in the MIBRAG, Gladstone and Schkopau projects in 1994.
During 1994, some development costs were capitalized in these projects until
financial close was achieved. Conversely, during 1995, NRG expensed the costs
of pursuing a number of projects requiring the payment of significant upfront
fees and expenses, including an investment opportunity that required
expenditure of significant legal fees to submit a competing plan of
reorganization in the bankruptcy court proceeding for O'Brien Energy (in which
NRG acquired a 41.86% interest in 1996). Most of these costs were expensed
because these projects did not meet NRG's requirements for capitalization.
Equity in gain from project termination settlements in 1995 included a
one-time pre-tax gain of $29.9 million related to the settlement and
termination of the San Joaquin Valley power purchase agreements with PG&E. In
1994, NRG and its partner in the Michigan Cogeneration Partners Limited
Partnership agreed to terminate a power sales contract with Consumers Power
Company. The contract related to a 65 MW cogeneration facility being developed
in Michigan. Due to the agreement to terminate the contract, NRG recorded a
one-time pre-tax gain of $9.7 million in 1994.
Other income, net increased $3.5 million in 1995 due primarily to
additional interest income from project notes receivable and short-term
investments.
The effective tax rate for the year ended December 31, 1995 was 22%, as
compared to 7.7% for the same period ended December 31, 1994. This increase
from 1994 to 1995 was primarily due to the fact that a greater portion of
NRG's income was derived from United States sources in 1995, primarily as a
result of the $29.9 million pre-tax gain on the disposition of the San Joaquin
power purchase agreements. Because of NRG's intent to reinvest earnings of
foreign operations offshore, no provision was recorded for income taxes that
would be due on repatriation.
Net income for the year ended December 31, 1995, was $31.2 million, an
increase of $1.7 million, or 6%, compared to net income of $29.5 million in
1994. This increase was due to the factors described above.
39
<PAGE>
FINANCIAL RESULTS OF INVESTMENTS IN PRINCIPAL PROJECTS
The following sets forth certain information with respect to the results of
investments in principal projects. For a description of these projects, see
"Business -- Description of NRG's Projects."
<TABLE>
<CAPTION>
EQUITY IN EARNINGS
-------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------- PERCENTAGE
(DOLLARS IN MILLIONS) OWNERSHIP
PROJECT 1994 1995 1996 1996 1997 INTEREST
- -------------- --------- --------- --------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
MIBRAG (1) .... $19.4 $22.2 $13.1 $3.5 $2.4 33.3
Gladstone ..... 7.7 (2) 11.2 10.8 2.6 2.9 37.5
Schkopau ...... 0.0 0.0 (3) 6.4 0.4 1.2 20.6
Kladno (4) .... * 0.0 (0.3) 0.1 0.0 34.0
Latin Power .. (0.3) 0.0 1.6 0.5 0.3 4-9
COBEE ......... * * 0.1 (5) 0.0 0.5 58.0
NRGG .......... * * 2.3 * 1.8 14-42
NEO ........... (0.2) (0.1) (0.5) 0.1 0.9 50-100
</TABLE>
- ------------
* Not owned during this period.
(1) Earnings are expected to decrease in 1997 and 1998 due to mine
refurbishment and reduced coal sales. However, in 1999, coal sales are
expected to increase with the expected startup of the first of two 800
MW generating units being constructed nearby at Lippendorf. Contracts
to supply coal to new Lippendorf facility have been executed as part of
the MIBRAG transaction.
(2) Purchased in March 1994.
(3) Earnings commenced in the first quarter of 1996 when the first unit was
brought on-line.
(4) In 1994, NRG acquired a 26.5% ownership interest in a 28 MW facility.
NRG's ownership interest increased to 34% in May 1997.
(5) Based on twelve days of ownership and operation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $2.5 million for the first three
months ended March 31, 1997, as compared to $1.3 million for the same period
of 1996, an increase of $1.2 million. The primary differences between the
first quarter of 1997 and the same period in 1996 were increased net income of
$4.3 million and changes in deferred income taxes and investment tax credits
of $6.3 million, which were offset by an increase in undistributed equity in
operating earnings of $2.2 million and a change in working capital items of
$9.7 million.
Net cash flow from operating activities was $4.1 million in 1996. Principal
components of cash flow from operating activities were net income of $20.0
million, depreciation and amortization of $8.4 million and changes in working
capital of ($4.3) million. Non-cash adjustments that reduced cash flow from
operating activities consisted primarily of $17.8 million of undistributed
equity in operating earnings of unconsolidated project affiliates.
Net cash flow used by operating activities was $5.1 million in 1995.
Principal components of cash flow from operating activities were net income of
$31.2 million, depreciation and amortization of $8.3 million and changes in
working capital items of $9.0 million. Non-cash adjustments that reduced cash
flow from operating activities consisted primarily of $29.9 million of
undistributed equity in gain from the San Joaquin project termination
settlement.
Net cash flow from operating activities was $12.4 million in 1994.
Principal components of cash flow from operating activities were net income of
$29.5 million, depreciation and amortization of $8.7 million and changes in
working capital items of ($6.1) million. Other adjustments that reduced cash
flow from operating activities consisted primarily of $18.5 million of
undistributed equity in operating earnings of unconsolidated project
affiliates and $1.1 million of cash related to deferred taxes and cash used by
changes in other assets.
40
<PAGE>
Net cash used for investing activities for the three months ended March 31,
1997 was $13.5 million as compared to $65.5 million for the same period in
1996. The high level of invested cash in 1996 was caused by NRG's receipt of
the proceeds of the 1996 Senior Notes in January 1996, most of which had not
been expended by March 31, 1996. Those proceeds were invested in projects
throughout the rest of 1996, and $13.8 million was invested in projects in the
first quarter of 1997, as opposed to only $1.6 million in that same period in
1996. NRG's project investments in the first quarter of 1997 included $7.5
million in Energy Developments Limited ("EDL"), $2.0 million in Latin Power,
and $2.0 million (including capitalized work in progress) in Kladno. NRG also
increased its outstanding loans to international projects (a $4.6 million note
to Enfield and $2.2 million in notes related to COBEE) creating a cash flow
use of $6.7 million in the first quarter of 1997 as compared to a $1.3 million
inflow in the same period in 1996. Capital expenditures increased $6.2 million
for the three months ended March 31, 1997, as compared to March 31, 1996. This
increase is primarily attributable to capital investments in the MEC Fairview
Plant of $4.8 million, with the remaining change substantially attributable to
the investment in the MEC Federal Reserve Plant. At March 31, 1997, NRG's
restricted cash balance was $10.8 million, while at March 31, 1996, it was
$98.0 million, again because the proceeds of the 1996 Senior Notes were
received in January 1996 and had not yet been expended. The restricted cash
balance change for the periods ended March 31, 1997 and 1996 impacted cash
flow by $6.9 million and ($88.2) million, respectively. For the period ended
March 31, 1997, NRG received $6.7 million from its sale of a portion of its
investment in COBEE. For the same period in 1996, NRG received $25.2 million
of proceeds related to the termination of the SJVEP Facilities (as hereinafter
defined) power purchase agreement.
Cash used for investing activities in 1996 included $140.6 million in
equity investments in projects, $36.6 million in loans to projects, and $24.6
million in capital expenditures related to wholly-owned operations. The
primary components of NRG's 1996 project investments include $81.8 million for
its investment in COBEE, $28.8 million for the 41.86% investment in NRGG and
$7.5 million for the purchase of certain biomass assets from O'Brien
(subsequently NRGG). NRG's net increase in loans to projects of $36.6 million
was primarily due to a loan to NRGG of $14.4 million and the purchase of the
senior debt of MCPC. NRG made total capital expenditures in 1996 of $24.6
million and expects to make capital expenditures of approximately $10 million
in 1997, $7.7 million of which were made in the three months ended March 31,
1997. Additionally, cash flows from investing activities in 1996 included
$15.7 million of cash distributed from SJVEP related to the project
termination settlement. The project termination resulted in a pre-tax gain of
$29.9 million in 1995, at which time NRG received a $14.2 million
distribution. All other cash distributions from the project are included in
operating cash flow, while the distributions from project termination are
included as cash flow from investing activities.
Cash used for investing activities in 1995 included $25.8 million in equity
investments in projects, $35.4 million in loans to projects, and $11.0 million
in capital expenditures related to wholly-owned operations. In 1995 NRG
invested $25.8 million in several projects, including $11.0 million in the
Schkopau project, $4.1 million in the Latin Power Project, $3.8 million in the
Kladno project, and $3.3 million in the North America Thermal project. In
addition, NRG loaned additional funds of $35.4 million to operating projects,
including a $27.9 million loan to the Schkopau project.
Cash used for investing activities in 1994 included $102.1 million in
equity investments in projects and $4.4 million in loans to projects, and $5.8
million in capital expenditures related to wholly-owned operations. In 1994,
NRG invested this $102.1 million in several projects including, $64.9 million
in the Gladstone project, $18.2 million in the Schkopau project, $11.5 million
in the Sunnyside project, and $10.6 million in the MIBRAG project. In
addition, NRG provided $13.8 million of restricted cash deposits to
collateralize foreign currency hedging activities and letters of credit issued
in connection with competitive bids.
Net cash flows from financing activities for the quarter ending March 31,
1997 were $19.4 million, which was primarily made up of the $20 million equity
investment by NRG's parent company, NSP, to fund NRG's investment in EDL. This
was substantially lower than the same period in 1996, which included the
$122.7 million in cash proceeds from the issuance of the 1996 Senior Notes and
so totalled $122.1 million at March 31, 1996; NRG incurred $2.3 million in
financing costs in connection with the 1996 Senior Notes, which NRG is
capitalizing and amortizing over the ten-year life of the notes. For the
41
<PAGE>
balance of 1996, cash flows from financing activities included an $80 million
equity contribution from NSP to NRG for the purchase of COBEE. In 1994, cash
flows from financing included an investment of $103.9 million from NSP. The
proceeds of the capital infusion were used for investments in Gladstone
($64.9 million), Schkopau ($18.2 million), MIBRAG ($10.6 million) and
Sunnyside ($11.5 million).
As of March 31, 1997, NRG's consolidated financial statements contained
long-term debt (excluding current maturities) of $206.6 million. As of that
date, annual maturities of long-term debt ranged from $3.3 million to $4.2
million in the five-year period ending December 31, 2001. See "Certain
Indebtedness."
NRG is committed to additional equity investments of approximately $214
million for 1997-2001, approximately $49 million of which is committed for
1997, for various international power generation projects. In addition, in
1996, NRG provided a $10 million loan commitment to a wholly-owned project
subsidiary of NRGG, in order for the NRGG project subsidiary to fund its
capital contribution to Grays Ferry, a cogeneration project currently under
construction. Although no funds have been loaned to date, NRG expects to make
a $3.0 million equity contribution loan to NRGG during 1997, which will be
offset against NRG's loan commitment. Also in 1996, NRG executed an agreement
whereby NRG is obligated to provide NRGG power generation investment
opportunities in the United States over a three-year period. These projects,
over the three-year term, must have an aggregate equity value of at least $60
million or a minimum of 150 net MW. In addition, NRG has committed to finance
NRGG's investment in these projects to the extent funds are not available to
NRGG on comparable terms from other sources. (See Note 13 of Notes to
Consolidated Financial Statements for further discussion of NRG's
commitments.) NRG expects to meet these cash requirements with proceeds from
the issuance of debt or equity, including equity contributions from NSP, and
internally generated cash.
In May 1997, NRG acquired a 25.37% equity interest in Loy Yang A. See
"Business -- Loy Yang Power." In order to finance its equity investment in
this acquisition and related financing costs, NRG borrowed $200 million in
short-term debt pursuant to the Bridge Financing, which it used together with
an investment of $60.9 million from NSP and cash on hand. The net proceeds
from the Offering were used to refinance the Bridge Financing. See "Use of
Proceeds."
NRG has entered into a $175 million revolving credit facility with a
syndicate of banks led by ABN AMRO, which matures on March 17, 2000. There are
no borrowings outstanding under this facility and the full amount remains
available. Proceeds from the facility will be used for general corporate
purposes, including letters of credit and interim funding for NRG project
investments.
NRG Energy Center, Inc. ("NRG Energy Center") expects to enter into a
master shelf agreement during August 1997, pursuant to which NRG Energy Center
may issue $30 million in term notes with maturities no later than June 2017.
The master shelf revolving credit facility could also provide for up to $5
million of short-term borrowings. This facility is expected to be recourse
only to NRG Energy Center and is intended to provide financing for MEC.
As part of NRG's global tax strategy, NRG intends to maintain offshore, for
permanent reinvestment in other foreign projects, earnings from foreign
investments. For this reason, NRG intends to utilize the earnings in its
domestic operations to make the payments of principal and interest on the
Senior Notes. These earnings will include payments of interest and principal
to be received from its wholly-owned Dutch project subsidiary, NRGenerating
International, B.V., with respect to loans from NRG. Although dividends and
management fees to NRG and its subsidiaries from partnerships in which NRG
invests are subject to restrictions in some cases, NRG currently expects that
cash generated internally and funds from borrowings described above will
provide sufficient funds for operating activities. However, there can be no
assurance that available funds will be sufficient for such purposes. Because
substantially all of the operations of NRG are conducted by its project
subsidiaries and project affiliates, NRG's cash flow and its ability to
service its indebtedness, including its ability to pay the interest on and
principal of the Senior Notes when due, are dependent upon cash dividends and
distributions or other transfers from its project and other subsidiaries and
project affiliates to NRG.
IMPACT OF INFLATION, INTEREST RATES, EXCHANGE RATES AND ENERGY PRICES
NRG attempts, whenever practicable, to hedge certain aspects of its
international project investments against the effects of inflation and
fluctuations in interest rates and energy prices. To date, NRG
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has generally structured the energy payments of its power purchase agreements
to adjust with the same price indices as contained in its contracts with the
fuel suppliers for the corresponding projects. In some cases, a portion of
revenues is associated with operation and maintenance and is indexed to
adjust with inflation.
As of March 31, 1997, NRG had $214.7 million of foreign currency
denominated assets that were hedged by seven forward foreign currency exchange
contracts with a notional value of $177 million, including $83 million of
Australian dollar hedges and $94 million of German mark hedges, with maturities
ranging from two to ten years. In connection with these forward foreign
currency exchange contracts, cash collateral of $9.1 million was required at
March 31, 1997. In July 1997, NRG changed its policy of hedging foreign
currency denominated investments as they were made, to a policy of hedging
foreign currency denominated cash flows, over a projected 12-month period. As
a result of this change in hedging policy, NRG terminated the seven foreign
currency swap agreements on July 29, 1997. Such terminations resulted in cash
payments to NRG without any earnings impact. Consistent with prior policies,
NRG is not hedging future earnings and does not speculate in foreign currencies.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," was issued. In addition, in June 1997 SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related Information,"
was also issued. As both SFAS No. 130 and No. 131 are effective for fiscal
years beginning after December 15, 1997, NRG's 1998 annual report to
shareholders will include the disclosures required by these new standards.
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BUSINESS
INTRODUCTION
NRG is one of the leading participants in the independent power generation
industry. Established in 1989 and wholly-owned by Northern States Power
Company ("NSP"), NRG is principally engaged in the acquisition, development
and operation of, and ownership of interests in, independent power production
and cogeneration facilities, thermal energy production and transmission
facilities and resource recovery facilities. The power generation facilities
in which NRG currently has interests (including those under construction and
Loy Yang A) as of August 1997 have a total design capacity of 7,010 megawatts
("MW"), of which NRG has or will have operational responsibility for 4,582 MW
and net ownership of or leasehold interests in 2,097, MW. In addition, NRG has
substantial interests in district heating and cooling systems and steam
generation and transmission operations as of December 31, 1996, these thermal
businesses had a steam capacity of approximately 3,550 million British thermal
units ("mmBtus"). NRG's refuse-derived fuel ("RDF") plants processed more than
808,000 tons of municipal solid waste into approximately 644,000 tons of RDF
in 1996.
STRATEGY
NRG intends to continue to grow through a combination of acquisitions and
greenfield development of power generation and thermal energy production and
transmission facilities and related assets in the United States and abroad.
NRG believes that its facility operations and engineering expertise, fuel and
environmental strategies, labor and government relations expertise and legal
and financial skills give NRG a competitive advantage in the independent power
market. NRG also believes that its policy of meeting or exceeding applicable
environmental regulatory standards and its environmental compliance record
will give it an advantage as regulators continue to impose increasingly
stringent environmental requirements on the operation of power generation
facilities. In addition, NRG continues to have access to technical and
administrative support from NSP on a contract basis to augment its own
expertise. NRG believes the knowledge and expertise it has gained in the
financial and legal restructuring of its existing facilities, as well as its
reputation with respect to environmental compliance and labor relations, can
be effectively employed in the development of both domestic and international
greenfield projects.
In the United States, NRG's near-term focus will be primarily on the
acquisition of existing power generation capacity and thermal energy
production and transmission facilities, particularly in situations in which
its expertise can be applied to improve the operating and financial
performance of the facilities. NRG intends to focus its domestic development
activities primarily on the acquisition or development of facilities in excess
of 100 MW and to pursue smaller projects when it has the opportunity to
combine several smaller projects into a larger transaction. NRG is also
working with several industrial companies to develop energy projects that
would provide both electricity and steam for their production facilities. In
addition, to the extent that the replacement of aging power generating
capacity or growth in demand creates the need for new power generation
facilities in the United States, NRG intends to pursue opportunities to
participate in the development of such facilities. NRG is also studying the
opportunities that may be created by the current restructuring of the domestic
electric utility industry, particularly the divesture by some utility
companies of their generating assets.
In the international market, NRG will continue to pursue development and
acquisition opportunities in those countries in which it believes that the
legal, political and economic environment is conducive to increased foreign
investment. Once it has developed one project in a country, NRG uses that as a
base to develop other projects in that same country or region, leveraging its
experience and knowledge to enhance its likelihood of success in the area. NRG
intends to continue to capitalize on opportunities created by the
privatization of existing government-owned generating capacity. In addition,
due to the significant existing demand for new power generating capacity in
the international market, NRG intends to engage in the development of
international greenfield projects. NRG intends to focus its international
development activities primarily on the acquisition or development of
facilities with capacity in excess of 100 MW and to pursue smaller projects
when it has the opportunity to combine several smaller projects into a larger
transaction. NRG believes that the global market will continue to provide
attractive
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investment opportunities to NRG as the countries that have initiated the
privatization of their power generation capacity and have solicited bids from
private companies to purchase existing facilities or to develop new capacity
continue their privatization programs and other countries begin similar
privatization efforts.
NRG's acquisition and development strategy is based upon the pursuit of
opportunities located in countries that are expected to meet certain
project-specific and market criteria. These criteria include fuel type,
facility size, form of ownership or control, type of transaction
(privatization or greenfield) and committed capacity compared to projected
market demand. The evaluation process also incorporates political and business
climate criteria that include a favorable legal and regulatory environment,
ability to attract financing and economic outlook. NRG's goal is to focus on
countries that provide a combination of need for additional generation
capacity and positive political, business and economic factors.
NRG expects to acquire or develop most domestic and international projects
on a joint venture basis. Where appropriate, NRG will include a local or host
country partner or a partner with substantial experience in or connections to
the area. By doing so, NRG expects to gain a number of advantages, including
technical expertise possessed by others, greater knowledge of and experience
with the political, economic, cultural and social conditions and commercial
practices of the region or country where the project is being developed, and
the ability to leverage NRG's human and financial resources. A local partner
also may, among other things, assist in obtaining financing from local capital
markets as well as building political and community support for the project.
NRG expects such joint ventures will enable it to share the risks associated
with the acquisition and development of larger projects. Joint acquisition and
development of future projects also should further reduce NRG's financial risk
by building a more diversified portfolio of projects.
Although NRG exercises flexibility in structuring its investments in
projects, NRG's goal is to own a 20% to 50% equity interest in, and have
operating control or influence over, the projects in which it invests.
However, NRG may in some instances be willing to modify these ownership
targets for a particular project if appropriate to maximize value and control
risk. NRG may participate in a project that it does not control or operate if
it determines that strategic considerations and anticipated returns, when
combined with other factors, such as the ability to exercise "negative
control" (i.e., the ability to control material project decisions by
exercising a veto right) or the ability to exercise oversight authority in the
development or operation of a project, justify an investment in that project.
Alternatively, NRG may consider investments or projects in which it is the
sole or a majority owner or in which it owns less than a 20% equity interest.
See "Risk Factors -- Risks Involved in Making Minority Investments in
Projects."
NRG intends to pursue the acquisition and development of natural gas-fired
power generation facilities where appropriate, to complement its existing and
anticipated future investments in coal and other solid fuel-fired facilities.
As part of NRG's global tax strategy, NRG intends to maintain its earnings
from foreign investments offshore, for permanent reinvestment in other foreign
projects. For this reason, NRG intends to utilize the earnings in its domestic
operations to make the payments with respect to the Notes. These earnings are
expected to include payments of interest and principal to be received from
NRGenerating International, B.V. ("NRGBV") with respect to loans from NRG to
that company.
COMPETITION
The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under
cost-of-service based regulation. The enactment of PURPA in 1978 spawned the
growth of the independent power industry which expanded rapidly in the 1980s.
The initial independent power producers to enter the market were an
entrepreneurial group of cogenerators and small power producers who recognized
the business opportunities offered by PURPA. This initial group of independent
power producers was later joined by larger, better capitalized companies, such
as subsidiaries of fuel supply companies, engineering companies, equipment
manufacturers and affiliates of other industrial companies. In addition, a
number of regulated utilities created subsidiaries (such as NRG) which compete
with the independent power producers. Some
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independent power producers specialize in market niches, such as a specific
technology or fuel (for example, gas-fired cogeneration, waste-to-energy,
hydropower, geothermal, wind, solar, wood, coal and conservation) or a
specific region of the country where they believe they have a market
advantage.
Although NRG is one of the leading participants in the independent power
industry, certain other independent power producers and utility affiliates
have significantly larger capital resources available to them on a stand-alone
basis than NRG. NRG's competitors are major international independent power
producers worldwide, which include, among others, CalEnergy, CMS Generation
Co., Cogentrix Energy, Inc., Dominion Energy, Enron Development Corp., Edison
Mission, Inc., National Power plc, PowerGen plc, Southern Electric
International, Inc. and The AES Corporation.
PENDING ACQUISITIONS AND PROJECTS UNDER DEVELOPMENT
NRG has a number of projects in development and is in various stages of
negotiations for the acquisition of power and steam generating capacity in the
United States and abroad. There can be no assurance that the acquisition or
development of any or all of these projects will in fact be consummated, or if
consummated, that the projects will remain in the form or occur in the manner
described in this Prospectus.
WEST JAVA
A joint venture among NRG, Ansaldo Energia SpA, a major Italian industrial
company ("Ansaldo"), and P.T. Kiani Metra, an Indonesian industrial company
("PTKM"), is developing a 400 MW coal-fired power generation facility in West
Java, Indonesia through P.T. Dayalistrik Pratama ("PTDP"), a limited liability
company created by the joint venturers. Each of NRG and Ansaldo have an
ownership interest of 45% in PTDP and PTKM has an ownership interest of 10%.
PTDP signed a Power Purchase Agreement (the "PPA") with P.T. PLN (Persero)
("P.T. PLN"), an instrumentality of the Government of Indonesia, on November
13, 1996. Under the PPA, PTDP must close and draw on construction financing no
later than January 12, 1998 or be subject to termination. Furthermore, in
certain circumstances of default the PPA gives P.T. PLN an option to purchase
the project prior to commercial operation at a price designed to give NRG and
its partners a fixed rate of return on their committed equity investments and,
after commercial operation, at a price based on the net present value of
future project cash flows.
PTDP has executed a construction contract pursuant to which Ansaldo will
construct the project for a fixed price on a fixed schedule (subject to
customary adjustments). Ansaldo is liable for liquidated damages in the event
of certain construction delays or defaults. An NRG affiliate will be the
operator of the project pursuant to an operating and maintenance agreement,
which provides for reimbursement of the actual operating costs and payment of
an annual fee. NRG will guarantee the operator's obligations under this
agreement. In June 1997, PTDP signed a coal supply agreement for the project
and acquired the land for the plant site.
NRG expects that, upon closing of financing, its total committed equity in
PTDP will be approximately $65 million. The total project cost is
approximately $560 million, which is to be financed by a combination of equity
investments, commercial bank debt and capital markets funding. The project is
currently expected to reach financial closing by the third quarter of 1997.
ENFIELD
In December 1996, NRG reached agreement with Indeck Energy Services
(Europe) ("Indeck") to take a 50% interest in the Enfield Energy Centre, a 350
MW gas-fired power project for which the gas supply facility is under
construction in the North London borough of Enfield. The power station is
planned to begin commercial operations in the latter half of 1999 and is being
jointly developed by NRG and Indeck. This power station, like Loy Yang A, will
not have a long-term power sales contract, which is no longer available under
the current United Kingdom regulatory system. Instead, it will sell its output
to the U.K. grid.
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ESTONIA
On December 20, 1996 representatives of the Estonian Government, the
state-owned Eesti Energia ("EE"), and NRG signed a Development and Cooperation
Agreement ("DCA"). The DCA defines the terms under which the parties are to
establish a plan to develop and refurbish the Balti and Eesti Power Plants.
Pursuant to the DCA, a business plan for the joint project was submitted in
June, 1997. NRG has stated its willingness to invest up to $50 million of
equity in this project and to endeavor to arrange up to $200 million of
non-recourse debt for it.
ALTO CACHAPOAL
NRG owns a 27.75% interest in the Alto Cachapoal greenfield hydroelectric
complex that is under development in central Chile. Alto Cachapoal is a
two-stage 390 MW project. In the first 195 MW stage, Alto Cachapoal will sell
all of its firm energy to Codelco-El Teniente, the world's largest underground
copper mine, pursuant to a 20-year power sales contract. Financial closing for
the first stage is expected in 1997. NRG's partners in the Alto Cachapoal
facility are Nordic Power Invest AB (27.75%) and Construtora Andrade Gutierrez
S.A. (44.5%).
CAJUN
NRG, together with two other parties, has filed a plan with the United
States Bankruptcy Court for the Middle District of Louisiana, to acquire the
fossil generating assets of Cajun Electric Power Cooperative of Baton Rouge,
Louisiana ("Cajun") for approximately $1.1 billion. The NRG consortium has the
support of the Chapter 11 trustee and Cajun's secured creditors. The Court has
also received two other competing plans of reorganization for Cajun. All three
plans of reorganization are the subject of a confirmation hearing which began
on December 15, 1996. NRG expects the confirmation process to conclude in
1997. Under the plan filed with the Court, NRG would hold a 30% equity
interest in Louisiana Generating, which would acquire Cajun's 1760 MW of
non-nuclear generating assets.
MCPC
In September 1996, through its subsidiary, Oklahoma Loan Acquisition Corp.
("OLAC"), NRG acquired all right, title and interest in the existing senior
secured debt of Mid-Continent Power Company, Inc. ("MCPC") from Barclays Bank
and The Nippon Credit Bank, at a substantial discount. On June 18, 1997, MCPC
filed a Chapter 11 petition in federal bankruptcy court in Tulsa, Oklahoma,
and concurrently filed a plan of reorganization proposing to transfer
ownership of substantially all of MCPC's assets to OLAC in exchange for
forgiveness of debt. NRG is currently engaged in discussions with MCPC and its
major customers concerning the proposed plan. The project is a gas-fired
cogeneration plant with a rated capacity of 110 MW, located in Pryor,
Oklahoma. The project sells steam to several industrial customers located in
the Mid-America Industrial Park and sells electricity to two Oklahoma
utilities.
MILLENIUM
NRG Morris Cogen Inc. has signed an agreement with Millenium Petrochemicals
Inc. pursuant to which this NRG affiliate will develop, permit, finance,
construct, own and operate a 117 MW cogeneration plant at Millenium's Morris,
Illinois polyethylene manufacturing factory. The plant would be fueled
primarily with natural gas, with process methane gas making up the balance. It
would supply all of the factory's steam and electrical needs pursuant to a 25
year contract and would market the excess electrical capacity. Millenium would
have the right to buy out the cogeneration plant for fair market value at
certain defined points in the contract term.
NRG is also pursuing several other energy-related investment opportunities
and continues to evaluate other opportunities as they arise.
DESCRIPTION OF NRG'S PROJECTS
NRG owns interests in power generation and thermal generation projects and
other facilities described herein either directly or through project
subsidiaries or project affiliates. Each project is located
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on a site that is owned or leased on a long-term basis by NRG, a project
subsidiary or a project affiliate. The ownership or leasehold interest
generally is mortgaged to secure project financing obligations, and, in
certain instances, to secure the project subsidiary's or project affiliate's
obligations under its power purchase agreement.
PROJECT AGREEMENTS
In the past, virtually all of NRG's operating power generation facilities
have sold electricity under long-term power purchase agreements. A facility's
revenue from a power purchase agreement usually consists of two components:
energy payments and capacity payments. Energy payments, which are intended to
cover the variable costs of electric generation (such as fuel costs and
variable operation and maintenance expense), are normally based on a
facility's net electrical output measured in kilowatt hours, with payment
rates either fixed or indexed to the fuel costs of the power purchaser.
Capacity payments, which are generally intended to provide funds for the fixed
costs incurred by the project subsidiary or project affiliate (such as debt
service on the project financing and the equity return), are normally
calculated based on the net electrical output or the declared capacity of a
facility and its availability.
The power purchase agreements for NRG's international projects generally
require that payments under such agreements be made in or indexed to United
States dollars or a currency freely convertible to United States dollars, such
as the Australian dollar or the German mark. NRG currently does not have
political risk or currency convertibility and repatriation risk insurance
coverage with respect to any of its existing project interests (other than
Latin Power project investments). However, where appropriate and if available
at reasonable premiums with respect to future project investments, NRG intends
to procure insurance against currency inconvertibility and repatriation risks
for its equity interests in projects.
A number of the more recent projects in which NRG has acquired or is
acquiring an interest do not have long-term power purchase agreements. For
example, Loy Yang does not have such agreements because under the new
Australian regulatory scheme, all generators must sell their output to a grid,
where the price is established by a neutral regulator based on the market
prices during each defined period. The same will be true of Enfield, since the
United Kingdom has adopted a similar regulatory scheme. Similarly, the SJVEP
Facilities accepted a buy-out of their long-term contracts, so if they
recommence operations, it is anticipated that they will be merchant plants. In
the case of the Kladno project, where there is a long-term agreement, the
energy price is tied to the market price rather than to the costs incurred by
the project, so the contract does not provide the traditional level of
certainty and protection. While these "merchant" projects introduce new risks
and uncertainties, and require careful advance analysis of the local power
markets, NRG believes that they are becoming increasingly accepted in the
independent power market.
Generally, NRG's project subsidiaries and project affiliates that own
operating power generation or steam generation facilities purchase fuel under
long-term supply agreements or have ownership interests in the fuel source. Of
the power generation projects in which NRG has an ownership interest, ten are
fueled with coal or waste coal, three are fueled with biomass, three are
fueled with oil, seven are fueled with natural gas, one is fueled with
hydro-power and one is fueled with landfill gas and coal seam methane. Through
NEO, NRG also has interests in 28 small hydroelectric or landfill gas-fired
power generation facilities.
PROJECT FINANCING
As with its existing facilities, NRG expects to finance most of its future
projects with some type of debt as well as equity. Leveraged financing permits
the development of projects with a limited equity base but also increases the
risk that a reduction in revenues could adversely affect a particular
project's ability to meet its debt or lease obligations.
NRG has financed its principal power generation facilities (other than
Schkopau) primarily with non-recourse debt that is repaid solely from the
project's revenues and generally is secured by interests in the physical
assets, major project contracts and agreements, cash accounts and, in certain
cases, the
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ownership interest, in that project subsidiary. This type of financing is
referred to as "project financing." True project financing is not available
for all projects, including some assets purchased out of bankruptcy (such as
NRGG), some merchant plants, some purchases of minority stock positions in
publicly traded companies (such as EDL) and plants in certain countries that
lack a sufficiently well-developed legal system. But even in those instances,
NRG may be able to finance a smaller proportion of the total project cost
with project financing or may employ debt that is either raised or supported
at the corporate level.
Project financing transactions generally are structured so that all
revenues of a project are deposited directly with a bank or other financial
institution acting as escrow or security deposit agent. These funds then are
payable in a specified order of priority set forth in the financing documents
to ensure that, to the extent available, they are used first to pay operating
expenses, senior debt service and taxes and to fund reserve accounts.
Thereafter, subject to satisfying debt service coverage ratios and certain
other conditions, available funds may be disbursed for management fees or
dividends or, where there are subordinated lenders, to the payment of
subordinated debt service.
In the event of a foreclosure after a default, NRG's project subsidiary or
project affiliate owning the facility would only retain an interest in the
assets, if any, remaining after all debts and obligations were paid. In
addition, the debt of each operating project may reduce the liquidity of NRG's
equity interest in that project because the interest is typically subject both
to a pledge securing the project's debt and to transfer restrictions set forth
in the relevant financing agreements. Also, NRG's ability to transfer or sell
its interest in certain projects is restricted by certain purchase options or
rights of first refusal in favor of its partners or the project's power and
steam purchasers and certain change of control restrictions in the project
financing documents.
These project financing structures are designed to prevent the lenders from
looking to NRG or its other projects for repayment (that is, they are
"non-recourse" to NRG and its other project subsidiaries and project
affiliates not involved in the project), unless NRG or another project
subsidiary or project affiliate expressly agrees to undertake liability. NRG
has agreed to undertake limited financial support for certain of its project
subsidiaries in the form of certain limited obligations and contingent
liabilities. These obligations and contingent liabilities take the form of
guarantees of certain specified obligations, indemnities, capital infusions
and agreements to pay certain debt service deficiencies. To the extent NRG
becomes liable under such guarantees and other agreements in respect of a
particular project, distributions received by NRG from other projects may be
used by NRG to satisfy these obligations. To the extent of these obligations,
creditors of a project financing may have recourse to NRG. The project
financing structures therefore generally are described throughout this
Offering Memorandum as being "substantially non-recourse" to NRG and its other
projects.
NRG's facilities are insured in accordance with covenants in each project's
debt financing agreements (if any) and in accordance with NRG's risk
management policies. Coverage for each facility generally include workers'
compensation, commercial general liability supplemented by primary and excess
umbrella liability, and a master property insurance program including
property, boiler and machinery (at replacement cost) and business
interruption.
OPERATING ARRANGEMENTS
NRG operates each of the projects that it wholly owns or controls. Where
NRG has only a minority interest and is not the operator of a project, NRG
generally seeks the ability to exert a degree of influence with respect to
operation of the project through its joint venture or similar agreement with
its partners.
As a condition to participating in privatizations and refurbishments of
formerly state-owned businesses, NRG may be required to undertake transitional
obligations relating to union contracts, employment levels and benefits
obligations for employees, which could delay the achievement of desirable
operating efficiencies and financial performance.
SUMMARY OF NRG PROJECTS
NRG has interests in 26 operating power generation facilities worldwide
(not including NEO). Of these facilities, 11 are located in the United States
(531 MW design capacity, with NRG holding 176 MW
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net ownership), 4 are located in Germany (1,160 MW design capacity, with NRG
holding 267 MW net ownership ), 4 are located in Australia (4,039 MW design
capacity, with NRG holding 1,244 MW net ownership), and two are located in
Colombia (299 MW design capacity, with NRG holding 16 MW net ownership), and
one is located in each of the Czech Republic (382 MW design capacity, with
NRG holding 214 MW net ownership), Jamaica (74 MW design capacity, with NRG
holding 7 MW net ownership), Peru (155 MW design capacity, with NRG holding
5.5 MW net ownership) and Honduras (80 MW design capacity, with NRG holding 6
MW net ownership). In 1996, NRG and Vattenfall AB acquired 96.6% of the
outstanding common shares of Compania Boliviana de Energia Electrica SA --
Boliviana Power Company Limited ("COBEE"), the second largest electric
utility company in Bolivia, which will have a design capacity of 218 MW after
a 56 MW expansion in 1998. In addition, through its wholly-owned project
subsidiary, NEO Corporation ("NEO"), NRG also has interests in 28 small
hydroelectric and landfill gas-fired power generation facilities located in
the United States with total design capacity of 72 MW, of which NRG has net
ownership of 35 MW.
In addition to power generation, NRG has interests in four district heating
and cooling systems, located in Minneapolis, San Francisco, Pittsburgh and San
Diego, that provide steam for heating and chilled water for cooling. NRG also
owns or operates two steam transmission facilities and two resource
recovery/RDF facilities, all located in Minnesota. NRG also owns or leases
interests in lignite mines in Germany estimated to contain reserves of
approximately 789 million metric tons and in Australia estimated to contain
resources equal to 2 billion tons.
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Set forth in the two tables and the text below are descriptions of NRG's
facilities in operation or under construction as of August 1, 1997.
INDEPENDENT POWER PRODUCTION AND COGENERATION FACILITIES(1)
<TABLE>
<CAPTION>
NRG'S TOTAL FACILITY
LATER OF DATE OF PERCENTAGE COST(3)
NAME AND LOCATION DESIGN POWER ACQUISITION OR DATE OF OWNERSHIP (IN $
OF FACILITY CAPACITY(MW)(2) PURCHASER COMMERCIAL OPERATION INTEREST MILLIONS)
- ---------------------------- ------------- ---------------------- ---------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Loy Yang Power(4),
Australia .................. 2000 Victorian Pool 1997 25.37 3,700(5)
Gladstone Power Station,
Australia .................. 1680 QTSC; BSL 1994 37.50 532.0(6)
Collinsville,
Australia .................. 189 QTSC 1998 50.00 154.0
Energy Development Limited,
Australia .................. 170 Various 1997 7.20 Listed company
Kladno Czech Republic,
existing project ........... 28 STE/Industrials 1994 34.00 NA(7)
expansion project .......... 354 STE 1997 57.85 401.0
Schkopau Power Station,
Germany .................... 960 VEAG 1996 20.55 1,094.0(6)
MIBRAG mbH(4), (Mumsdorf)
Germany .................... 100 WESAG 1994 33.33 468.0(4)(8)
MIBRAG mbH(4), (Deuben)
Germany .................... 60 WESAG 1994 33.33 (8)
MIBRAG mbH(4), (Wahlitz)
Germany .................... 40 WESAG 1994 33.33 (8)
COBEE,
Bolivia .................... 218(9) Electropaz/ELF 1996 57.96 174.6
Latin Power (Mamonal),
Colombia ................... 100 Proelectrica 1994 6.45 71.0
Latin Power (Termovalle),
Colombia ................... 199 EPSA 1998 4.88 145.6
Latin Power (ELCOSA), Empresa Nacional de
Honduras .................. 80 Energia Electrica 1994 7.65 93.0
Latin Power (Dr. Bird), Jamaica Public Service
Jamaica .................... 74 Company, Ltd. 1995 8.78 98.0
Latin Power (Aguaytia), Central Peruvian
Peru ...................... 155 Electricity Grid 1998 3.63 256.0
NRGG (Parlin), Jersey Central
New Jersey ................. 122 Power & Light 1996 41.86 Listed company
Company
NRGG (Newark), Jersey Central
New Jersey ................. 52 Power & Light 1996 41.86 Listed company
Company
NRGG (Grays Ferry), PECO Energy
Pennsylvania ............... 150 Company 1996 13.95 Listed company
NRGG (Philadelphia Water), Philadelphia
Pennsylvania ............... 22 Municipal 1996 34.74 Listed company
Authority
San Joaquin Valley (Madera),
California ................. 23 NA(10)(11) 1992 45.00 45.8
San Joaquin Valley
(Chowchilla II),
California ................. 10 NA(10)(11) 1992 45.00
San Joaquin Valley (El
Nido),
California ................. 10 NA(10)(11) 1992 45.00
Jackson Valley Energy
Partners,
California(12) ............. 16 PG&E 1991 50.00 28.0
Sunnyside Cogeneration
Associates,
Utah ....................... 58 PacifiCorp 1994 50.00 139.4
Artesia, Southern
California ................. 34 California 1996 2.96 40.0
Edison
Cadillac Renewable Energy,
Michigan ................... 34 Consumers 1997 50.00 5.0(13)
Power
</TABLE>
51
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- ------------
(1) Does not include the small hydroelectric and landfill gas-fired power
generation facilities owned by NEO with an aggregate capacity of 72 MW,
of which NEO has net ownership of 35 MW. In addition, NEO has landfill
gas projects under construction with an aggregate capacity of 23.5 MW,
of which NEO has net ownership of 11.8 MW.
(2) Design capacity is without deduction for internally consumed power.
(3) Except as otherwise indicated, total facility cost includes the total
acquisition cost (purchase price plus assumed debt) where NRG has
acquired an interest in an existing facility or the total construction
cost where NRG has acquired an interest in a facility under
construction.
(4) Each of Loy Yang and MIBRAG also owns coal mines which sell coal both
to its respective power plant and to third parties.
(5) Figures based on an acquisition cost of AUS$4.7 billion, converted at
an exchange rate of 0.7767.
(6) Based on exchange rates in effect at the time of acquisition.
(7) The existing Kladno facility was constructed over a number of years in
former Czechoslovakia and no meaningful cost data are available.
(8) This figure represents the total cost for the 3 generation facilities
and the lignite mine reserves owned by MIBRAG. The purchase price
includes a commitment to contribute DM 1 billion of additional capital
made by MIBRAG at the time of the acquisition. In addition to the price
stated above, MIBRAG is required to pay premiums to the German
government based on the quantity of lignite and briquettes sold.
(9) Includes the Zongo 56 MW expansion which will be operational in 1998.
(10) Operations suspended following buy-out of power purchase contracts and
pending negotiation of new power purchase agreements or sale of such
facilities.
(11) PG&E has agreed to a buy-out of related power purchase agreements, but
retains a right of first refusal with respect to output of facilities.
(12) Operations were suspended during 1995 and 1996 pursuant to a
restructuring of the power purchase agreement. Operations restarted on
May 1, 1997.
(13) In addition, NRG pays GE Credit Corporation rent under an operating
lease for the facility.
52
<PAGE>
THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
AND RESOURCE RECOVERY FACILITIES
<TABLE>
<CAPTION>
NRG'S TOTAL
PERCENTAGE FACILITY
NAME AND LOCATION THERMAL ENERGY DATE OF OWNERSHIP COST(2)
OF FACILITY DESIGN CAPACITY(1) PURCHASER/MSW SUPPLIER ACQUISITION INTEREST (IN $ MILLIONS)
- -------------------------- ------------------------------------------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Thermal Energy Production
and Transmission
Facilities
Minneapolis Energy Center Steam: 1,323 Approximately 90 steam 1993 100.00 110.0
(MEC), mmBtu/hr. (388 MWt) customers and 30 chilled
Minnesota ................ Chilled water: 35,550 water customers
tons/hr.
North American Thermal Pittsburgh: steam-- Approximately 24 customers 1995 49.40(3) 6.8
Systems (NATS), 240 mmBtu/hr. in Pittsburgh and 210
Pennsylvania; (70 MWt) customers in San Francisco
California ............... chilled water--
10,180 tons/hr.
San Francisco: steam--
490 mmBtu/hr.
(144 MWt)
San Diego Power & Cooling .Chilled Water: 5,250 Approximately 14 customers 1997 100.00 6.7
tons/hr.
Waldorf, Steam: Waldorf Corporation 1992 100.00 14.2
Minnesota ................ 430 mmBtu/hr.
(126 MWt)
Washco, 160 mmBtu/hr. Andersen Corporation 1992 100.00 5.2
Minnesota ................ (47 MWt) Minnesota Correctional
Facility
Grand Forks Air Force 105 mmBtu/hr. Grand Forks Air Force Base 1992 100.00 2.2
Base, (31 MWt)
North Dakota .............
Energy Center Kladno, 512 mmBtu/hr. City of Kladno 1994 34.00 NA(4)
Czech Republic(4) ....... (150 MWt)
Resource Recovery
Facilities
Newport, MSW: 1,500 tons/day Ramsey and Washington 1993 100.00 17.1
Minnesota ................ Counties
Elk River, MSW: 1,500 tons/day Anoka, Hennepin, and NA(6) 0.00 NA(5)
Minnesota(5) ............. Sherburne Counties;
Tri-County Solid Waste
Management Commission
</TABLE>
- ------------
(1) Thermal production and transmission capacity is based on 1,000 Btus per
pound of steam production or transmission capacity. The unit mmBtu is
equal to one million Btus.
(2) Total facility cost includes the total acquisition cost (purchase price
plus assumed debt).
(3) Includes 0.5% general partnership interests in each of PTLP and SFTLP.
(4) Kladno also is included in the Independent Power Production and
Cogeneration Facilities table on the preceding page.
(5) NRG operates the Elk River resource recovery facility on behalf of NSP.
(6) Not owned during this period.
53
<PAGE>
INDEPENDENT POWER PRODUCTION AND COGENERATION
INTERNATIONAL PROJECTS
LOY YANG POWER
In May 1997, NRG consummated the largest acquisition in its history,
acquiring a 25.37% interest in the assets of a 2,000 MW brown coal fired
thermal power station and adjacent coal mine located in Victoria, Australia
and known as Loy Yang A. The State of Victoria sold the Loy Yang A assets as
part of its privatization program to a partnership called Horizon Energy
Partnership ("HEP"), formed by affiliates of NRG and of CMS Generation (a
wholly-owned subsidiary of CMS Enterprises), together with Horizon Energy
Investment Limited (an investment vehicle of Macquarie Bank). NRG has a 25.37%
interest in HEP through its wholly-owned project subsidiary, NRGenerating
Holdings (No.4) B.V.
HEP purchased the Loy Yang A assets for a total price of approximately
AUS$4.7 billion (US$3.7 billion, as of May 12, 1997). While most of that
amount was raised through project-financed loans and leveraged leases that are
non-recourse to the sponsors, NRG's equity investment was approximately US$257
million. NRG provided that amount and related financing costs from the Bridge
Financing, the equity investment by NSP and cash on hand. After the
acquisition, HEP changed its name to "Loy Yang Power" ("Loy Yang").
Loy Yang owns and operates a 2,000 MW brown coal fired thermal power
station (the "Power Station") and the adjacent Loy Yang coal mine (the "Mine")
located in the Latrobe Valley, Victoria, Australia. The Power Station has four
generating units, each with a 500 MW boiler and turbo generator, which
commenced commercial operation between July 1984 and December 1988. In
addition, Loy Yang manages the common infrastructure facilities which are
located on the Loy Yang site, which service not only the Power Station, but
also the adjacent Loy Yang B 1000 MW power station ("Loy Yang B"), a
pulverized dried brown coal ("PDBC") plant, and several other nearby power
stations.
The Loy Yang Power Station has generally achieved high capacity factor
performance since commencing commercial operation, as compared to other brown
coal generators in the same region of Australia. In the fiscal years ending
June 30, 1995 and 1996, the capacity factor has been 94.3% and 91.2%,
respectively, which were the best years of capacity factor performance in the
project's history. The Power Station has also improved unit reliability,
measured both in terms of trip rate and in terms of equivalent forced outage
rate, over the last 5 years. The trip rates (per 1000 service hours) were just
1.2 and 0.7 for the 1995 and 1996 fiscal years, respectively. The equivalent
forced outage rates for the same periods were 2.07% and 2.72%.
Loy Yang is required by law to sell its entire output of electricity
(subject to certain narrow exemptions, including output used in the Power
Station and the Mine) through the competitive wholesale market for electricity
operated and administered by the Victorian Power Exchange (the "Pool"). There
are two components to the wholesale electricity market in Victoria. The first
is the Pool. The second is the price hedging contracts, known as Contracts for
Differences (or "CFDs"), that are entered into between electricity sellers and
buyers in lieu of traditional power purchase agreements, which are not
available in Victoria because of the Pool system.
Under the Victorian regulatory system, all electricity generated in
Victoria must be sold and purchased through the Pool. All licensed generators
and suppliers, including Loy Yang, are signatories to a pooling and settlement
agreement, which governs the constitution and operation of the Pool and the
calculation of payments due to and from generators and suppliers. The Pool
also provides centralized settlement of accounts and clearing. Prices for
electricity are set by the Pool daily for each half-hour of the following day
based on the bids of the generators and a complex set of calculations matching
supply and demand and taking account of system stability, security and other
costs. Under a new national electricity market, the grid in Victoria has been
interconnected with that of New South Wales and limited trading is already
taking place between those states. Over the long term, there are plans for the
interconnection of the eastern seaboard states to establish what will be known
as a national power pool. There can be no assurance that NRG's assumptions
concerning future market pricing will in fact be realized under this new
system.
54
<PAGE>
In a Pool system, it is not possible for a generator such as Loy Yang to
enter into traditional power purchase agreements. In order to provide a hedge
against Pool price volatility and also to support their financings, most of
the Victorian generators have entered into CFDs with the Victorian
distribution companies, Victorian government entities and industrial users
("customers"). These CFDs are financial hedging instruments which have the
effect of fixing the price for a specified quantity of electricity for a
particular seller and purchaser over a defined period. They establish a
"strike price" for a certain volume of electricity purchased by the user
during a specified period; differences between that "strike price" and the
actual price set by the Pool give rise to "difference payments" between the
parties at the end of the period. Even if Loy Yang is producing less than its
contracted quantity it will still be required to make and will be entitled to
receive difference payments for the amounts set forth in its CFDs.
Loy Yang's current CFDs with the Victorian distribution companies and other
Victorian government entities in respect of regulated customer load (which are
called its "vesting contracts") cover approximately 73% of Loy Yang's forecast
revenue from generation in the year ending June 30, 1997, thus providing
considerable stability in its income over that period. Loy Yang also enters
into CFDs with its unregulated or "contestable" customers; these CFDs are
known as "hedging contracts" and, together with the vesting contracts with the
regulated customers, they cover approximately 93% of Loy Yang's forecast load
for the year ending June 30, 1997. Each of the vesting contracts expires at
the end of the franchise period (December 31, 2000), by which time all retail
customers will have become "contestable customers" by operation of law. Loy
Yang's hedging contracts are generally for a term of one to two years, and the
volume of load covered will increase as retail customers progressively become
contestable. Loy Yang's goal is to cover 85% of its forecast load with these
hedging contracts.
Loy Yang and the State Electricity Commission of Victoria (the "SECV") have
been issued with a joint mining license for the Mine. Under the terms of the
privatization, Loy Yang is required to mine coal to supply not only its own
Power Station but also the neighboring Loy Yang B, a nearby PDBC plant, and an
additional future power station that could be developed on a nearby site. This
requirement extends to 2027, but may be extended for an additional 30 years at
the SECV's option. Loy Yang receives a fixed capacity charge and a variable
energy charge for these services, coupled with a system of initiatives and
penalties. Loy Yang has over 70 years of economically viable coal supply at
current usage rates within its mine license area, even assuming that it is
required to continue supplying coal to the other parties beyond 2026.
As noted above, Loy Yang also manages certain common infrastructure
facilities located on Loy Yang's site that service not only Loy Yang, but also
Loy Yang B, the PDBC plant, and several other nearby power plants. These
services provided include the supply of high quality water, low quality water,
ash and waste disposal, drainage and steam.
GLADSTONE POWER STATION
Gladstone is a 1,680 MW coal-fired power generation facility located in
Gladstone, Australia. NRG acquired a 37.5% ownership interest in Gladstone
when the facility was privatized in March 1994. The other participants in this
acquisition are subsidiaries or affiliates of Comalco Limited, Marubeni
Corporation, Sumitomo Corporation and Sumitomo Light Metal Industries,
Mitsubishi Corporation and Mitsubishi Materials Corporation, and Yoshida Kogyo
(the "Participants"). NRG Gladstone Operating Services Pty. Ltd., another
wholly-owned subsidiary of NRG ("NRG Gladstone"), operates the Gladstone Power
Station under an operations and maintenance agreement expiring in 2011.
Gladstone sells electricity to the Queensland Transmission and Supply
Corporation ("QTSC") and also to the Boyne Smelters Limited located at Boyne
Island, Queensland ("Smelter"). Pursuant to an Interconnection and Power
Pooling Agreement (the "IPPA"), the Participants have the right to
interconnect Gladstone to the QTSC system and QTSC is obligated to accept all
electricity generated by the facility (subject to merit order dispatch), for
an initial term of 35 years. QTSC also has agreed under the IPPA to permit the
Smelter to interconnect to the QTSC system and to provide sufficient
generating capacity on its system in order to provide an uninterrupted supply
of power to the Smelter in most
55
<PAGE>
circumstances. The Participants are obligated to maintain a 35% reserve
margin for the Smelter design load, but the QTSC is obligated to provide
capacity support to the Participants to make up any shortfall between the
available capacity from the GPS and the Smelter demand at any given time.
The QTSC also entered into a 35-year Capacity Purchase Agreement (a "CPA")
with each of the Participants for its percentage of the capacity of Gladstone,
excluding that sold directly to the Smelter. Under the CPAs, the Participants
are paid both a capacity and an energy charge by the QTSC. The capacity charge
is designed to cover the projected fixed costs allocable to the QTSC,
including debt service and an equity return, and is adjusted to reflect
variations in interest rates. A capacity bonus is also available if the
Equivalent Availability Factor exceeds 88% on a rolling average basis, and
damages are payable by the Participants if it is less than 82% on that same
basis. As of March 31, 1997, the two-year average Equivalent Availability
Factor was 84.9%. The QTSC also pays an energy charge, which is intended to
cover fuel costs.
The owners of the Smelter ("BSL") have also entered into a Block A PPA with
each Participant, providing for the sale and purchase of such Participant's
percentage share of capacity allocated to the existing Smelter. BSL has also
entered into a Block B PPA with each Participant, providing for the sale and
purchase of such Participant's percentage share of capacity allocated to the
third production line of the Smelter which is currently being commissioned.
The term of each of these PPAs is 35 years. BSL is obligated to pay to each
Participant a demand charge that is intended to cover the fixed costs of
supplying capacity to the existing Smelter and the Smelter expansion,
including debt service and return on equity. BSL also is obligated to pay an
energy charge based on the fuel cost associated with the production of energy
from the facility for BSL. NRG anticipates that the Smelter expansion will
result in an increase in Gladstone capacity utilization from approximately 41%
in 1994 to an estimated 70% in 1998.
NRG Gladstone is responsible for operation and maintenance of Gladstone
pursuant to a 17-year Operation and Maintenance Agreement that commenced in
1994. NRG Gladstone is entitled to a base fee of AUS$1.25 million per year
indexed in accordance with Australian CPI (approximately $1.1 million, based
on exchange rates and ACPI in effect at March 31, 1997), and an annual bonus
based on the capacity bonuses to which the Participants are entitled under the
CPAs. NRG Gladstone is obligated to pay liquidated damages for shortfalls in
availability in an amount calculated by reference to the liquidated damages
payable by the Participants under the CPAs and the PPAs. NRG Gladstone's
obligations under the Operation and Maintenance Agreement are unconditionally
guaranteed by NRG, subject to an aggregate liability cap of AUS$25 million
indexed in accordance with ACPI (approximately $21.5 million, based on
exchange rates and ACPI in effect at March 31, 1997).
In the event the Gladstone facility fails to deliver sufficient power for
the Smelter and no back up power is available from the QTSC, molten aluminum
in the Smelter can solidify, resulting in a shutdown of the Smelter for a
substantial period of time. If the failure to deliver power to the Smelter is
caused by the willful default of QTSC or the Participants (but not NRG
Gladstone), the Participants may become liable to pay liquidated damages,
including compensation to BSL for lost profits, which are not capped. QTSC has
agreed to indemnify NRG's project subsidiaries and the other Participants for
any liability to the owners of the Smelter arising as the result of a willful
default by QTSC with regard to its obligations to deliver power to the
Smelter, subject to certain mitigation obligations of NRG's project
subsidiaries and the other Participants. If such failure is due to the willful
default of NRG Gladstone, NRG may become liable, under its guarantee of NRG
Gladstone's obligations, to pay liquidated damages up to AUS$25 million
indexed in accordance with ACPI (approximately $21.5 million, based on
exchange rates and ACPI in effect at March 31, 1997). In addition, in the
event NRG Gladstone is terminated for cause under the Operation and
Maintenance Agreement, the other Participants can require a sale of NRG's
equity interest.
Coal costs for operation of Gladstone generally are passed through to QTSC
and BSL via the energy charges under the IPPA and the BSL Power Purchase
Agreements. Until 2005, coal will be supplied to Gladstone by QTSC through
on-sale agreements between QTSC and the Participants. An umbrella coal haulage
agreement between the Participants and Queensland Railways provides for the
transportation
56
<PAGE>
of coal by rail from the existing sources and from future coal sources for 30
years, with rail freight costs generally being passed through to QTSC and BSL
via the energy charge payable to the Participants. The Participants have
arranged for ash disposal from the facility pursuant to an ash management
agreement with the Gladstone Port Authority, the City of Gladstone and
Queensland Railways.
The acquisition of the GPS by the Participants was financed pursuant to an
AUS$625 million (US$443 million at exchange rates in effect at the time)
secured term loan and letter of credit facility provided by a consortium of
international banks arranged by Barclay's Bank plc. The debt is non-recourse
to NRG and the other owners of the Participants.
NRG's equity in earnings from its 37.5% interest in the GPS was $7.7
million for the nine months of ownership in 1994. Equity in earnings for the
twelve months ended December 30, 1995, was $11.2 million, and for the same
period in 1996 was $10.8 million. For the first quarter of 1997, equity in
earnings increased from $2.6 million for the first quarter of 1996 to $2.9
million.
COLLINSVILLE POWER STATION
The Collinsville Power Station ("Collinsville") is a 189 MW coal-fired
power generation facility located in Collinsville, Australia. In March 1996,
NRG acquired a 50% ownership interest in Collinsville when the facility was
privatized by the Queensland State government. NRG's partner in this
acquisition is Transfield Holdings Pty Ltd, an Australian infrastructure
contractor, with which NRG formed an unincorporated joint venture to refurbish
this plant. The operation and maintenance of the facility will be undertaken
by Collinsville Operations Pty Ltd, a 50% owned subsidiary of NRG which has
entered into a technical services agreement with NRG for some staffing and
assistance with certain operational and maintenance functions.
Both NRG and Transfield have entered into an 18-year PPA with the QTSC,
each agreeing to make available and sell to the QTSC its respective proportion
of the capacity of Collinsville. Under the PPA, NRG is paid both a capacity
and an energy charge by the QTSC. The capacity charge is designed to cover the
projected fixed costs allocable to the QTSC, including debt service, permitted
capital costs incurred by NRG in carrying out additional works on the facility
and an equity return. The capacity charge is adjusted to reflect variations in
interest rates. A capacity bonus is also available. The QTSC also pays NRG an
energy charge, which is intended to cover fuel costs. Further, in accordance
with its take-or-pay obligations, the QTSC must pay NRG its energy charges for
an annual minimum quantity of energy in each year, less energy taken by the
QTSC in that relevant year.
As of July 1997, the refurbishment of the Collinsville Project is on
schedule and within the budget. For each day the capacity test of the facility
is delayed past March 1, 1998, NRG and Transfield must pay liquidated damages
to the QTSC. Liquidated damages will also be payable if the capacity of the
power plant is determined to be less than 177.25 MW. Total liquidated damages
which NRG and Transfield can be required to pay to the QTSC under the PPA are
limited to AUS$5 million (indexed in April 1995 dollars).
The refurbishment of the Collinsville Power Station has been financed with
nonrecourse commercial project financed bank debt. NRG has guaranteed to the
QTSC that its Collinsville project subsidiary will satisfy its equity
contribution obligations to the project lenders.
ENERGY DEVELOPMENTS LIMITED
On February 6, 1997, NRG, through its wholly-owned subsidiary Hunneric Pty
Ltd, signed a subscription agreement with EDL to acquire up to 20% of EDL's
common stock at AUS$2.20 (US$1.71 as of May 22, 1997) per share, and was
granted an option to acquire 16.8 million convertible preference shares at
AUS$2.20 per share. On February 11, 1997, NRG made an initial purchase of 7.2%
(4.5 million shares) of EDL's common stock for AUS$9.9 million (US$7.9 million
on that date).
EDL, an Australian company, is the largest generator of power from coal
seam methane in the world and is engaged in independent power generation from
landfill gas, coal seam methane, and natural gas (including projects that
utilize the latest combined cycle technology). EDL currently owns
approximately
57
<PAGE>
170 MW of operating projects and operates over 200 MW of generation capacity
across five states and territories of Australia. EDL has commenced the
development of new projects in the United Kingdom, Asia and New Zealand. EDL
is a publicly traded company listed on the Australian Stock Exchange. Its
share price as of May 22, 1997 was AUS$2.82 (US$2.19 as of May 22, 1997).
SCHKOPAU POWER STATION
In 1993, NRG and PowerGen plc of the United Kingdom each acquired a 50%
interest in a German limited liability company, Saale Energie GmbH ("Saale").
Saale then acquired a 41.1% interest in a 960 MW coal-fired power plant that
was under construction in Schkopau, which is located in the former East
Germany. A German energy company, VEBA Kraftwerke Ruhr AG ("VKR"), owns the
remaining 58.9% interest in Schkopau and operates the plant. The partnership
of Saale and VKR that owns the plant is called Kraftwerk Schkopau GbR ("KS").
The first 425 MW unit of the Schkopau plant began operation in January
1996, the 110 MW turbine went into commercial operation in February 1996, and
the second 425 MW unit came on line in July 1996. Acceptance testing of all of
the individual pieces of equipment has been completed. The plant has generally
experienced good availability since the beginning of commercial operation and
is expected to continue meeting its design reliability and efficiency
requirements.
VKR operates and maintains the Schkopau facility under an operation and
maintenance contract with Kraftwerk Schkopau Betriebsgesellschaft mbH, a
German limited liability company ("KSB"), in which Saale and VKR hold
interests of 44.4% and 55.6% respectively, and which is responsible for the
operation and maintenance of the facility pursuant to certain agreements with
each of Saale and VKR. VKR is paid a management fee for such services made up
of several variable components that will be adjusted according to changes in,
among other things, labor costs, producer prices for light fuel oil and prices
for electricity. Pursuant to the KSB partnership agreement between Saale and
VKR and the Saale shareholders agreement between NRG and PowerGen, NRG has the
right to participate in the oversight of facility operations and in the
approval and oversight of facility budgets and policies.
The plant is fueled by brown coal (lignite) which will be provided under a
long-term contract by MIBRAG's Profen lignite mine. For a description of the
coal supply agreement between MIBRAG and the Schkopau project, see "MIBRAG",
below.
Pursuant to the KS partnership agreement between Saale and VKR, each
partner has been allocated a share of capacity and energy generated by the
facility. Saale sells its allocated 400 MW portion of the plant's capacity
under a 25-year contract with VEAG, a major German utility which controls the
high-voltage transmission of electricity in the former East Germany. VEAG pays
a price that is made up of three components, the first of which is designed to
recover installation and capital costs, the second to recover operating and
other variable costs, and the third to cover fuel supply and transportation
costs. NRG receives 50% of the net profits from these VEAG payments through
its ownership interest in Saale.
The construction of the Schkopau facility was financed through a
combination of capital contributions from Saale and VKR, and borrowings by KS
from VKR and from third party lenders, which are non-recourse to NRG. Saale
financed a portion of its capital contributions through a line of credit from
VKR. Saale's interests in KS and the facility are pledged as security for,
among other obligations, the repayment of these borrowings by Saale from VKR.
As of March 31, 1997, KS had borrowed an aggregate of DM 1.46 billion
(approximately $869 million, based on exchange rates in effect as of March 31,
1997) and Saale had borrowed an aggregate of DM 34.2 million (approximately
$20.4 million, based on exchange rates in effect as of March 31, 1997).
NRG, PowerGen and VKR have also entered into a cooperation agreement
concerning the participation of VKR in the acquisition or construction of
certain large power station projects involving NRG and/or PowerGen in the
Federal Republic of Germany.
Earnings from the Schkopau facility commenced in the first quarter of 1996
when the first unit was brought on-line. Equity in Schkopau earnings was $6.4
million for the year ended December 31, 1996 and $1.2 million for the three
months ended March 31, 1997.
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<PAGE>
MIBRAG
In 1994, NRG, Morrison Knudsen Corporation and PowerGen plc each acquired a
33% interest in a Dutch holding company which then acquired the equity of
Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG") which owns the coal
mining, power generation and associated operations of MIBRAG, all of which are
located south of Leipzig, Germany. The German government retained a 1%
interest in MIBRAG until December 1996, when each of the three original
investor parties were permitted to purchase one third of that interest. The
investor partners began operating MIBRAG effective January 1, 1994, and the
legal closing occurred August 11, 1994.
MIBRAG is a corporation formed by the German government following the
reunification of East and West Germany, to hold two open-cast brown coal
(lignite) mining operations, a lease on an additional mine, three
lignite-fired industrial cogeneration facilities and briquette manufacturing
and coal dust plants, all located in the former East Germany. In connection
with the acquisition, NRG and its partners agreed to invest (from cash flow
from MIBRAG operations) in excess of DM 1 billion (US$597 million based on the
exchange rate as of March 31,1997) by December 31, 2004 to modernize the
existing mines and power generation facilities and to develop new open-pit
mines. The German government is obligated to provide certain guarantees of
bank loans to MIBRAG relating to capital improvements to the Schleenhain mine.
MIBRAG also agreed to operate the three power generation facilities until
2005, to operate the briquette plants in accordance with market demand until
2005, and to operate the lignite mines until continued operation of the mines
is no longer economically justifiable. In addition, MIBRAG has made certain
employee retention commitments until 2000. Under the provisions of the sale
and purchase agreement, NRG and its partners agreed to make a deferred payment
of DM 40 million to the German government in the year 2009. This obligation
will be reduced by certain costs incurred by MIBRAG. The remaining obligation
at March 31, 1997 was DM 26.7 million (or US$15.9 million based on the
exchange rate on March 31, 1997). NRG expects the entire obligation will be
offset by ongoing costs prior to the year 2009.
MIBRAG's cogeneration operations consist of the 100 MW Mumsdorf facility,
the 60 MW Deuben facility and the 40 MW Wahlitz facility. These facilities
provide power and thermal energy for MIBRAG's coal mining operations and its
briquette manufacturing plants. All power not consumed by MIBRAG's internal
operations is sold under an eight-year power purchase agreement with
Westsachsische Energie Aktiengesellschaft ("WESAG"), a recently privatized
German electric utility. NRG and PowerGen jointly, through Saale, provide
consulting services for a fee for the operation of the MIBRAG steam and power
generation facilities, the associated electrical and thermal transmission and
distribution system and the briquette manufacturing plants, under a power
consultancy agreement with MIBRAG for the life of the facilities. After some
retrofitting was completed by MIBRAG, all three of these cogeneration
facilities now satisfy the current European Union environmental regulations.
MIBRAG leases these cogeneration facilities under a 13-year lease pursuant to
which MIBRAG has operating control of and a 1% interest in the facilities.
MIBRAG's lignite mine operations include Profen, Zwenkau and Schleenhain
(which is under construction but has not yet commenced operations), with total
estimated reserves of 776 million metric tons. Morrison Knudsen, an
international mining company, provides consulting services to mines under a
consultancy agreement with MIBRAG for the life of the mines. In addition to
providing approximately 3 million tons of lignite per year for MIBRAG's three
cogeneration facilities and one briquette facility, output from these mines
supply lignite to the Schkopau power station and other facilities. The total
output of the new Schleenhain mine will be dedicated to the new 1600 MW
Lippendorf power station. MIBRAG is currently supplying coal for the existing
Lippendorf and Thierbach power generation facilities, but they are expected to
close in 1999 when the new Lippendorf facility is scheduled to commence
operations.
In addition to its power generation and coal mining operations, MIBRAG owns
and operates two briquette manufacturing plants and a coal dust plant.
Operations at the Deuben briquette plant were phased out as anticipated in
1996 due to reduced market demand for briquettes. MIBRAG also partially owns
and is the principal customer of a transportation company, an insurance
brokerage firm, a briquette marketer, a waste disposal and management company,
a ground water consulting company and an environmental consulting company.
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MIBRAG is restricted from selling or transferring certain assets without
the consent of the German government, generally for a period ending not
earlier than January 2004. Even if consent is obtained, MIBRAG is obligated to
pay a portion of the proceeds of any sale or transfer of such assets
consummated before January 2004 to the German government.
To the extent liabilities arise with respect to environmental conditions
existing at the time of the acquisition, MIBRAG is indemnified by the German
government, subject to certain limitations. The German government has also
agreed to indemnify MIBRAG in respect of certain liabilities arising from
claims for the restitution of property allocated to MIBRAG.
MIBRAG has entered into several long-term loan agreements with the
Kreditanstalt fur Wiederaufbau ("KfW"), which is the German government
economic development bank. Approximately DM 126.7 million ($75.7 million as of
March 31, 1997) of these loans relate to the construction of the Wahlitz power
station and were assumed as part of the MIBRAG acquisition on January 1, 1994.
In January 1996, MIBRAG borrowed an additional DM 94.5 million ($56.4 million
as of March 31, 1997) from KfW and DM 198.0 million ($118.2 million as of
March 31, 1997) from a group of private investors. The proceeds from these
loans are being used in respect of the refurbishment of the Schleenhain mine.
These loans are payable out of project revenues over a period of 13 years and
are non-recourse to the three sponsors. Additional acquisition payments are
due to the German government in the form of premiums based on the quantity of
lignite and briquettes sold. MIBRAG has also borrowed an additional DM 90
million ($53.7 million as of March 31, 1997) from the KfW to partially finance
the modernization and refurbishment of the Deuben and Mumsdorf plants,
particulary the cost of bringing them into compliance with environmental
requirements. This loan is also non-recourse to the sponsors.
NRG's equity in earnings from its interest in MIBRAG was $19.4 million in
the year ended December 31, 1994 (reflecting a full twelve months of
operations). NRG's equity in earnings in MIBRAG for the twelve months ended
December 31, 1995, was $22.2 million, and for the same period in 1996 was
$13.0 million. Similarly, equity in earnings for the first quarter of 1997 was
$2.4 million, while the first quarter of 1996 had been $3.5 million. Earnings
from MIBRAG decreased in 1996 and are expected to continue to decrease in 1997
and 1998 due to mine refurbishments and reduced coal sales. However, in 1999,
coal sales are expected to increase substantially with the scheduled startup
of the first of two 800 MW Lippendorf generating units.
MIBRAG's results of operations, which are reported under German accounting
rules, are adjusted for purposes of NRG's financial statements to reflect
GAAP. Such adjustments include, among others, adjustments for differences in
reporting of depreciation expense, mining reserves, vacation reserves and
maintenance reserves.
COBEE
In December 1996, NRG acquired an interest in Compa|fnia Boliviana de
Energia Electrica S.A. -- Bolivian Power Company Limited ("COBEE"), the second
largest generator of electricity in Bolivia. The acquisition was consummated
through a Netherlands corporation, Tosli Investments B.V. ("Tosli"), which is
jointly owned by subsidiaries of NRG (60%) and Vattenfall AB of Sweden (40%).
On December 19, 1996, Tosli completed a successful tender offer for the shares
of COBEE, which were listed on the New York Stock Exchange, acquiring 96.6% of
COBEE's outstanding common shares for a total of $175 million. COBEE shares
were delisted in January 1997.
Tosli financed its acquisition of COBEE in part using the proceeds of a
$49.6 million bridge loan arranged by Morgan Grenfell & Co. Limited, as
administrative agent. The unpaid principal amount of that loan of $30 million
was repaid in full on June 19, 1997 using the proceeds of a loan from NRG to
Tosli. COBEE is currently negotiating a Credit Agreement with Corporacion
Andina de Fomento (the "CAF Financing") for $75 million to fund the completion
of the Zongo Project, as described below. Upon closing the CAF Financing,
COBEE will declare and pay a dividend to Tosli and COBEE's minority
shareholders. The dividend received by Tosli will be used to pay the amounts
due on the NRG loan.
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Upon Tosli's acquisition of COBEE, the COBEE board of directors was
reconstituted to include nine members, including four designees of NRG, three
designees of Vattenfall and two outside directors. In addition, in December
1996, the Chief Executive Officer of NRG was elected as chairman of the board
of directors and chief executive officer of COBEE.
COBEE generates and transmits electricity in La Paz and Oruro, Bolivia, and
owns 14 generating facilities representing an installed capacity of
approximately 163 MW. These facilities consist of 145 MW of hydroelectric
capacity and 17 MW of gas peaking capacity. During 1996, COBEE had electricity
sales of $20 million. In 1996, two distribution companies, Electropaz and ELF,
accounted for approximately 69% and 16%, respectively, of COBEE's revenues.
The remaining COBEE revenues are derived from sales on the spot market.
COBEE has entered into an Electricity Supply Contract with Electropaz which
provides that COBEE shall supply Electropaz with all of the electricity that
COBEE can supply, up to the maximum amount of electricity required by
Electropaz to supply the requirements of its distribution concession. This
Electricity Supply Contract expires in December 2008. COBEE has entered into a
substantially similar contract with ELF. Electropaz and ELF are both
wholly-owned subsidiaries of Ibedrola S.A., a Spanish utility company. All
payments by Electropaz and ELF are in local currency, tied to the value of the
U.S. dollar.
COBEE operates its electric generation business under a 40-year Concession
granted by the Government of Bolivia in 1990, as most recently amended in
March 1995. Under this Concession, COBEE is entitled to earn a return of 9%
after all operating expenses, depreciation, taxes and interest expense,
calculated on its U.S. dollar rate base, consisting of net fixed assets at
historical cost in U.S. dollars and working capital and materials up to
certain limits. The Bolivian Electricity Code also provides for the adjustment
of rates to compensate COBEE for any shortfall or to recapture any excess in
COBEE's actual rate of return during the previous year. COBEE periodically
applies to the Superintendent of Electricity for rate increases sufficient to
provide its 9% rate of return based on COBEE's current operating results and
its projection of future revenues and expenses.
Its Concession also obligates COBEE to expand its hydroelectric generation
capacity. As a result, COBEE has an additional 56 MW of new hydroelectric
facilities under construction in the Zongo Valley. This expansion, which COBEE
refers to as the "Zongo Project," consists of adding new generation facilities
and modernizing existing facilities in the Zongo Valley and constructing
transmission lines to transmit the increased generation capacity. The Zongo
Project is scheduled to be completed in 1998 and is expected to add a total of
56 MW to COBEE's generating capacity.
Under the terms of the Concession, COBEE also has the right to expand its
facilities in the Miguillas Basin (the "Miguillas Project") which, if
completed, would add over 200 MW of generation capacity. In accordance with
its obligations under the Concession, in late 1995 COBEE presented to the
Government a technical-economic feasibility study. COBEE fully expects to
proceed with the construction of Miguillas in accordance with a proposal and
schedule submitted to the Bolivian government in December 1996. COBEE's
proposal still awaits regulatory approval from the Superintendent of
Electricity in Bolivia.
There can be no assurance that any or all of the projects under development
by COBEE will be completed.
Equity in earnings from COBEE were $0.1 million for the twelve days ended
December 31, 1996 and $0.4 million for the three months ended March 31, 1997.
For the period ended March 31, 1997, NRG received $6.7 million from its sale
of a portion of its investment in COBEE. NRG intends to sell down its
ownership in COBEE to less than 50%.
KLADNO
The Energy Center Kladno project, located in Kladno, the Czech Republic,
consists of two distinct phases. In 1994, NRG acquired an interest in the
existing coal-fired electricity and thermal energy generation facility that
can supply 28 MW of electrical energy and 150 MWt of steam and heated water.
This plant has historically supplied electrical energy to a nearby industrial
complex which includes the Poldi Steel works (which is currently shut down and
undergoing reorganization), and to Stredoceska
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Energeticka ("STE"), the local regional electric distribution company. In
addition, the existing plant supplies steam and heated water to the
industrial complex and to the City of Kladno. NRG's interest in the existing
project is 34%.
The second phase is the expansion of the existing project by the addition
of 354 MW of new capacity, 282 MW of which will be coal-fired and 72 MW of
which will be gas-fired. As a part of this effort, the existing plant will be
refurbished.
The existing project is owned by a company called Energy Center Kladno
("ECK"), in which NRG owns 34%, El Paso Energy International Company ("El
Paso") owns 19% and local partners own the balance of 47%. The expansion
project is held separately through ECK Generating ("ECKG"), a Czech limited
liability company of which 89% is owned by a Netherlands company called Matra
Powerplant Holding B.V. ("Matra") and 11% is owned by STE. NRG owns 65% of
Matra and El Paso owns the remaining 35%. As a result, NRG has a net ownership
interest in the expansion plant of 57.85%. Each of NRG and El Paso has granted
Nations Energy (a subsidiary of Tucson Electric) an option to acquire 15% of
Matra at any time before May 1998. If Nations Energy does not exercise its
option with NRG, NRG intends to sell down its interest in Matra until its
ownership interest in ECKG is less than 50%.
ECK has leased all of the existing power generation facilities to ECKG
pursuant to a 40-year lease. NRG, through a wholly-owned subsidiary, has
responsibility for operating both the ECK assets and the new facilities.
During construction ECKG will continue to service ECK's existing customers.
When the new facilities are built ECKG will sell the additional capacity to
STE under a 20 year power sales agreement, at a price tied to STE's cost of
purchasing power from CEZ, the state-owned power generation entity.
Construction of the new facilities started in early 1997, and in May 1997
ECKG signed loan documents to provide financing for the project. Construction
is currently scheduled to be completed in 1999.
As of March 31, 1997, capitalized development costs for the Kladno project
were $6.6 million. In addition, the purchase price paid by NRG for the
acquisition of its interest in ECK has been capitalized to investments in
projects.
LATIN POWER
Latin Power is an investment fund that was formed in July 1993 to make
equity investments in independent power projects in Latin America and the
Caribbean. NRG, the International Finance Corporation (a member of the World
Bank Group), Corporation Andina de Fomento (a multilateral institution for the
Andean region headquartered in Caracas, Venezuela) and CMS Generation Co. (the
independent power subsidiary of CMS Energy) are the four lead investors in
Latin Power. Each of the four lead investors has committed $25 million to
Latin Power and has designated Scudder, Stevens & Clark, Inc. ("Scudder") as
the investment manager of the fund.
As of March 31, 1997, NRG had invested $13.0 million of its $25 million
commitment in Latin Power portfolio project investments. NRG has also
committed to fund projects in Peru and Colombia, which will be drawn down
during 1997 and 1998. For the balance of the $25 million the Latin Power
project committee recently approved two investments in power generation
facilities in Guatemala and Brazil. NRG's proportional investments in these
projects, which have not yet commenced construction, will be approximately
$1.9 million and $550,000 respectively.
Latin Power generally makes equity investments in private sector
independent power producers located in Latin America and the Caribbean that
sell power under long-term contracts to industrial users or to distribution
and transmission companies. The fund also may invest in transmission,
distribution or related operations. Latin Power currently holds investments in
five projects. The Mamonal project is a 100 MW combined-cycle natural
gas-fired power generation facility plant operating near Cartagena, Colombia.
The facility is owned by K&M Engineering and Consulting, Bank of Boston,
Rockefeller Group
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and Latin Power, which purchased a limited partnership interest in the
partnership that owns the facility in 1994 for $7.6 million. Total project
debt is $57 million, which is non-recourse to the facility owners. The
Overseas Private Investment Corporation ("OPIC") insurance covers certain
political and currency risks.
In November 1994, Latin Power purchased a 31% interest in the ELCOSA power
generation facility in Puerto Cortes, Honduras. ELCOSA is an oil-fired
facility with 80 MW of generating capacity, which the facility sells pursuant
to a 15-year power purchase agreement to Empresa Nacional de Energia
Electrica. The Honduran government has guaranteed the utility's obligations
under the power purchase agreement. The Multilateral Investment Guarantee
Association is providing insurance for Latin Power's equity investment
against expropriation, political violence and certain currency risks.
In December 1995, Latin Power purchased a 35.1% interest in Jamaica Energy
Partners, which owns the 74 MW Dr. Bird floating diesel-fired power
generation facility. The facility is installed and operating at Old Harbour
on the southern coast of Jamaica near Kingston. Jamaica Public Service
Company, Ltd. has signed a 20-year power purchase agreement with Jamaica
Energy Partners.
In July 1996, Latin Power assumed 14.5% ownership in the Aguaytia power
project in Peru which, when constructed, will be a 155 MW gas-fired power
plant. When completed, Aguaytia will sell its output to the Peruvian power
pool.
In October 1996, Latin Power purchased a 19.5% limited partnership
interest in the 199 MW combined cycle Termovalle project near Cali, Colombia.
Commercial operation of Phase I (130 MW simple cycle) is expected in August
1997 and of Phase II (199 MW combined cycle) in May 1998. Empresa de Energia
del Pacifico (EPSA), a state-owned generation, transmission and distribution
company, has entered into a PPA for 160 MW of generating capacity from the
project. Industrial purchasers in the Cali area have committed to purchase
the remaining power capacity.
In late 1996, NRG committed to make an additional investment in Latin
Power II, a new Latin Power fund. This increased its aggregate commitment in
Latin Power from $25 million to $32.5 million.
NRG's equity in earnings from its interest in Latin Power was $1.6 million
for the year ended December 31, 1996. For the first quarter of 1997, these
equity in earnings decreased from $0.6 million from the first quarter of 1996
to $0.3 million.
DOMESTIC PROJECTS
NRG GENERATING (U.S.) INC. ("NRGG")
On January 18, 1996, the U.S. Bankruptcy Court for the District of New
Jersey awarded NRG the right to acquire a 41.86% equity interest in O'Brien
Environmental Energy, Inc. ("O'Brien"), which emerged from bankruptcy on
April 30, 1996 and was renamed NRGG. NRG holds 41.86% of the common stock of
NRGG. The remaining 58.14% of the common stock continues to be held publicly.
NRGG has interests in three domestic operating projects with an aggregate
capacity of approximately 196 MW. NRGG's principal operating projects
include: (a) the 52 MW Newark Boxboard Project (which is owned 100% by a
wholly-owned project subsidiary of NRGG), a gas-fired cogeneration facility
that sells electricity to JCP&L and steam to Newark Group Industries, Inc.;
(b) the 122 MW E.I. du Pont Parlin Project (which is owned 100% by a
wholly-owned project subsidiary of NRGG), a gas-fired cogeneration facility
that sells electricity to JCP&L and steam to E.I. du Pont de Nemours and
Company ("E.I. du Pont"); and (c) an 83% interest in a 22 MW standby/peak
sharing facility which provides electricity and standby capabilities for the
Philadelphia Municipal Authority. In addition, NRGG has a 33.33% interest in
the 150 MW Grays Ferry Project, a gas-fired cogeneration project which is
under construction in Philadelphia, Pennsylvania.
NRG provides NRGG with management and administrative services in
connection with day-to-day operations. NRG employees serve as NRG's designees
on the board of directors of NRGG. NRG and NRGG also entered into a
"Co-Investment Agreement," pursuant to which NRG grants NRGG a right of first
offer to acquire from NRG each energy development project first developed or
acquired by NRG for which a co-investor is required because of federal or
state regulatory restrictions on NRG's ownership.
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NRG has agreed that, within the three-year period following the closing date
of the acquisition of NRGG, a minimum of one or more such projects, having an
aggregate equity value of at least $60 million or a minimum power generation
capacity of 150 MW, will be so offered. To facilitate NRGG's ability to
acquire projects under the Co-Investment Agreement, NRG is obligated to
provide financing to NRGG to the extent that NRGG is unable to obtain funds
on comparable terms from other sources.
NRG has also agreed to certain provisions designed to protect the rights
of the holders of the 58% of the equity in NRGG that is not owned by NRG.
These provisions include super-majority voting requirements with respect to a
merger or sale of all or substantially all of NRGG's assets and certain
additional issuances of NRGG stock, the creation of an independent committee
of the board of directors of NRGG with authority to, among other things,
determine whether NRGG will exercise its right of first offer under the
Co-Investment Agreement and a commitment that, for a seven-year period
following NRG's investment in NRGG, NRG will not remove or vote against the
re-election to NRGG's board of directors of any of the three directors
(appointed by Wexford Management Corp. and the Committee of Equity Security
Holders) who constitute the independent directors committee.
NRGG and NRG have entered into various loan agreements. At December 31,
1996, the loan balance due to NRG was $14,388,000 with a maturity date of
April 30, 2001.
NRGG is listed under the symbol "NRGG" in the OTC market. NRGG's closing
share price as of July 31, 1997 was $16.50.
Newark. The 52 MW Newark project, which commenced operation in November
1990, is 100%-owned by NRG Generating (Newark) Cogeneration Inc. ("NRGGN"), a
wholly-owned project subsidiary of NRGG. NRGGN is designed to operate
continuously and to provide up to 75,000 lbs./hr. of steam to a recycled
paper boxboard manufacturing plant owned by Newark Boxboard Company, a
subsidiary of Newark Group Industries, Inc., and 52 MW of electricity to
JCP&L, each under agreements extending into the year 2015. The power contract
provides fixed on-peak and off-peak energy and capacity payments for the base
electrical power and fixed capital, fixed operation and maintenance and
variable operation and maintenance payments for the dispatchable power. The
facility availability in 1996 was in excess of 95%.
Natural gas for the project is supplied and paid for by JCP&L as a part of
its obligations under the terms of the power purchase agreement.
Parlin. The 122 MW Parlin project, which commenced operation in June 1991,
is 100% owned by NRG Generating (Parlin) Cogeneration Inc. ("NRGGP"), a
wholly-owned project subsidiary of NRGG. NRGGP provides up to 120,000
lbs./hr. of steam to a manufacturing plant in Parlin, New Jersey owned by
E.I. du Pont, under an agreement extending until 2021. In addition, the
project sells 41 MW of base electric power and up to 73 MW of dispatchable
power to JCP&L, under an agreement with an initial term until 2011. The power
contract provides fixed on-peak and off-peak energy and capacity payments for
the base electrical power and fixed capital, fixed operation and maintenance
and variable operation and maintenance payments for the dispatchable power.
Finally, the projects sells up to 9 MW of power to NRG Parlin, Inc. ("NPI"),
a wholly-owned subsidiary of NRG Energy, Inc. NPI resells this power at
retail to E.I. du Pont under an agreement extending until 2011. The facility
availability in 1996 was in excess of 95%.
Natural gas for the project is supplied and paid for by JCP&L as part of
its obligations under the terms of the power purchase agreement.
Both the Newark and the Parlin projects are being operated by Power
Operations, Inc., a wholly-owned subsidiary of NRG which assumed the
operations and maintenance responsibilities on December 31, 1996, under a
six-year operating agreement providing for reimbursement of the operator's
costs plus a fee.
Financing for Newark and Parlin. On May 17, 1996, NRGG's wholly-owned
project subsidiaries, NRGGN and NRGGP entered into a Credit Agreement (the
"Credit Agreement") with Credit Suisse. The Credit Agreement established
provisions for a $155,000,000 15-year loan and a $5,000,000 five-year
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debt service reserve line of credit. Pursuant to borrowings in May and July
of 1996, NRGGN and NRGGP drew the full $155,000,000 available under the
Credit Agreement, which is a joint and several liability of NRGGN and NRGGP
and will be amortized over a 15-year period as specified under the terms of
the Credit Agreement.
Grays Ferry. NRGG has a 33.3% interest in the 150 MW Grays Ferry Project,
which is currently under construction and will, when completed, sell
electricity to PECO Energy Company ("PECO") and district heating steam to
Trigen-Philadelphia Energy Corporation ("Trigen"). The Grays Ferry Project is
being constructed by Westinghouse Electric Corporation ("WEC") pursuant to a
fixed price turnkey construction contract. WEC has also made available $15
million in subordinated debt to the project, payable semi-annually after
commercial operation and to be repaid in full no later than March 2005. The
project is scheduled to go into commercial operation in December 1997. Once
in operation, it will be operated by an affiliate of Trigen pursuant to a
25-year operating agreement providing for reimbursement of the operator's
costs plus a fee.
PECO will purchase energy and capacity from the project pursuant to two
energy purchase agreements and two capacity purchase agreements, each having
a term of 20 years. Gas for the Project will be provided by Aquila Energy
Marketing Corporation. The gas sales agreement is tailored so that the
project's fuel expenses will track its revenues from sales of electricity. To
the extent the actual cost of fuel exceeds revenues received, a tracking
account has been established which is payable by the project out of
distributable cash flow.
Construction and term loan project financing for the project and certain
letters of credit to support project agreements were provided by The Chase
Manhattan Bank, N.A., as agent. This financing is non-recourse to NRG. The
maturity date for the term loan is the earlier of March 6, 2013 or the
fifteenth anniversary of the term loan conversion date.
NEO CORPORATION
NEO is a wholly-owned project subsidiary of NRG that was formed to develop
small power generation facilities, ranging in size from 1 to 50 MW, in the
United States. NEO is currently focusing on the development and acquisition
of landfill gas projects and the acquisition of hydroelectric projects.
Through the investment vehicle Northbrook Energy, L.L.C. ("Northbrook"),
NEO presently has a 50% interest in nineteen small operating hydroelectric
projects, ranging in size from 1 MW to 6 MW and having a total capacity of
39.3 MW. As of March 31, 1997, NEO's total investment in these projects is
$3.9 million. NEO also has loaned $3.7 million to Omega Energy Partners,
L.L.C. ("Omega") to fund Omega's 50% equity interest in Northbrook. This loan
is secured by Omega's project ownership interest.
NEO also has a 50% interest in eight operating landfill gas projects, as
of June 1, 1997, ranging in size from 1 MW to 8.4 MW and having a total
capacity of 35 MW. As of March 31, 1997, NEO's investment in these projects
totals $2.9 million. In addition, NEO has sixteen landfill gas projects in
varying phases of development: these projects will range in size from 1 MW to
11 MW and will have a total capacity of approximately 65 MW that is expected
to go into commercial operation in 1997 and 1998. NEO expects its total
equity requirements for these development projects to be approximately $55
million. NEO also has twenty-one other landfill gas projects in development
that it expects to go into commercial operation in 1998. There can be no
assurance that the development of any or all of these projects will in fact
be successfully completed.
An important factor in the after tax return of the landfill gas projects
is the eligibility of these projects for Section 29 tax credits. The Section
29 tax credit is available only to projects that produce gas from biomass or
synthetic fuels from coal. Landfill gas is produced from biomass for purposes
of the Section 29 credit. To qualify for the credit, the facility for
producing gas must be placed in service no later than June 30, 1998.
NEO generated after tax losses of $520,000 in 1996, reflecting heavy
development activity. For the three months ended March 31, 1997, NEO has
generated after tax earnings of $900,000 as compared to $90,000 for the same
three month period in 1996.
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CADILLAC RENEWABLE ENERGY
In July 1997, NRG, together with its partner, Decker Energy International,
Inc. ("Decker"), acquired a 34 MW wood-fired steam turbine power plant,
located in Cadillac, Wexford County, Michigan ("Cadillac"). NRG and Decker
acquired the facility and certain other assets from Beaver Michigan
Associates Limited Partnership. Electricity from the plant is sold to
Consumers Power under a long-term power purchase agreement. NRG immediately
took over operations of the 20-employee plant, now named Cadillac Renewable
Energy, through a wholly-owned subsidiary.
SUNNYSIDE
The Sunnyside facility, located in Carbon County, Utah, is a 58 MW waste
coal-fired facility that utilizes circulating fluidized bed technology. The
Sunnyside facility is owned by Sunnyside Cogeneration Associates ("SCA"), a
Utah joint venture, 50% of which is owned by NRG Sunnyside Inc. and 50% of
which is owned by B&W Sunnyside L.P., an affiliate of Babcock & Wilcox.
Sunnyside Operations Associates, in which affiliates of NRG and Babcock &
Wilcox each hold 50% of the partnership interests, performs operations and
maintenance services on behalf of SCA. As of December 31, 1996, NRG's
investment in SCA was $12.5 million.
PacifiCorp purchases the energy and capacity generated by the Sunnyside
facility pursuant to a power purchase agreement with an initial term expiring
in 2023. PacifiCorp is obligated to pay for energy at prices based on
PacifiCorp's avoided cost. PacifiCorp is obligated to pay for base capacity,
up to 45 MW, at a levelized fixed price, and for additional capacity up to 53
MW, at escalating fixed prices. The Sunnyside facility has experienced a
shortfall in project cash flow attributable primarily to decreased revenues
due to avoided energy rates being significantly lower than originally
forecasted. In addition, higher fuel costs than originally forecasted may be
incurred in the future.
These changes in the economic performance of the Sunnyside project have
caused NRG to explore options for restoring the Sunnyside project to
financial health. In particular, SCA has negotiated with PacifiCorp to
restructure payments under the power purchase agreement, and SCA has
discussed a restructuring of the project debt with its bondholders. In the
absence of a restructuring of the project's debt, a debt service reserve
fund, which has been used to make up cash shortfalls, is expected to be
depleted within six months. There can be no assurances that either PacifiCorp
or the bondholders will agree to any restructuring, nor can there be any
assurances as to the actions SCA may take when and if the debt service
reserve fund is depleted.
JACKSON VALLEY
The Jackson Valley cogeneration facility ("Jackson Valley"), located near
Ione, California is a 16 MW fluidized bed power generation facility fueled by
waste lignite. The Jackson Valley facility is owned and operated by Jackson
Valley Energy Partners, L.P., a California limited partnership ("JVEP") in
which NRG owns a 2% general partnership interest and a 48% limited
partnership interest. The remaining 2% general partnership interest and 48%
limited partnership interest are owned by partnerships formed by two
individuals. The facility began operation in 1987 and has had a lifetime
operating availability in excess of 90%. NRG acquired its interest in Jackson
Valley in July 1991.
Jackson Valley has a long-term power sales agreement with PG&E through to
2014. On April 1, 1995, JVEP reached an agreement with PG&E regarding the
partial buy-out of the capacity payments under the PPA. The plant, which had
been idle since that date, restarted operations on May 1, 1997, at which time
the sale of energy to PG&E recommenced under the amended PPA.
In connection with its acquisition of the Jackson Valley facility in July
1991, JVEP also acquired a montan wax manufacturing plant, three mineral
leases and rights to mine lignite on property near the facility. During the
period while the JVEP facility was down, the montan wax plant maintained
production by receiving its power requirements from an auxiliary boiler.
Litigation is pending with respect to defining the nature and extent of
JVEP's rights to waste lignite from one of the several mines that supplies
the project with fuel. However, since the plant is currently receiving and
will for the forseeable future receive
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its waste lignite from several other mines, management believes that it is
unlikely that this litigation will have a material adverse effect on the JVEP
Partnership.
JVEP's acquisition of the power generation facility, the montan wax plant
and the mineral rights was financed partially through the assumption of
indebtedness under a financing facility that was outstanding at the time of
the acquisition. The financing facility, which was restructured in connection
with the partial buyout, and the obligations of JVEP under the PPA, are
non-recourse to NRG.
SAN JOAQUIN
NRG holds a 2% general partnership interest and a 43% limited partnership
interest in San Joaquin Valley Energy Partners I L.P. and San Joaquin Energy
Partners IV L.P. (together, the "SJVEP Partnerships"). The SJVEP Partnerships
separately own the Chowchilla I, Chowchilla II, El Nido and Madera power
generation facilities (the "SJVEP Facilities").
The PPAs with PG&E in respect of the SJVEP Facilities were bought-out by
PG&E. The SJVEP Partnerships agreed to terminate these power purchase
contracts in exchange for the payment by PG&E of approximately $116 million.
NRG received total pre-tax cash distributions of $41.8 million in 1995 and
1996 after retiring debt on the Facilities and making appropriate reserves.
The project termination agreement resulted in a pretax gain of $29.9 million
in 1995, at which time NRG received a $14.2 million distribution. An
additional $15.7 million of cash was received in 1996. PG&E also paid the
Facilities' on-going operating expenses during the time that the buyout was
in progress, which accounted for $4.7 million of total $29.9 million gain in
1995. The distributions to NRG of $14.2 million and $15.7 million were
included as cash flow from investing activities in 1995 and 1996,
respectively, while all other cash distributions from the project were
included in operating cash flow. Litigation is pending regarding the
termination of a bio-fuel supply contract in connection with the buy-out.
Appropriate reserves have been made and management believes that it is
unlikely that this litigation will have a material adverse effect on the
SJVEP Partnerships.
As a result of this buy-out, the SJVEP Facilities have been taken out of
service. On December 31, 1996, a contractor for a NEO project purchased the
mechanical equipment from the Chowchilla I power generation facility. The
SJVEP Partnerships' objective with respect to the other Facilities is to
enter into replacement PPAs for the sale of energy and capacity and to resume
operation within two years or to sell those SJVEP Facilities. No assurance
can be given as to whether replacement agreements will be obtained or, if
obtained, whether such agreements will be on terms favorable to the SJVEP
Partnerships, or if purchasers for the SJVEP Facilities can be secured, or,
if secured, whether the terms of their purchases will be favorable to the
SJVEP Partnerships.
STEAM AND CHILLED WATER PRODUCTION, TRANSMISSION AND RELATED SERVICES
MINNEAPOLIS ENERGY CENTER ("MEC")
MEC provides steam and chilled water to customers in downtown Minneapolis,
Minnesota. MEC currently provides 90 customers with 1.5 billion pounds of
steam per year and 30 customers with 37.0 million ton hours of chilled water
per year. NRG, through its wholly-owned project subsidiary NRG Energy Center,
Inc. ("NRG Energy Center"), acquired MEC in August 1993 for approximately
$110 million. MEC's assets include two steam and chilled water plants, three
chilled water plants, two steam plants, six miles of steam and two miles of
chilled water distribution lines. The MEC plants have a combined steam
capacity of 1,323 mmBtus per hour (388 MWt) and cooling capacity of 35,550
tons per hour.
MEC provides steam and chilled water to its customers pursuant to energy
supply agreements which expire at varying dates from December 1997 to March
2017. Historically, MEC has renewed its energy supply agreements as they near
expiration. With minor exceptions, these agreements are standard form
contracts providing for a uniform rate structure consisting of three
components: a demand charge designed to recover MEC's fixed capital costs, a
consumption charge designed to provide a per unit margin, and an operating
charge designed to pass through to customers all fuel, labor, maintenance,
electricity and other operating costs. The demand and consumption charges are
adjusted in accordance with the Consumer Price Index ("CPI") every five
years.
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NRG Energy Center's acquisition of MEC was financed pursuant to an $84
million senior secured note facility. The notes are 7.31% fixed rate
obligations due in 2013, with the principal amortized over the life of the
loan and paid quarterly. NRG Energy Center is in the process of renewing and
increasing its $10 million master shelf revolving credit facility, which it
expects to have in place by August 1997, pursuant to which NRG Energy Center
may issue term notes with maturities no later than June 2013. The master
shelf revolving credit facility could also provide for up to $5 million of
short-term (i.e., less than one year) borrowings. These facilities are
recourse only to NRG Energy Center.
On January 9, 1996, two NRG employees were killed in an accident at MEC
that occurred while two steam pipes were being connected. NRG believes that
any liability relating to this accident will be adequately covered by
insurance policies (which contain customary deductibles).
NATS
In August 1995, NRG purchased from Thermal Ventures, Inc. ("TVI"), a 49%
limited partnership interest in each of two district heating and cooling
projects, one in San Francisco (San Francisco Thermal Limited Partners or
"SFTLP") and the other in Pittsburgh (Pittsburgh Thermal Limited Partners or
"PTLP"). NRG and TVI then established North American Thermal Systems LLC
("NATS") for the purpose of jointly owning their respective general
partnership interests in these two district heating and cooling companies. In
1996, NRG paid $2.8 million to the owners of TVI. and made a capital
contribution of $500,000 to NATS in exchange for the sale of the 1% general
partnership interests in each of PTLP and SFTLP to NATS. NRG and TVI
participate equally in SFTLP and in PTLP and each owns 50% of the membership
interests in NATS. As of March 1997, NRG's investment in PTLP was $3.8
million and NRG's investment in SFTLP was $3.4 million.
PTLP and SFTLP are both regulated utilities that operate under tariffs and
are rate-regulated. PTLP owns and operates a district heating and cooling
system that serves part of downtown Pittsburgh and has peak steam capacity of
240 mmBtus per hour (70 MWt) and 10,180 tons of chilled water per year. PTLP
serves 24 customers with 300 million pounds of steam per year and 21 million
ton hours of chilled water per year. SFTLP is the sole supplier of steam to
downtown San Francisco, which it serves through its district heating system
that has steam capacity of 490 mmBtu per hour (144 MWt). SFTLP serves
approximately 210 customers with approximately 700 million pounds of steam
per year that is used primarily for space and domestic heating and absorption
air-conditioning.
NATS is currently considering the acquisition of several other district
heating and cooling companies. NRG has agreed to make additional payments to
the principals of TVI of up to an aggregate of $7 million until January 1,
2003 for reaching performance benchmarks of current and future NATS operating
entities. There is no assurance that NATS and the TVI Joint Venture will
consummate any additional acquisition.
SAN DIEGO POWER & COOLING
NRG purchased the San Diego Power & Cooling Company ("SDPC") on June 25,
1997. SDPC serves the cooling needs of fourteen major customers in the
downtown San Diego central business district through an underground piping
system. SDPC's chilled water capacity is 5,250 tons/hour.
WALDORF
The Waldorf process steam operation, which is owned and operated by NRG,
consists of a five-mile closed-loop steam/condensate line that delivers steam
to the Waldorf Corporation, a paper manufacturer in St. Paul, Minnesota and
has a peak steam capacity of 430 mmBtus per hour (126 MWt). Upon settlement
of a 1987 dispute between NORENCO Corporation (a predecessor of NRG) and
Waldorf, Waldorf elected to prepay revenues for future steam service. As of
March 31, 1997, deferred revenues remaining were $5.8 million. Waldorf is
currently running its corrugated medium operations on a rotational basis in
response to poor market conditions. Waldorf anticipates improvement in the
market and a return to normal corrugated medium operations in September 1997
when seasonal orders are placed. The corrugated medium operations represent
approximately 40% of normal steam sales.
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All project debt incurred with respect to the Waldorf line has been
repaid. NRG maintains a $1.5 million performance bond with respect to the
Waldorf steam line.
WASHCO
NRG's Washco steam operation consists primarily of two steam lines and a
back-up boiler facility, which were placed in service in 1986. The system has
a peak steam capacity of 160 mmBtus per hour (47 MWt).
Andersen Corporation, a window manufacturer based in Bayport, Minnesota
("Andersen"), purchases approximately 200,000 mmBtus of thermal energy
annually pursuant to a new ten-year agreement that expires in April 2007.
Andersen is obligated to take or pay for an annual quantity of steam equal to
60% of its total of purchased and self-generated steam, on a cost plus fixed
fee basis. The Minnesota Correctional Facility ("MCF"), located at Oak Park
Heights, Minnesota, purchases approximately 130,000 mmBtus of thermal energy
annually pursuant to an agreement that expires in December 2006. MCF
purchases steam based on a fixed facility charge plus an energy charge that
escalates annually in accordance with an NSP coal fuel and labor index.
GRAND FORKS
NRG's Grand Forks boiler plant facility consists of seven boilers located
in Grand Forks, North Dakota that were acquired from NSP in 1990. The system
has a peak steam capacity of 105 mmBtus per hour (31 MWt).
The Grand Forks facility provides approximately 400,000 mmBtus of high
temperature water annually to the Grand Forks Air Force Base pursuant to an
agreement that expires in September 2000. NRG is paid a fixed capacity price
component, a variable price component adjusted annually based on changes in
CPI and a fuel component that is a pass-through of the facility's fuel costs
for high temperature water sold under the agreement.
RESOURCE RECOVERY FACILITIES
RDF projects, such as NRG's Newport facility and NSP's Elk River facility,
historically were assured adequate supply of waste through state and local
flow control legislation, which directed that waste be disposed of in certain
facilities. In May 1994, the United States Supreme Court held that such waste
was a commodity in interstate commerce and, accordingly, that flow control
legislation that prohibited shipment of waste out of state was
unconstitutional. Since this ruling, the RDF facilities owned or operated by
NRG have faced increased competition from landfills in surrounding states. As
a result of such competition, MSW processed at the Newport facility decreased
by approximately 5% in 1995, from approximately 378,000 tons in 1994 to
360,000 tons in 1995. In 1996, however, due to assistance from NRG and a
reduction in tipping fees under contracts entered into between haulers and
Ramsey and Washington Counties (the "Counties"), waste deliveries reversed
their downward trend. In the absence of valid flow control legislation, there
can be no assurance that this improved trend will continue. Various
legislative proposals have been considered, including legislation that would
provide relief to existing RDF facilities. No assurance can be given that
such legislation will be adopted.
NEWPORT
NRG's Newport resource recovery facility, located in Newport, Minnesota,
can process over 1,500 tons of MSW per day, 92% of which is recovered as RDF
or other recyclables and reused in power generation facilities in Red Wing
and Mankato, Minnesota. The Newport facility, which was originally
constructed and operated by NSP, was transferred to NRG in 1993. NRG owns
100% of and operates and maintains the Newport facility.
The construction of the Newport facility was financed through the issuance
by the Counties of tax exempt variable rate resource recovery revenue bonds,
which have subsequently been converted to fixed rate resource recovery
revenue bonds with annual maturities each December through to 2006. The
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proceeds of such bond issuance were loaned by the Counties to NSP, which
agreed to pay to the Counties amounts sufficient to pay the debt service on
the bonds. NRG issued a separate note to NSP in an original principal amount
of approximately $10 million as part of the consideration for the purchase of
the facility from NSP. As of March 31, 1997, $19.8 million was outstanding on
the Counties' loan to NSP and $8.4 million was outstanding under NRG's note
to NSP.
Pursuant to service agreements with the Counties, which expire in 2007,
NRG processes a minimum of 280,800 tons of MSW per year and receives service
fees based on the amount of waste processed, pass-through costs and certain
other factors. NRG is also entitled to an operation and maintenance fee,
which is designed to recover fixed costs and to provide NRG a guaranteed
amount for operating and maintaining the facility for the processing of 750
tons per day of MSW, whether or not the Counties deliver such waste for
processing.
NRG is in the preliminary stages of negotiations with the Counties
relating to the Counties' request that NRG provide price concessions to the
Counties under their existing service agreements. To increase MSW flows and
improve facility competitiveness, the Counties reduced tipping fees charged
to haulers under long-term delivery contracts. The tip fee reduction became
effective as of June 1, 1996 and is effective under those contracts until the
end of 1998. MSW deliveries for the three months ended March 31, 1997 were 9%
higher than the same period in 1996.
Minnesota Waste Processors L.L.C. ("Minnesota Waste Processors"), a
limited liability company which is 50% owned by each of NRG and LJP
Enterprises, Inc., collects MSW from several cities in southern Minnesota for
processing at the Newport facility. NRG also uses Minnesota Waste Processors'
primary asset, a large warehouse, as a temporary RDF storage facility to
enable more efficient utilization of RDF as a feedstock to NSP's Wilmarth
generating plant. The $2 million storage and transfer warehouse owned by
Minnesota Waste Processors has been financed through a loan from NRG to
Minnesota Waste Processors. In the event of a default on such loan, NRG's
recourse likely would be limited to foreclosure on the warehouse.
ELK RIVER
Since 1989, NRG has operated the Elk River resource recovery facility
located in Elk River, Minnesota, which can process over 1,500 tons of MSW per
day, 90% of which is recovered as RDF or other recyclables and reused in
power generation facilities in Elk River and Mankato, Minnesota. NSP owns 85%
of the Elk River facility, and United Power Association owns the remaining
15%.
Pursuant to service agreements between NSP and each of Anoka County,
Hennepin County, Sherburne County in Minnesota and the Tri-County Solid Waste
Management Commission in Minnesota (the "NSP Service Counties"), all of which
expire in 2009, NSP is obligated to process a maximum of 450,000 tons of MSW
per year and is entitled to receive service fees based on the amount of waste
processed, pass-through costs, revenues credited to the NSP Service Counties
and certain other factors. NSP is also entitled to an operation and
maintenance fee, which is designed to recover fixed costs and to provide NSP
a guaranteed amount for operating and maintaining the facility for the
processing of 214,900 tons of waste, whether or not the NSP Service Counties
deliver such waste for processing.
NRG also provides ash storage and disposal for the Elk River facility at
NSP's Becker ash disposal facility, an approved ash deposit site adjacent to
NSP's Sherburne County generating facility near Becker, Minnesota. NRG
operates the Becker facility on behalf of NSP. Pursuant to an ash management
services agreement between NSP and the NSP Service Counties, the NSP Service
Counties pay an ash disposal fee based on the amount of ash disposal,
pass-through costs and certain other factors.
Prior to 1996, NRG managed Elk River and Becker Ash on behalf of NSP under
a cost and reimbursement arrangement. NRG did not earn a profit with respect
to providing such services. As of January 1, 1996, NRG entered into an
operation and maintenance agreement with NSP with respect to the Elk River
Facilities, under which NRG receives a base management fee and is reimbursed
for costs it has incurred. The operation and maintenance agreement also
provides for a management incentive fee payable to NRG, based upon the
financial performance of the Elk River Facilities.
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In 1996 NRG earned a total management fee of $1.5 million, in addition to
reimbursed expenses. Management fees for the three months ended March 31,
1997, totalled $266,000 compared to $320,000 for the same period in 1996.
PRINCIPAL CUSTOMERS OF OPERATING SUBSIDIARIES
Customers accounting for more than 10% of NRG's operating revenues (which
exclude equity in earnings of projects) in each of the last two fiscal years
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Ramsey and Washington Counties,
Minnesota (Resource Recovery) ...... $20.6 $20.8
Waldorf Corporation (Thermal Energy) 10.0 10.1
</TABLE>
PROPERTIES
In addition to NRG's properties listed under the heading "Business --
Description of NRG's Projects," NRG leases its offices at 1221 Nicollet Mall,
Suite 700, Minneapolis, Minnesota 55403, under a five-year lease that expires
in June 2002.
NRG believes that its facilities and properties have been satisfactorily
maintained, are in good condition, and are suitable for NRG's operations.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
NRG experiences routine litigation in the course of its business.
Management is of the opinion that none of this routine litigation will have a
material adverse effect on the consolidated financial condition of NRG.
EMPLOYEES
At March 31, 1997, NRG employed 799 people, approximately 302 of whom are
employed directly by NRG and approximately 497 of whom are employed by its
wholly-owned subsidiaries. Approximately 500 employees are covered by
collective bargaining agreements.
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REGULATION
NRG is subject to a broad range of federal, state and local energy and
environmental laws and regulations applicable to the development, ownership
and operation of its United States and international projects. These laws and
regulations generally require that a wide variety of permits and other
approvals be obtained before construction or operation of a power plant
commences and that, after completion, the facility operate in compliance with
their requirements. NRG strives to comply with the terms of all such laws,
regulations, permits and licenses and believes that all of its operating
plants are in material compliance with all such applicable requirements. No
assurance can be given, however, that in the future all necessary permits and
approvals will be obtained and all applicable statutes and regulations
complied with. In addition, regulatory compliance for the construction of new
facilities is a costly and time-consuming process, and intricate and rapidly
changing environmental regulations may require major expenditures for
permitting and create the risk of expensive delays or material impairment of
project value if projects cannot function as planned due to changing
regulatory requirements or local opposition. Furthermore, there can be no
assurance that existing regulations will not be revised or that new
regulations will not be adopted or become applicable to NRG which could have
an adverse impact on its operations.
In particular, the independent power market in the United States,
Australia and other countries is dependent on the existing regulatory and
ownership structure, and while NRG strives to take advantage of the
opportunities created by such changes, it is impossible to predict the impact
of those changes on NRG's operations. Further, NRG believes that the level of
environmental awareness and enforcement is growing in most countries,
including most of the countries in which NRG intends to develop and operate
new projects. Therefore, based on current trends, NRG believes that the
nature and level of environmental regulation to which it is subject will
become increasingly stringent. NRG's policy is therefore to operate its
projects in accordance with environmental guidelines adopted by the World
Bank and applicable local law.
ENERGY REGULATION IN THE UNITED STATES
The enactment of PURPA in 1978 provided incentives for the development of
Qualifying Facilities or "QFs", which were basically cogeneration facilities
and small power production facilities that utilized certain alternative or
renewable fuels. The passage of the Energy Policy Act in 1992 further
encouraged independent power production by providing certain exemptions from
regulation for EWGs and "foreign utility companies" ("FUCOs").
All of NRG's domestic projects are currently Qualifying Facilities under
PURPA, except for Parlin which is an EWG. These QF projects are as follows:
Sunnyside, Jackson Valley, Artesia, all of the NRGG Facilities (except for
Parlin) and all of the NEO Facilities. QF status conveys two primary
benefits. First, regulations under PURPA exempt Qualifying Facilities from
PUHCA, most provisions of the Federal Power Act and the state laws concerning
rates of electric utilities, and financial and organizational regulations of
electric utilities. Second, FERC's regulations under PURPA require that (1)
electric utilities purchase electricity generated by QFs at a price based on
the purchasing utility's full avoided cost of producing power, (2) the
electric utilities must sell back-up, interruptible, maintenance and
supplemental power to the QF on a non-discriminatory basis, and (3) the
electric utilities must interconnect with any QF in its service territory,
and if required transmit power if they do not purchase it.
NRG endeavors to acquire, develop and operate its domestic plants, monitor
regulatory compliance by such plants and choose its customers in a manner
that minimizes the risk of those plants losing their QF status. However, the
occurrence of events outside NRG's control, such as loss of a cogeneration
plant's steam customer, could jeopardize QF status. While a plant usually
would be able to react in a manner to avoid the loss of QF status by, for
example, replacing the steam customer or finding another use for the steam
which meets PURPA's requirements, there is no certainty that such action, if
possible, would be practicable or economic. In the alternative, NRG could
attempt to avoid regulation under PUHCA by qualifying the project as an EWG,
as is the case with the NRGG Parlin cogeneration facility. However, this
change may not be permitted under the terms of the applicable power purchase
agreement, and even if it were, the plant would then be subject to rate
approval from the FERC.
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While it is unlikely that one of NRG's plants would actually lose its
status as a QF and not become an EWG, if that did occur, NRG would in all
likelihood have to cease operation of that plant or sell the plant to an
unaffiliated third party if NRG could not restore QF status after a
reasonable cure period. If it continued to operate, the project subsidiary
holding that plant would lose the exemptions outlined above and would become
an electric utility or EWG. This could result in NRG inadvertently becoming a
"public utility holding company" under PUHCA by owning more than 10% of the
voting securities of an electric utility. Loss of QF status on a retroactive
basis could also lead to, among other things, fines and penalties being
levied against NRG and its project subsidiaries, defaults under the power
purchase agreement and resulting claims by the utility customer for the
refund of previous payments, and defaults under financing agreements.
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at prices based on the purchasing utility's avoided cost. NRG does not
know whether such legislation will be passed or what form it may take. NRG
believes that if any such legislation is passed, it would apply to new
projects only and thus, although potentially impacting NRG's ability to
develop new domestic QF projects, it would not affect NRG's existing QF
projects. There can be no assurance, however, that any legislation passed
would not adversely impact NRG's existing domestic projects.
In any case, NRG anticipates that most of its future domestic development
activities will focus on the development of EWGs rather than QFs. An EWG is
an entity that is exclusively engaged, directly or indirectly, in the
business of owning or operating facilities which are exclusively engaged in
generating and selling electric energy at wholesale. An EWG will not be
regulated under PUHCA, but is subject to FERC and state public utility
commission regulatory reviews, including rate approval.
In its future development and acquisition of domestic projects, NRG may
also be subject to regulation by the FERC if NRG wheels electricity to
purchasers other than the local utility to which the plant is interconnected.
Although wheeling arrangements are generally voluntary, the FERC regulates
the rates, terms and conditions for electricity transmission in interstate
commerce. Currently, none of NRG's projects requires the wheeling of
electricity over power lines owned by others.
If it develops or acquires domestic EWGs rather than QF's in the future,
NRG may also be subject to some regulation by state public utility
commissions ("PUCs"), because EWGs do not enjoy the same statutory and
regulatory exemptions from state regulation as was granted to QF's. In fact,
however, since EWGs are only allowed to sell power at wholesale, their rates
must receive initial approval from the FERC rather than the states. But in
areas outside of rate regulation (such as financial or organizational
regulation), some state utility laws may give their PUCs broad jurisdiction
over non-QF independent power projects that sell power in their service
territories, including EWGs. The actual scope of that jurisdiction over
independent power projects varies significantly from state to state,
depending on the law of that state. In addition, many states are implementing
or considering regulatory initiatives designed to increase competition in the
domestic power generating industry and increase access to electric utilities'
transmission and distribution systems for independent power producers and
electricity consumers. At the same time, electric utility companies
themselves are considering a variety of restructuring proposals, including
mergers, acquisitions and divestitures of one or more lines of business. NRG
believes that the training and experience of many of its employees in the
electric utility industry have prepared it to take advantage of these many
changes in the industry. However, NRG cannot predict the final form or timing
of these changes in the domestic utility industry or the results of these
changes on its operations.
ENVIRONMENTAL REGULATIONS -- UNITED STATES
The construction and operation of power projects are subject to extensive
environmental protection and land use regulation in the United States. These
laws and regulations often require a lengthy and complex process of obtaining
licenses, permits and approvals from federal, state and local agencies. If
such laws and regulations are changed and NRG's facilities are not
grandfathered, extensive modifications to project technologies and facilities
could be required.
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Based on current trends, NRG expects that environmental and land use
regulation will continue to be stringent. Accordingly, NRG plans to continue
a strong emphasis on the development and use of "best-available" control
technology, as required under the Clean Air Act and Clean Water Act, to
minimize the environmental impact of its operations.
All of NRG's domestic facilities perform at levels equal to or better than
applicable federal performance standards mandated for such plants under the
Clean Air Act. NRG believes that technology currently installed at NRG's
projects should uniformly meet or exceed reasonably available control
technology (RACT). In addition, all of NRG's current domestic operating
plants are by statute generally exempt from or unaffected by the provision of
the 1990 amendments to the Clean Air Act (the "1990 Amendments"), which
require most power plants to purchase sulphur dioxide allowances. In the
future, the plants NRG expects to develop in the United States will continue
to rely on "clean (low sulfur) coal," sulphur dioxide removal technology or
natural gas technology. Accordingly, NRG believes that the additional costs
of obtaining the number of allowances needed for future projects should not
materially affect NRG's ability to develop such projects.
The 1990 Amendments also provide an extensive new operating permit program
for existing sources. Because all of the existing NRG facilities (with the
exception of the NATS facilities) were permitted under the Prevention of
Significant Deterioration or other New Source Review program, NRG currently
expects that the permitting impact under the 1990 Amendments to be minimal.
NATS currently is evaluating whether any of its facilities will require
modification. NRG anticipates that the costs of applying for and obtaining
operating air permits will not be material. NRG may need to upgrade
continuous emission monitoring systems at some plants, however, and permit
fees will increase operating expenses.
The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities, such as NRG's plants. Until
studies of the emissions from such facilities are completed and Congress
either amends the Clean Air Act further or the EPA promulgates regulations in
connection therewith, the nature and extent of federal hazardous air
pollutants emissions restrictions which will be applied to NRG's plants and
other electric steam generating facilities will remain uncertain.
NRG has received notices of violation and fines totaling approximately
$250,000 from the New Jersey Department of Environmental Protection ("NJDEP")
in connection with certain technical and record keeping violations under the
Clean Air Act at the former O'Brien Energy facilities in New Jersey. NRG
detected and voluntarily disclosed these violations to the NJDEP shortly
after NRG's acquisition of its interest in the O'Brien facilities. Because
NRG did not receive any economic advantage from these violations and
disclosed them promptly and voluntarily, NRG has recently filed
administrative proceedings seeking forgiveness of the fines. In addition, NRG
believes that the former operator of these facilities is contractually
responsible for payment of any fines that are assessed, because the
violations occurred during a time when that third-party operator managed the
facilities.
Existing NRG facilities are also subject to a variety of state and federal
regulations governing existing and potential water/wastewater discharges from
the facilities. Generally, federal regulations promulgated through the Clean
Water Act govern overall water/wastewater discharges, through NPDES permits.
Under current provisions of the Clean Water Act, existing permits must be
renewed every five years, at which time permit limits are extensively
reviewed and can be modified to account for changes in regulations. In
addition, the permits have re-opener clauses which the federal government can
use to modify a permit at any time. NRG does not anticipate, however, that
any change in permit limits pursuant to these provisions of the Clean Water
Act would affect significantly the profitability of NRG's facilities.
Congress is considering whether to re-authorize the Clean Water Act, with
reauthorization focusing on toxic discharges, receiving water body biological
monitoring requirements, bioassay requirements, additional controls on
stormwater runoff, and water quality standards and enforcement provisions. It
is uncertain whether the Clean Water Act will become more or less stringent
after re-authorization. If the Clean Water Act becomes more stringent, NRG
facilities may be required to retrofit existing wastewater treatment
facilities for metals removal and to budget for additional monitoring
requirements and toxicity reduction evaluations. NRG does not expect the
impact of these additional expenses to affect significantly the profitability
of the facilities.
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There can be no assurance that existing laws and regulations will not be
revised or that new regulations will not be adopted or become applicable to
NRG which could have an adverse impact on its operations.
ENVIRONMENTAL REGULATIONS -- INTERNATIONAL
Although the type of environmental laws and regulations applicable to
independent power producers and developers varies widely from country to
country, many foreign countries have laws and regulations relating to the
protection of the environment and land use which are similar to those found
in the United States. Laws applicable to the construction and operation of
electric power generation facilities in foreign countries generally regulate
discharges and emissions into water and air, and also regulate noise levels.
Air pollution laws in foreign jurisdictions often limit the emissions of
particles, dust, smoke, carbon monoxide, sulfur dioxide, nitrogen oxides and
other pollutants. Water pollution laws in foreign countries generally limit
wastewater discharges into municipal sewer systems and require treatment of
wastewater so that it meets established standards. New projects and
modifications to existing projects are also subject, in many cases, to land
use and zoning restrictions imposed in the foreign country. In addition to
the requirements currently imposed by a particular country, certain lenders
to international development projects may impose their own requirements
relating to the protection of the environment.
NRG believes that the level of environmental awareness and enforcement is
growing in most countries, including most of the countries in which NRG
intends to develop and operate new projects. Therefore, based on current
trends, NRG believes that the nature and level of environmental regulation to
which it is subject will become increasingly stringent. NRG's policy is to
operate its projects at least in accordance with environmental guidelines
adopted by the World Bank and applicable local law.
GERMAN REGULATIONS
Both the Schkopau Power Station and MIBRAG are subject to the energy and
environmental laws and regulations of Germany. German environmental laws
conform to European Union standards. In addition, MIBRAG is governed by
German mining laws and regulations.
ENVIRONMENTAL REGULATIONS
The Schkopau facility is designed to comply with all applicable German
laws and regulations, including, without limitation, environmental and land
use laws and regulations. The power purchase agreement between Saale Energie
and VEAG provides that any future changes in law that may affect the cost of
providing the contracted capacity will lead to adjustment of the price.
In the case of existing power generating facilities located in eastern
Germany, current German environmental laws and regulations are being
phased-in in a manner that provides for a gradual step-up of the
environmental standards applicable to such facilities. All east German power
generating facilities were required to be in full compliance with German
environmental laws and regulations by July 1, 1996. MIBRAG's W|f3hlitz,
Mumsdorf and Deuben facilities have been retrofitted and are presently in
full compliance with these laws and regulations The power purchase agreement
between MIBRAG and WESAG provides that any future changes in the law that may
materially affect the cost of generating power will reopen the price.
ENERGY REGULATIONS
The Schkopau facility and all three power generating facilities of MIBRAG
are permitted to generate and sell energy to their present customers pursuant
to current German energy laws and regulations. Should the Schkopau facility
or any of the MIBRAG power generating facilities wish to sell to additional
customers, this would require further regulatory approval.
The German government currently is considering substantially amending the
German Energy Resources Act of 1936. The bill currently before the German
Parliament will not affect the regulatory status of the Schkopau or MIBRAG
facilities. However, it is not possible at present to determine whether the
bill will be enacted in its current form or whether an amendment, if enacted,
would have an adverse effect on the regulatory status of those facilities.
75
<PAGE>
The current German government has dismissed plans to enact an energy
related tax or other surcharge. However, certain political factions in
Germany and within the European Union continue to press for such a tax or
surcharge. There can be no assurance that such a tax or surcharge will not be
enacted in the future.
MINING REGULATIONS
MIBRAG owns the mining rights to the Profen and Schleenhain mines and
leases mining rights to the Zwenkau mine. MIBRAG currently is operating all
three of its mines in compliance with current German mining regulations.
AUSTRALIAN REGULATIONS
The electricity sector in Queensland is regulated primarily under the
Electricity Act. The Electricity Act was recently amended to provide for
independent generation and the licensing of independent generators by the
Regulator General. Pursuant to the Electricity Act, the State Minister for
Energy and the Regulator General have the authority to promulgate regulations
governing the Queensland electricity industry.
In Victoria, the primary laws providing for the economic regulation of the
Victorian electricity industry are the Electricity Industry Act 1993 (Vic)
and the Office of the Regulator-General Act 1994 (Vic). The ongoing
regulation of the Victorian electricity industry is the responsibility of the
Office of the Regulator-General, an independent regulatory body established
under the Office of the Regulator-General Act.
Environmental management in Victoria is primarily governed by the
Environment Protection Act 1970 (Vic). The primary control instruments under
the EPA are licenses issued by the Environment Protection Authority (the
environmental regulatory agency established under the EPA). The EPA was
amended in 1990 and now provides for severe penalties for company directors,
managers and employees in cases of gross environmental misconduct.
Although discussed in Victoria, it is considered unlikely that a carbon
tax will be introduced in the foreseeable future. Even if one is introduced,
the tax would have to operate at very high levels before it could
significantly affect Loy Yang's competitiveness in the wholesale electricity
market.
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<PAGE>
MANAGEMENT
The name, age and title of each of the directors and executive officers of
NRG as of July 1, 1997 are as set forth below.
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------- ----- --------------------------------------------------------
<S> <C> <C>
David H. Peterson ... 56 Chairman of the Board, President, Chief Executive
Officer and Director
Gary R. Johnson ...... 50 Director
Cynthia L. Lesher ... 49 Director
Edward J. McIntyre .. 46 Director
John A. Noer.......... 50 Director
Leonard A. Bluhm .... 51 Executive Vice President and Chief Financial Officer
James J. Bender ...... 40 Vice President and General Counsel
Valorie A. Knudsen .. 41 Vice President, Finance
Craig A. Mataczynski 36 Vice President, U.S. Business Development
Robert McClenachan .. 45 Vice President, International Business Development
Louise T. Routhe .... 41 Vice President, Human Resources and Administration
Ronald J. Will ....... 57 Vice President, Operations and Engineering
Brian B. Bird......... 34 Treasurer
David E. Ripka ....... 48 Controller
Michael J. Young .... 40 Corporate Secretary
</TABLE>
David H. Peterson has been Chairman of the Board of NRG since January
1994, Chief Executive Officer since November 1993, President since 1989 and a
Director since 1989. Mr. Peterson was also Chief Operating Officer of NRG
from June 1992 to November 1993. Prior to joining NRG, Mr. Peterson was Vice
President, Non-Regulated Generation for NSP, and he has served in various
other management positions with NSP during the last 20 years.
Cynthia L. Lesher has been a Director of NRG since July 1996 and became
President of NSP Gas in July 1997. Prior to July 1997, Ms. Lesher was Vice
President-Human Resources of NSP since March 1992 after serving as Director
of Power Supply-Human Resources since 1991. Ms. Lesher became Area Manager,
Electric Utility Operations, in 1990, and previously served as Manager, Metro
Credit, and Manager, Occupational Health and Safety. Prior to joining NSP,
Ms. Lesher was a training and development consultant at the Center for
Continuing Education in Minneapolis. From 1970 to 1977, she held a variety of
positions with Multi Resource Centers, Inc., also in Minneapolis.
Gary R. Johnson has been a Director of NRG since February 1993, Corporate
Secretary of NSP since April 1994 and Vice President and General Counsel of
NSP since October 1991. Prior to October 1991, Mr. Johnson was Vice
President-Law of NSP from December 1988, acting Vice President from September
1988 and Director of Law from February 1987.
Edward J. McIntyre has been a Director of NRG since May 1992 and Vice
President and Chief Financial Officer of NSP since January 1993. Mr. McIntyre
has also been a director of NSP subsidiaries Viking Gas Transmission Company
since June 1993, Eloigne Company since August 1993 and First Midwest Auto
Park, Inc. since September 1993, and Cenerprise since September 1994, where
he served as Chairman from 1994 to 1996. Mr. McIntyre served as President and
Chief Executive Officer of NSP-Wisconsin, a wholly owned subsidiary of NSP,
from July 1990 to December 1992, and he has served in various other
management positions with NSP during the last 20 years.
John A. Noer has been a director of NRG since June 1997 and President and
CEO of NSP Wisconsin, a wholly owned subsidiary of NSP, since January 1993.
Prior to joining NSP Wisconsin, Mr. Noer was President of Cypress Energy
Partners, a wholly-owned project subsidiary of NRG, from March 1992 to
January 1993. Prior to joining Cypress Energy Partners, Mr. Noer held various
management positions with NSP since joining the company in September 1968.
Leonard A. Bluhm has been Executive Vice President and Chief Financial
Officer of NRG since January 1997. Immediately prior to that, he served as
the first President and Chief Executive Officer of NRGG, of which he is now
Chairman. Mr. Bluhm was Vice President of NRG from January 1993 and Chief
Financial Officer May 1993 until assuming his NRGG position. Mr. Bluhm was
Chief Financial
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<PAGE>
Officer of Cypress Energy Partners, a wholly-owned project subsidiary of NRG,
from April 1992 to January 1993, prior to which he was Director,
International Operations and Manager, Acquisitions and Special Projects of
NRG from 1991. Mr. Bluhm previously served for over 20 years in various
financial positions with NSP.
James J. Bender has been Vice President and General Counsel of NRG since
June 1997. He served as the General Counsel of the Polymers Division of
Allied Signal Inc. from May 1996 until June 1997. From June 1994 to May 1996
Mr. Bender was employed at NRG, acting as Senior Counsel until December 1994
and as Assistant General Counsel and Corporate Secretary from December 1994
to May 1996. Prior to joining NRG in 1994, Mr. Bender was a partner at the
Minneapolis law firm of Leonard, Street and Deinard from April 1993 to June
1994 and he served as Corporate Counsel for Pfizer Inc. from August 1989 to
April 1993.
Valorie A. Knudsen has been Vice President, Finance since April 1996,
prior to which she served as Controller since August 1993. Prior to joining
NRG, Ms. Knudsen served in various managerial accounting positions from
November 1987 to July 1993 with Carlson Companies, Inc., where she was
responsible for various types of accounting and reporting.
Craig A. Mataczynski has been Vice President, U.S. Business Development of
NRG since December 1994. Mr. Mataczynski served as President of NEO
Corporation, NRG's wholly-owned subsidiary that develops small electric
generation projects within the United States, from May 1993 to January 1995.
Prior to joining NRG, Mr. Mataczynski worked for NSP from 1982 to 1994 in
various positions, including Director, Strategy and Development and Director,
Power Supply Finance.
Robert McClenachan has been Vice President, International Business
Development of NRG since September 1995, prior to which he was Managing
Director, Business Development from June 1992 to September 1995. Mr.
McClenachan was also President of NRG Australia, a wholly-owned project
subsidiary of NRG, from April 1993 to October 1995. Prior to joining NRG, Mr.
McClenachan served as Development Director for Bonneville Pacific
Corporation, an independent power production company in Salt Lake City, Utah,
from January 1991 to December 1991, and he worked from 1983 to 1991 in
various positions for Central Vermont Public Service Corporation, including
Vice President, Corporate Development.
Louise T. Routhe has been Vice President, Human Resources and
Administration of NRG since June 1992, prior to which she served as Human
Resources Director from January 1992. Prior to joining NRG, Ms. Routhe was
self-employed as a Human Resources and Management Consultant from December
1990 to January 1992 and worked as Vice President, Human Resources with First
Trust Company, a wholly-owned subsidiary of First Bank System, Inc., from
1987 to 1990. Ms Routhe held various other Human Resources management
positions at First Bank System from 1979 to 1987.
Ronald J. Will has been Vice President, Operations and Engineering of NRG
since March 1994, prior to which he served as Vice President, Operations from
June 1992. Prior to joining NRG, he served as President and Chief Executive
Officer of NRG Thermal, a wholly-owned subsidiary of NRG that provides
customers with thermal services, from February 1991 to June 1993. Prior to
February 1991, Mr. Will served in a variety of positions with Norenco, a
wholly-owned thermal services subsidiary of NRG, including Vice President and
General Manager from August 1989 to February 1991.
Brian B. Bird has been Treasurer of NRG since June 1997, prior to which he
was Director of Corporate Finance for Deluxe Corporation in Shoreview,
Minnesota from September 1994 to May 1997. Mr. Bird was Manager of Finance
for the Minnesota Vikings Professional Football Team from March 1993 to
September 1994. Mr. Bird held several financial management positions with
Northwest Airlines in Minneapolis, Minnesota from 1988 to March 1993.
David E. Ripka has been Controller of NRG since March 3, 1997. Prior to
joining NRG, Mr. Ripka held a variety of positions with NSP for over 20
years, including Assistant Controller and General Manager of Accounting
Operations and Director of Audit Services.
Michael J. Young has been Corporate Secretary of NRG since June 1996, and
also holds the position of Senior Counsel. Prior to joining NRG in May of
1995, Mr. Young was an attorney at Cargill, Incorporated for five years, and
an associate at Lindquist & Vennum for three years.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation. The following table sets forth the compensation paid or
awarded to David H. Peterson, Chairman, President and Chief Executive Officer
of NRG, and the other four most highly compensated executive officers of NRG
during the last fiscal year (collectively, the "Named Executives") for
services rendered in all capacities for the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)
- ----------------------------- ------ --------- -------- -------------- ------------ --------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
David H. Peterson
Chairman, President & Chief
Executive Officer ........... 1996 250,000 81,000 3,637
Leonard A. Bluhm (3)
Executive Vice President &
CFO ......................... 1996 152,333 53,630 105,000(4) 2,712
Robert McClenachan
Vice President,
International
Business Development ........ 1996 150,000 36,201 37,410 2,712
Ronald J. Will
Vice President, Operations &
Engineering ................. 1996 147,000 38,667 2,712
Craig A. Mataczynski
Vice President, U.S.
Business Development ........ 1996 145,000 40,343 2,712
</TABLE>
- ------------
(1) The amount shown in this column for Mr. McClenachan includes a
relocation and foreign assignment premium bonus ($19,616) and the value
of the personal use of a company-provided automobile ($7,986).
(2) This column consists of the amounts contributed by NRG to the NSP
Retirement Savings Plan ($900) and the Employee Stock Ownership Plan
($1,812.89) for each Named Executive. The column also reflects the
value to Mr. Peterson of the remainder of insurance premiums paid under
the NSP Officer Survivor Benefit Plan by NRG ($925).
(3) Mr. Bluhm's salary and bonus include amounts paid for his service with
NRGG.
(4) These options relate to NRGG common stock. See "Option Grants in Last
Fiscal Year."
The following table sets forth information concerning the exercise of
stock options and stock appreciation rights during fiscal 1996 by each of the
Named Executives and the fiscal year-end value of unexercised options. Prior
to the existence of the NRG Equity Plan, NRG executives participated in the
NSP Executive Stock Option program. The following table reflects the Named
Executive's participation in the NSP Executive Stock Option Program.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR VALUE (1)
- ------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS/SARS AT FY-END VALUE OF UNEXERCISED IN-THE-MONEY
(#) OPTIONS/SARS AT FY-END ($)(2)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ------------------- ------------------------------------ ---------------------------------
<S> <C> <C>
David H. Peterson . 8,415/0 44,213/0
Leonard A. Bluhm .. 2,840/0 18,117/0
0/105,000(3) 0/610,313(3)
Robert McClenachan 859/0 2,048/0
Ronald J. Will ..... 2,723/0 17,839/0
</TABLE>
- ------------
(1) These options to acquire NSP Stock were granted to the Named Executives
for services rendered to NRG and its subsidiaries.
(2) NSP's share price on December 31, 1996 was $45.875.
(3) These options relate to NRGG common stock. The options were granted at
an exercise price of $5.4375. The price per share of NRGG common stock
on December 31, 1996 was $11.25. 75,000 of these options were cancelled
in January, 1997. See "Option Grants in Last Fiscal Year."
79
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR (1)
- ----------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE APPRECIATION
SECURITIES FOR OPTION TERM
UNDERLYING % OF TOTAL OPTIONS ------------------
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION 10%
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($)(3) ($)(3)
- ---------------- ------------ ----------------------- -------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard A.
Bluhm........... 105,000(2) 26 5.4375 10/21/2006 359,100 909,930
</TABLE>
- ------------
(1) These options relate to NRGG common stock. Options were granted to Mr.
Bluhm under the NRG Generating (U.S.) Inc. 1996 Stock Option Plan. The
options vest one-third annually on each of the first, second and third
anniversaries of grant.
(2) By agreement with NRGG, options to acquire 75,000 of these shares were
withdrawn in January, 1997.
(3) Amounts set forth in these columns reflect rates of appreciation
required by Securities and Exchange Commission rules and are not
intended to predict the future value of NRGG common stock.
PENSION PLAN TABLE
The following table illustrates the approximate retirement benefits
payable to employees retiring at the normal retirement age of 65 years:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
AVERAGE ---------------------------------------------------------
YEARS OF SERVICE
COMPENSATION ---------------------------------------------------------
(4 YEARS) 5 10 15 20 25 30
- -------------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$50,000 ....... $ 3,500 $ 7,000 $ 10,500 $ 14,000 $ 18,000 $ 21,500
100,000 ....... 7,500 15,500 23,000 30,500 38,000 46,000
150,000 ....... 11,500 23,500 35,000 47,000 58,500 70,500
200,000 ....... 16,000 31,500 47,500 63,000 79,000 95,000
250,000 ....... 20,000 40,000 59,500 79,500 99,500 119,500
300,000 ....... 24,000 48,000 72,000 96,000 120,000 144,000
350,000 ....... 28,000 56,000 84,000 112,500 140,500 168,500
400,000 ....... 32,000 64,500 96,500 128,500 160,500 193,000
450,000 ....... 36,000 72,500 108,500 145,000 181,000 217,500
wage base: $62,700
</TABLE>
- ------------
After an employee has reached 30 years of service, no additional years are
used in determining pension benefits. The annual compensation used to
calculate the average compensation shown in this table is based on the
participant's base salary for the year (as shown on the Summary Compensation
Table) and bonus compensation paid in that same year (as shown on the Summary
Compensation Table). The benefit amounts shown are amounts computed in the
form of a straight-life annuity. The amounts are not subject to offset for
social security or otherwise.
As of June 30, 1997, each of the Named Executives had the following credited
service: Mr. Peterson, 33.42 years, Mr. Bluhm, 26 years, Mr. McClenachan, 5
years, Mr. Will, 37.17 years, Mr. Mataczynski, 15 years.
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<PAGE>
LONG-TERM INCENTIVE PLAN COMPENSATION
The following table sets forth information concerning awards during fiscal
1996 to each of the Named Executives under the NRG Equity Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
PERFORMANCE OR OTHER
NUMBER OF SHARES, UNITS PERIOD UNTIL MATURATION
NAME OR OTHER RIGHTS (#) OR PAYOUT(2)
- -------------------- ----------------------- -----------------------
<S> <C> <C>
David H. Peterson ... 5,500(3) 7 years
18,200(4) 7 years
Leonard A. Bluhm .... 1,300(3) 7 years
1,700(4) 7 years
Robert McClenachan .. 3,400(3) 7 years
4,500(4) 7 years
Ronald J. Will....... 3,600(3) 7 years
4,800(4) 7 years
Craig A. 3,800(3) 7 years
Mataczynski......... 5,000(4) 7 years
</TABLE>
- ------------
(1) Participants in the NRG Equity Plan are granted Equity Units, each of
which is assigned a "Grant Price" at the discretion of the Chief
Executive Officer and the Compensation Committee of the Board. Equity
Units are valued upon vesting under a formula which takes into account
the Company's cash flow, revenue growth, total debt and equity
investment, among others. The amount of payment (if any) with respect
to an Equity Unit is determined by the extent to which the value of the
Equity Unit exceeds the Grant Price.
(2) Equity Units vest annually in 20% increments, beginning on the third
anniversary of the grant date of the Equity Unit. Participants are paid
the value (if any) of Equity Units as soon as practicable following the
end of year in which the Equity Unit vests.
(3) These Equity Units which were granted at a Grant Price equal to the
valuation of the Equity Unit on the date of grant. Such Equity Units
will have value to the holders upon any increase in the valuation of
the Equity Unit.
(4) These Equity Units which were granted at a premium Grant Price (greater
than the valuation of the Equity Unit on the date of grant). Such
Equity Units will only have value to the holder after the valuation of
the Equity Unit reaches the premium Grant Price.
Compensation of Directors.
Directors receive no compensation for service as directors.
Employment Contracts.
NRG has entered into an employment agreement with Mr. Peterson providing
that Mr. Peterson will be employed as the highest level executive officer of
NRG. The term of the agreement expires June 27, 2000. During the term of the
agreement, Mr. Peterson's base salary will be reviewed at least annually by
the Compensation Committee of the Board for possible increase. The agreement
provides that Mr. Peterson will receive retirement and welfare benefits no
less favorable than those provided to any other officer of NRG. In addition,
the employment agreement provides for participation in a supplemental
executive retirement plan such that the aggregate value of the retirement
benefits that Mr. Peterson and his spouse will receive at the end of the term
of the agreement under all the defined benefit pension plans of NRG and its
affiliates will not be less than the aggregate value of the benefits he would
have received had he continued, through the end of the term of the agreement,
to participate in the NSP Deferred Compensation Plan, the NSP Excess Benefit
Plan and the NSP Pension Plan, including amounts to compensate Mr. Peterson
for the monthly defined benefit payments he would have received during the
term of the employment agreement and prior to the date of his termination of
employment if monthly benefit payments had commenced following the month in
which he first became eligible for early retirement under the NSP Pension
Plan. The employment agreement also provides for certain additional
81
<PAGE>
benefits to be paid upon Mr. Peterson's death. If Mr. Peterson's employment
is terminated by the company without Cause or by Mr. Peterson with Good
Reason (in each case as defined in the employment agreement), Mr. Peterson
will continue to receive his salary, bonus (at greater of target bonus and
actual bonus for the last plan year prior to termination), incentive
compensation (with cash replacing equity based awards) and benefits under the
agreement as if he had remained employed until the end of the term of the
employment agreement and then retired (at which time he will be treated as
eligible for retiree welfare benefits and other benefits provided to the
retired senior executives).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is comprised of Ms. Lesher and Mr. McIntyre.
There are no compensation committee interlocks and no insider participation.
82
<PAGE>
OWNERSHIP OF CAPITAL STOCK
Northern States Power Company, 414 Nicollet Mall, Minneapolis, Minnesota
55401, owns all of the outstanding capital stock of NRG.
83
<PAGE>
CERTAIN TRANSACTIONS
The transactions described or referred to below were entered into between
related parties prior to the offering of the Senior Notes and were not the
result of arms-length negotiations. Accordingly, the terms of these
transactions may be more or less favorable to NRG than if they had been
entered into on an arms-length basis.
As NRG's sole stockholder, NSP has the power to control the election of
the directors and all other matters submitted for stockholder approval and
may be deemed to have control over the management and affairs of NRG.
Currently, there are no outside directors on NRG's board of directors. In
circumstances involving a conflict of interest between NSP, as the sole
stockholder and a significant customer of and supplier to NRG, and the
holders of the Senior Notes as creditors of NRG, there can be no assurance
that NSP would not exercise its power to control NRG in a manner that would
benefit NSP to the detriment of the holders of the Senior Notes. NSP has
policies in place, pursuant to applicable law, to ensure that its ratepayers
are protected from affiliate transactions that may be adverse to the
ratepayers' interests. The Indenture imposes no limitations on NRG's ability
to pay dividends or to make other payments to NSP or on NRG's ability to
enter into transactions with NSP or other affiliates of NRG.
OPERATING AGREEMENTS
NRG has two agreements with NSP for the purchase of thermal energy. Under
the terms of the agreements, NSP charges NRG for certain incremental costs
(fuel, labor, plant maintenance and auxiliary power) incurred by NSP to
produce the thermal energy. NRG paid NSP $6 million in 1996, $3.7 million in
1995 and $6.6 million in 1994 under these agreements; NRG has paid $1.2
million under them in the first three months of 1997.
NRG has a renewable 10-year agreement with NSP, expiring on December 31,
2001, whereby NSP agrees to purchase RDF for use in certain of its boilers
and NRG agrees to pay NSP an incentive fee to use RDF. Under this agreement,
NRG received $1.9 million and $1.7 million from NSP and paid $2.3 million and
$2.2 million to NSP in 1995 and 1994, respectively. In 1996, NRG received
$1.5 million and paid $2.2 million. In the first quarter of 1997, NRG
received $0.6 million and paid $0.5 million.
As of January 1, 1996, NRG entered into an operation and maintenance
agreement with NSP with respect to the Elk River Facilities, under which NRG
receives a base management fee and is reimbursed for costs it has incurred.
The operation and maintenance agreement also provides for a management
incentive fee payable to NRG, based upon the financial performance of the Elk
River Facilities. In 1996 NRG earned a total management fee of $1.5 million,
in addition to reimbursed expenses. Management fees for the three months
ended March 31, 1997, totalled $266,000 compared to $320,000 for the same
period in 1996.
ADMINISTRATIVE SERVICES AGREEMENT
NRG and NSP have entered into an agreement to provide for the
reimbursement of actual administrative services provided to each other, an
allocation of NSP administrative costs and a working capital fee. Services
provided by NSP to NRG are principally for cash management, accounting,
employee relations and engineering. In addition, NRG employees participate in
certain employee benefit plans of NSP. Also, in 1993 NSP employees assisted
in operating certain NRG facilities for which NRG reimbursed NSP for gross
wages plus an amount to cover employee benefits. During 1995 and 1994, NRG
paid NSP $6.8 million and $6.2 million, respectively, as reimbursement for
the cost of services provided. In 1996, NRG paid $7.2 million and in the
first quarter of 1997, NRG paid $1.9 million for these services.
TAX SHARING AGREEMENT
NRG is included in the consolidated federal income tax and state franchise
tax returns of NSP. NRG calculates its tax position on a separate company
basis under a tax sharing agreement with NSP and receives payment from NSP
for tax benefits and pays NSP for tax liabilities.
84
<PAGE>
LONG-TERM DEBT
The construction cost of the Newport facility was financed through tax
exempt variable rate resource recovery revenue bonds issued by the Counties,
which have subsequently been converted to fixed rate resource recovery revenue
bonds with an effective interest rate of 6.57% per annum and annual maturities
each December through 2006. The proceeds of such bond issuance were loaned by
the counties to NSP, which agreed under a loan agreement to pay to the
counties amounts sufficient to pay debt service on the bonds. NRG issued a
separate note to NSP in an original principal amount of approximately $10
million as part of the consideration for the purchase of the facility from
NSP.
85
<PAGE>
CERTAIN INDEBTEDNESS
NRG has funded investments and intends to fund future investments from
certain outside sources, including those described below.
1996 SENIOR NOTES
On January 29, 1996, NRG issued the 1996 Senior Notes in a transaction
exempt from registration under the Securities Act. The 1996 Senior Notes were
issued to fund some or all of NRG's equity investments in Schkopau and Latin
Power, to pay a portion of the consideration for NRG's acquisition of
interests in Collinsville and in O'Brien (for reorganization as NRGG), to
make equity investments in Kladno and West Java, and for general corporate
purposes, including investments in new projects. The 1996 Senior Notes are
senior unsecured obligations of NRG and rank pari passu with all other senior
unsecured indebtedness of NRG, including the Senior Notes in this Offering.
The 1996 Senior Notes were assigned ratings of BBB-by S&P's Rating Group and
Baa3 by Moody's. Redemption of the 1996 Senior Notes is not permitted prior
to February 1, 2001. However, upon a change of control of NRG, each holder of
the 1996 Senior Notes will have the right to require NRG to repurchase such
holder's 1996 Senior Notes. Pursuant to the Indenture (the "1996 Indenture")
under which the 1996 Senior Notes were issued, NRG is restricted from
creating liens on its assets, is prohibited from merging except under certain
circumstances and must maintain a specified minimum net worth. Failure to
comply with these restrictive covenants could result in an event of default
under the Indenture. Other events of default include nonpayment of principal
or interest, certain cross-defaults, judgment decrees aggregating over $20
million and certain events of bankruptcy.
REVOLVER
NRG has entered into a $175 million revolving credit facility with a
syndicate of banks led by ABN AMRO, which matures on March 17, 2000. Proceeds
from the facility will be used for general corporate purposes, including
letters of credit and interim funding for NRG project investments.
MASTER SHELF AGREEMENT
NRG Energy Center expects to enter into a master shelf agreement during
August 1997, pursuant to which NRG Energy Center may issue $30 million in
term notes with maturities no later than June 2017. The master shelf
revolving credit facility could also provide for up to $5 million of
short-term borrowings. The facility is expected to be recourse only to NRG
Energy Center and is intended to provide financing for MEC.
86
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued, and the New Notes will be issued, under an
Indenture, dated as of June 1, 1997 (the "Indenture"), between NRG and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The
following summaries of certain provisions of the Notes and the Indenture do
not purport to be complete and are subject, and qualified in their entirety
by reference, to all of the provisions of the Notes and the Indenture,
including the definitions of certain terms therein. The definitions of
certain capitalized terms used in the following summary are set forth below
under " -- Certain Definitions." As used in this section, unless otherwise
indicated, "NRG" refers solely to NRG Energy, Inc. and does not include any
of its subsidiaries or affiliates.
The Notes are senior unsecured obligations of NRG, which conducts
substantially all of its business through numerous subsidiaries and
affiliates. As a result, all existing and future liabilities of the direct
and indirect subsidiaries and affiliates of NRG will be effectively senior to
the Notes. The Notes will not be guaranteed by, or otherwise be obligations
of, NRG's project subsidiaries and project affiliates, NRG's other direct and
indirect subsidiaries and affiliates or NSP.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $250,000,000 and
will mature on June 15, 2007. Interest is payable on the Notes semiannually
on June 15 and December 15 of each year, commencing December 15, 1997, until
the principal is paid or made available for payment. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Payment of principal of the Notes will be made against surrender of such
Notes at the office or agency of the Trustee in the Borough of Manhattan, The
City of New York. Payment of interest on the Notes will be made to the person
in whose name such Notes are registered at the close of business on the June
1 or December 1 immediately preceding the relevant interest payment date. For
so long as the Notes are issued in book-entry form, payments of principal and
interest shall be made in immediately available funds by wire transfer to DTC
or its nominee. If the Notes are issued in certificated form to a Holder (as
defined below) other than DTC, payments of principal and interest shall be
made by check mailed to such Holder at such Holder's registered address or,
upon written application by a Holder of $1,000,000 or more in aggregate
principal amount of Notes to the Trustee in accordance with the terms of the
Indenture, by wire transfer of immediately available funds to an account
maintained by such Holder with a bank. Defaulted interest will be paid in the
same manner to Holders as of a special record date established in accordance
with the Indenture.
All amounts paid by NRG to the Trustee for the payment of principal of,
premium, if any, or interest on any Notes that remain unclaimed at the end of
two years after such payment has become due and payable will be repaid to NRG
and the Holders of such Notes will thereafter look only to NRG for payment
thereof.
OPTIONAL REDEMPTION
NRG at its option, at any time, may redeem the Notes, in whole or in part
(if in part, by lot or by such other method as the Trustee shall deem fair or
appropriate) at the redemption price of 100% of principal amount of such
Notes, plus accrued interest on the principal amount of such Notes, if any,
to the redemption date, plus the applicable Make-Whole Premium.
To determine the applicable Make-Whole Premium for any Note, an
independent investment banking institution of national standing selected by
NRG (the "Investment Banker") will compute, as of the third Business Day
prior to the redemption date, the sum of the present values of all of the
remaining scheduled payments of principal and interest from the redemption
date to maturity on such Note
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computed on a semiannual basis by discounting such payments (assuming a
360-day year consisting of twelve 30-day months) using a rate equal to the
Treasury Rate plus 25 basis points. If the sum of these present values of the
remaining payments as computed above exceeds the aggregate unpaid principal
amount of the Note to be redeemed plus any accrued but unpaid interest
thereon, the difference will be payable as a premium upon redemption of such
Note. If the sum is equal to or less than such principal amount plus accrued
interest, there will be no premium payable with respect to such Note.
CERTAIN COVENANTS
RESTRICTIONS ON LIENS
So long as any of the Notes are outstanding, NRG has agreed not to pledge,
mortgage, hypothecate or permit to exist any mortgage, pledge or other lien
upon any property at any time directly owned by NRG to secure any
indebtedness for money borrowed which is incurred, issued, assumed or
guaranteed by NRG ("Indebtedness"), without making effective provisions
whereby the Notes shall be equally and ratably secured with any and all such
Indebtedness and with any other Indebtedness similarly entitled to be equally
and ratably secured; provided, however, that this restriction shall not apply
to or prevent the creation or existence of: (i) liens existing at the
original date of issuance of the Notes; (ii) purchase money liens which do
not exceed the cost or value of the purchased property; (iii) other liens not
to exceed 10% of Consolidated Net Tangible Assets and (iv) liens granted in
connection with extending, renewing, replacing or refinancing in whole or in
part the Indebtedness (including, without limitation, increasing the
principal amount of such Indebtedness) secured by liens described in the
foregoing clauses (i) through (iii).
In the event that NRG shall propose to pledge, mortgage or hypothecate any
property at any time directly owned by it to secure any Indebtedness, other
than as permitted by clauses (i) through (iv) of the previous paragraph, NRG
has agreed to give prior written notice thereof to the Trustee, who shall
give notice to the Holders, and NRG has agreed, prior to or simultaneously
with such pledge, mortgage or hypothecation, effectively to secure all the
Notes equally and ratably with such Indebtedness.
The foregoing covenant does not restrict the ability of NRG's subsidiaries
and affiliates to pledge, mortgage, hypothecate or permit to exist any
mortgage, pledge or lien upon their assets, in connection with project
financings or otherwise.
CONSOLIDATION, MERGER, SALE OF ASSETS
Without the consent of any Holder, NRG may consolidate with or merge into
any other person, or convey, transfer or lease its properties and assets
substantially as an entirety to any person, or permit any person to merge
into or consolidate with NRG, if (i) NRG is the surviving or continuing
corporation or the surviving or continuing corporation or purchaser or lessee
is a corporation incorporated under the laws of the United States of America
or Canada and assumes NRG's obligations under the Notes and under the
Indenture and (ii) immediately before and after such transaction, no Event of
Default (as defined herein) shall have occurred and be continuing.
Except for a sale of the assets of NRG substantially as an entirety as
provided above, and other than assets required to be sold to conform with
governmental regulations, the Indenture provides that NRG may not sell or
otherwise dispose of any assets (other than short-term, readily marketable
investments purchased for cash management purposes with funds not
representing the proceeds of other asset sales) if on a pro forma basis, the
aggregate net book value of all such sales during the most recent 12-month
period would exceed 10% of Consolidated Net Tangible Assets computed as of
the end of the most recent quarter preceding such sale; provided, however,
that any such sales shall be disregarded for purposes of this 10% limitation
if the proceeds are invested in assets in similar or related lines of
business of NRG and, provided further, that NRG may sell or otherwise dispose
of assets in excess of such 10% if the proceeds from such sales or
dispositions, which are not reinvested as provided above, are retained by NRG
as cash or cash equivalents or are used to purchase and retire Notes or 1996
Notes.
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CHANGE OF CONTROL
Upon a Change of Control, each Holder shall have the right to require that
NRG repurchase such Holder's Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued interest, if any, to the
date of repurchase. A Change of Control shall not be deemed to have occurred
if, after giving effect thereto, the Notes are rated BBB-or better by
Standard & Poor's Ratings Group and Baa3 or better by Moody's Investors
Service, Inc.
The Change of Control provisions may not be waived by the Trustee or the
Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not only afford
protection to holders of Notes, including protection against an adverse
effect on the value of the Notes, in the event that NRG or its subsidiaries
and affiliates incur additional Indebtedness, whether through
recapitalizations or otherwise. Moreover, no assurance can be given that NRG
would have sufficient liquidity to effectuate any required repurchase of
Notes upon a Change of Control.
Within 30 days following any Change of Control, NRG will be required to
mail a notice to each Holder (with a copy to the Trustee) stating (1) that a
Change of Control has occurred and that such Holder has the right to require
NRG to repurchase such Holder's Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued interest, if any, to the
date of repurchase (the "Change of Control Offer"); (2) the circumstances and
relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); (3) the repurchase date (which
shall be a Business Day and be not earlier than 30 days or later than 60 days
from the date such notice is mailed (the "Repurchase Date"); (4) that
interest on any Senior Note tendered will continue to accrue; (5) that
interest on any Senior Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue after the Repurchase Date; (6) that
Holders electing to have a Senior Note purchased pursuant to a Change of
Control Offer will be required to surrender the Senior Note, with the form
entitled "Option to Elect Purchase" on the reverse of the Senior Note
completed, to the Trustee at the address specified in the notice prior to the
close of business on the Repurchase Date; (7) that Holders will be entitled
to withdraw their election if the Trustee receives, not later than the close
of business on the third Business Day (or such shorter periods as may be
required by applicable law) preceding the Repurchase Date, a telegram, telex,
facsimile or letter setting forth the name of the Holder, the principal
amount of Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing its election to have such Notes purchased; and (8) that
Holders that elect to have their Notes purchased only in part will be issued
new Notes in a principal amount equal to the unpurchased portion of the Notes
surrendered.
For so long as the Notes are in global form, upon a Change of Control NRG
will be required to deliver to DTC, for re-transmittal to its participants, a
notice substantially to the effect specified in clauses (1) through (5) and
(7) of the previous paragraph. Such notice shall also specify the required
procedures for holders of interests in the Global Notes to tender the Notes
(including the DTC Repayment Option Procedures to the extent applicable).
On the Repurchase Date, NRG shall (i) accept for payment such surrendered
Notes or portions thereof tendered pursuant to the Change of Control and (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so tendered. NRG will publicly announce the result
of the Change of Control Offer as soon as practicable after the Repurchase
Date.
NRG has agreed to comply with all applicable tender offer rules,
including, without limitation, Rule 14e-1 under the Exchange Act in
connection with a Change of Control Offer.
REPORTING OBLIGATIONS
NRG has agreed to furnish or cause to be furnished to Holders (and, at the
request thereof, beneficial holders of Notes) annual consolidated financial
statements of NRG prepared in accordance with GAAP (together with notes
thereto, a report thereon by an independent accountant of established
national reputation and a management's discussion and analysis of financial
condition and results of operations). In addition, NRG will furnish or cause
to be furnished to Holders (and, at the request thereof,
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beneficial holders of Notes) unaudited condensed consolidated comparative
balance sheets and statements of income and cash flows of NRG for each of the
first three fiscal quarters of each fiscal year and the corresponding quarter
of the prior year, such statements to be furnished within 90 days after the
end of the fiscal quarter covered thereby.
CERTAIN DEFINITIONS
"Business Day" means a day which is neither a legal holiday or a day on
which banking institutions (including, without limitation, the Federal
Reserve System) are authorized or required by law or regulation to close in
The City of New York or Minneapolis, Minnesota.
"Change of Control" means the occurrence of one or more of the following
events: (a) NSP (or its successors) ceases to own a majority of NRG's
outstanding voting stock, (b) at any time following the occurrence of the
event described in clause (a) above, a person or group of persons (other than
NSP) becomes the beneficial owner, directly or indirectly, or has the
absolute power to direct the vote of more than 35% of NRG's voting stock or
(c) during any one year period, individuals who at the beginning of such
period constitute NRG's Board of Directors cease to be a majority of the
Board of Directors (unless approved by a majority of the current directors
then in office who were either directors at the beginning of such period or
who were previously so approved). A Change of Control shall be deemed not to
have occurred if, following such an event described above, the Notes are
rated BBB-or better by Standard & Poor's Ratings Group and Baa3 or better by
Moody's Investors Service, Inc.
"Consolidated Net Tangible Assets" means, as of the date of any
determination thereof, the total amount of all assets of NRG determined on a
consolidated basis in accordance with GAAP as of such date less the sum of
(a) the consolidated current liabilities of NRG determined in accordance with
GAAP and (b) assets properly classified as Intangible Assets.
"Holder" means a registered holder of a Senior Note.
"Intangible Assets" means, as of the date of any determination thereof,
with respect to any person, all assets properly classified as intangible
assets in accordance with GAAP.
"Treasury Rate" means, with respect to each Note to be redeemed, a per
annum rate (expressed as a semiannual equivalent and as a decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined by the Investment Banker to be the per annum rate equal to the
semiannual yield to maturity of United States Treasury securities maturing on
the Average Life Date (as defined below) of such Note, as determined by
interpolation between the most recent weekly average yields to maturity for
two series of Treasury securities, (A) one maturing as close as possible to,
but earlier than, the Average Life Date of such Note and (B) the other
maturing as close as possible to, but later than, the Average Life Date of
such Note, in each case as published in the most recent H.15(519) (or, if a
weekly average yield to maturity for United States Treasury securities
maturing on the Average Life Date of such Note is reported in the most recent
H.15(519), as published in H.15(519)). "H.15(519)" means "Statistical Release
H.15(519), Selected Interest Rates," or any successor publication, published
by the Board of Governors of the Federal Reserve System. The "most recent
H.15(519)" means the latest H.15(519) which is published prior to the close
of business on the third Business Day prior to the applicable redemption
date. The "Average Life Date" for any Note to be redeemed shall be the date
which follows the redemption date by a period equal to the Remaining Weighted
Average Life of such Note. The "Remaining Weighted Average Life" of such Note
with respect to the redemption of such Note is the number of days equal to
the quotient obtained by dividing (A) the sum of the products obtained by
multiplying (1) the amount of each remaining principal payment on such Note
by (2) the number of days from and including the redemption date, to but
excluding the scheduled payment date of such principal payment by (B) the
unpaid principal amount of such Note.
EVENTS OF DEFAULT
The following constitute Events of Default under the Notes:
(a) failure to pay any interest on any Senior Note when due, which
failure continues for 30 days;
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(b) failure to pay principal or premium (including in connection with a
Change of Control) when due;
(c) failure of NRG to perform any other covenant in the Notes or the
Indenture for a period of 30 days after written notice to NRG by the
Trustee or by the Holders of at least 25% in aggregate principal amount of
the Notes;
(d) an event of default occurring under any instrument of NRG under which
there may be issued, or by which there may be secured or evidenced, any
indebtedness for money borrowed that has resulted in the acceleration of
such indebtedness, or any default occurring in payment of any such
indebtedness at final maturity (and after the expiration of any applicable
grace periods), other than (i) indebtedness which is payable solely out of
the property or assets of a partnership, joint venture or similar entity
of which NRG or any of its subsidiaries or affiliates is a participant, or
which is secured by a lien on the property or assets owned or held by such
entity, without further recourse to NRG or (ii) such indebtedness of NRG
not exceeding $20,000,000;
(e) one or more final judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or similar
entity for the payment of money aggregating more than $20,000,000 shall be
rendered against NRG (excluding the amount thereof covered by insurance)
and shall remain undischarged, unvacated and unstayed for more than 90
days, except while being contested in good faith by appropriate
proceedings; and
(f) certain events of bankruptcy, insolvency or reorganization in respect
of NRG.
The Indenture provides that if an Event of Default (other than an Event of
Default based on an event of bankruptcy, insolvency or reorganization of NRG)
shall occur and be continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Notes may, by written notice to
NRG (and to the Trustee if given by Holders), declare the principal of all
Notes to be immediately due and payable, but upon certain conditions such
declaration may be annulled and past defaults (except, unless theretofore
cured, a default in payment of principal, premium or interest) may be waived
by the Holders of a majority in aggregate principal amount of Notes then
outstanding. If an Event of Default due to the bankruptcy, insolvency or
reorganization of NRG occurs, all unpaid principal, premium, if any, and
interest in respect of the Notes will automatically become due and payable.
Pursuant to the Indenture NRG is required to provide an annual statement of
compliance with the terms of the Indenture.
The Holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee under the
Indenture, subject to certain limitations specified in the Indenture,
provided that the Holders shall have offered to the Trustee reasonable
indemnity against expenses and liabilities.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting NRG and the Trustee, with the
consent of the Holders of not less than a majority in principal amount of the
Notes then outstanding, to modify the Indenture or the rights of the Holders,
except that no such modification may, without the consent of each Holder, (i)
extend the final maturity of any of the Notes or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any amount payable on redemption thereof, or impair or
affect the right of any Holder to institute suit for the payment thereof or
make any change in the covenant regarding a Change of Control or (ii) reduce
the percentage of Notes, the consent of the Holders of which is required for
any such modification.
NRG and the Trustee without the consent of any Holder may amend the
Indenture and the Notes for the purpose of curing any ambiguity, or of
curing, correcting or supplementing any defective provision thereof, or in
any manner which NRG and the Trustee may determine is not inconsistent with
the Notes and will not adversely affect the interest of any Holder.
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DEFEASANCE AND COVENANT DEFEASANCE
DEFEASANCE
The Indenture provides that NRG will be deemed to have paid and will be
discharged from any and all obligations in respect of the Notes, on the 123rd
day after the deposit referred to below has been made, and the provisions of
the Indenture will cease to be applicable with respect to the Notes (except
for, among other matters, certain obligations to register the transfer of or
exchange of the Notes, to replace stolen, lost or mutilated Notes, to
maintain paying agencies and to hold funds for payment in trust) if (A) NRG
has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations (as defined in the Indenture) that, through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Notes, at the time such payments are due in
accordance with the terms of the Indenture, (B) NRG has delivered to the
Trustee (i) an opinion of counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
NRG's exercise of its option under the defeasance provisions of the Indenture
and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which opinion of counsel must be
based upon a ruling of the Internal Revenue Service to the same effect or a
change in applicable federal income tax law or related treasury regulations
after the date of the Indenture and (ii) an opinion of counsel to the effect
that the defeasance trust does not constitute an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, and after the
passage of 123 days following the deposit, the trust fund will not be subject
to the effect of Section 547 of the U.S. Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law, (C) immediately after giving effect to such
deposit, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which NRG is a party or by which NRG is bound and
(D) if at such time the Notes are listed on a national securities exchange,
NRG has delivered to the Trustee an opinion of counsel to the effect that the
Notes will not be delisted as a result of such deposit and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
The Indenture further provides that the provisions of the Indenture will
cease to be applicable with respect to (i) the covenants described under
"Certain Covenants -- Restrictions on Liens" and "Change of Control" and (ii)
clause (c) under "Events of Default" with respect to such covenants and
clauses (d) and (e) under "--Events of Default" upon the deposit with the
Trustee, in trust, of money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the Notes, the satisfaction of
the conditions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by NRG to the Trustee of an opinion of counsel to
the effect that, among other things, the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
If NRG exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the
Trustee will be sufficient to pay amounts due on the Notes at the time of
their stated maturity, but may not be sufficient to pay amounts due on the
Notes at the time of acceleration resulting from such Event of Default. NRG
shall remain liable for such payments.
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FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Old Notes were initially represented by two Notes in registered,
global form (collectively, the "Old Global Notes"). The Old Global Notes were
deposited upon issuance with the Trustee as custodian for DTC and registered
in the name of Cede & Co., DTC's nominee, for credit to any account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
or in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Senior Notes in certificated forms except in the limited circumstances
described under "--Exchange of Book-Entry Notes for Certificated Notes"
below.
DEPOSITARY PROCEDURES
DTC has advised NRG that DTC is a limited-purpose trust company created to
hold securities for its Participants and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of the Participants. The
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchase of each security
held by or on behalf of DTC are recorded on the records of the Participants
and Indirect Participants.
DTC has also advised NRG that, pursuant to procedures established by it,
(i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a
Global Note may be subject to the procedures and requirements of DTC. The
laws of some states require that certain persons take physical delivery in
certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in a Global Note to pledge
such interest to persons that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "--Exchange of
Book-Entry Notes for Certificated Notes" below.
Except as described below, owners of interests in the Global Notes will
not have Notes registered in their name, will not receive physical delivery
of Notes in certificated form and will not be considered the registered
owners of holders thereof under the Indenture for any purpose.
Payments in respect of the Global Note registered in the name of DTC or
its nominee will be payable by the Trustee to DTC in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all purposes whatsoever. Consequently, neither the
Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership interests
in the Global Note or (ii) any other
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matter relating to the actions and practices of DTC or any of its Participants
or Indirect Participants. DTC has advised NRG that its current practice, upon
receipt of any payment in respect of securities such as the Notes, is to
credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility
of DTC, the Trustee or NRG. Neither NRG nor the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners
of the Notes, and NRG and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
DTC has advised NRG that it will take any action permitted to be taken by
a holder of Notes only at the direction of one or more Participants to whose
account with DTC interests in the Global Notes are credited and only in
respect of such portion of the Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Declaration, DTC reserves the right to exchange the
Global Notes for Notes in certificated form and to distribute such Notes to
its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that NRG believes to be reliable, but NRG does
not take responsibility for the accuracy thereof. NRG will not have any
responsibility for the performance by DTC or its Participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for Notes in registered certificated form if
(i) DTC notifies NRG that it is unwilling or unable to continue as clearing
agency for the Global Note or has ceased to be a clearing agency registered
under the Exchange Act and NRG thereupon fails to appoint a successor
clearing agency within 90 days, (ii) NRG in its sole discretion elects to
cause the issuance of definitive certificated Notes or (iii) there has
occurred and is continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default under the
Indenture. In addition, beneficial interests in a Global Note may be
exchanged for certificated Notes upon request but only upon at least 20 days,
prior written notice given to the Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases certificated Notes
delivered in exchange for any Global Note or beneficial interest therein will
be registered in the names, and issued in denominations of $100,000 and
integral multiples of $1,000 in excess thereof, requested by or on behalf of
the clearing agency (in accordance with its customary procedures).
THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
Indenture. NRG and its affiliates also maintain banking and other commercial
relationships with the Trustee and its affiliates in the ordinary course of
business.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
REGISTRATION RIGHTS
Holders of New Notes (other than as set forth below) are not entitled to
any registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Notes are entitled to certain
registration rights. Under the Registration Rights Agreement, NRG has agreed,
for the benefit of the Holders of the Old Notes, that it will, at its cost,
(i) file a registration statement with the Commission with respect to the
Exchange Offer within 60 days after the Closing Date (or if the 60th day
94
<PAGE>
is not a business day, the first business day thereafter) and (ii) use its
best efforts to cause such registration statement to be declared effective
under the Securities Act within 180 days after the Closing Date (or if the
180th day is not a business day, the first business day thereafter). The
Registration Statement of which this Prospectus is a part constitutes the
Exchange Offer Registration Statement.
In the event that any Holder shall notify NRG that (A) such Holder is not
eligible to participate in the Exchange Offer or (B) such Holder may not
resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales
by such Holder or (C) such Holder is a broker-dealer and holds Old Notes that
are part of an unsold allotment from the original sale of the Old Notes, NRG
will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities
by such Holders who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. NRG will use
its best efforts to cause the Shelf Registration Statement, if applicable, to
be declared effective on or prior to 215 days after the date on which NRG
becomes obligated to file the Shelf Registration Statement or receives
certain notices from holders of the Old Notes and will use its best efforts
to keep the Shelf Registration Statement continuously effective until the
earlier of (i) two years after the effective date thereof, (ii) the date on
which all Transfer Restricted Securities registered thereunder are disposed
of in accordance therewith and (iii) one year after the effective date
thereof if such Shelf Registration Statement is filed at the request of an
Initial Purchaser. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note until the earliest to occur of (i) the date
on which such Old Note has been exchanged for a New Note in the Exchange
Offer, (ii) the date on which such Old Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) the date on which such Old Note is
distributed to the public pursuant to Rule 144 under the Securities Act.
A Holder of Old Notes who sells such Old Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Rights Agreement that are applicable to
such a Holder (including certain indemnification obligations).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
SPECIAL INTEREST
In the event that either the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to any Transfer Restricted Securities is
not declared effective on or prior to the 215th day following the date of
original issuance of any Transfer Restricted Securities (or if the 215th day
is not a business day, the first business day thereafter), interest will
accrue (in addition to stated interest on the Securities) from and including
the next day following such 215-day period. In each case such additional
interest (the "Special Interest") will be payable in cash semiannually in
arrears each June 15, and December 15, commencing December 15, 1997, at a
rate per annum equal to 0.25% of the principal amount of such Transfer
Restricted Securities. The aggregate amount of Special Interest payable
pursuant to the above provisions will in no event exceed 0.25% per annum of
the principal amount of any Transfer Restricted Securities. Upon the
consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, after the 215-day period described above, the Special
Interest payable on such Transfer Restricted Securities from the date of such
effectiveness or consummation, as the case may be, will cease to accrue and
all accrued and unpaid Special Interest shall be paid to the holders of such
Transfer Restricted Securities.
In the event that a Shelf Registration Statement is declared effective
pursuant to the preceding paragraph, if the Company fails to keep such
Registration Statement continuously effective for the period required by this
Agreement, then from such time as the Shelf Registration Statement is no
longer
95
<PAGE>
effective until the earlier of (i) the date that the Shelf Registration
Statement is again deemed effective, (ii) the date that is the second
anniversary of the Closing Date or (iii) the date as of which all of the
Securities are sold pursuant to the Shelf Registration Statement, Special
Interest shall accrue at a rate per annum equal to 0.25% of the principal
amount of the Securities and shall be payable in cash semiannually in arrears
each June 15 and December 15, commencing December 15, 1997.
The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will
eliminate all rights of the Holders of Old Notes eligible to participate in
the Exchange Offer to receive Special Interest that would have been payable
if such actions had not occurred.
96
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain United States Federal income tax
considerations associated with the exchange of Old Notes for New Notes and
the ownership and disposition of the New Notes by Holders who acquire the New
Notes pursuant to the Exchange Offer. This discussion is based upon existing
United States Federal income tax law, which is subject to change, possibly
retroactively. This discussion does not describe all aspects of United States
Federal income taxation which may be important to particular Holders in light
of their individual investment circumstances or certain types of Holders
subject to special tax rules (e.g., financial institutions, insurance
companies, broker-dealers, or tax-exempt organizations) or to persons that
hold or will hold the Notes as a position in a "straddle" or as part of a
"hedging" or "conversion" transaction, all of whom may be subject to tax
rules that differ significantly from those described below. In addition, this
discussion does not described any foreign, state, or local tax
considerations. This discussion deals only with Old Notes and New Notes held
by initial purchasers of Old Notes as "capital assets" (generally, property
held for investment) under the United States Internal Revenue Code.
The consummation of the Exchange Offer will not be a taxable event for
United States Federal income tax purposes. Accordingly, a Holder receiving
New Notes pursuant to the terms of the Exchange Offer will have the same
adjusted tax basis and holding period in New Notes, for United States Federal
income tax purposes, as such Holder had in the Old Notes tendered in exchange
therefor.
Interest payable on the New Notes will be includible in the income of a
Holder in accordance with such Holder's normal method of accounting.
Except in the case of an Old Note purchased at a discount to its original
issue price, a Holder will recognize capital gain or loss upon the sale or
other disposition of a New Note in an amount equal to the difference between
the amount realized from such disposition and his tax basis in the New Note.
Such gain or loss will be long-term if the New Note is held for more than one
year.
In the case of a Holder who has purchased a New Note at a discount to its
original issue price in excess of a statutorily defined de minimis amount and
has not elected to include such discount in income on a current basis, (i)
any gain recognized on the disposition of a New Note will be subject to tax
as ordinary income, rather than capital gain, to the extent of accrued market
discount and (ii) a portion of the interest expense on indebtedness incurred
or maintained to purchase or carry such note may not be deducted until the
note is disposed of in a taxable transaction.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAXADVISORS
CONCERNING THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S OLD
NOTES FOR THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
97
<PAGE>
RATINGS
Standard & Poor's Ratings Group and Moody's Investors Service, Inc. have
given the Notes the ratings set forth under "Summary -- The Exchange Offer --
Ratings." Such ratings reflect only the views of these organizations, and an
explanation of the significance of each such rating may be obtained from
Standard & Poor's Corporation, 25 Broadway, New York, New York 10004 and
Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007.
There is no assurance that such ratings will continue for any given period of
time or that they will not be revised downward or withdrawn entirely by such
rating agencies or either of them if, in their judgment, circumstances so
warrant. A downward change in or withdrawal of such ratings or either of them
may have an adverse effect on the market price of the Notes.
98
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. NRG has agreed that, starting on the Expiration
Date and ending on the close of business on the 90th day following the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997 (90 days from the date of this Prospectus), all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
NRG will not receive any proceeds from any sale of New Notes by
broker-dealers or any other persons. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold form time to
time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or purchasers of
any such New Notes. Any broker-dealer that resells New Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, NRG will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. NRG has agreed to pay all expenses incident to NRG's performance
of, or compliance with, the Registration Rights Agreement and will indemnify
the Holders (including any broker-dealers) and certain parties related to the
Holders against certain liabilities, including liabilities under the
Securities Act.
99
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes will
be passed upon for NRG by Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements of NRG as of December 31, 1995 and
1996 and for each of the two years in the period ended December 31, 1996
included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of NRG as of December 31, 1994 included in this
Prospectus have been so included in reliance on the report of Deloitte &
Touche LLP, independent auditors, given on the authority of said firm as
experts in auditing and accounting.
100
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Audited Financial Statements
Report of Independent Accountants......................................................... F-2
Consolidated Balance Sheets of NRG Energy, Inc. and Subsidiaries as of December 31, 1995
and 1996................................................................................. F-3
Consolidated Statements of Income of NRG Energy, Inc. and Subsidiaries for the years
ended December 31, 1995 and 1996......................................................... F-5
Consolidated Statements of Cash Flows of NRG Energy, Inc. and Subsidiaries for the years
ended December 31, 1995 and 1996......................................................... F-6
Consolidated Statements of Stockholder's Equity of NRG Energy, Inc. and Subsidiaries for
the years ended December 31, 1995 and 1996............................................... F-7
Notes to Consolidated Financial Statements ............................................... F-8
Report of Independent Auditors ........................................................... F-23
Consolidated Balance Sheet of NRG Energy, Inc. and Subsidiaries as of December 31, 1994 .. F-24
Consolidated Statement of Income of NRG Energy, Inc. and Subsidiaries for the year
ended December 31, 1994.................................................................. F-26
Consolidated Statement of Cash Flows of NRG Energy, Inc. and Subsidiaries for the year
ended December 31, 1994.................................................................. F-27
Consolidated Statement of Stockholder's Equity of NRG Energy, Inc. and Subsidiaries for
the year ended December 31, 1994 ........................................................ F-28
Notes to Consolidated Financial Statements ............................................... F-29
Unaudited Financial Statements
Consolidated Balance Sheets of NRG Energy, Inc. and Subsidiaries as of March 31, 1996 and
1997..................................................................................... F-40
Consolidated Statements of Income of NRG Energy, Inc. and Subsidiaries for the three
month periods ended March 31, 1996 and 1997.............................................. F-42
Consolidated Statements of Cash Flows of NRG Energy, Inc. and Subsidiaries for the three
month period ended March 31, 1996 and 1997............................................... F-43
Notes to Consolidated Financial Statements................................................ F-44
Unaudited Pro Forma Combined Financial Statements
Unaudited Pro Forma Consolidated Balance Sheet of NRG Energy, Inc. and Subsidiaries as of
March 31, 1997........................................................................... F-47
Unaudited Pro Forma Consolidated Statement of Income of NRG Energy, Inc. and Subsidiaries
for the year ended December 31, 1996..................................................... F-49
Unaudited Pro Forma Consolidated Statement of Income of NRG Energy, Income of NRG Energy,
Inc. and Subsidiaries for the three month period ended March 31, 1997 ................... F-50
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
NRG Energy, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholder's equity, and of
cash flows present fairly, in all material respects, the financial position
of NRG Energy, Inc. (a wholly-owned subsidiary of NSP) and its subsidiaries
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
NRG's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
April 8, 1997
F-2
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 12,438 $ 7,039
Restricted cash..................................................... 17,688 9,773
Accounts receivable--trade, less allowance for doubtful accounts of
$143 and $103...................................................... 12,061 9,333
Accounts receivable-affiliates...................................... 6,708 4,640
Current portion of notes receivable-affiliates...................... 3,601 5,267
Current portion of notes receivable................................. 5,985 2,791
Inventory........................................................... 2,312 1,811
Prepayments and other current assets................................ 4,644 1,744
---------- ----------
TOTAL CURRENT ASSETS................................................. 65,437 42,398
---------- ----------
Property, Plant and Equipment, at Original Cost:
In service.......................................................... 176,072 170,253
Under construction.................................................. 24,683 5,914
---------- ----------
200,755 176,167
Less accumulated depreciation....................................... (71,106) (64,248)
---------- ----------
Net property, plant and equipment.................................. 129,649 111,919
---------- ----------
Other Assets:
Investments in projects............................................. 365,749 221,129
Capitalized project costs........................................... 9,267 4,185
Notes receivable, less current portion-affiliates................. 58,169 32,389
Notes receivable, less current portion.............................. 9,309 --
Intangible assets, net of accumulated amortization of $5,647 and
$4,127............................................................. 40,476 41,996
Debt issuance costs, net of accumulated amortization of $338 and
$189............................................................... 2,753 573
---------- ----------
Total other assets................................................. 485,723 300,272
---------- ----------
TOTAL ASSETS......................................................... $680,809 $454,589
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 4,848 $ 3,762
Accounts payable-trade.......................................... 4,443 6,208
Note payable-affiliates......................................... 3,867 1,185
Accrued income taxes............................................ 1,930 7,366
Accrued property and sales taxes................................ 2,159 1,895
Accrued salaries, benefits and related costs.................... 6,559 5,178
Accrued interest................................................ 4,726 824
Other current liabilities....................................... 4,424 1,578
---------- ---------
TOTAL CURRENT LIABILITIES........................................ 32,956 27,996
---------- ---------
Long-term debt, less current portion............................ 207,293 86,272
Deferred revenues............................................... 6,340 7,726
Deferred income taxes........................................... 8,606 9,166
Deferred investment tax credits................................. 1,853 2,069
Deferred compensation........................................... 1,847 1,596
---------- ---------
TOTAL LIABILITIES................................................ 258,895 134,825
---------- ---------
Commitments and Contingencies (Note 13)
Stockholder's Equity:
Common stock; $1 par value; 1,000 shares authorized; 1,000
shares issued and outstanding.................................. 1 1
Additional paid-in capital...................................... 351,013 271,013
Retained earnings............................................... 66,301 46,323
Currency translation adjustments................................ 4,599 2,427
---------- ---------
TOTAL STOCKHOLDER'S EQUITY....................................... 421,914 319,764
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY....................... $680,809 $454,589
========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Operating revenues:
Revenues from wholly-owned operations................... $ 71,649 $64,180
Equity in operating earnings of unconsolidated
affiliates............................................. 32,815 23,639
---------- ---------
Total operating revenues................................. 104,464 87,819
---------- ---------
Operating costs and expenses:
Cost of wholly-owned operations......................... 36,562 32,535
Depreciation and amortization........................... 8,378 8,283
General, administrative and development expenses ....... 39,248 34,647
---------- ---------
Total operating costs and expenses....................... 84,188 75,465
---------- ---------
Operating income......................................... 20,276 12,354
Other income (expense):
Equity in gain from project termination settlements .... -- 29,850
Other income, net....................................... 9,477 4,896
Interest expense........................................ (15,430) (7,089)
---------- ---------
Total other income (expense)............................. (5,953) 27,657
---------- ---------
Income before income taxes............................... 14,323 40,011
---------- ---------
Income (benefit) taxes................................... (5,655) 8,810
---------- ---------
Net Income............................................... $ 19,978 $31,201
========== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995
----------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 19,978 $ 31,201
Adjustments to reconcile net income to net cash provided (used) by
operating activities ................................................
Undistributed equity in operating earnings of unconsolidated
affiliates.......................................................... (17,827) (20,074)
Depreciation and amortization........................................ 8,378 8,283
Deferred income taxes and investment tax credits..................... (776) (2,608)
Cash (used) provided by changes in certain working capital items .... (4,323) 8,993
Cash (used) by changes in other assets and liabilities .............. (1,284) (1,004)
Equity in gain from project termination settlement................... -- (29,850)
----------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES....................... 4,146 (5,059)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects............................................... (140,590) (25,776)
Loans to projects..................................................... (36,617) (35,411)
Capital expenditures.................................................. (24,588) (11,036)
Cash distribution from project termination settlement................. 15,671 14,179
(Increase) decrease in restricted cash................................ (7,915) 4,044
Other, net............................................................ (4,486) (3,104)
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES.................................. (198,525) (57,104)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent..................................... 80,000 55,000
Proceeds from issuance of long-term debt.............................. 122,671 --
Principal payments on long-term debt.................................. (2,893) (3,305)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............................. 199,778 51,695
=========== ==========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 5,399 (10,468)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 7,039 17,507
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 12,438 $ 7,039
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized)............................. $ 11,527 $ 6,536
Income taxes paid..................................................... 1,164 1,447
</TABLE>
See accompanying notes.
F-6
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
-------- ------------ ---------- ------------- ---------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 .... $1 $216,013 $15,122 $ 3,586 $234,722
Net income........................ 31,201 31,201
Capital contributions from
parent........................... 55,000 55,000
Currency translation adjustments . (1,159) (1,159)
-------- ------------ ---------- ------------- ---------------
Balances at December 31, 1995 .... 1 271,013 46,323 2,427 319,764
Net income........................ 19,978 19,978
Capital contributions from
parent........................... 80,000 80,000
Currency translation adjustments . 2,172 2,172
-------- ------------ ---------- ------------- ---------------
Balances at December 31, 1996 .... $1 $351,013 $66,301 $ 4,599 $421,914
======== ============ ========== ============= ===============
</TABLE>
See accompanying notes.
F-7
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
NRG Energy, Inc., a Delaware corporation, was incorporated on May 29,
1992, as a wholly-owned subsidiary of Northern States Power Company.
Beginning in 1989, NRG was doing business through its predecessor companies,
NRG Energy, Inc. and NRG Group, Inc., Minnesota corporations which were
merged into NRG subsequent to its incorporation. NRG and its subsidiaries and
affiliates develop, build, acquire, own and operate nonregulated
energy-related businesses.
2. PRINCIPLES OF CONSOLIDATION
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of NRG and its
subsidiaries (referred to collectively herein as NRG). All significant
intercompany transactions and balances have been eliminated in consolidation.
As discussed in Note 5, NRG has investments in partnerships, joint ventures
and projects for which the equity method of accounting is applied. Earnings
from equity in international investments are recorded net of foreign income
taxes.
Cash Equivalents
Cash equivalents include highly liquid investments (primarily commercial
paper) with a remaining maturity of three months or less at the time of
purchase.
Restricted Cash
Restricted cash consists primarily of cash collateral required in
connection with foreign currency hedging activities (see Note 12) and cash
collateral for letters of credit issued in relation to project development
activities.
Inventory
Inventory is valued at the lower of average cost or market and consists
principally of spare parts and raw materials used to generate steam.
Property, Plant and Equipment
Property, plant and equipment are capitalized at original cost.
Significant additions or improvements extending asset lives are capitalized,
while repairs and maintenance are charged to expense as incurred.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Facilities and improvements.......... 20-45 years
Machinery and equipment.............. 7-30 years
Office furnishings and equipment .... 3-5 years
Capitalized Interest
Interest incurred on funds borrowed to finance projects expected to
require more than three months to complete is capitalized. Capitalization of
interest is discontinued when the project is completed and considered
operational. Capitalized interest is amortized using the straight line method
over the useful life of the related project. Capitalized interest was
$364,000 and $253,000 in 1996 and 1995, respectively.
Development Costs and Capitalized Project Costs
These costs include professional services, dedicated employee salaries,
permits, and other costs which are incurred incidental to a particular
project. Such costs are expensed as incurred until a sales
F-8
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPLES OF CONSOLIDATION (Continued)
agreement or letter of intent is signed and the project has been approved by
NRG's Board of Directors. Additional costs incurred after this point are
capitalized. When project operations begin, previously capitalized project
costs are reclassified to investment in projects and amortized on a
straight-line basis over the lesser of the life of the project's related
assets or revenue contract period.
Debt Issuance Costs
Costs to issue long-term debt have been capitalized and are being
amortized over the terms of the related debt.
Intangibles
Intangibles consist principally of service agreements and the excess of
the cost of investment in subsidiaries over the underlying fair value of the
net assets acquired and are being amortized using the straight-line method
over 30 years. NRG periodically evaluates the recovery of goodwill and other
intangibles based on an analysis of estimated undiscounted future cash flows.
Income Taxes
NRG is included in the consolidated tax returns of NSP. NRG calculates its
income tax provision on a separate return basis under a tax sharing agreement
with NSP as discussed in Note 9. Current federal and state income taxes are
payable to or receivable from NSP. NRG records income taxes using the
liability method. Income taxes are deferred on all temporary differences
between pretax financial and taxable income and between the book and tax
bases of assets and liabilities. Deferred taxes are recorded using the tax
rates scheduled by law to be in effect when the temporary differences
reverse. Investment tax credits are deferred and amortized over the estimated
lives of the related property. NRG's policy for income taxes related to
international operations is discussed in Note 9.
Revenue Recognition
Under fixed-price contracts, revenues are recognized as deliveries of
products or services are made. Revenues and related costs under cost
reimbursable contract provisions are recorded as costs are incurred.
Anticipated future losses on contracts are charged against income when
identified.
Deferred revenues relate to a 1988 legal settlement with a major thermal
customer. Settlement proceeds were deferred when received and are reflected
in operating income on a straight-line basis over the life of the related
steam contract which expires in 2001.
Foreign Currency Translation
The local currencies are generally the functional currency of NRG's
foreign operations. Foreign currency denominated assets and liabilities are
translated at end-of-period rates of exchange. The resulting currency
adjustments are accumulated and reported as a separate component of
stockholder's equity. Income, expense and cash flows are translated at
weighted-average rates of exchange for the period.
Exchange gains and losses that result from foreign currency transactions
(e.g., converting cash distributions made in one currency to another
currency) are included in the results of operations as a component of equity
in earnings of unconsolidated affiliates. Through December 31, 1996, NRG has
not experienced any material translation gains or losses from foreign
currency transactions that have occurred since the respective foreign
investment dates.
Derivative Financial Instruments
As of March 31, 1997, NRG's policy was to hedge foreign currency denominated
investments as they were made to preserve their U.S. dollar value, where
appropriate hedging vehicles were available
F-9
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPLES OF CONSOLIDATION (Continued)
AND ECONOMICAL. NRG had entered into hedging transactions through the use of
forward foreign currency exchange agreements. Gains and losses on these
agreements offset the effect of foreign currency exchange rate fluctuations on
the valuation of the investments underlying the hedges. Hedging gains and
losses, net of income tax effects, are reported with other currency
translation adjustments as a separate component of stockholder's equity. None
of these derivative financial instruments are reflected in NRG's balance sheet
as of March 31, 1997.
In July 1997, NRG changed its policy of hedging foreign currency denominated
investments as they were made, to a policy of hedging foreign currency
denominated cash flows over a projected 12-month period. As a result of this
change in hedging policy, NRG terminated the seven foreign currency swap
agreements on July 29, 1997. Such terminations resulted in cash payments to
NRG without any earnings impact. Consistent with prior policies, NRG is not
hedging future earnings and does not speculate in foreign currencies.
Use of Estimates
In recording transactions and balances resulting from business operations,
NRG uses estimates based on the best information available. Estimates are
used for such items as plant depreciable lives, tax provisions, uncollectible
accounts and actuarially determined benefit costs. As better information
becomes available (or actual amounts are determinable), the recorded
estimates are revised. Consequently, operating results can be affected by
revisions to prior accounting estimates.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation. These reclassifications had no effect on
net income or stockholder's equity as previously reported.
3. BUSINESS ACQUISITIONS
In March 1996, a joint venture between NRG and Transfield signed an
18-year power purchase agreement and an agreement for the acquisition and
refurbishment of the 180 MW Collinsville coal-fired power generation facility
in Queensland, Australia. NRG would own a 50% interest and operate the
facility in conjunction with Transfield.
In April 1996, NRG, through bankruptcy proceedings, purchased a 41.86%
interest in O'Brien Environmental Energy, Inc. that has been renamed as NRG
Generating (U.S.) Inc. (NRGG). In addition to an equity interest in NRGG, NRG
acquired certain landfill gas projects in the purchase which were transferred
to NEO and a cogeneration facility.
On December 19, 1996 NRG and Nordic Power Invest AB purchased 96.6% of
Bolivian Power Company Limited. NRG's ownership is 58%, however it is NRG's
intent to reduce its holding to 50% or less.
NEO, a wholly-owned subsidiary, owns a 50% interest in Minnesota Methane
LLC. In 1996, Minnesota Methane LLC acquired a 12 MW project in West Covina,
California and acquired six projects as part of the NRGG acquisition. Of the
projects acquired, four were operating facilities and two were projects under
development and construction. In 1994, NEO acquired a 50% interest in
Northbrook Energy. In 1996, Northbrook Energy acquired seven additional
hydroelectric plants.
The total acquisition investments in these projects through December 31,
1996, including capitalized development costs, was approximately $121.5
million. Earnings from equity interests in these NRG projects acquired in
1996 contributed $2.7 million to NRG's 1996 earnings.
F-10
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Facilities and equipment, including construction work in
progress of $24,683 and $5,914.................................. $187,014 $163,099
Land and improvements............................................ 10,397 10,397
Office furnishings and equipment................................. 3,344 2,671
---------- ----------
Total property, plant and equipment.............................. 200,755 176,167
Accumulated depreciation......................................... (71,106) (64,248)
---------- ----------
Net property, plant and equipment................................ $129,649 $111,919
========== ==========
</TABLE>
5. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
NRG has investments in various international and domestic energy projects.
The equity method of accounting is applied to such investments in affiliates,
which include joint ventures and partnerships, because the ownership
structure prevents NRG from exercising a controlling influence over operating
and financial policies of the projects. Under this method, equity in pretax
income or losses of domestic partnerships and in the net income or losses of
international projects are reflected as equity in earnings of unconsolidated
affiliates.
A summary of NRG's significant equity-method investments which were in
operation at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
PURCHASED
GEOGRAPHIC ECONOMIC OR PLACED
NAME AREA INTEREST IN SERVICE
- ------------------------------------------------ ----------------- ------------ ---------------------------
<S> <C> <C> <C>
MIBRAG Mining and Power Generation .............. Germany 33.3% January 1994
Gladstone Power Station ......................... Australia 37.5% March 1994
Schkopau Power Station........................... Germany 20.6% January and July 1996
Scudder Latin American Trust for Independent
Power Energy Project............................ Latin America 25.0% June 1993
Collinsville Electric Generation ................ Australia 50.0% March 1996
COBEE ........................................... Bolivia 58.0% December 1996
NRG Generating................................... USA 41.9% April 1996
Various Independent Power Production Facilities . USA 45%-50% July 1991-December 1996
Rosebud Syncoal Partnership...................... USA 50.0% August 1993
</TABLE>
F-11
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD (Continued)
Summarized financial information for investments in unconsolidated
affiliates accounted for under the equity method as of and for the year ended
December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Operating revenues........... $ 886,947 $ 776,612
Costs and expenses........... 794,255 615,696
------------ ------------
Net income.................. $ 92,692 $ 160,916
============ ============
Current assets............... $ 647,213 $ 757,124
Noncurrent assets............ 3,420,950 2,557,992
------------ ------------
Total assets................ $4,068,163 $3,315,116
============ ============
Current liabilities.......... $ 365,905 $ 290,805
Noncurrent liabilities....... 2,732,922 2,236,919
Equity....................... 969,336 787,392
------------ ------------
Total liabilities and
equity..................... $4,068,163 $3,315,116
============ ============
NRG's share of equity........ $ 365,749 $ 221,129
NRG's share of income........ 32,815 23,639
</TABLE>
In June 1995, a power sales contract between a California energy project,
in which NRG is a 45% investor, and an unaffiliated utility company was
terminated. A pretax gain of $29.9 million was recognized by NRG for its
share of the termination settlement.
NRG recorded pretax charges of $1.5 million in 1996 and $5.0 million in
1995 to write down the carrying value of certain energy projects.
6. RELATED PARTY TRANSACTIONS.
Operating Agreements
NRG has two agreements with NSP for the purchase of thermal energy. Under
the terms of the agreements, NSP charges NRG for certain costs (fuel, labor,
plant maintenance, and auxiliary power) incurred by NSP to produce the
thermal energy. NRG paid NSP $6.0 million in 1996 and $3.7 million in 1995
under these agreements.
NRG has a renewable 10-year agreement with NSP, expiring on December 31,
2001, whereby NSP agrees to purchase refuse-derived fuel for use in certain
of its boilers and NRG agrees to pay NSP a burn incentive. NRG has an
agreement expiring in 1997 to sell wood by-product obtained from a thermal
customer to NSP for use as fuel. Under these agreements, NRG received $1.5
million and $1.9 million from NSP, and paid $2.2 million and $2.3 million to
NSP in 1996 and 1995, respectively.
Administrative Services and Other Costs
NRG and NSP have entered into an agreement to provide for the
reimbursement of actual administrative services provided to each other, an
allocation of NSP administrative costs and a working capital fee. Services
provided by NSP to NRG are principally cash management, legal, accounting,
employee relations and engineering. In addition, NRG employees participate in
certain employee benefit plans of NSP as discussed in Note 10. During 1996
and 1995, NRG paid NSP $7.2 million and $6.8 million, respectively, as
reimbursement under this agreement.
In 1996, NRG and NSP entered into an agreement for NRG to provide
operations and maintenance services for NSP's Elk River resource recovery
facility and Becker ash landfill. During 1996, NSP paid NRG $1.5 million as
reimbursement under this agreement.
F-12
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES RECEIVABLE
Notes receivable consist primarily of fixed and variable rate notes
secured by equity interests in partnerships and joint ventures. The interest
rate on the notes ranged from 7.0% to 12.5% at December 31, 1996 and 1995.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
NRG Energy Center, Inc. Senior Secured Notes Series due
June 15, 2013, 7.31%................................... $ 76,986 $79,326
Note payable to NSP, due December 1, 1995-2006
5.40%-6.75%............................................ 8,405 8,958
NRG Sunnyside, Inc. note payable, due December 31,
1997, 10.00%........................................... 1,750 1,750
NRG Energy Senior Notes, due February 1, 2006, 7.625% .. 125,000 --
---------- ---------
212,141 90,034
Less current maturities................................. (4,848) (3,762)
---------- ---------
Total.................................................. $207,293 $86,272
========== =========
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by long-term
assets of the Minneapolis Energy Center (MEC). In accordance with the terms
of the note agreements, MEC is required to maintain compliance with certain
financial covenants primarily related to incurring debt, disposing of MEC
assets, and affiliate transactions. MEC was in compliance with these
covenants at December 31, 1996.
The note payable to NSP relates to long-term debt assumed by NRG in
connection with the transfer of ownership of an RDF processing plant by NSP
to NRG in 1993.
The NRG Sunnyside, Inc. note payable was issued in connection with the
purchase of an equity interest in a waste-coal project in 1994.
The NRG Energy Senior Notes were issued in January 1996, are unsecured and
require semi-annual interest payments on February 1 and August 1.
Annual maturities of long-term debt for the years ending after December
31, 1996 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1997......... $ 4,848
1998......... 3,335
1999......... 3,581
2000......... 3,841
2001......... 4,160
Thereafter .. 192,376
--------------------
Total...... $212,141
====================
</TABLE>
NRG has revolving-credit agreements which allow for Letters of Credit
which may not exceed $63.9 million. There were $18.4 million and $0
outstanding letters of credit under the credit agreements at December 31,
1996 and 1995, respectively.
9. INCOME TAXES
NRG and its parent, NSP, have entered into a federal and state income tax
sharing agreement relative to the filing of consolidated federal and state
income tax returns. The agreement provides,
F-13
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (Continued)
among other things, that (1) if NRG, along with its subsidiaries, is in a
taxable income position, NRG will be currently charged with an amount
equivalent to its federal and state income tax computed as if the group had
actually filed separate federal and state returns, and (2) if NRG, along with
its subsidiaries, is in a tax loss position, NRG will be currently reimbursed
to the extent its combined losses are utilized in a consolidated return, and
(3) If NRG, along with its subsidiaries, generates tax credits, NRG will be
currently reimbursed to the extent its tax credits are utilized in a
consolidated return.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Current
Federal........................... $ 633 $ 9,965
State............................. 253 3,268
Foreign........................... 616 233
---------- ---------
1,502 13,466
Deferred
Federal........................... (3,655) (1,592)
State............................. (1,498) (1,012)
---------- ---------
(5,153) (2,604)
Tax credits recognized............. (2,004) (2,052)
---------- ---------
Total income tax (benefit)
expense........................... $(5,655) $ 8,810
========== =========
</TABLE>
The components of the net deferred income tax liability at December 31
were:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred tax liabilities
Differences between book and tax bases of property ...... $16,606 $16,364
Investments in projects.................................. 2,988 1,226
Goodwill................................................. 2,974 444
Other.................................................... 2,646 112
--------- ---------
Total deferred tax liabilities.......................... 25,214 18,146
Deferred tax assets
Deferred revenue......................................... 3,043 3,099
Development costs........................................ 5,581 --
Deferred investment tax credits.......................... 766 856
Deferred compensation, accrued vacation and other
reserves................................................ 1,536 1,412
Steam capacity rights.................................... 1,043 1,109
Other.................................................... 4,639 2,504
--------- ---------
Total deferred tax assets................................ 16,608 8,980
--------- ---------
Net deferred tax liability............................... $ 8,606 $ 9,166
========= =========
</TABLE>
Rate Reconciliation
At December 31, 1996, the effective income tax rate (benefit) of (39.5)%
differs from the statutory federal income tax rate of 35% primarily due to
the fact that NRG generated a domestic tax loss of $15 million for the year.
For the year ended December 31, 1995, NRG had a domestic tax gain of $9.2
million with the change between 1996 and 1995 primarily attributable to a
$29.9 million gain from the sale of a power agreement at SJVEP.
F-14
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (Continued)
Income before income taxes includes net foreign equity income of $28
million and $32 million in 1996 and 1995, respectively. NRG's management
intends to reinvest the earnings of foreign operations indefinitely.
Accordingly, U.S. income taxes and foreign withholding taxes have not been
provided on the earnings of foreign subsidiary companies. The cumulative
amount of undistributed earnings of foreign subsidiaries upon which no U.S.
income taxes or foreign withholding taxes have been provided is approximately
$87.3 million at December 31, 1996. The additional U.S. income tax and
foreign withholding tax on the unremitted foreign earnings, if repatriated,
would be offset in whole or in part by Foreign tax credits. Thus, it is
impracticable to estimate the amount of tax that might be payable.
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Benefits
NRG participates in NSP's noncontributory, defined benefit pension plan
that covers the majority of all U.S. employees. Benefits are based on a
combination of years of service, the employee's highest average pay for 48
consecutive months, and Social Security benefits. Net annual periodic pension
cost includes the following components:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Service cost-benefits earned during the
period........................................ $ 1,115 $ 688
Interest cost on projected benefit obligation . 1,013 525
Actual return on assets........................ (1,983) (1,542)
Net amortization and deferral.................. 1,258 1,147
--------- ---------
Net periodic pension cost...................... $ 1,403 $ 818
========= =========
</TABLE>
NRG's funding policy is to contribute to NSP the full actuarial pension
cost accrued, less future tax benefits to be realized from such costs. Plan
assets consist principally of common stock of public companies, corporate
bonds and U.S. government securities. The funded status of the pension plan
in which NRG employees participate is as follows at December 31, 1996 and
1995:
NSP Plan -- 1996
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
----------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligation ...................
Vested.......................................................... $ 660,920 $ 6,464
Nonvested....................................................... 147,278 3,422
----------- ---------
Accumulated benefit obligation.................................. $ 808,198 $ 9,886
=========== =========
Projected benefit obligation..................................... $ 993,821 $14,253
Plan assets at fair value........................................ 1,634,696 12,986
----------- ---------
Plan assets (in excess of) less than projected benefit
obligation...................................................... (640,875) 1,267
Unrecognized prior service cost.................................. (19,734) (86)
Unrecognized net actuarial gain (loss)........................... 651,368 256
Unrecognized net transitional asset.............................. 539 --
----------- ---------
Net pension (prepaid) liability recorded....................... $ (8,702) $ 1,437
=========== =========
</TABLE>
F-15
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
NSP Plan -- 1995
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
------------ ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligation
Vested.......................................................... $ 686,403 $ 3,050
Nonvested....................................................... 155,177 1,520
------------ ---------
Accumulated benefit obligation.................................. $ 841,580 $ 4,570
============ =========
Projected benefit obligation..................................... $1,039,981 $ 8,828
Plan assets at fair value........................................ 1,456,530 6,657
------------ ---------
Plan assets (in excess of) less than projected benefit
obligation...................................................... (416,549) 2,171
Unrecognized prior service cost.................................. (20,805) (91)
Unrecognized net actuarial gain (loss)........................... 452,699 (1,388)
Unrecognized net transitional asset.............................. 615 --
------------ ---------
Net pension liability recorded................................. $ 15,960 $ 692
============ =========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% in 1996 and 7% in
1995. The rate of increase in future compensation levels used in determining
the actuarial present value of the projected obligation was 5% in 1996 and in
1995. The assumed long-term rate of return on assets used for cost
determinations was 9% for 1996 and 8% for 1995. Changes in actuarial
assumptions increased 1996 pension costs by $284,000 and are expected to
decrease 1997 costs by $150,000.
Postretirement Health Care
NRG participates in NSP's contributory health and welfare benefit plan
that provides health care and death benefits to the majority of all U.S.
employees after their retirement. The plan is intended to provide for sharing
of costs of retiree health care between NRG and retirees. For employees
retiring after January 1, 1994, a six-year cost-sharing strategy was
implemented with retirees paying 15% of the total cost of health care in
1994, increasing to a total of 40% in 1999.
Postretirement health care benefits for NRG are determined and recorded
under the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires the
actuarially determined obligation for postretirement health care and death
benefits to be fully accrued by the date employees attain full eligibility
for such benefits, which is generally when they reach retirement age. In
conjunction with the adoption of SFAS No. 106 in 1993, NRG elected to
amortize on a straight-line basis over 20 years the unrecognized accumulated
postretirement benefit obligation (APBO) of $1.4 million for current and
future retirees.
F-16
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
Plan assets as of December 31, 1996, consisted of investments in equity
mutual funds and cash equivalents. NRG's funding policy is to contribute to
NSP benefits actually paid under the plan. The following table sets forth the
funded status of the health care plan in which NRG employees participate at
December 31, 1996 and 1995:
NSP Plan -- 1996
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
----------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
APBO
Retirees.............................. $ 144,180 $ 323
Fully eligible plan participants ..... 23,438 619
Other active plan participants ....... 101,065 2,269
----------- ---------
Total APBO............................ 268,683 3,211
Plan assets at fair value.............. (15,514) --
----------- ---------
APBO in excess of plan assets.......... 253,169 3,211
Unrecognized net actuarial loss ....... (12,467) (366)
Unrecognized net transition
obligation............................ (172,480) (1,133)
----------- ---------
Net benefit obligation recorded ...... $ 68,222 $ 1,712
=========== =========
</TABLE>
NSP Plan -- 1995
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
----------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
APBO
Retirees.............................. $ 145,800 $ 67
Fully eligible plan participants ..... 24,400 518
Other active plan participants ....... 116,800 2,239
----------- ---------
Total APBO............................ 287,000 2,824
Plan assets at fair value.............. (11,600) --
----------- ---------
APBO in excess of plan assets.......... 275,400 2,824
Unrecognized net actuarial loss ....... (40,400) (510)
Unrecognized net transition
obligation............................ (183,200) (1,203)
----------- ---------
Net benefit obligation recorded ...... $ 51,800 $ 1,111
=========== =========
</TABLE>
The assumed health care cost trend rates used in measuring the APBO at
December 31, 1996 and 1995, were 9.8% and 10.4% for those under age 65, and
7.1% and 7.3% for those over age 65, respectively. The assumed cost trends
are expected to decrease each year until they reach 5.5% for both age groups
in the year 2004, after which they are assumed to remain constant. A 1%
increase in the assumed health care cost trend rate for each year would
increase the APBO by approximately 14% as of December 31, 1996. Service and
interest cost components of the net periodic postretirement cost would
increase by approximately 17% with a similar one percent increase in the
assumed health care cost trend rate. The assumed discount rate used in
determining the APBO was 7.5% for December 31, 1996 and 7% for December 31,
1995, compounded annually. The assumed long-term rate of return on assets
used for cost determinations under SFAS No. 106 was 8% for 1996 and 1995.
Changes in actuarial assumptions had an immaterial impact on 1996 costs and
are not expected to materially impact 1997 costs.
F-17
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
The net annual periodic postretirement benefit cost recorded for 1996 and
1995 consists of the following components:
<TABLE>
<CAPTION>
1996 1995
------ ------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Service cost-benefits earned during the
year........................................ $257 $171
Interest cost on APBO........................ 233 171
Amortization of transition obligation ....... 70 70
Net amortization and deferral................ 26 --
------ ------
Net periodic postretirement health care
cost....................................... $586 $412
====== ======
</TABLE>
NRG Equity Plan
Employees are eligible to participate in the NRG Equity Plan (the Plan), a
long term incentive plan. The Plan grants phantom equity units to employees
based upon performance and job grade. NRG's equity units are valued based
upon NRG's growth and financial performance. The primary financial measures
used in determining the equity units' value are revenue growth, return on
investment and cash flow from operations. The units are awarded to employees
annually at the respective years calculated share price (grant price). The
Plan provides employees with a cash payout for the appreciation in equity
unit value over the vesting period. The Plan has a seven year vesting
schedule with actual payments beginning after the end of the third year and
continuing at 20% each year for the subsequent five years. The Plan includes
a change of control provision, which allow all shares to vest if the
ownership of NRG were to change. Phantom equity units outstanding at December
31, 1996 and 1995 were 1,380,990 and 1,164,090, respectively. The cost of the
phantom equity units is expensed over the vesting period from the date of
issuance ($452,000 and $422,000 in 1996 and 1995, respectively).
Deferred Compensation
Certain employees of NRG are eligible to participate in a deferred
compensation program. The employee can elect to defer a portion of their
compensation until retirement. Earnings on the amounts deferred are equal to
the return on the Fixed Income Option of the NSP Retirement Savings Plan.
Earnings will be compounded annually and credited monthly. Payouts begin upon
retirement with payments made over 180 equal monthly installments (or a
minimum of $500 per month until their account balance is zero.)
11. SALES TO SIGNIFICANT CUSTOMERS
NRG and the Ramsey/Washington Resource Recovery Project have a service
agreement for waste disposal which expires in 2006. Approximately 29.1% in
1996 and 32.1% in 1995 of NRG's revenues from wholly-owned operations were
recognized under this contract. In addition, sales to one thermal customer
amounted to 14.1% and 15.6% of revenues from wholly-owned operations in 1996
and 1995, respectively.
F-18
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FINANCIAL INSTRUMENTS
The estimated December 31 fair values of recorded financial instruments
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- ---------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $ 12,438 $ 12,438 $ 7,039 $ 7,039
Restricted cash............................. 17,688 17,688 9,773 9,773
Notes receivable, including current
portion.................................... 77,064 77,064 40,447 40,447
Long-term debt, including current portion .. 212,141 200,875 90,034 91,682
</TABLE>
For cash, cash equivalents and restricted cash, the carrying amount
approximates fair value because of the short-term maturity of those
instruments. The fair value of notes receivable is based on expected future
cash flows discounted at market interest rates. The fair value of long term
debt is estimated based on the quoted market prices for the same or similar
issues.
Derivatives
NRG has entered into seven forward foreign currency exchange contracts with
counterparties to hedge exposure to currency fluctuations to the extent
permissible by hedge accounting requirements. Pursuant to these contracts,
transactions have been executed that are designed to protect the economic
value in U.S. dollars of NRG's equity investments and retained earnings,
denominated in Australian dollars and German deutsche marks (DM). As of
December 31, 1996, NRG had $132 million of foreign currency denominated assets
that were hedged by forward foreign currency exchange contracts with a
notional value of $123 million. In addition, NRG had approximately $82 million
of foreign currency denominated retained earnings from foreign projects that
were hedged by forward foreign currency exchange contracts with a notional
value of $59 million. Because the effects of both currency translation
adjustments to foreign investments and currency hedge instrument gains and
losses are recorded on a net basis in stockholders' equity (not earnings), the
impact of significant changes in currency exchange rates on these items would
have an immaterial effect on NRG's financial condition and results of
operations. In connection with the forward foreign currency exchange
contracts, cash collateral of $16 million was required at December 31, 1996,
which is reflected as restricted cash on NRG's balance sheet. The forward
foreign currency exchange contracts terminate in 1998 through 2006 and require
foreign currency interest payments by either party during each year of the
contract. If the contracts had been terminated at December 31, 1996, $13.3
million would have been payable by NRG for currency exchange rate changes to
date. Management believes NRG's exposure to credit risk due to non-performance
by the counterparties to its forward exchange contracts is not significant,
based on the investment grade rating of the counterparties.
13. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
NRG leases certain of its facilities and equipment under operating leases,
some of which include escalation clauses, expiring on various dates through
2010. Rental expense under these operating leases was $741,000 in 1996 and
$796,000 in 1995. Future minimum lease commitments under these leases for the
years ending after December 31, 1996 are as follows:
F-19
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (Continued)
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1997......... $ 1,050
1998......... 936
1999......... 956
2000......... 982
2001......... 1,008
Thereafter .. 5,349
--------------------
Total...... $10,281
====================
</TABLE>
Capital Commitments -- International
NRG signed a Joint Development Agreement for the acquisition, upgrading,
expansion and development of Energy Center Kladno in Kladno, Czech Republic.
The acquisition of the existing facility is the first phase of a development
project that will include upgrading the existing plant and developing a new
power generation facility. NRG has a $44 million commitment for the additional
facilities.
NRG together with its partners, signed a power contract with PT Perusahaan
Listrik Negara, the state-owned Indonesian electric company, to build, own and
operate a 400 MW coal-fired power station in Cilegon, West Java, Indonesia.
NRG has a $65 million commitment for the facility.
NRG is contractually committed to additional equity investments of $14
million for Scudder Latin American Power I and $7 million to Scudder Latin
American Power II as of December 31, 1996.
NRG reached agreement to purchase a 50% equity interest in the Enfield
Energy Centre, a 350 MW power project located in the North London borough of
Enfield, England. NRG has a $62 million commitment.
NRG and Transfield signed an acquisition agreement for the acquisition and
refurbishment of the 180 MW Collinsville coal-fired power generation facility
in Queensland, Australia. NRG has a $9 million commitment.
Future capital commitments related to international projects are as
follows:
<TABLE>
<CAPTION>
(MILLIONS OF
DOLLARS)
<S> <C>
1997...... $ 37
1998...... 75
1999...... 52
2000...... 29
2001...... 8
-----
Total... $201
=====
</TABLE>
Capital Commitments -- Domestic
In 1996 NRG has provided a $10 million loan commitment to a wholly-owned
subsidiary of NRG Generating (U.S.) Inc. (NRGG). The purpose of the loan is to
allow NRGG to fund its capital contribution to a cogeneration project
currently under construction. NRG anticipates funding the loan in 1997.
Also in 1996, NRG has committed to provide NRGG power generation investment
opportunities in the United States over a period of three years. The projects
must have an aggregate, over the three year term, equity value of at least $60
million or a minimum of 150 net megawatts. In addition, NRG has committed to
finance these projects to the extent funds are not available to NRGG on
comparable terms from other sources.
F-20
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (Continued)
Claims and Litigation
In normal course of business, NRG is a party to routine claims and
litigation arising from current and prior operations. NRG is actively
defending these matters and does not believe the outcome of such matters would
materially impact the results of operations.
14. SEGMENT REPORTING
NRG conducts its business within one industry segment--independent power
generation. Operations in the United States include wholly-owned operations
and investments in various domestic energy projects. International operations
include investments in various international energy projects. See Note 5 for
significant equity method investments.
<TABLE>
<CAPTION>
ASIA OTHER CORPORATE/
1996 U.S. EUROPE PACIFIC AMERICAS OTHER TOTAL
- ------------------------------- ---------- ---------- --------- ---------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Consolidated operating
revenues....................... $ 71,649 $ 71,649
Equity in income (loss) from
investments.................... 1,473 $ 17,385 $11,155 $ 967 $ 1,835 32,815
---------- ---------- --------- ---------- ------------- ---------
Total operating revenues........ 73,122 17,385 11,155 967 1,835 104,464
Net income...................... 28,182 17,385 11,155 967 (37,711)(1) 19,978
Assets reported on a
consolidated basis............. 148,666 42,159 (2) 190,825
Equity investments and loans to
affiliates..................... 130,786 210,587 97,988 50,623 489,984
---------- ---------- --------- ---------- ------------- ---------
Total assets.................... 279,452 210,587 97,988 50,623 42,159 680,809
1995
- -------------------------------
Consolidated operating
revenues....................... 64,180 64,180
Equity in income (loss) from
investments.................... (2,398) 22,143 11,451 29 (7,586) 23,639
---------- ---------- --------- ---------- ------------- ---------
Total operating revenues........ 61,782 22,143 11,451 29 (7,586) 87,819
Net income...................... 50,813 22,143 11,451 29 (53,235)(1) 31,201
Assets reported on a
consolidated basis............. 124,807 21,569 (2) 146,376
Equity investments and loans to
affiliates..................... 118,220 106,809 78,303 4,881 308,213
---------- ---------- --------- ---------- ------------- ---------
Total assets.................... $243,027 $106,809 $78,303 $ 4,881 $ 21,569 $454,589
</TABLE>
- ------------
(1) Includes all expenses not allocated to either consolidated operations
or equity investments. This includes general, administrative and
development expenses as well as other income (net), interest expense
and taxes.
(2) Includes cash, debt issuance costs and other items not directly related
to specific asset groups.
F-21
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENT
On February 6,1997, NRG signed a subscription agreement with Energy
Developments Limited (EDL) to acquire up to 20% of common stock, and an
additional 15% of preference shares at AUS$2.20 per share. EDL is an
Australian company engaged exclusively in independent power generation from
landfill gas, coal seam methane and natural gas (including latest technology
combined cycle projects). EDL is the largest generator of power from coal seam
methane in the world. The company currently operates over 200 MW of generation
across five states and territories of Australia and has commenced the
development of new projects in the United Kingdom, Asia and New Zealand. The
current equity megawatt ownership held by EDL is approximately I70 MW. EDL is
a publicly traded company with its securities listed on the Australian Stock
Exchange. On February 11, 1997 NRG made an initial purchase of 7.2% (4.5
million shares) of common stock for AUS$9.9 million (US$7.9 million).
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
NRG ENERGY, INC. AND SUBSIDIARIES
To the Board of Directors and Stockholder
NRG Energy, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of NRG Energy,
Inc. (the Company) (a wholly-owned subsidiary of Northern States Power
Company) as of December 31, 1994 and the related consolidated statements of
income, stockholder's equity, and cash flows for the year ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
1994 financial statements of Sunshine State Power BV and Sunshine State Power
(No. 2) BV, the Company's investments in which are accounted for by use of the
equity method. These investments represent 19% of total assets as of December
31, 1994 and the equity in earnings represents 32% of equity in earnings of
projects for the year ended December 31, 1994. The financial statements of
Sunshine State Power BV and Sunshine State Power (No. 2) BV were audited by
other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for such entities, is based
solely on the reports of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994, and
the results of its operations and its cash flows for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
March 24, 1995
F-23
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 17,507
Restricted cash.................................................... 13,817
Accounts receivable--trade, less allowance for doubtful accounts
of $185........................................................... 11,576
Accounts receivable--affiliates.................................... 610
Income taxes receivable............................................ 2,442
Current portion of notes receivable................................ 3,115
Inventory.......................................................... 1,704
Prepayments and other current assets............................... 1,173
--------------------
TOTAL CURRENT ASSETS................................................ 51,944
--------------------
Property, Plant and Equipment, at Original Cost:
In service......................................................... 163,438
Under construction................................................. 2,289
--------------------
165,727
Less accumulated depreciation...................................... (58,093)
--------------------
Net property, plant and equipment................................. 107,634
--------------------
Other Assets:
Investments in projects............................................ 164,863
Capitalized project costs.......................................... 3,030
Notes receivable, less current portion-affiliates................ 3,687
Intangible assets, net of accumulated amortization of $2,549 ...... 44,798
Debt issuance costs, net of accumulated amortization of $148 ...... 614
--------------------
Total other assets................................................ 216,992
--------------------
TOTAL ASSETS........................................................ $376,570
====================
</TABLE>
See accompanying notes.
F-24
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 3,306
Accounts payable--trade......................................... 5,199
Note payable--affiliates........................................ 3,037
Accrued property and sales taxes................................ 2,291
Accrued salaries, benefits and related costs.................... 2,751
Other current liabilities....................................... 11,021
--------------------
TOTAL CURRENT LIABILITIES........................................ 27,605
--------------------
Long-term debt, less current portion............................ 90,033
Deferred revenues............................................... 8,811
Deferred income taxes........................................... 11,519
Deferred investment tax credits................................. 2,324
Deferred compensation........................................... 1,556
--------------------
TOTAL LIABILITIES................................................ 141,848
--------------------
Commitments and Contingencies (Note 13)
Stockholder's Equity:
Common stock; $1 par value; 1,000 shares authorized; 1,000
shares issued and outstanding.................................. 1
Additional paid-in capital...................................... 216,013
Retained earnings............................................... 15,122
Currency translation adjustments................................ 3,586
--------------------
TOTAL STOCKHOLDER'S EQUITY....................................... 234,722
--------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY....................... $376,570
====================
</TABLE>
See accompanying notes.
F-25
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Operating revenues:
Revenues from wholly-owned operations................... $63,970
Equity in operating earnings of unconsolidated
affiliates............................................. 27,155
----------------------------
Total operating revenues................................. 91,125
----------------------------
Operating costs and expenses:
Cost of wholly-owned operations......................... 34,861
Depreciation and amortization........................... 8,675
General, administrative and development expenses ....... 19,993
----------------------------
Total operating costs and expenses....................... 63,529
----------------------------
Operating income......................................... 27,596
Other income (expense):
Equity in gain from project termination settlements .... 9,685
Other income, net....................................... 1,411
Interest expense........................................ (6,682)
----------------------------
Total other income ...................................... 4,414
----------------------------
Income before income taxes............................... 32,010
----------------------------
Income taxes............................................. 2,472
----------------------------
Net Income............................................... $29,538
============================
</TABLE>
See accompanying notes.
F-26
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
(THOUSANDS OF DOLLARS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 29,538
Adjustments to reconcile net income to net cash provided (used) by
operating activities ................................................
Undistributed equity in operating earnings of unconsolidated
affiliates.......................................................... (18,511)
Depreciation and amortization........................................ 8,675
Deferred income taxes and investment tax credits..................... (523)
Cash (used) provided by changes in certain working capital items .... (6,138)
Cash (used) by changes in other assets and liabilities .............. (615)
----------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES....................... 12,426
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects............................................... (102,119)
Loans to projects..................................................... (4,415)
Capital expenditures.................................................. (5,750)
(Increase) decrease in restricted cash................................ (13,817)
Other, net............................................................ 2,255
----------------------------
NET CASH USED BY INVESTING ACTIVITIES.................................. (123,846)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent..................................... 103,885
Dividends and other distributions paid to parent...................... (9)
Proceeds from issuance of long-term debt.............................. 2,375
Principal payments on long-term debt.................................. (2,487)
----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............................. 103,764
============================
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (7,656)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 25,163
----------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 17,507
============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized)............................. $ 6,808
Income tax benefits received, net of taxes paid....................... (1,939)
</TABLE>
See accompanying notes.
F-27
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CURRENCY TOTAL
COMMON PAID-IN EARNINGS TRANSLATION STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) ADJUSTMENTS EQUITY
-------- ------------ ----------- ------------- ---------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ....... $1 $112,128 $(14,407) $ 97,722
Net income........................... 29,538 29,538
Dividends and other distributions to
parent.............................. (9) (9)
Capital contributions from parent ... 103,885 103,885
Currency translation adjustments .... $3,586 3,586
-------- ------------ ----------- ------------- ---------------
Balances at December 31, 1994 ....... $1 $216,013 $ 15,122 $3,586 $234,722
======== ============ =========== ============= ===============
</TABLE>
See accompanying notes.
F-28
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
NRG Energy, Inc. (the Company), a Delaware Corporation, was incorporated
on May 29, 1992, as a wholly-owned subsidiary of Northern States Power
Company (NSP). Beginning in 1989, the Company was doing business through its
predecessor companies. NRG Energy, Inc. and NRG Group, Inc. Minnesota
corporations which were merged into the Company subsequent to its
incorporation. The Company and its subsidiaries and affiliates develop,
build, acquire, own and operate nonregulated energy-related businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries (referred to collectively herein as NRG).
All significant intercompany transactions have been eliminated. Investments
in partnerships, joint ventures and projects representing ownership of more
than 20%, but not in excess of 50%, are accounted for on the equity method.
Cash equivalents
Cash equivalents include highly liquid investments (primarily commercial
paper) with a remaining maturity of three months or less at the time of
purchase.
Restricted cash
Restricted cash consists primarily of cash collateral required in
connection with foreign currency hedging activities (see Note 12) and cash
collateral for letters of credit issued in relation to project development
activities.
Inventory
Inventory is valued at the lower of average cost or market and consists
principally of spare parts and raw materials used to generate steam.
Property, plant and equipment
Property, plant and equipment are capitalized at original cost.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Buildings and improvements......... 20-45 years
Machinery and equipment............ 7-30 years
Office furniture and equipment .... 3-5 years
Capitalized interest
Interest incurred on funds borrowed to finance projects expected to
require more than three months to complete is capitalized. Capitalization of
interest is discontinued when the project is completed and considered
operational. Capitalized interest is amortized using the straight-line method
over the useful life of the related project. Capitalized interest was $45,000
in 1994.
Development and capitalized project costs
These costs include professional services, dedicated employee salaries,
permits, and other costs which are incurred incidental to a particular
project. Such costs are expensed as incurred until a sales agreement or
letter of intent is signed, after which time they are capitalized. When
project operations begin, previously capitalized project costs are amortized
on a straight-line basis over the lesser of the life of the project's related
assets or revenue contract period.
F-29
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Debt issuance costs
Costs to issue long-term debt have been capitalized and are being
amortized over the terms of the related debt.
Intangibles
Intangibles consist principally of service agreements and the excess of
the cost of investment in subsidiaries over the underlying fair value of the
net assets acquired and are being amortized using the straight-line method
over 30 years. Intangibles also include patents which are being amortized
using the straight-line method over 17 years. The Company periodically
evaluates the recovery of goodwill and other intangibles based on an analysis
of the estimated undiscounted future cash flows.
Income taxes
The Company is included in the consolidated tax returns of NSP. NRG
calculates its income tax provision on a separate return basis under a tax
sharing arrangement with NSP. Current federal and state income taxes are
payable to or receivable from NSP. NRG records income taxes in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting
for Income Taxes." Under the liability method required by SFAS No.109, income
taxes are deferred on all temporary differences between pretax financial and
taxable income and between the book and tax bases of assets and liabilities.
Deferred taxes are recorded using the tax rates scheduled by law to be in
effect when the temporary differences reverse. Investment tax credits are
deferred and amortized over the estimated lives of the related property.
Revenue recognition
Under fixed-price contracts, revenues are recognized as deliveries of
products or services are made. Revenues and related costs under cost
reimbursable contract provisions are recorded as costs are incurred.
Anticipated future losses on contracts are charged against income when
identified.
Deferred revenues related to a 1988 legal settlement with a major thermal
customer. Settlement proceeds were deferred when received and are reflected
in operating income on a straight-line basis over the life of the related
steam contract which expires in 2001.
Foreign currency translation
The local currencies are generally the functional currency of NRG's
foreign operations. Foreign currency denominated assets and liabilities are
translated at end-of-period rates of exchange. Income, expense and cash flows
are translated at weighted-average rates of exchange for the period. The
resulting currency translation adjustments are accumulated and reported as a
separate component of stockholder's equity.
Exchange gains and losses that result from foreign currency transactions
(e.g., converting cash distributions made in one currency to another
currency) are included in the results of operations. Through December 31,
1994, NRG has not experienced any material translation gains or losses from
foreign currency transactions.
Derivative financial instruments
NRG's policy is to hedge financial currency denominated investments as
they are made to preserve their U.S. dollar value. NRG has entered into
currency hedging transactions through the use of forward
F-30
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
foreign currency exchange agreements. Gains and losses on these contracts
offset the effect of foreign currency exchange rate fluctuations on the
valuation of the investments underlying the hedges. The effect of hedging
gains and losses, net of income taxes, is reported with other currency
translation adjustments as a separate component of stockholder's equity. The
Company is not hedging currency translation adjustments related to operating
results. NRG does not speculate in foreign currencies.
Accounting change
In 1994, the Company adopted SFAS No. 112, "Employers' Accounting for
Postretirement Benefits." SFAS No. 112 requires the accrual of certain
employee costs (such as injury compensation or severance) to be paid in
future periods. The adoption of this new accounting standard did not have a
material effect on NRG's results of operations or financial condition.
3. BUSINESS ACQUISITIONS
Through its subsidiaries, NRG purchased equity interests during 1994 in
three significant international projects, two in Germany and one in
Australia. One of the investments is a 33% interest in Mitteldeutsche
Braunkohlengesellschaft mbH (MIBRAG), a German corporation. MIBRAG was formed
by the German government to operate mines, electric power plants and other
energy-related facilities. The other German investment is a 50% interest in
Saale Energie GmbH (Saale), also a German corporation. Saale owns a 400
megawatt share of a 900 megawatt power plant currently under construction
near Schkopau, Germany. The Australian investment is a 37.5% interest (held
by wholly-owned NRG subsidiaries Sunshine State Power BV and Sunshine State
Power (No. 2) BV) in a joint venture that acquired a 1,680 megawatt
coal-fired power plant in Gladstone, Queensland, Australia, which is operated
by an NRG subsidiary. The total acquisition investments in these three
projects through 1994, including capitalized developments costs, was
approximately $100 million. Earnings from equity interests in these NRG
international projects acquired in 1994 contributed $25.6 million to NRG's
1994 earnings.
On December 31, 1994, NRG, through a wholly-owned subsidiary, purchased a
50% partnership interest in Sunnyside Cogeneration Associates, a Utah joint
venture (partnership) which owns and operates a 51 megawatt waste coal plant
in Utah. The acquisition investment by NRG was $11.5 million. The waste coal
plant is currently being operated by a 50%-owned NRG partnership.
In August 1993, NRG Energy Center, Inc., a wholly-owned subsidiary of NRG,
acquired the assets of the Minneapolis Energy Center (MEC), a district
heating and cooling system in downtown Minneapolis, Minnesota. The system
uses steam and chilled water generating facilities to heat and cool buildings
for about 90 heating and 30 cooling customers. The acquisition was reflected
in the financial statements under the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed in the acquisition
have been recorded at their fair values. The purchase price was $110 million,
$84 million of which was financed by project debt. The purchase price
primarily included facilities, long-term service agreements and goodwill. The
results of operations of MEC since August 1993 have been included in the
consolidated financial statements.
F-31
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Facilities and equipment, including construction work in progress of $2,289 $153,221
Land and improvements....................................................... 10,397
Office furnishings and equipment............................................ 2,109
--------------------
Total property, plant and equipment ........................................ 165,727
Accumulated depreciation.................................................... (58,093)
--------------------
Net property, plant and equipment........................................... $107,634
====================
</TABLE>
5. INVESTMENTS ACCOUNTED FOR BY EQUITY METHOD
A summary of NRG's significant equity-method investments which were in
operation at December 31, 1994 is as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC ECONOMIC PURCHASED OR PLACED
NAME AREA INTEREST IN SERVICE
- ---------------------------------------- ----------------- -------------- --------------------------
<S> <C> <C> <C>
Various Independent Power Production
Facilities.............................. U.S.A. 45%-50% July 1991-December 1994
Rosebud Syncoal Partnership.............. U.S.A. 50% August 1993
MIBRAG................................... Europe 33% January 1994
Gladstone Power Station.................. Australia 37.5% March 1994
Schkopau Power Station................... Europe 20.6% Under Construction
Scudder Latin American Trust for
Independent Power Energy Projects ...... Latin America 6.3%-12.5% April-December 1994
</TABLE>
Summarized financial information for investments in projects accounted for
under the equity method as of and for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Operating revenues............ $ 731,308
Costs and expenses............ 604,428
--------------------
Net income................... $ 126,880
====================
Current assets................ $ 452,651
Noncurrent assets............. 1,787,089
--------------------
Total assets................. $2,239,740
====================
Current liabilities........... $ 159,840
Noncurrent liabilities........ 1,757,057
Equity........................ 322,843
--------------------
Total liabilities and
equity....................... $2,239,740
====================
NRG's share of equity......... $ 164,863
NRG's share of income......... $ 27,155
</TABLE>
F-32
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS ACCOUNTED FOR BY EQUITY METHOD (Continued)
In July 1994, Michigan Cogeneration Partners Limited Partnership (MCP), a
partnership between subsidiaries of NRG and Cogentrix, Inc., reached an
agreement with Consumers Power Company (Consumers), an electric utility
headquartered in Jackson, Michigan, to terminate the power sales contract
related to a 65 megawatt cogeneration facility being developed by MCP in
Parchment, Michigan. The agreement to terminate the contract required
Consumers to make payment to MCP of $29.8 million. As a result, NRG recorded
in Other Income. A net pretax gain from the termination of this contract of
$9.7 million in 1994.
In 1994, the Company recorded a pretax charge of $5.0 million to write
down the carrying value of two energy projects. The charge was determined
based on estimated discounted future cash flows, and is recorded in Other
Income, Net.
6. RELATED PARTY TRANSACTIONS
Operating Agreements
NRG has two agreements with NSP for the purchase of thermal energy. Under
the terms of the agreements, NSP charges NRG for certain incremental costs
(fuel, labor, plant maintenance, and auxiliary power) incurred by NSP to
produce the thermal energy. NRG paid NSP $6.6 million in 1994 under these
agreements.
NRG has a renewable 10-year agreement with NSP, expiring on December 31,
2001, whereby NSP agrees to purchase refuse-derived fuel for use in certain
of its boilers and NRG agrees to pay NSP a burn incentive. NRG has an
agreement expiring in 2006 to sell wood by-products obtained from a thermal
customer to NSP for use as fuel. Under these agreements, NRG received $1.7
million from NSP and paid $2.2 million to NSP in 1994.
Administrative Services and Other Costs
NRG and NSP have entered into an agreement to provide for the
reimbursement of actual administrative services provided to each other, an
allocation of NSP administrative costs and a working capital fee. Services
provided by NSP to NRG are principally cash management, legal, accounting,
employee relations and engineering. In addition, NRG employees participate in
operating certain employee benefit plans of NSP. During 1994, NRG paid NSP
$6.2 million as reimbursement for the cost of services provided.
7. NOTES RECEIVABLE
Notes receivable consist primarily of fixed and variable rate notes
secured by equity interests in partnerships and joint ventures. The weighted
average interest rate on the notes was 11.2% at December 31, 1994.
F-33
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
NRG Energy Center, Inc. Senior Secured Notes Series due June
15, 2013, 7.31% ............................................... $81,498
Note payable to NSP, due December 1, 1995-2006, 5.40%-6.75% .... 9,466
NRG Sunnyside Inc. note payable, due December 31, 1997, 10.00% . 2,375
--------------------
93,339
Less current maturities......................................... (3,306)
--------------------
$90,033
====================
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by MEC's
long-term assets. In accordance with the terms of the note agreements, the
Company is required to maintain compliance with certain financial covenants
primarily related to incurring debt, disposing of Company assets, and
affiliate transactions. The Company was in compliance with these covenants at
December 31, 1994.
The Note Payable to NSP relates to long-term debt assumed by the Company
in connection with the transfer of ownership of an RDF processing plant by
NSP to the Company during 1993.
The NRG Sunnyside, Inc. note payable was issued in connection with the
purchase of an equity interest in a waste-coal project during 1994.
Annual maturities of long-term debt for the years ending after December
31, 1994 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1995.......... $ 3,306
1996.......... 3,762
1997.......... 3,979
1998.......... 3,335
1999.......... 3,581
Thereafter .. 75,376
--------------------
Total........ $93,339
====================
</TABLE>
The Company has a revolving-credit agreement which may not exceed $5.0
million. At December 31, 1994, there were no borrowings under the credit
agreement.
F-34
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Current
Federal................. $ 1,694
State................... 737
Foreign................. 219
--------------------
2,650
Deferred
Federal................. 1,280
State................... 369
--------------------
1,649
Tax credits recognized .. (1,827)
--------------------
Total income tax
expense................. $ 2,472
====================
</TABLE>
The components of the net deferred income tax liability at December 31
were:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Deferred tax liabilities
Differences between book and tax bases of property ..... $13,269
Investments in projects.................................. 6,168
Goodwill................................................. 256
Other.................................................... 930
--------------------
Total deferred tax liabilities........................... 20,623
Deferred tax assets
Deferred revenue......................................... 3,645
Development costs........................................ 2,047
Deferred investment tax credits.......................... 978
Deferred compensation, accrued vacation and other
reserves................................................ 992
Steam capacity rights.................................... 1,175
Other.................................................... 267
--------------------
Total deferred tax assets............................... 9,104
--------------------
Net deferred tax liability............................... $11,519
====================
</TABLE>
Actual income tax expense recorded differs from the statutory federal
income tax rate of 35% due to state income taxes, varying tax treatment of
foreign income and expenses and tax credits recognized.
Income before income taxes includes foreign income of $25.6 million in
1994. NRG's management intends to reinvest in earnings of foreign operations
indefinitely. Accordingly, U.S. income taxes and foreign withholding taxes
have not been provided on the earnings of foreign subsidiary companies. The
cumulative amount of undistributed pre-tax earnings of foreign subsidiaries
upon which no U.S. income taxes or foreign withholding taxes have been
provided is approximately $25.6 million at December 31, 1994. The additional
U.S. income tax and foreign withholding tax on the unremitted foreign
earnings, if repatriated, would be offset in whole or in part by foreign tax
credits. Thus, it is impracticable to estimate the amount of tax that might
be payable.
F-35
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Benefits
NRG participates in NSP's noncontributory, defined benefit pension plan
that covers substantially all employees. Benefits are based on a combination
of year of service, the employee's highest average pay for 48 consecutive
months, and Social Security benefits. Pension costs for NRG are determined
and recorded under the provisions of SFAS No. 87, "Employers' Accounting for
Pensions." Net annual periodic pension cost includes the following
components:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Service cost-benefits earned during the
period....................................... $ 654
Interest cost on projected benefit
obligation................................... 354
Actual return on assets....................... (58)
Net amortization and deferral ................ (262)
--------------------
Net periodic pension cost .................... $ 688
====================
</TABLE>
The funded status of the pension plan in which NRG employees participate
is as follows at December 31:
<TABLE>
<CAPTION>
NSP PLAN-1994
-------------------------
TOTAL NSP NRG PORTION
----------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligation
Vested.............................................. $ 571,254 $ 563
Nonvested........................................... 120,420 1,016
----------- -------------
Accumulated benefit obligation...................... $ 691,674 $1,579
=========== =============
Projected benefit obligation......................... $ 836,957 $4,228
Plan assets at fair value............................ 1,165,584 5,170
----------- -------------
Plan asset in excess of projected benefit
obligation.......................................... (328,627) (942)
Unrecognized prior service costs..................... (21,538) (96)
Unrecognized net actuarial gain ..................... 370,289 1,038
Unrecognized net transitional asset ................. 691 --
----------- -------------
Net pension liability recorded ..................... $ 20,815 $ --
=========== =============
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8% in 1994. The rate of
increase in future compensation levels used in determining the actuarial
present value of the projected obligation was 5% in 1994. The assumed
long-term rate of return on assets used for cost determinations under SFAS
No. 87 was 8% for 1994. Plan assets consist principally of common stock of
public companies and U.S. Government securities.
Postretirement Health Care
Effective January 1, 1993, NRG adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 106 requires the actuarial determined obligation for postretirement
health care and death benefits be fully accrued by the date employees attain
full eligibility for such benefits, which is generally when they reach
retirement age. In conjunction with the adoption of SFAS No. 106, NRG elected
to amortize on a straight-line basis over 20 years the unrecognized
accumulated postretirement benefit obligation (APBO) of $1.4 million for
current and future
F-36
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
retirees. This obligation considered 1994 plan design changes not in effect
in 1993, including Medicare integration, increased retiree cost sharing, and
managed indemnity measures.
The following table sets forth the funded status of the health care plan
in which NRG employees participate at December 31:
<TABLE>
<CAPTION>
NSP PLAN-1994
-------------------------
TOTAL NSP NRG PORTION
----------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
APBO
Retirees.............................. $ 132,200 $ 34
Fully eligible plan participants..... 21,500 359
Other active plan participants....... 79,400 1,319
----------- -------------
Total APBO.......................... 233,100 1,712
Plan assets at fair value............ 8,000 --
----------- -------------
APBO in excess of plan assets........ 225,100 1,712
Unrecognized net actuarial gain...... 2,300 265
Unrecognized net transition
obligation........................... (194,000) (1,273)
----------- -------------
Net benefit obligation recorded...... $ 33,400 $ 704
=========== =============
</TABLE>
The assumed health care cost trend rates used in measuring the APBO at
December 31, 1994 were 11.0% for those under age 65, and 7.5% for those over
age 65. The assumed cost trends are expected to decrease each year until they
reach 5.5% for both age groups in the year 2004, after which they are assumed
to remain constant. A one percent increase in the assumed health care cost
trend rate for each year would increase the APBO by approximately 13% as of
December 31, 1994. Service and interest cost components of the net periodic
postretirement cost would increase by approximately 16% with a similar one
percent increase in the assumed health care cost trend rate. The assumed
discount rate used in determining the APBO was 8% for December 31, 1994,
compounded annually. The assumed long-term rate of return on assets used for
cost determinations under SFAS No. 106 was 8% for 1994. The net annual
periodic postretirement benefit cost recorded for 1994 consists of
the following components:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Service cost--benefits earned during the year . $140
Interest cost on APBO.......................... 126
Amortization of transition obligation ......... 70
Net amortization and deferral.................. --
--------------------
Net periodic postretirement health care
costs......................................... $336
====================
</TABLE>
11. SALES TO SIGNIFICANT CUSTOMERS
NRG and the Ramsey/Washington Resource Recovery Project have a service
agreement for waste disposal which expires in 2006. Approximately 35.5% in
1994 of the Company's operating revenues from wholly-owned operations were
recognized under this contract. In addition, sales to one thermal customer
amounted to 16.6% of operating revenues from wholly-owned operations in 1994.
F-37
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FINANCIAL INSTRUMENTS
The estimated December 31 fair values of NRG's recorded financial
instruments are as follows:
<TABLE>
<CAPTION>
1994
--------------------
CARRYING FAIR
AMOUNT VALUE
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Cash and cash equivalents................... $17,507 $17,507
Restricted cash............................. 13,817 13,817
Notes receivable, including current
portion.................................... 6,802 6,802
Long-term debt, including current portion .. 93,339 82,694
</TABLE>
For cash, cash equivalents and restricted cash, the carrying amount
approximates fair value because of the short-term maturity of those
instruments. The fair value of notes receivable is based on expected future
cash flows discounted at market interest rates. The fair value of long-term
debt is estimated based on the quoted market prices for the same or similar
issues.
NRG has entered into three forward foreign currency exchange contracts with
a counterparty to hedge exposure to currency fluctuations to the extent
permissible by hedge accounting requirements. Pursuant to these contracts,
transactions have been executed that are designed to protect the economic
value in U.S. dollars of NRG's equity investments, denominated in Australian
dollars and German deutsche marks (DM). NRG's forward currency exchange
contracts, in the notional amount of $93 million, hedge approximately $94
million of foreign currency denominated investments at December 31, 1994.
These foreign currency exchange contracts are not reflected in NRG's balance
sheet. The contracts do require cash collateral which was $6.7 million at
December 31, 1994 and is included in restricted cash on NRG's balance sheet.
The contracts terminate in 2004 and require foreign currency interest payments
by either party during each year of the contract. If the contracts had been
terminated at December 31, 1994, $4.3 million would have been payable by NRG
for currency exchange rate changes to date. Management believes NRG's exposure
to credit risk due to nonperformance by the counterparty to its forward
exchange contracts is not significant, based on the investment grade rating of
the counterparty.
13. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company has noncancelable operating leases for office space. The leases
require the company to pay certain annual operating costs, including
maintenance, insurance and real estate taxes. Rental expense under these
operating leases was $178 in 1994 (thousands of dollars). Future minimum lease
commitments under these leases for the years ended after December 31, 1994 are
as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
1995..... $221
1996..... 246
1997..... 131
--------------------
Total... $598
====================
</TABLE>
Financial Guarantees
Certain of the partnerships in which NRG is an equity investor have loan
agreements and debt outstanding which contain restrictive covenants. In the
event that certain covenants are not met, NRG has guaranteed the contribution
of $3.8 million of additional equity. No contributions of additional equity
were necessary during 1994.
F-38
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (Continued)
Capital Commitments
NRG is contractually committed to additional equity investments in an
existing German energy project. Such commitments are for approximately DM 36
million in 1995 and DM 35 million in 1996. The 1995 and 1996 commitments
would be approximately $23 million each year, based on exchange rates in
effect at December 31, 1994.
In addition, NRG is contractually committed to additional equity
investments of $20.6 million in the Scudder Latin American Trust for
Independent Power Energy Projects as of December 31, 1994.
14. SEGMENT REPORTING
NRG conducts its business within one industry segment--independent power
generation. Operations in the United States include wholly-owned operations
and investments in various domestic energy projects. International operations
include investments in various international energy projects. See Note 5 for
significant equity method investments.
<TABLE>
<CAPTION>
ASIA OTHER CORPORATE/
1994 U.S. EUROPE PACIFIC AMERICAS OTHER TOTAL
- ------------------------------- ---------- --------- --------- ---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Consolidate operating revenues . $ 63,970 $ 63,970
Equity in income (loss) from
investments.................... (766) $19,340 $ 8,581 27,155
---------- --------- --------- ---------- -------------- ---------
Total operating revenues........ 63,204 19,340 8,581 91,125
Net income...................... 19,668 19,340 8,581 $(18,051)(1) 29,538
Assets reported on a
consolidated basis............. 122,087 34,380 (2) 156,467
Equity investments and loans to
affiliates..................... 116,073 33,389 70,641 220,103
---------- --------- --------- ---------- -------------- ---------
Total assets.................... $238,160 $33,389 $70,641 $ 34,380 $376,570
</TABLE>
- ------------
(1) Includes all expenses not allocated to either consolidated operations
or equity investments. This includes general, administrative and
development expenses as well as other income (net), interest expense
and taxes.
(2) Includes cash, debt issuance costs and other items not directly related
to specific asset groups.
15. SUBSEQUENT EVENT
NRG, through wholly-owned subsidiaries, owns 45% of the San Joaquin Valley
Energy Partnership (SJVEP), which owns four plants located near Fresno,
California with a total capacity of 55 megawatts. Through February 1995, the
plants operated under long-term Standard Offer 4 (SO4) power sales contracts
with Pacific Gas and Electric (PG&E) which expire in 2017. On February 28,
1995, PG&E reached basic agreements with SJVEP to acquire the SO4 contracts.
The parties entered into a bridging agreement to cover the period until all
regulatory approvals are received for the transaction. The bridging agreement
required SJVEP to cease power deliveries to PG&E as of February 28, 1995. The
negotiated agreements will result in cost savings for PG&E customers as well
as economic benefits for SJVEP. The final impact of this transaction on the
financial results of NRG will not be known until the agreements have been
approved and all costs associated with the idling of the facilities are known.
It is expected that a one-time gain from the transaction will be recorded in
the first half of 1995. SJVEP will continue to own and maintain the facilities
and will explore all available options.
F-39
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 15,802 $ 62,355
Restricted cash ............................................... 10,787 97,989
Accounts receivable-trade, less allowance for doubtful
accounts ..................................................... 11,773 6,849
Accounts receivable-affiliates ................................ 9,465 3,208
Current portion of notes receivable--affiliates ............... 11,379 6,728
Current portion of notes receivable ........................... 4,450 --
Income taxes receivable ....................................... -- 972
Inventory ..................................................... 2,502 1,826
Prepayments and other current assets .......................... 3,039 1,614
---------- ----------
TOTAL CURRENT ASSETS ........................................... 69,197 181,541
---------- ----------
Property, Plant and Equipment, at Original Cost:
In service .................................................... 183,871 170,385
Under construction ............................................ 24,585 7,269
---------- ----------
208,456 177,654
Less accumulated depreciation ................................. (72,804) (65,951)
---------- ----------
Net property, plant and equipment............................. 135,652 111,703
---------- ----------
Other Assets:
Investments in projects ....................................... 371,132 207,859
Capitalized project costs ..................................... 11,468 6,713
Notes receivable, less current portion--affiliates ........... 56,170 32,389
Notes receivable, less current portion ........................ 9,600 --
Intangible assets, net of accumulated amortization ........... 40,555 41,616
Debt issuance costs, net of accumulated amortization ......... 2,838 2,892
---------- ----------
Total other assets ........................................... 491,763 291,469
---------- ----------
TOTAL ASSETS ................................................... $696,612 $584,713
========== ==========
</TABLE>
See accompanying notes.
F-40
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt ................. $ 4,900 $ 3,804
Accounts payable--trade ........................... 2,848 4,280
Accounts payable--affiliate ....................... 45 8,596
Notes payable--affiliates ......................... 2,506 1,185
Accrued income taxes .............................. 170 --
Accrued property and sales taxes .................. 2,842 2,510
Accrued salaries, benefits and related costs ..... 6,343 4,941
Accrued interest .................................. 1,798 2,231
Other current liabilities ......................... 4,030 1,091
---------- ---------
TOTAL CURRENT LIABILITIES .......................... 25,482 28,638
---------- ---------
Long-term debt, less current portion ............... 206,636 210,661
Deferred revenues .................................. 5,994 7,379
Deferred income taxes .............................. 11,273 9,772
Deferred investment tax credits .................... 1,883 2,044
Deferred compensation .............................. 1,882 1,619
---------- ---------
TOTAL LIABILITIES................................... 253,150 260,113
---------- ---------
Stockholder's Equity:
Common stock; $1 par value; 1,000 shares
authorized;
1,000 shares issued and outstanding .............. 1 1
Additional paid-in capital ........................ 371,013 271,013
Retained earnings ................................. 73,104 48,869
Currency translation adjustments .................. (656) 4,717
---------- ---------
TOTAL STOCKHOLDER'S EQUITY ......................... 443,462 324,600
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ........ $696,612 $584,713
========== =========
</TABLE>
See accompanying notes.
F-41
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
--------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Operating revenues:
Revenues from wholly-owned operations ................... $21,665 $18,662
Equity in operating earnings of unconsolidated
affiliates ............................................. 8,492 5,904
--------- ---------
Total operating revenues ................................. 30,157 24,566
Operating costs and expenses:
Cost of operations--wholly-owned operations ............. 12,222 9,700
Depreciation and amortization ........................... 2,176 2,083
General, administrative, and development ................ 8,833 10,610
--------- ---------
Total operating costs and expenses ....................... 23,231 22,393
--------- ---------
Operating income ......................................... 6,926 2,173
--------- ---------
Other income (expense):
Other income, net ....................................... 2,018 1,908
Interest expense ........................................ (4,063) (3,225)
--------- ---------
Total other income (expense) ............................. (2,045) (1,317)
--------- ---------
Income before income taxes ............................... 4,881 856
--------- ---------
Income (benefit) taxes ................................... (1,922) (1,691)
--------- ---------
Net Income................................................ $ 6,803 $ 2,547
========= =========
</TABLE>
See accompanying notes.
F-42
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 6,803 $ 2,547
Adjustments to reconcile net income to net cash provided by
operating activities .........................................
Undistributed equity in operating
earnings of unconsolidated affiliates........................ (6,713) (4,491)
Depreciation and amortization ................................ 2,176 2,083
Deferred income taxes and investment tax credits.............. 2,697 (3,639)
Cash provided (used) by changes in certain working capital
items........................................................ (7,219) 2,498
Cash (used) by changes in other assets and liabilities ...... (268) (314)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ............... (2,524) (1,316)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects ....................................... (13,815) (1,566)
Changes in notes receivable ................................... (6,688) 1,330
Capital expenditures .......................................... (7,735) (1,487)
Decrease (increase) in restricted cash ........................ 6,901 (88,216)
Cash distribution from project termination settlement ........ -- 25,215
Cash from sale of project investment .......................... 6,724 --
Other, net .................................................... 1,106 (746)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES .......................... (13,507) (65,470)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent ............................. 20,000 --
Proceeds from issuance of long-term debt ...................... -- 122,671
Principal payments on long-term debt .......................... (605) (569)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ............... 19,395 122,102
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 3,364 55,316
---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 12,438 7,039
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 15,802 $ 62,355
========== ==========
</TABLE>
See accompanying notes.
F-43
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
NRG Energy, Inc. (the Company), a Delaware Corporation, was incorporated
on May 29, 1992, as a wholly-owned subsidiary of Northern States Power
Company (NSP). Beginning in 1989, the Company was doing business through its
predecessor companies, NRG Energy, Inc. and NRG Group, Inc., Minnesota
corporations which were merged into the Company subsequent to its
incorporation. The Company and its subsidiaries and affiliates develop,
build, acquire, own and operate nonregulated energy-related businesses.
In the opinion of management, the unaudited interim consolidated financial
information of the Company contains all adjustments, consisting of only those
of a recurring nature, necessary to present fairly the Company's financial
position and results of operations. All significant inter-company accounts,
transactions, and profits have been eliminated. These financial statements
are for interim periods and do not include all information normally provided
in annual financial statements and notes thereto for the year ended December
31, 1996 and should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1996, contained
in the Company's 1996 Annual Report. The results of operation for the interim
periods are not necessarily indicative of the results that may be expected
for the full year.
2. RESTRICTED CASH
Restricted cash consists primarily of cash collateral required in
connection with foreign currency hedging activities and cash collateral for
letters of credit issued in relation to project development activities. At
March 31, 1997, the required levels of restricted cash were lower than the
same period in 1996 due to primarily to the fact that NRG had just completed
its $125 million bond offering in January of 1996. The proceeds from the
offering were still held in the form of cash and equivalents pending future
project investments.
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at March 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Facilities and equipment, including construction work in progress
of $24,585 and $7,269 ............................................. $194,499 $164,554
Land and improvements .............................................. 10,397 10,397
Office furnishings and equipment ................................... 3,560 2,703
---------- ----------
Total property, plant and equipment .............................. 208,456 177,654
Accumulated depreciation ........................................... (72,804) (65,951)
---------- ----------
Net property, plant and equipment ................................ $135,652 $111,703
========== ==========
</TABLE>
The primary contributors to the increased facilities and equipment is due
to increased work in process at NEO for the construction of its landfill gas
projects ($17 million), and investments in NRG's thermal projects ($10
million).
4. BUSINESS ACQUISITIONS
On February 6, 1997, NRG signed a subscription agreement with Energy
Development Limited (EDL) to acquire up to 20% of common stock , and an
additional 15% of preference shares at AUS$2.20
F-44
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. BUSINESS ACQUISITIONS (CONTINUED)
per share. EDL is an Australian company engaged exclusively in independent
power generation from landfill gas, coal seam methane and natural gas
(including latest technology combined cycle projects). EDL is the largest
generator of power from coal seam methane in the world. The company currently
operates over 200 MW of generation across five states and territories in of
Australia and has commenced the development of new projects in the United
Kingdom, Asia and New Zealand. On February 11, 1997 NRG made an initial
purchase of 7.2% (4.5 million shares) of common stock for AUS$9.9 million
(US$7.9 million).
On December 19, 1996 NRG and Nordic Power Invest AB purchased 96.6% of
Bolivian Power Company Limited. NRG's ownership percentage is 58%, however,
it is NRG's intent to reduce its holdings to 50% or less.
In April 1996, NRG through bankruptcy proceedings, purchased a 41.86%
interest in O'Brien Environmental Energy, Inc., that was renamed NRG
Generating (U.S.) Inc. (NRGG). In addition to an equity interest in NRGG, NRG
acquired certain landfill gas projects in the purchase which were transferred
to NEO and a cogeneration facility.
The transactions described above, represent the material transactions
which occurred between the periods March 31, 1996 and 1997.
5. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
NRG Energy Center, Inc. Senior Secured Notes Series
due June 15, 2013, 7.31% ............................. $ 76,381 $ 78,758
Note payable to NSP, due December 1, 1995-2006
5.40%-6.75% .......................................... 8,405 8,957
NRG Sunnyside, Inc. note payable, due December 31,
1997 10.00% .......................................... 1,750 1,750
NRG Energy Senior Notes, due February 1, 2006
7.625% ............................................... 125,000 125,000
---------- ---------
211,536 214,465
Less current maturities ............................... (4,900) (3,804)
---------- ---------
Total ............................................... $206,636 $210,661
========== =========
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by long-term
assets of the Minneapolis Energy Center (MEC). In accordance with the terms
of the note agreements, MEC is required to maintain compliance with certain
financial covenants primarily related to incurring debt, disposing of MEC
assets, and affiliate transactions. MEC was in compliance with these
covenants at March 31, 1997.
The note payable to NSP relates to long-term debt assumed by the Company in
connection with the transfer of ownership of an RDF processing plant by NSP to
the Company in 1993.
The NRG Sunnyside, Inc. note payable was issued in connection with the
purchase of an equity interest in a waste-coal project in 1994.
The NRG Energy Senior Notes were issued in January, are unsecured and
require semi-annual interest payments on February 1 and August 1.
F-45
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt for the years ending after March 31,
1997 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1997 remaining $ 4,244
1998 ........... 3,335
1999 ........... 3,581
2000 ........... 3,841
2001 ........... 4,160
2002 ........... 4,455
Thereafter ..... 187,920
--------------------
Total ........ $211,536
====================
</TABLE>
6. INCOME TAXES
NRG and its parent, NSP, have entered into a federal and state income tax
sharing agreement relative to the filing of consolidated federal and state
income tax returns. The agreement provides, among other things, that (1) if
NRG, along with its subsidiaries, is in a taxable income position, NRG will be
currently charged with an amount equivalent to its federal and state income
tax computed as if the group had actually filed separate federal and state
returns, and (2) if NRG, along with its subsidiaries, is in a tax loss
position, NRG will be currently reimbursed to the extent its combined losses
are utilized in a consolidated return, and (3) if NRG, along with its
subsidiaries, generates tax credits, NRG will be currently reimbursed to the
extent its tax credits are utilized in a consolidated return.
7. ADDITIONAL PAID IN CAPITAL
NSP provided NRG with Capital contributions of $100 million between March
31, 1996 and 1997. A contribution of $80 million was made in December of
1996, used primarily for the investment in Cobee, and an additional $20
million was invested in February 1997 for various project investments
including EDL.
F-46
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NRG ENERGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
1997 ADJUSTMENTS 1997
----------- ------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....................... $ 15,802 $ 49,100 (1)$ 64,902
Restricted cash ................................. 10,787 -- 10,787
Accounts receivable--trade, less allowance for
doubtful accounts .............................. 11,773 -- 11,773
Accounts receivable--affiliates ................. 9,465 -- 9,465
Current portion of notes receivable--affiliates 11,379 -- 11,379
Current portion of notes receivables ............ 4,450 -- 4,450
Inventory ....................................... 2,502 -- 2,502
Prepayments and other current assets ............ 3,039 -- 3,039
----------- ------------- -----------
TOTAL CURRENT ASSETS ............................. 69,197 49,100 118,297
----------- ------------- -----------
Property, Plant and Equipment, at Original Cost .
In service ...................................... 183,871 -- 183,871
Under construction .............................. 24,585 -- 24,585
----------- ------------- -----------
208,456 -- 208,456
Less accumulated depreciation ................... (72,804) -- (72,804)
----------- ------------- -----------
Net property, plant and equipment .............. 135,652 -- 135,652
Other Assets
Investments in projects ......................... 371,132 257,800 (2) 628,932
Capitalized project costs ....................... 11,468 -- 11,468
Notes receivable, less current
portion--affiliates ............................ 56,170 -- 56,170
Notes receivable, less current portion ......... 9,600 -- 9,600
Intangible assets, net of accumulated
amortization ................................... 40,555 -- 40,555
Debt issuance costs, net of accumulated
amortization ................................... 2,838 4,000 (3) 6,838
----------- ------------- -----------
Total other assets ............................. 491,763 261,800 753,563
----------- ------------- -----------
TOTAL ASSETS ..................................... $696,612 $310,900 $1,007,512
=========== ============= ===========
</TABLE>
- ------------
(1) Represents net cash provided in excess of the amount needed for the
investment in Loy Yang and total financing costs.
(2) Net investment in Loy Yang of $257.8 million.
(3) Represents total financing costs associated with bond offering and
temporary bridge financing, to be amortized over the life of the bonds.
F-47
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NRG ENERGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
1997 ADJUSTMENTS 1997
----------- ------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt ........... $ 4,900 $ -- $ 4,900
Accounts payable--trade ..................... 2,848 -- 2,848
Accounts payable--affiliate ................. 45 -- 45
Notes payable--affiliates ................... 2,506 -- 2,506
Accrued income taxes ........................ 170 -- 170
Accrued property and sales taxes ............ 2,842 -- 2,842
Accrued salaries, benefits and related costs 6,343 -- 6,343
Accrued interest ............................ 1,798 -- 1,798
Other current liabilities ................... 4,030 -- 4,030
----------- ------------- -----------
TOTAL CURRENT LIABILITIES .................... 25,482 -- 25,482
----------- ------------- -----------
Long-term debt, less current portion ....... 206,636 250,000 (4) 456,636
Deferred revenues ........................... 5,994 -- 5,994
Deferred income taxes ....................... 11,273 -- 11,273
Deferred investment tax credits ............. 1,883 -- 1,883
Deferred compensation ....................... 1,882 -- 1,882
----------- ------------- -----------
Total liabilities ............................ 253,150 250,000 503,150
Stockholder's Equity
Common stock; $1 par value; 1,000 shares
authorized; 1,000 shares issued and
outstanding ................................ 1 -- 1
Additional paid-in capital .................. 371,013 60,900 (5) 431,913
Retained earnings ........................... 73,104 -- 73,104
Currency translation adjustments ............ (656) -- (656)
----------- ------------- -----------
Total Stockholder's Equity ................... 443,462 60,900 504,362
----------- ------------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY .. $696,612 $310,900 $1,007,512
=========== ============= ===========
</TABLE>
- ------------
(4) Represents the aggregate principal amount of bonds issued in
refinancing.
(5) Equity contribution of $60.9 million by NSP.
F-48
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NRG ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
1996 ADJUSTMENTS 1996
-------------- -------------- --------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Revenues:
Revenues from wholly-owned operations ....... $ 71,649 $ -- $ 71,649
Equity in operating earnings of
unconsolidated affiliates ................... 32,815 15,300 (1) 48,115
-------------- -------------- --------------
Total operating revenues .................... 104,464 15,300 119,764
-------------- -------------- --------------
Operating Costs and Expenses:
Cost of operations--wholly-owned operations . 36,562 -- 36,562
Depreciation and amortization ................ 8,378 -- 8,378
General, administrative, and development .... 39,248 -- 39,248
-------------- -------------- --------------
Total operating costs and expenses ......... 84,188 84,188
-------------- -------------- --------------
Operating Income .............................. 20,276 15,300 35,576
-------------- -------------- --------------
Other Income (Expense):
Other income, net ............................ 9,477 -- 9,477
Interest expense ............................. (15,430) (18,750) (2) (34,180)
-------------- -------------- --------------
Total other income (expense) .................. (5,953) (18,750) (24,703)
-------------- -------------- --------------
Income before Income Taxes .................... 14,323 (3,450) 10,873
-------------- -------------- --------------
Income Taxes .................................. (5,655) (4,373) (3) (10,028)
-------------- -------------- --------------
Net Income .................................... $ 19,978 $ 923 $ 20,901
============== ============== ==============
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang project for twelve
months based upon historical data adjusted for certain management
assumptions.
(2) Amount represents accrued interest on $250 million in bonds for twelve
months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on bonds.
F-49
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NRG ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
1997 ADJUSTMENTS 1997
----------- ------------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Revenues:
Revenues from wholly-owned operations ....... $21,665 $ -- $21,665
Equity in operating earnings of
unconsolidated affiliates ................... 8,492 3,825 (1) 12,317
----------- ------------- -----------
Total operating revenues .................... 30,157 3,825 33,982
----------- ------------- -----------
Operating Costs and Expenses ..................
Cost of operations--wholly-owned operations . 12,222 -- 12,222
Depreciation and amortization ................ 2,176 -- 2,176
General, administrative, and development .... 8,833 -- 8,833
----------- ------------- -----------
Total operating costs and expenses ......... 23,231 -- 23,231
----------- ------------- -----------
Operating Income .............................. 6,926 3,825 10,751
----------- ------------- -----------
Other Income (Expense).........................
Other income, net ............................ 2,018 -- 2,018
Interest expense ............................. (4,063) (4,688)(2) (8,751)
----------- ------------- -----------
Total other income (expense) .................. (2,045) (4,688) (6,733)
----------- ------------- -----------
Income before Income Taxes .................... 4,881 (863) 4,018
----------- ------------- -----------
Income Taxes .................................. (1,922) (1,093)(3) (3,015)
----------- ------------- -----------
Net Income .................................... $ 6,803 $ 230 $ 7,033
=========== ============= ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang project for three
months based upon historical data adjusted for certain management
assumptions.
(2) Amount represents accrued interest on $250 million in bonds for three
months at a rate of 7.5% per annum.
(3) Net tax benefit derived from expense on bonds.
F-50
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NRG. THE INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF
AND SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. DELIVERY OF
THIS PROSPECTUS AT ANY TIME SHALL NOT CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF NRG
SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Summary................................. 3
Risk Factors............................ 15
Use of Proceeds ........................ 23
The Exchange Offer ..................... 24
Capitalization ......................... 31
Selected Consolidated Financial Data .. 32
Selected Pro Forma Condensed Financial
Data .................................. 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 36
Business ............................... 44
Regulation ............................. 72
Management ............................. 77
Ownership of Capital Stock ............. 83
Certain Transactions ................... 84
Certain Indebtedness ................... 86
Description of Notes ................... 87
Certain Federal Income Tax
Considerations ........................ 97
Ratings ................................ 98
Plan of Distribution ................... 99
Legal Matters .......................... 100
Experts ................................ 100
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
$250,000,000
NRG ENERGY INC.
7 1/2% SENIOR NOTES
DUE 2007
[NRG LOGO]
PROSPECTUS
DATED , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an estimate of all expenses in connection with the
issuance and distribution of the securities being registered hereby:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.... $ 75,758
Accountants' fees and
expenses................ 55,000
Attorney's fees and
expenses................ 150,000
Printing expenses....... 100,000
Miscellaneous........... 19,242
---------
Total................... $400,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of the State
of Delaware, each director and officer of NRG may be indemnified by NRG
against expenses (including attorney's fees, judgments, fines and amounts
paid in settlement) actually and reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed legal
proceedings in which he is involved by reason of the fact that he is or was a
director or officer of NRG if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of NRG and,
with respect to any criminal action or proceeding, if he had no reasonable
cause to believe that his conduct was unlawful. However, if the legal
proceeding is by or in the right of NRG, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he shall
have been adjudged to be liable for negligence or misconduct in the
performance of his duty to NRG unless a court determines otherwise.
In addition, Article VI of NRG's By-Laws provides that NRG shall indemnify
and hold harmless, to the fullest extent permitted by applicable law, any
person who was or is made or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or
was a director, officer, employee or agent of NRG or is or was serving at the
request of NRG as a director, officer, employee or agent of another company
or of a partnership, joint venture, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person.
NRG shall be required to indemnify a person in connection with a Proceeding
initiated by such person only if the Proceeding was authorized by the Board
of Directors of NRG.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 12, 1997, NRG sold $250,000,000 aggregate principal amount of its
7-1/2% Senior Notes Due 2007 (the "Old Notes") to Salomon Brothers Inc, ABN
AMRO Chicago Corporation and Chase Securities Inc. (the "Initial Purchasers")
for $250,000,000 less the aggregate discount to Initial Purchasers of
$1,625,000. Such transaction was exempt from the registration requirements of
the Securities Act of 1933, in reliance on Section 4(2) of the Securities Act
on the basis that such transactions did not involve a public offering. In
accordance with the agreement pursuant to which the Initial Purchasers
purchased the Old Notes, such Initial Purchasers agreed to offer and sell the
Old Notes only to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) and pursuant to offers and sales that occur outside
the United States within the meaning of Regulation S under the Securities
Act.
On January 29, 1996, NRG sold $125,000,000 aggregate principal amount of
its 7.625% Senior Notes Due 2006 (the "1996 Notes") to Bear, Stearns & Co.
Inc. and Merrill Lynch & Co. (the "1996 Note Initial Purchasers") for
$125,000,000 less the aggregate discount to 1996 Note Initial Purchasers of
II-1
<PAGE>
$812,500. Such transaction was exempt from the registration requirements of
the Securities Act of 1933, in reliance on Section 4(2) of the Securities Act
on the basis that such transactions did not involve a public offering. In
accordance with the agreement pursuant to which the 1996 Note Initial
Purchasers purchased the 1996 Notes, such 1996 Note Initial Purchasers agreed
to offer and sell the 1996 Notes only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) and pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
3.1 Certificate of Incorporation of NRG.
3.2 By-Laws of NRG.
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest Bank Minnesota,
National Association.
4.2 Form of Exchange Notes.
4.3 Registration Rights Agreement, dated as of June 12, 1997, by and among NRG,
Salomon Brothers Inc, ABN AMRO Chicago Corporation and Chase Securities Inc.
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to
legality of the Exchange Notes to be issued by NRG.*
10.1 Employment Contract, dated as of June 28, 1995, between NRG and David H.
Peterson.
10.2 Indenture, dated as of January 31, 1996, between NRG and Norwest Bank
Minnesota, National Association, as Trustee.
10.3 Revolving Credit Agreement, dated as of March 17, 1997, among NRG, the banks
party thereto and ABN AMRO Bank, N.V. as Agent.
12.1 Computation of ratio of earnings to fixed charges.
21 Subsidiaries of NRG.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1).*
24 Power of Attorney of certain officers and directors of NRG (contained in, and
incorporated herein by reference to, Page II-4 of this Registration
Statement).
25 Form T-1 Statement of Eligibility of Norwest Bank Minnesota, National
Association to act as trustee under the Indenture.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
</TABLE>
- ------------
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by the controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NRG Energy,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, in the State of Minnesota, on the
12th day of August, 1997.
NRG Energy, Inc.
By: /s/ DAVID H. PETERSON
--------------------------------
David H. Peterson
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Leonard A. Bluhm and Valorie A.
Knudsen his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement (or any other
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ DAVID H. PETERSON Chairman of the Board, August 12, 1997
- ----------------------- President and Chief
David H. Peterson Executive Officer
/s/ LEONARD A. BLUHM Executive Vice President and
- ----------------------- Chief Financial Officer August 12, 1997
Leonard A. Bluhm
/s/ GARY R. JOHNSON
- ---------------------- Director August 12, 1997
Gary R. Johnson
/s/ CYNTHIA L. LESHER
- ----------------------- Director August 12, 1997
Cynthia L. Lesher
/s/ EDWARD J. MCINTYRE
- ----------------------- Director August 12, 1997
Edward J. McIntyre
/s/ JOHN A. NOER
- ----------------------- Director August 12, 1997
John A. Noer
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
3.1 Certificate of Incorporation of NRG.
3.2 By-Laws of NRG.
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest Bank Minnesota,
National Association.
4.2 Form of Exchange Notes.
4.3 Registration Rights Agreement, dated as of June 12, 1997, by and among NRG,
Salomon Brothers Inc, ABN AMRO Chicago Corporation and Chase Securities Inc.
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to
legality of the Exchange Notes to be issued by NRG.*
10.1 Employment Contract, dated as of June 28, 1995, between NRG and David H.
Peterson.
10.2 Indenture, dated as of January 31, 1996, between NRG and Norwest Bank
Minnesota, National Association, as Trustee.
10.3 Revolving Credit Agreement, dated as of March 17, 1997, among NRG, the banks
party thereto and ABN AMRO Bank, N.V. as Agent.
12.1 Computation of ratio of earnings to fixed charges.
21 Subsidiaries of NRG.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1).*
24 Power of Attorney of certain officers and directors of NRG (contained in, and
incorporated herein by reference to, Page II-4 of this Registration
Statement).
25 Form T-1 Statement of Eligibility of Norwest Bank Minnesota, National
Association to act as trustee under the Indenture.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
</TABLE>
- ------------
* To be filed by amendment.
II-6
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NRG ENERGY, INC.
FIRST. The name of the corporation is NRG Energy, Inc.
SECOND. The address of the corporation's registered office in the
State of Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware 19901
(Kent County). The name of its registered agent at such address is
Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH. The total number of shares which the corporation shall have
authority to issue is 1,000 shares of capital stock, and the par value of each
such share is $1.00 per share.
FIFTH. The name and mailing address of the incorporator is Mary Jo
Nasiedlak, 1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403.
SIXTH. The initial Board of Directors of the corporation is as
follows:
James T. Doudiet Hazel R. O'Leary
Roland J. Jensen David H. Peterson
Edward J. McIntyre
SEVENTH. The Board of Directors of the corporation is expressly
authorized to make, alter or repeal by-laws of the corporation, but the
stockholders may make additional by-laws and may alter or repeal any by-law,
whether adopted by them or otherwise.
EIGHTH. Elections of directors need not be by written ballot except
and to the extent provided in the by-laws of the corporation.
NINTH. No director shall be personally liable to the corporation or
any of its stockholders for monetary damages for
<PAGE>
breach of fiduciary duty as a director, except for liability (a) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (b)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) pursuant to Section 174 of the General
Corporation Law of Delaware or (d) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of this
Article Eighth by the stockholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
The undersigned incorporator hereby acknowledges that the foregoing
certificate of incorporation is his act and deed and that the facts stated
therein are true.
1
<PAGE>
BY-LAWS
OF
NRG ENERGY, INC.
ARTICLE I
---------
Stockholders
------------
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors, or
by a committee of the Board of Directors which has been duly designated by the
Board of Directors and whose powers and authority, as expressly provided in a
resolution of the Board of Directors, include the power to call such meetings,
but such special meetings may not be called by any other person or persons.
Section 1.3. Notice of Meetings. Whenever stock-holders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the certificate of incorporation
or these by-laws, the written notice of any meeting shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the mail, postage prepaid, directed to the
stockholder at his, her or its address as it appears on the records of the
corporation.
Section 1.4. Adjournments. Any meeting of stock-holders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned
<PAGE>
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 1.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. In the absence of a quorum, the stockholders
so present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 1.4 of these by-laws until a quorum shall attend.
Shares of its own stock belonging to the corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the corporation to
vote stock, including but not limited to its own stock, held by it in a
fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his or her absence by the Vice
Chairman of the Board, if any, or in his or her absence by the President, or in
his or her absence by a Vice President, or in the absence of the foregoing
persons by a chairman designated by the Board of Directors, or in the absence
of such designation by a chairman chosen at the meeting. The Secretary shall
act as secretary of the meeting, but in his or her absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided by the
certificate of incorporation, each stock-holder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him, her or it which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for him, her or it by proxy, but no such proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A stockholder
may revoke any proxy which is not irrevocable by attending the meeting and
voting in person or by filing an instrument in writing revoking the proxy or
another duly executed proxy bearing a later date with the Secretary
2
<PAGE>
of the corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so determined
by the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote thereon
which are present in person or by proxy at such meeting. At all meetings of
stockholders for the election of directors, a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the certificate of incorporation or these by-laws,
be decided by the vote of the holders of shares of stock having a majority of
the votes which could be cast by the holders of all shares of stock entitled to
vote thereon which are present in person or represented by proxy at the
meeting.
Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date
upon which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than
sixty days prior to such other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action
of the Board of Directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation in accordance with applicable law, or, if prior
action
3
<PAGE>
by the Board of Directors is required by law, shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action; and (3) the record date for determining stock-holders for any
other purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto. A determination of
stock-holders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 1.10. Action By Consent of Stockholders. Unless otherwise
restricted by the certificate of incorpo-ration, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
4
<PAGE>
ARTICLE II
----------
Board of Directors
------------------
Section 2.1. Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time
to time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 2.2. Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the persons named as directors in the
certificate of incorporation, or a subsequent action of the incorporator, and
each director so elected shall hold office until the first annual meeting of
stockholders or until his or her successor is elected and qualified. At the
first annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors, each of whom shall hold office for a term
of one year or until his or her successor is elected and qualified. Any
director may resign at any time upon written notice to the corporation. Any
newly created directorship or any vacancy occurring in the Board of Directors
for any cause may be filled by a majority of the remaining members of the Board
of Directors, although such majority is less than a quorum, or by a plurality
of the votes cast at a meeting of stockholders, and each director so elected
shall hold office until the expiration of the term of office of the director
whom he or she has replaced or until his or her successor is elected and
qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware
and at such times as the Board of Directors may from time to time determine,
and if so determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary,
or by any member of the Board of Directors. Notice of a special meeting of the
Board of Directors shall be given by the person or persons calling the meeting
at least twenty-four hours before the special meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment in which all persons participating in the meeting can
hear each other, and
5
<PAGE>
participation in the meeting pursuant to this by-law shall constitute presence
in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute
a quorum for the transaction of business. Except in cases in which the
certificate of incorporation or these by-laws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his or her absence by
the Vice Chairman of the Board, if any, or in his or her absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8. Informal Action by Directors. Unless otherwise restricted
by the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
of Directors or such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or such committee.
ARTICLE III
-----------
Committees
----------
Section 3.1. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent permitted by law and to the extent provided in the
resolution of the Board of Directors, shall
6
<PAGE>
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may
authorize the seal of the corporation (if any) to be affixed to all papers
which may require it.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these by-laws.
ARTICLE IV
----------
Officers
--------
Section 4.1. Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board and a Vice Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers. Each such
officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his or her election,
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any officer may resign at any time upon written
notice to the corporation. The Board of Directors may remove any officer with
or without cause at any time, but such removal shall be without prejudice to
the contractual rights of such officer, if any, with the corporation. Any
number of offices may be held by the same person. Any vacancy occurring in any
office of the corporation by death, resignation, removal or otherwise may be
filled for the unexpired portion of the term by the Board of Directors at any
regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers of
the corporation shall have such powers and duties in the management of the
corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
or her duties.
7
<PAGE>
ARTICLE V
---------
Stock
-----
Section 5.1. Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the corporation by the Chairman
or a Vice Chairman of the Board of Directors, if any, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, of the corporation, certifying the number
of shares owned by him, her or it in the corporation. Any of or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent, or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance
of New Certificates. The corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or his, her or its legal representative,
to give the corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
ARTICLE VI
----------
Indemnification
---------------
Section 6.1. Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") by reason of the fact that he or she, or a
person for whom he or she is the legal representative, is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss
8
<PAGE>
suffered and expenses reasonably incurred by such person. The corporation shall
be required to indemnify a person in connection with a proceeding initiated by
such person only if the proceeding was authorized by the Board of Directors of
the corporation.
Section 6.2. Repayment of Expenses. The corporation shall pay the
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under this Article or otherwise.
Section 6.3. Claims. If a claim for indemnification or payment of
expenses under this Article is not paid in full within sixty days after a
written claim therefor has been received by the corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in
whole or in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action the corporation shall have the burden of proving that
the claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
Section 6.4. Non-Exclusivity of Rights. The rights conferred on any
person by this Article VI shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 6.5. Other Indemnification. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or non-profit entity shall be reduced by any amount
such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or non-profit entity.
Section 6.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
9
<PAGE>
ARTICLE VII
-----------
Miscellaneous
-------------
Section 7.1. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
Section 7.2. Seal. The Board of Directors shall determine whether or
not the corporation shall have a corporate seal. The corporate seal (if any)
shall have the name of the corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors.
Section 7.3. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.4. Interested Directors; Quorum. No contract or transaction
between the corporation and one or more of its directors or officers, or
between the corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his, her or
their votes are counted for such purpose, if: (1) the material facts as to his,
her or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by this affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) the material facts as to his, her or their relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the
10
<PAGE>
stockholders; or (3) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction. Nothing in this Section 7.4 shall be construed to imply that any
contract or transaction between the corporation and Northern State Power
Company ("NSP"), or between the corporation and any other corporation that is a
direct or indirect wholly-owned subsidiary of NSP, shall be void or voidable,
whether or not such contract or transaction complies with the requirements of
clauses (1), (2) or (3) of the immediately preceding sentence.
Section 7.5. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 7.6. Amendment of By-laws. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors, but the stockholders
may make additional by-laws and may alter and repeal any by-laws whether
adopted by them or otherwise.
11
<PAGE>
- -------------------------------------------------------------------------------
NRG ENERGY, INC.
to
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
-------------------------
INDENTURE
Dated as of June 1, 1997
-------------------------
$250,000,000
7 1/2% Senior Notes Due 2007
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Certain Terms Defined.............................................. 1
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES
2.1 Authentication and Delivery of Securities.......................... 9
2.2 Execution of Securities............................................ 9
2.3 Certificate of Authentication...................................... 10
2.4 Form, Denomination and Date of Securities; Payments of Interest.... 10
2.5 Global Securities.................................................. 14
2.6 Registration, Registration of Transfer and Exchange................ 15
2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.......... 20
2.8 Cancelation of Securities: Destruction Thereof..................... 22
2.9 Temporary Securities............................................... 22
2.10 Computation of Interest............................................ 22
ARTICLE III
COVENANTS OF
THE ISSUER AND THE TRUSTEE
3.1 Payment of Principal and Interest.................................. 23
3.2 Offices for Payments, etc.......................................... 23
3.3 Appointment to Fill Vacancy in Office of Trustee................... 23
3.4 Paying Agents...................................................... 24
3.5 Certificate to Trustee............................................. 24
3.6 Securityholder's Lists............................................. 25
3.7 Reports by the Issuer.............................................. 25
3.8 Limitation on Liens................................................ 26
3.9 Repurchase of Securities Upon a Change of Control.................. 26
<PAGE>
ARTICLE IV
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
4.1 Event of Default Defined; Acceleration of Maturity;
Waiver of Default.................................................. 28
4.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt...... 31
4.3 Application of Proceeds............................................ 34
4.4 Suits for Enforcement.............................................. 35
4.5 Restoration of Rights on Abandonment of Proceedings................ 35
4.6 Limitations of Suits by Securityholders............................ 36
4.7 Powers and Remedies Cumulative, Delay or Omission Not Waiver
of Default......................................................... 36
4.8 Control by Securityholders......................................... 37
4.9 Waiver of Past Defaults............................................ 37
4.10 Rights of Holders to Receive Payment............................... 38
ARTICLE V
CONCERNING THE TRUSTEE
5.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default................................................... 38
5.2 Certain Rights of the Trustee...................................... 39
5.3 Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof...................... 41
5.4 Trustee and Agents May Hold Securities; Collections, etc........... 41
5.5 Moneys Held by Trustee............................................. 41
5.6 Compensation and Indemnification of Trustee and Its Prior Claim.... 41
5.7 Right of Trustee to Rely on Officers' Certificate, etc............. 42
5.8 Persons Eligible for Appointment as Trustee........................ 42
5.9 Resignation and Removal; Appointment of Successor Trustee.......... 43
5.10 Acceptance of Appointment by Successor Trustee..................... 44
5.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee................................................ 45
ARTICLE VI
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<PAGE>
CONCERNING THE SECURITYHOLDERS
6.1 Evidence of Action Taken by Securityholders........................ 46
6.2 Proof of Execution of Instruments and of Holding of
Securities Record Date............................................. 46
6.3 Holders to Be Treated as Owners.................................... 46
6.4 Securities Owned by Issuer Deemed Not Outstanding.................. 47
6.5 Right of Revocation of Action Taken................................ 47
ARTICLE VIII
SUPPLEMENTAL INDENTURES
7.1 Supplemental Indentures Without Consent of Securityholders......... 48
7.2 Supplemental Indentures With Consent of Securityholders............ 49
7.3 Effect of Supplemental Indenture................................... 50
7.4 Documents to Be Given to Trustee................................... 51
7.5 Notation of Securities in Respect of Supplemental Indentures....... 51
ARTICLE VIIII
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
8.1 Covenant Not to Merge, Consolidate, Sell or Transfer Assets
Except Under Certain Conditions.................................... 51
8.2 Successor Corporation Substituted.................................. 52
8.3 Opinion of Counsel to Trustee; Officers' Certificate............... 53
ARTICLE IX
SATISFACTION AND DISCHARGE
OF INDENTURE; UNCLAIMED MONEYS
9.1 Satisfaction and Discharge of Indenture............................ 53
9.2 Application by Trustee of Funds Deposited for Payment
of Securities...................................................... 54
9.3 Repayment of Moneys Held by Paying Agent........................... 54
9.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed
for Two Years...................................................... 55
9.5 Defeasance and Discharge of Indenture.............................. 55
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9.6 Defeasance of Certain Obligations.................................. 57
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Incorporators, Shareholders, Officers and Directors of Issuer
Exempt from Individual Liability................................... 58
10.2 Provisions of the Indenture for the Sole Benefit of Parties
and Securityholders................................................ 58
10.3 Successors and Assigns of Issuer Bound by Indenture................ 59
10.4 Notices and Demands on Issuer, Trustee and Securityholders......... 59
10.5 Officers' Certificates and Opinions of Counsel, Statements
to Be Contained Therein............................................ 60
10.6 Payments Due on Saturdays, Sundays and Holidays.................... 61
10.7 New York Law to Govern............................................. 61
10.8 Counterparts....................................................... 61
10.9 Effect of Headings................................................. 61
ARTICLE XI
REDEMPTION OF SECURITIES
11.1 Right of Optional Redemption Price................................. 62
11.2 Notice of Redemption............................................... 62
11.3 Payment of Securities Called for Redemption........................ 62
EXHIBIT A FORM OF SECURITY
EXHIBIT B FORM OF RESTRICTED PERIOD CERTIFICATE
EXHIBIT C FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM RULE
144A GLOBAL SECURITY TO RESTRICTED REGULATION S GLOBAL SECURITY
EXHIBIT D FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM RULE
144A GLOBAL SECURITY TO UNRESTRICTED REGULATION S GLOBAL SECURITY
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EXHIBIT E FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM
RESTRICTED REGULATION S GLOBAL SECURITY OR, UNRESTRICTED
REGULATION S GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY
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INDENTURE, dated as of June 1, 1997 between NRG ENERGY, INC., a
Delaware corporation (herein called the "Issuer"), and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as trustee (herein called the "Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer has duly authorized the issue of $250,000,000
aggregate principal amount of its 7 1/2% Senior Notes Due 2007 (the
"Securities") and, to provide, among other things, for the authentication,
delivery and administration thereof, the Issuer has duly authorized the
execution and delivery of this Indenture; and
WHEREAS, all things necessary to make the Securities, when executed by
the Issuer and authenticated and delivered by the Trustee as in this Indenture
provided, the valid, binding and legal obligations of the Issuer, and to
constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the Securities
by the Holders (as defined herein) thereof, the Issuer and the Trustee mutually
covenant and agree for the equal and proportionate benefit of the respective
Holders from time to time of the Securities as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 Certain Terms Defined. The following terms (except as
otherwise expressly provided) for all purposes of this Indenture shall have the
respective meanings specified in this Section. All accounting terms used herein
and not expressly defined shall have the meanings given to them in accordance
with GAAP (as defined herein). The words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision. The terms defined in this
Article include the plural as well as the singular.
<PAGE>
"Agent Members" has the meaning set forth in Section 2.4(c).
"Applicable Premium" means, with respect to a Security at any time,
the excess (if any) of (i) the sum of the present values of all of the
remaining scheduled payments of principal of and interest on the Securities
from the applicable redemption date through the Stated Maturity, of such
Security, computed on a semi-annual basis by discounting such payments
(assuming a 360-day year consisting of twelve 30-day months and using a rate
equal to the Treasury Rate plus 25 basis points) over (ii) the aggregate unpaid
principal amount of the Security to be redeemed plus any accrued but unpaid
interest thereon. The Applicable Premium shall be computed as of the third
Business Day prior to the applicable redemption date, and certified, by an
Investment Banker.
"Board of Directors" means either the Board of Directors of the Issuer
or any committee of such Board duly authorized to act on behalf of such Board.
"Business Day" means a day which is neither a legal holiday nor a day
on which banking institutions (including, without limitation, the Federal
Reserve System) are authorized or required by law or regulation to close in The
City of New York or the city of Minneapolis, Minnesota.
"Capital Stock" means, with respect, to any Person, any and all
outstanding shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of, or interests in (however
designated), the equity of such Person including, without limitation, all
Common Stock and Preferred Stock and partnership and joint venture interests of
such Person.
"Cedel" has the meaning set forth in Section 2.4(b).
"Change of Control" means the occurrence of one or more of the
following events: (i) NSP (or its successors) shall cease to own a majority of
the outstanding Voting Stock of the Issuer, (ii) at any time following the
occurrence of the event described in clause (i), a Person or group (as that
term is used in Section 13(d)(3) of the Exchange Act) of Persons (other than
NSP) shall have become the beneficial owner directly or indirectly, or shall
have
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acquired the absolute power to direct the vote, of more than 35% of the
outstanding Voting Stock of the Issuer or (iii) during any twelve-month period,
individuals who at the beginning of such period constitute the Board of
Directors (together with any new directors whose election or nomination was
approved by a majority of the directors then in office who were either
directors at the beginning of such period or who were previously so approved)
shall cease for any reason to constitute a majority of the Board of Directors.
Notwithstanding the foregoing, a Change of Control shall be deemed not to have
occurred if one or more of the above events occurs or circumstances exist and,
after giving effect thereto, the Securities are rated Investment Grade.
"Change of Control Offer" has the meaning set forth in Section 3.9(b).
"Commission" means the Securities and Exchange Commission, as from
time to constituted, created under the Exchange Act, or, if at any time after
the execution of this Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body (if
any) performing such duties at such time.
"Common Stock" means, with respect to any Person, Capital Stock of
such Person that does not rank prior, as to the payment of dividends or as to
the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of any other class of
Capital Stock of such Person.
"Consolidated Current Assets" and "Consolidated Current Liabilities"
mean such assets and liabilities of the Issuer on a consolidated basis as shall
be determined in accordance with GAAP to constitute current assets and current
liabilities, respectively, provided that inventory shall be valued at the lower
of cost (using the average life method) or market.
"Consolidated Net Tangible Assets" means, as of the date of
determination thereof, Consolidated Total Assets as of such date less the sum
of (i) Consolidated Current Liabilities and (ii) Intangible Assets.
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"Consolidated Total Assets" means, as of the date of any determination
thereof, the total amount of all assets of the Issuer determined on a
consolidated basis in accordance with GAAP.
"Corporate Trust Office" means the principal office of the Trustee at
which the corporate trust business of the Trustee shall, at any particular
time, be principally administered, which office is, at the date as of which
this Indenture is dated, located at Corporate Trust, Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479-0069.
"Euroclear" has the meaning set forth in Section 2.4(b).
"Event of Default" means any event or condition specified as such in
Section 4.1 hereof that shall have continued for the period of time, if any,
therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the U.S.
applied on a basis consistent with the principles, methods, procedures and
practices employed in the preparation of the Issuer's audited financial
statements, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"Global Security" has the meaning set forth in Section 2.4(c).
"Holder," "Holder of Securities," "Securityholder" and other similar
terms mean the registered holder of any Security.
"Indebtedness" has the meaning set forth in Section 3.8.
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"Indenture" means this instrument as originally executed and delivered
or, if amended or supplemented as herein provided, as so amended or
supplemented.
"Initial Purchasers" means Salomon Brothers Inc, ABN AMRO Chicago
Corporation and Chase Securities Inc.
"Intangible Assets" means, as of the date of determination thereof,
all assets of the Issuer properly classified as intangible assets determined on
a consolidated basis in accordance with GAAP.
"Interest Payment Date" means, with respect to any Security, the
Stated Maturity of an installment of interest on such Security.
"Investment Banker" means an independent investment banking
institution of national standing selected by the Issuer.
"Investment Grade" means, with respect to the Securities, a rating of
Baa3 or higher by Moody's Investors Service, Inc., and a rating of BBB- or
higher by Standard and Poor's Ratings Group (or, if either or both of the
foregoing rating agencies ceases to rate the Securities for reasons beyond the
control of the Issuer, equivalent ratings by one or two (as the case may be)
other nationally recognized statistical rating organizations (as such term is
defined in Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act)); provided that if
either of the foregoing rating agencies shall change its ratings designations
while the Securities are Outstanding, "Investment Grade" shall mean the lowest
ratings designation signifying "investment grade" issued by such agencies (or
higher).
"Issuer" means NRG Energy, Inc., a Delaware corporation, and, subject
to Article 8 hereof, its successors and assigns.
"Legend" has the meaning set forth in Section 2.6(d).
"NSP" means Northern States Power Company, a Minnesota corporation.
"Officers' Certificate" means a certificate signed on behalf of the
Issuer by the Chairman of the Board
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of Directors or the President or any Vice President and by the Chief Financial
Officer or the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Issuer and delivered to the Trustee. Each such
certificate shall include the statements provided for in Section 10.5 hereof,
if and to the extent required thereby.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel satisfactory to the Trustee, who may be an employee of or counsel to
the Issuer. Each such opinion shall include the statements provided for in
Section 10.5 hereof, if and to the extent required thereby.
"Original Issue Date" of any Security (or portion thereof) means the
earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) in exchange for which such Security was issued (directly or
indirectly) on registration of transfer, exchange or substitution.
"Outstanding", when used with reference to Securities, shall, subject
to the provisions of Section 6.4 hereof, mean, as of any particular time, all
Securities authenticated and delivered by the Trustee under this Indenture,
except:
1. Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancelation, or which shall have been paid pursuant to Section
2.7 hereof (other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands the Securities
are valid obligations of the Issuer); and
2. Securities, or portions thereof, for the payment or redemption of
which moneys or direct obligations of the United States of America backed
by its full faith and credit in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other than
the Issuer) or shall have been set aside, segregated and held in trust by
the Issuer (if the Issuer shall act as its own paying agent), provided that
if such Securities are to be redeemed prior to the maturity thereof, notice
of such redemption shall have been herein provided, or
6
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provision satisfactory to the Trustee shall have been given as herein
provided, or provision satisfactory to the Trustee shall have been made for
giving such notice.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participation or other equivalents (however designated,
whether voting or non-voting) of preferred or preference Capital Stock of such
Person that is outstanding or issued on or after the date of this Indenture.
"Purchase Agreement" means the Purchase Agreement dated June 12, 1997,
between the Issuer and the Initial Purchasers.
"Regulation S" has the meaning set forth in Section 2.4(b).
"Repurchase Date" has the meaning set forth in Section 3.9(b).
"Responsible Officer", when used with respect to the Trustee, means
any officer of the Trustee assigned by the Trustee to administer its corporate
trust matters.
"Restricted Regulation S Global Security" has the meaning set forth in
Section 2.4(b).
"Rule 144A" has the meaning set forth in Section 2.4(b).
"Rule 144A Global Security" has the meaning set forth in Section
2.4(b).
"Rule 144A Information" has the meaning specified in Section 3.7.
"Securities Act" means the Securities Act of 1933, as amended.
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"Security" or "Securities" has the meaning set forth in the recitals
above.
"Securities Register" and "Security Registrar" have the respective
meanings specified in Section 2.6.
"Stated Maturity" means, with respect to any debt security or any
installment of interest thereon, the date specified in such debt security as
the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Treasury Rate" means, with respect to any Security to be redeemed, a
per annum rate (expressed as a semiannual equivalent and as a decimal and, in
the case of United States Treasury bills, converted to a bond equivalent yield)
determined and certified by an Investment Banker to be the per annum rate equal
to the semiannual yield to maturity of United States Treasury securities
maturing on the Average Life Date (as defined below) of such Security, as
determined by interpolation between the most recent weekly average yields to
maturity for two series of Treasury securities, (A) one maturing as close as
possible to, but earlier than, the Average Life Date of such Security and (B)
the other maturing as close as possible to, but later than, the Average Life
Date of such Security, in each case as published in the most recent H.15(519)
(or, if a weekly average yield to maturity for United States Treasury
securities maturing on the Average Life Date of such Security is reported in
the most recent H.15(519), as published in H.15(519)). "H.15(519)" means
"Statistical Release H.15(519), Selected Interest Rates," or any successor
publication, published by the Board of Governors of the Federal Reserve System.
The "most recent H.15(519)" means the latest H.15(519) that is published prior
to the close of business on the third Business Day prior to the applicable
redemption date. The "Average Life Date" for any Security to be redeemed shall
be the date that follows the redemption date by a period equal to the Remaining
Weighted Average Life of such Security. The "Remaining Weighted Average Life"
of such Security with respect to the redemption of such Security is the number
of days equal to the quotient obtained by dividing (A) the sum of the products
obtained by multiplying (1) the amount of each remaining principal payment on
such Security by (2) the number of days from and including the redemption date,
to but excluding the scheduled payment date of such
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principal payment by (B) the unpaid principal amount of such Security.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trustee" means the entity identified as "Trustee" in the first
paragraph hereof until the appointment of a successor trustee pursuant to
Article 5, after which "Trustee" shall mean such successor trustee.
"Unrestricted Regulation S Global Security" has the meaning set forth
in Section 2.4(b).
"U.S. Depositary" has the meaning set forth in Section 2.4(b).
"U.S. Government Obligations" means securities that are (i) direct and
unconditional obligations of the United States of America for the payment of
which its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by, and acting as an agency or instrumentality of, the
United States of America, the payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company subject to federal or state supervision or examination with a combined
capital and surplus of at least $100,000,000, as custodian with respect to any
such U.S. Government Obligations or a specific payment of interest on or
principal of any such U.S. Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or the
specific payment of interest on or principal of the U.S. Government Obligation
evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
(or persons fulfilling similar responsibilities) of such Person.
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"1996 Senior Notes" means $125,000,000 aggregate principal amount of
7.625% Senior Notes Due 2006 of the Issuer, issued pursuant to an Indenture
dated as of January 31, 1996, between the Issuer and the Trustee.
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES
--------------------------
SECTION 2.1 Authentication and Delivery of Securities. Upon the
execution and delivery of this Indenture, or from time to time thereafter,
Securities in an aggregate principal amount not in excess of $250,000,000
(except as otherwise provided in Section 2.7 hereof) may be executed by the
Issuer and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Securities to or upon the written order
of the Issuer, signed by both (a) its Chairman of the Board of Directors, or
any Vice Chairman of the Board of Directors, or its President or any Vice
President and (b) by its Chief Financial Officer, or its Secretary or any
Assistant Secretary, or its Treasurer or any Assistant Treasurer without any
further action by the Issuer. The Securities shall be direct, unconditional
obligations of the Issuer and shall rank pari passu without preference among
themselves and equally in priority of payment with all other present and future
unsubordinated, unsecured indebtedness of the Issuer.
SECTION 2.2 Execution of Securities. The Securities shall be signed on
behalf of the Issuer by both (a) its Chairman of the Board of Directors or any
Vice Chairman of the Board of Directors or its President or any Vice President
and (b) by its Chief Financial Officer or its Secretary or its Assistant
Secretary or its Treasurer or any Assistant Treasurer, under its corporate seal
which may, but need not, be attested. Such signatures may be the manual or
facsimile signatures of the present or any future such officers. The seal of
the Issuer may be in the form of a facsimile thereof and may be impressed,
affixed, imprinted or otherwise reproduced on the Securities. Typographical and
other minor errors or defects in any such reproduction of the seal or any such
signature shall not affect the validity or enforceability of any Security that
has been duly authenticated and delivered by the Trustee.
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In case any officer of the Issuer who shall have signed any of the
Securities shall cease to be such officer before the Security so signed shall
be authenticated and delivered by the Trustee or disposed of by the Issuer,
such Security nevertheless may be authenticated and delivered or disposed of as
though the Person who signed such Security had not ceased to be such officer of
the Issuer; and any Security may be signed on behalf of the Issuer by such
Persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Issuer, although at the date of the execution and
delivery of this Indenture any such Person was not such officer.
SECTION 2.3 Certificate of Authentication. Only such Securities as
shall bear thereon a certificate of authentication substantially in the form
recited in the form of Security attached as Exhibit A hereto, executed by that
Trustee by manual signature of one of its authorized signatories, shall be
entitled to the benefits of this Indenture or be valid or obligatory for any
purpose. Such certificate by the Trustee upon any Security executed by the
Issuer shall be conclusive evidence that the Security so authenticated has been
duly authenticated and delivered hereunder and that the Holder is entitled to
the benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of Securities; Payments of
Interest. (a) The Securities and the Trustee's certificate of authentication
shall be substantially in the form set forth in the form of Security attached
as Exhibit A hereto. The Securities shall be numbered, lettered, or otherwise
distinguished in such manner or in accordance with such plans as the officers
of the Issuer executing the same may determine with the approval of the
Trustee.
Any of the Securities may be issued with appropriate insertions,
omissions, substitutions and variations and may have imprinted or otherwise
reproduced thereon such legend or legends, not inconsistent with the provisions
of this Indenture, as may be required to comply with any law or with any rules
or regulations pursuant thereto, or with the rules of any securities market in
which the Securities are admitted to trading, or to conform to general usage.
(b) Securities offered and sold in reliance on Regulation S under the
Securities Act ("Regulation S") as
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provided in the Purchase Agreement shall be issued in the form of a Permanent
Global Security (as defined herein) in definitive, fully registered form
without interest coupons substantially in the form of Security attached as
Exhibit A hereto with such legends as may be applicable thereto in accordance
with such form, which shall be deposited on behalf of the purchasers of the
Securities represented thereby with the Trustee, at the Corporate Trust Office,
as custodian for The Depository Trust Company (hereinafter, the "U.S.
Depositary") and registered in the name of a nominee of the U.S. Depositary,
duly executed by the Issuer and authenticated by the Trustee as hereinafter
provided, for credit to their respective accounts (or to such other accounts as
they may direct) at Morgan Guaranty Trust Company of New York, Brussels office,
as operator of the Euroclear System ("Euroclear") or Cedel, S.A. ("Cedel").
Until the termination of the restricted period (as defined in Regulation S)
with respect to the offer and sale of the Securities, interests in such Global
Security may only be held by the Agent Members (as defined herein) for
Euroclear and Cedel. Until such time as the restricted period shall have
terminated, such Global Security shall be referred to herein as the "Restricted
Regulation S Global Security." After such time as the restricted period shall
have terminated, such Global Security shall be referred to herein as the
"Unrestricted Regulation S Global Security." The aggregate principal amount of
the Restricted Regulation S Global Security and the Unrestricted Regulation S
Global Security may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the U.S. Depositary, as
hereinafter provided. The Issuer shall notify the Trustee of the termination of
the restricted Period by furnishing to the Trustee a certificate substantially
in the form of Exhibit B hereto.
Securities offered and sold in reliance on Rule 144A under the
Securities Act ("Rule 144A") as provided in the Purchase Agreement shall be
issued in the form of a permanent Global Security (the "Rule 144A Global
Security") in definitive fully registered form without interest coupons
substantially in the form of Security attached as Exhibit A hereto with such
legends as may be applicable thereto in accordance with the form of such
Security deposited with the Trustee, at the Corporate Trust Office, as
custodian for the U.S. Depositary, duly executed by the Issuer and
authenticated by the Trustee as hereinaf-
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ter provided. The aggregate principal amount of the Rule 144A Global Security
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the U.S. Depositary, and the U.S.
Depositary or its nominee, as the case may be, as hereinafter provided.
(c) (i) This Section 2.4(c)(i) shall apply only to Securities in
global form ("Global Securities") deposited with the U.S. Depositary.
The Issuer shall execute and the Trustee shall, in accordance with
this Section 2.4(c)(1), authenticate and deliver initially Global Securities
that (a) shall be registered in the name of the U.S. Depositary for such Global
Securities or the nominee of such U.S. Depositary, (b) shall be deposited on
behalf of Agent Members (as defined herein) with the Trustee as custodian for
the U.S. Depositary and (c) shall bear legends substantially to the following
effect:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF [INSERT NAME AND ADDRESS OF U.S. DEPOSITARY] TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION
HEREOF IS REGISTERED IN THE NAME OF [INSERT NAME OF U.S. NOMINEE OF
DEPOSITARY], OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF [INSERT NAME OF U.S. DEPOSITARY], OR SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF
U.S. DEPOSITARY] (AND ANY PAYMENT HEREON IS MADE TO [INSERT NAME OF
NOMINEE OF U.S. DEPOSITARY]), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER THAN [INSERT NAME OF
U.S. DEPOSITARY OR A NOMINEE THEREOF] IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, [INSERT NAME OF NOMINEE OF U.S. DEPOSITARY]
HAS AN INTEREST HEREIN".
"TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF [INSERT NAME OF U.S.
DEPOSITARY] OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL
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SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF".
Members of, or participants in, a U.S. Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the U.S. Depositary or under any Global Security, and
the U.S. Depositary may be treated by the Issuer, the Trustee, and any agent of
the Issuer or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Issuer, the Trustee or any agent of the Issuer or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the U.S. Depositary or impair, as between the U.S. Depositary and
its Agent Members, the operation of customary practices governing the exercise
of the rights of a holder of any security.
(c) (ii) This Section 2.4(c)(ii) shall apply only to the Global
Security deposited on behalf of the purchasers of the Securities represented
thereby with the Trustee as custodian for the U.S. Depositary for credit to
their respective accounts (or to such other accounts as they may direct) at
Euroclear or Cedel insofar as interests in the Global Security are held by the
Agent Members for Euroclear or Cedel.
The provisions of the "Operating Procedures of the Euroclear System"
and the "Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel, respectively, shall
be applicable to such Global Security insofar as interests therein are held by
the Agent Members for Euroclear and Cedel. Account holders or participants in
Euroclear and Cedel shall have no rights under this Indenture with respect to
the Global Security, and the nominee of the U.S. Depositary may be treated by
the Issuer and the Trustee and any agent of the Issuer or the Trustee as the
owner of the Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent of
the Issuer or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the U.S. Depositary or impair, as
between the U.S. Deposi-
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tary and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any security.
(d) Each Security shall be dated the date of its authentication and
shall bear interest from the applicable date, and shall be payable on the dates
specified on the face of the form of Security attached as Exhibit A hereto.
(e) The Person in whose name any Security is registered at the close
of business on the record date specified in the Securities with respect to any
Interest Payment Date shall be entitled to receive the interest, if any,
payable on such Interest Payment Date notwithstanding any transfer or exchange
of such Security subsequent to the record date and prior to such Interest
Payment Date, except if and to the extent the Issuer shall default in the
payment of the interest due on such Interest Payment Date, in which case such
defaulted interest shall be paid to the Persons in whose names Outstanding
Securities are registered at the close of business on a subsequent special
record date, to be established (together with the related payment date) by the
Issuer with the consent of the Trustee. Such special record date shall not be
more than 15 nor less than 10 Business Days prior to the payment date. Not more
than 15 days prior to the special record date, the Issuer (or the Trustee, in
the name of and at the expense of the Issuer) shall mail to Holders a notice
that states the special record date, the related payment date and the amount of
interest to be paid. Notice of the proposed payment of such defaulted interest
and the special record date therefor having been mailed as aforesaid, such
defaulted interest shall be paid to the Persons in whose names the Securities
are registered on such special record date.
(f) The Securities shall be issuable in the denominations specified in
the form of Security attached as Exhibit A hereto.
SECTION 2.5 Global Securities. (a) Portions of a Global Security
deposited with the U.S. Depositary pursuant to Section 2.4 shall be transferred
in certificated form to the beneficial owners thereof only if such transfer
complies with Section 2.6 of this Indenture and (i) the U.S. Depositary
notifies the Issuer that it is unwilling or unable to continue as U.S.
Depositary for such
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Global Security or if at any time such U.S. Depositary ceases to be a "clearing
agency" registered under the Exchange Act and a successor depositary is not
appointed by the Issuer within 90 days of such notice, or (ii) an Event of
Default has occurred and is continuing with respect to the Securities and
payment of principal thereof and interest thereon has been accelerated.
(b) Portions of any Global Security that are transferable to the
beneficial owners thereof pursuant to this Section 2.5 shall be surrendered by
the U.S. Depositary to the Trustee at its New York office for registration of
transfer, in whole or from time to time in part, without charge and the Trustee
shall authenticate and deliver, upon such registration of transfer of each
portion of such Global Security, an equal aggregate principal amount of
Securities of authorized denominations. Any portion of a Global Security whose
registration is transferred pursuant to this Section 2.5 shall be executed,
authenticated and delivered only in the denominations specified in the form of
Security attached as Exhibit A hereto and registered in such names as the U.S.
Depositary shall direct. Any Security delivered in exchange for a portion of
the Rule 144A Global Security shall bear the Legend regarding transfer
restrictions applicable to the Rule 144A Global Security set forth on the form
of Security attached as Exhibit A hereto. Any Security delivered in exchange
for a portion of the Restricted or Unrestricted Regulation S Global Security
shall bear the Legend regarding transfer restrictions applicable to the
Restricted or Unrestricted Registration S Global Security, as the case may be,
set forth on the form of Security attached as Exhibit A hereto.
(c) Subject to the provisions of Section 2.4(c) above, the registered
Holder of any Global Security may grant proxies and otherwise authorize any
person, including Agent Members and persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of any of the events specified in
paragraph (a) of this Section 2.5, the Issuer shall promptly make available to
the Trustee a reasonable supply of certificated Securities in definitive fully,
registered form without interest coupons.
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(e) The Global Security issued and authenticated pursuant to the first
paragraph of Section 2.4(b) (both before and after the expiration of the
restricted period) and the Rule 144A Global Security shall each be assigned
separate securities identification, or "CUSIP," numbers.
SECTION 2.6 Registration, Registration of Transfer and Exchange. (a)
The Issuer shall keep at each office or agency to be maintained for the purpose
as provided in Section 3.2 hereof a register or registers (collectively
referred to as the "Securities Register") in which, subject to such reasonable
regulations as it may prescribe, it will register or cause to be registered,
the transfer of Securities as provided in this Article. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided. If at any time the Trustee shall
not be serving as Security Registrar, at all reasonable times such Securities
Register shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security at
each such office or agency, the Issuer shall execute and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new
Security or Securities in authorized denominations for a like aggregate
principal amount.
Any Security or Securities may be exchanged for a Security or
Securities in other authorized denominations, in an equal aggregate principal
amount. Securities to be exchanged shall be surrendered at each office or
agency to be maintained by the Issuer for the purpose as provided in Section
3.2 hereof, and the Issuer shall execute and the Trustee shall authenticate and
deliver in exchange therefor the Security or Securities which the
Securityholder making the exchange shall be entitled to receive, bearing
numbers not contemporaneously outstanding.
All Securities presented for registration of transfer, exchange,
redemption or payment shall (if so required by the Issuer or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder or its attorney duly authorized in writing.
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The Issuer or Trustee shall not be required to exchange or register a
transfer of (a) any Securities for a period of 15 days next preceding the first
mailing of notice of redemption of Securities to be redeemed or (b) any
Securities selected, called or being called for redemption except, in the case
of any Security where public notice has been given that such Security is to be
redeemed in part, the portion thereof not so to be redeemed.
All Securities issued upon any registration of transfer or exchange of
Securities shall be valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
(b) Notwithstanding any provision to the contrary herein, so long as a
Global Security remains outstanding and is held by or on behalf of the U.S.
Depositary, transfers of a Global Security, in whole or in part, shall only be
made (x) in the case of transfers of portions of a Global Security, to
beneficial owners thereof in certificated form, in accordance with Section 2.5,
and (y) in all other cases, in accordance with this Section 2.6(b) (and
subject, in each case, to the provisions of any Legend (as defined herein)
imprinted on such Global Security).
(i) Transfers of Global Securities as such. Subject to clauses (ii)
through (vi) of this Section 2.6(b), transfers of a Global Security shall
be limited to transfers of such Global Security in whole, and not in part,
to nominees of the U.S. Depositary or to a successor of the U.S. Depositary
or such successor's nominee.
(ii) Rule 144A Global Security to Restricted Regulation S Global
Security. If a holder of a beneficial interest in the Rule 144A Global
Security deposited with the U.S. Depositary wishes at any time to exchange
or transfer its interest in such Global Security to a Person who wishes to
take delivery thereof in the form of an interest in the Restricted
Regulation S Global Security, such holder may, subject to the rules and
procedures of the U.S. Depositary, exchange or transfer or cause the
exchange or transfer of such interest for an equivalent beneficial interest
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in the Restricted Regulation S Global Security in accordance with, and
subject to, this clause (ii). Upon receipt by the Trustee at the Corporate
Trust Office of (1) instructions given in accordance with the U.S.
Depositary's procedures from an Agent Member directing the Trustee to
credit or cause to be credited a beneficial interest in the Restricted
Regulation S Global Security in an amount equal to the beneficial interest
in the Rule 144A Global Security to exchanged or transferred, (2) a written
order given in accordance with the U.S. Depositary's procedures containing
information regarding the Euroclear or Cedel account to be credited with
such increase and the name of such account, and (3) a certificate in the
form of Exhibit C attached hereto given by the holder of such beneficial
interest stating that the exchange or transfer of such interest has been
made in compliance with the transfer restrictions applicable to the
Securities and pursuant to and in accordance with Regulation S, the Trustee
shall instruct the U.S. Depositary to reduce the Rule 144A Global Security
by the aggregate principal amount of the beneficial interest in the Rule
144A Global Security to be so exchanged or transferred and the Trustee
shall instruct the U.S. Depositary, concurrently with such reduction, to
increase the principal amount of the Restricted Regulation S Global
Security by the aggregate principal amount of the beneficial interest in
the Rule 144A Global Security to be so exchanged or deferred, and to credit
or cause to be credited to the account or the person specified in such
instructions (who shall be the Agent Member for Euroclear or Cedel, or
both, as the case may be) a beneficial interest in the Restricted
Regulation S Global Security equal to the reduction in the principal amount
of the Rule 144A Global Security.
(iii) Rule 144A Global Security to Unrestricted Regulation S Global
Security. If a holder of a beneficial interest in the Rule 144A Global
Security deposited with the U.S. Depositary wishes at any time to exchange
its interest in such Global Security for an interest in the Unrestricted
Regulation S Global Security, or to transfer its interest in such Global
Security to a Person who wishes to take delivery thereof in the form of an
interest in the Unrestricted Regulation S Global Security, such holder may,
subject
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to the rules and procedures of the U.S. Depository, exchange or cause the
exchange or transfer or cause the transfer of such interest for an
equivalent beneficial interest in the Unrestricted Regulation S Global
Security in accordance with, and subject to, this clause (iii). Upon
receipt by the Trustee at the Corporate Trust Office of (1) instructions
given in accordance with the U.S. Depository's procedures from an Agent
Member directing the Trustee to credit or cause to be credited a beneficial
interest in the Unrestricted Regulation S Global Security in an amount
equal to the beneficial interest in the Rule 144A Global Security to be
exchanged or transferred, (2) a written order given in accordance with the
U.S. Depositary's procedures containing information retarding the
participant account of the U.S. Depositary and, in the case of a transfer
pursuant to and in accordance with Regulation S, the Euroclear or Cedel
account to be credited with such increase and (3) a certificate in the form
of Exhibit D attached hereto given by the holder of such beneficial
interest stating that the exchange or transfer of such interest has been
made in compliance with the transfer restrictions applicable to the
Securities and (A) in the case of an exchange, that either (x) the Security
being exchanged is not a "restricted security" as defined in Rule 144 under
the Securities Act, or (y) the exchange is being made to facilitate a
contemporaneous transfer that complies with this clause (iii), (B) in the
case of a transfer pursuant to Regulation S, that the Security is being
transferred pursuant to and in accordance with Regulation S, (C) in the
case of a transfer pursuant to Rule 144, that the Security is being
transferred pursuant to and in accordance with Rule 144 or (D) in the case
of a transfer pursuant to another exemption from the Securities Act
(including without limitation Rule 144A), specifying the basis for such
exemption, the Trustee shall instruct the U.S. Depositary to reduce the
Rule 144A Global Security by the aggregate principal amount of the
beneficial interest in the Rule 144A Global Security to be so exchanged or
transferred and the Trustee shall instruct the U.S. Depositary,
concurrently with such reduction, to increase the principal amount of the
Unrestricted Regulation S Global Security by the aggregate principal amount
of the beneficial interest in the Rule 144A Global Security to be so
exchanged or
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transferred, and to credit or cause to be credited to the account of the
person specified in such instructions a beneficial interest in the
Unrestricted Regulation S Global Security equal to the reduction in the
principal amount of the Rule 144A Global Security.
(iv) Restricted Regulation S Global Security or Unrestricted
Regulation S Global Security to Rule 144A Global Security. If a holder of a
beneficial interest in the Restricted Regulation S Global Security or the
Unrestricted Regulation S Global Security deposited with the U.S.
Depositary wishes at any time to exchange or transfer its interest in such
Restricted Regulation S Global Security or Unrestricted Regulation S Global
Security to a Person who wishes to take delivery thereof in the form of an
interest in the Rule 144A Global Security such holder may, subject to the
rules and procedures of Euroclear or Cedel and the U.S. Depositary, as the
case may be, exchange or transfer or cause the exchange or transfer of such
interest for an equivalent beneficial interest in the Rule 144A Global
Security, in accordance with, and subject to, this clause (iv). Upon
receipt by the Trustee at the Corporate Trust Office of (1) instructions
from Euroclear or Cedel or the U.S. Depositary as the case may be,
directing the Trustee to credit or cause to be credited a beneficial
interest in the Rule 144A Global Security equal to the beneficial interest
in the Restricted Regulation S Global Security or the Unrestricted
Regulation S Global Security to be exchanged or transferred, such
instructions to contain information regarding the Agent Member's account
with the U.S. Depositary to be credited with such increase, and, with
respect to an exchange or transfer of an interest in the Unrestricted
Regulation S Global Security, information regarding the Agent Member's
account with the U.S. Depositary to be debited with such decrease, and (2)
a certificate in the form of Exhibit E attached hereto given by the holder
of such beneficial interest and stating that the person exchanging or
transferring such interest in the Restricted Regulation S Global Security
or the Unrestricted Regulation S Global Security, as the case may be,
reasonably believes that the person acquiring such interest in the Rule
144A Global Security is a qualified institutional buyer (as defined in Rule
144A) and is obtaining such beneficial interest
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in a transaction meeting the requirements of Rule 144A, Euroclear or Cedel
or the Trustee, as the case may be, shall instruct the U.S. Depositary to
reduce the Restricted Regulation S Global Security or the Unrestricted
Regulation S Global Security, as the case may be, by the aggregate
principal amount of the beneficial interest in the Restricted Regulation S
Global Security or the Unrestricted Regulation S Global Security to be
exchanged or transferred, and the Trustee shall instruct the U.S.
Depositary, concurrently with such reduction to increase the principal
amount of the Rule 144A Global Security by the aggregate principal amount
of the beneficial interest in the Restricted Regulation S Global Security
or the Unrestricted Regulation S Global Security, as the case may be, to be
so exchanged or transferred, and to credit or cause to be credited to the
account of the person specified in such instructions a beneficial interest
in the Rule 144A Global Security equal to the reduction in the principal
amount of the Restricted Regulation S Global Security or the Unrestricted
Regulation S Global Security, as the case may be.
(v) Other Exchanges. In the event that a Global Security is exchanged
for Securities in definitive registered form without interest coupons
pursuant to Section 2.5 hereof, such Securities may be exchanged or
transferred for one another only in accordance with such procedures as are
substantially consistent with the provisions of clauses (ii) through (iv)
above (including, without limitation, the certification requirements
intended to insure that such exchanges or transfers comply with Rule 144A,
Rule 144 or Regulation S under and generally with the Securities Act, as
the case may be) and as may be from time to time adopted by the Issuer and
the Trustee.
(c) Successive registrations and registrations of transfers and
exchanges as aforesaid may be made from time to time as desired, and each such
registration shall be noted on the Security Register. No service charge shall
be made for any registration of transfer or exchange of the Securities, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith and any other amounts
required to be paid by the provisions of the Securities.
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(d) If Securities are issued upon the registration of transfer,
exchange or replacement of Securities not bearing the legends required by the
form of Security attached as Exhibit A hereto (collectively, the "Legend"), the
Securities so issued shall bear the Legend. If Securities are issued upon the
registration of transfer, exchange or replacement of Securities bearing the
Legend, or if a request is made to remove the Legend on a Security, the
Securities so issued shall bear the Legend, or the Legend shall not be removed,
as the case may be, unless there is delivered to the Issuer and the Trustee
such satisfactory evidence, which may include an opinion of counsel of
recognized standing licensed to practice law in the State of New York and
experienced in matters involving the Securities Act, as may be reasonably
required by the Issuer that neither the Legend nor the restrictions on transfer
set forth therein are required to ensure that transfers thereof comply with the
provisions of Rule 144A, Rule 144 or Regulation S under the Securities Act or
that such Securities are not "restricted securities" within the meaning of Rule
144 under the Securities Act. Upon provision of such satisfactory evidence, the
Trustee, at the direction of the Issuer, shall authenticate and deliver a
Security that does not bear the Legend. If a Legend is removed from the face of
a Security and the Security is subsequently held by an affiliate of the Issuer,
the Legend shall be reinstated.
SECTION 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.
In case any temporary or definitive Security shall become mutilated, defaced or
be apparently destroyed, lost or stolen, the Issuer in its discretion may
execute, and upon the written request any officer of the Issuer, the Trustee
shall authenticate and deliver a new Security, bearing a number not
contemporaneously outstanding, in exchange and substitution for the mutilated
or defaced Security, or in lieu of and substitution for Security so apparently
destroyed, lost or stolen. In every case the applicant for a substitute
Security shall furnish to the Issuer and to the Trustee and any agent of the
Issuer or the Trustee such security or indemnity as may be required by them to
indemnify and defend and to save each of them harmless and, in every case of
destruction, loss or theft, evidence to their satisfaction of the apparent
destruction, loss or theft of such Security and of the ownership thereof.
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Upon the issuance of an substitute Security, the Issuer may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and expenses of the Trustee) connected therewith. In case any Security
which has matured or is about to mature, or has been called for redemption in
full, shall become mutilated or defaced or be apparently destroyed, lost or
stolen. the Issuer may, instead of issuing a substitute Security, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated or defaced Security), if the applicant for such payment shall
furnish to the Issuer and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as any of them may require to save each of
them harmless from all risks, however remote, and, in every case of apparent
destruction, loss or theft, the applicant shall also furnish to the Issuer and
the Trustee and any agent of the Issuer or the Trustee evidence to their
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Every substitute Security issued pursuant to the provisions of this
Section by virtue of the fact that any Security is apparently destroyed, lost
or stolen shall constitute an additional contractual obligation of the Issuer,
whether or not the apparently destroyed, lost or stolen Security shall be at
any time enforceable by anyone and shall be entitled to all the benefits of
(but shall be subject to all the limitations of rights set forth in) this
Indenture equally and proportionately with any and all other Securities duly
authenticated and delivered hereunder. All Securities shall be held and owned
upon the express condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of
mutilated, defaced, or apparently destroyed, lost or stolen Securities and
shall preclude any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
SECTION 2.8 Cancelation of Securities: Destruction Thereof. All
Securities surrendered for payment, redemption, registration of transfer or
exchange, if surrendered to the Issuer or any agent of the Issuer or the
Trustee, shall be delivered to the Trustee for cancelation
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or, if surrendered to the Trustee, shall be canceled by it provided all
conditions regarding such cancelation have been met; and no Securities shall be
issued in lieu thereof except as expressly permitted by any of the provisions
of this Indenture. The Trustee shall cancel and dispose of all Securities
surrendered for registration of transfer, exchange, payment or cancelation in
accordance with the Trustee's policy of disposal unless the Issuer instructs
the Trustee in writing to deliver the Securities to the Issuer. If the Issuer
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Securities
unless and until the same are delivered to the Trustee for cancelation.
SECTION 2.9 Temporary Securities. Pending the preparation of
definitive Securities, the Issuer may execute and the Trustee shall
authenticate and deliver temporary Securities (printed, lithographed,
typewritten or otherwise reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as registered Securities
without coupons, of any authorized denomination, and substantially in the form
of the definitive Securities but with such omissions, insertions and
variations as may be appropriate for temporary Securities, all as may be
determined by the Issuer with the concurrence of the Trustee. Temporary
Securities may contain such reference to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer
and be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the definitive
Securities. Without unreasonable delay the Issuer shall execute and shall
furnish definitive Securities and thereupon temporary Securities may be
surrendered in exchange therefor without charge at each office or agency to be
maintained by the Issuer for the purpose pursuant to Section 3.2 hereof, and
the Trustee shall authenticate and deliver in exchange for such temporary
Securities a like aggregate principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall be
entitled to the same benefits under this Indenture as definitive Securities.
SECTION 2.10 Computation of Interest. Interest on the Securities shall
be computed on the basis of a 360-day year of twelve 30-day months.
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ARTICLE III
COVENANTS OF
THE ISSUER AND THE TRUSTEE
--------------------------
SECTION 3.1 Payment of Principal and Interest. The Issuer covenants
and agrees that it will duly and punctually pay or cause to be paid the
principal and Change of Control purchase price of, and premium, if any, and
interest on, each of the Securities at the place or places, at the respective
times and in the manner provided in the Securities. Payment of principal and
the Change of Control purchase price of, and premium and interest on the
Securities shall be paid by mailing a check to or upon the written order of the
registered Holders of Securities entitled thereto at their last address as it
appears on the Securities Register or, upon written application to the Trustee
by a Holder of $1,000,000 or more in aggregate principal amount of Securities,
by wire transfer of immediately available funds to an account maintained by
such Holder with a bank or other financial institution; provided, however, that
(subject to the provisions of Section 2.7 hereof) payment of principal and the
Change of Control Price of, and premium, if any, on, any Security may be
conditioned upon presentation for payment of the certificate representing such
Security.
SECTION 3.2 Offices for Payments, etc. So long as any of the
Securities remain Outstanding, the Issuer shall maintain in the Borough of
Manhattan, The City of New York, the following: (a) an office or agency where
the Securities may be presented for payment, (b) an office or agency where the
Securities may be presented for registration of transfer and for exchange as
in this Indenture provided and (c) an office or agency where notices and
demands to or upon the Issuer in respect of the Securities or of this Indenture
may be served. The Issuer shall give to the Trustee written notice of the
location of any such office or agency and of any change of location thereof.
The Issuer hereby initially designates the Trustee's New York office as such
office or agency. In case the Issuer shall fail to maintain any such office or
agency or shall fail to give such notice of the location or of any change in
the location thereof, presentations and demands may be made and notices may be
served at the Corporate Trust Office.
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SECTION 3.3 Appointment to Fill Vacancy in Office of Trustee. The
Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee,
shall appoint, in the manner provided in Section 5.9 hereof, a Trustee, so that
there shall at all times be a Trustee hereunder.
SECTION 3.4 Paying Agents. The Trustee shall be the principal paying
agent for the Securities. Whenever the Issuer shall appoint a paying agent
other than the Trustee, it shall cause such paying agent to execute and deliver
to the Trustee an instrument in which such agent shall agree with the Trustee,
subject to the provisions of this Section,
(a) that it will hold all sums received by it as such agent for the
payment of the principal or Change of Control purchase price of, or premium
or interest on, the Securities (whether such sums have been paid to it by
the Issuer or by any other obligor on the Securities) in trust for the
benefit of the Holders of the Securities or of the Trustee,
(b) that it will give the Trustee notice of any failure by the Issuer
(or by any other obligor on the Securities) to make any payment of the
principal or Change of Control purchase price of, or premium or interest
on, the Securities when the same shall be due and payable and
(c) pay any such sums so held in trust by it to the Trustee upon the
Trustee's written request at any time during the continuance of the failure
referred to in clause (b) above.
The Issuer shall, prior to each due date of the principal or Change of
Control purchase price of, and premium, if any, or interest on the Securities,
deposit with the paying agent a sum sufficient to pay such principal, Change of
Control purchase price, premium or interest, and (unless such paying agent is
the Trustee) the Issuer shall promptly notify the Trustee of any failure to
take such action.
Anything in this Section 3.4 to the contrary notwithstanding, the
Issuer may at any time, for the purpose of obtaining satisfaction and discharge
of this Indenture or for any other reason, pay or cause to be paid
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to the Trustee all sums held in trust by any paying agent hereunder, as
required by this Section 3.4, such sums to be held by the Trustee upon the
trusts herein contained.
Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 3.4 is subject
to the provisions of Section 9.3 and Section 9.1 hereof.
SECTION 3.5 Certificate to Trustee. Issuer shall furnish to the
Trustee on or before March 31 in each year (beginning with March 31, 1998) a
brief certificate from the principal executive, financial or accounting officer
of this Issuer as to his or her knowledge of the Issuer's compliance with all
covenants under this Indenture (such compliance to be determined without regard
to any period of grace or requirement of notice provided under this Indenture).
SECTION 3.6 Securityholder's Lists. The Issuer shall furnish or cause
to be furnished to the Trustee a list in such form as the Trustee may
reasonably require of the names and addresses of the Holders of the Securities
(a) semiannually not more than 15 days after each record date for the payment
of semi-annual interest on the Securities, as specified in the form of Security
attached as Exhibit A hereto, as of such record date and (b) at other times as
the Trustee may request in writing, within thirty days after receipt by the
Issuer of any such request as of a date not more than 15 days prior to the time
such information is furnished.
SECTION 3.7 Reports by the Issuer. (a) If the Issuer is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, then the
Issuer shall file with the Trustee and provide Securityholders, within 15 days
after it files them with the Commission, copies of its annual reports and of
the information, documents and other reports (or copies of such portions of any
of the foregoing as the Commission may by rules and regulations prescribe) that
the Issuer is required to file with the Commission pursuant to Section 13 or
15(d) of Exchange Act.
(b) As long as the Issuer is not subject to Section 13 or 15(d) of the
Exchange Act at any time, upon the request of a Holder or any owner of a
beneficial interest in a Security, the Issuer shall promptly furnish
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or cause to be furnished "Rule 144A Information" (as defined herein) to such
Holder, or beneficial owner or to a prospective purchaser of such Security
designated by such Holder or beneficial owner in order to permit compliance by
such Holder or beneficial owner with Rule 144A under the Securities Act in
connection with the resale of such Security by such Holder or beneficial owner.
"Rule 144A Information" shall be such information as is specified pursuant to
Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).
(c) In addition to the requirement to furnish Rule 144A Information as
provided in subsection (b), the Issuer shall furnish or cause to be furnished
to Holders and (upon the requests thereof delivered to the Issuer or the
Trustee) to holders of an interest in any Global Security (i) annual
consolidated comparative financial statements of the Issuer prepared in
accordance with GAAP (together with notes thereto, a repose thereon by an
independent accountant of established national reputation and a management's
discussion and analysis of financial condition and results of operations), such
statements to be so furnished as soon as reasonably available and in any event
within 120 days after the end of the fiscal year covered thereby and (ii)
unaudited condensed consolidated comparative balance sheets and statements of
income and cash flows of the Issuer for each of the first three fiscal quarters
of each fiscal year and the corresponding quarter and year-to-date period of
the prior year prepared on a basis consistent with the annual financial
statements furnished pursuant to clause (c)(i), such statements to be so
furnished within 90 days after the end of each such quarter.
SECTION 3.8 Limitation on Liens. So long as any of the Securities are
Outstanding, the Issuer shall not pledge, mortgage or hypothecate, or permit to
exist, any mortgage, pledge or other lien upon any property at any time
directly owned by the Issuer to secure any indebtedness for money borrowed
that is incurred, issued, assumed or guaranteed by the Issuer ("Indebtedness"),
without making effective provisions whereby the Securities shall be equally and
ratably secured with any and all such Indebtedness and with any other
Indebtedness similarly entitled to be equally and ratably secured; provided,
however, that this restriction shall not apply to or prevent the creation or
existence of (i) liens existing at the Original Issuance
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Date of the Securities, (ii) purchase money liens that do not exceed the cost
or value of the purchased property, (iii) other liens not to exceed 10% of
Consolidated Net Tangible Assets, and (iv) liens granted in connection with
extending, renewing, replacing or refinancing, in whole or in part, the
Indebtedness (including, without limitation, increasing the principal amount of
such Indebtedness) secured by liens described in the foregoing clauses (i)
through (iii).
In the event that the Issuer shall propose to pledge, mortgage or
hypothecate any property at any time directly owned by it to secure any
Indebtedness, other than as permitted by clauses (i) through (iv) of the
previous paragraph, the Issuer shall (prior thereto) give written notice
thereof to the Truster, who shall give notice to the Holders, and the Issuer
shall, prior to or simultaneously with such pledge, mortgage or hypothecation,
effectively secure all the Securities equally and ratably with such
Indebtedness.
SECTION 3.9 Repurchase of Securities Upon a Change of Control. (a)
Upon a Change of Control, each Holder of the Securities shall have the right to
require that the Issuer repurchase such Holder's Securities at a repurchase
price in cash equal to 101% of the principal amount thereof plus accrued
interest, if any, to the date of repurchase, in accordance with the terms set
forth in subsection (b) below.
(b) Within 30 days following any Change of Control, the Issuer shall
mail a notice to each Holder (with a copy to the Trustee) stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Issuer to repurchase such Holder's Securities at a
repurchase price in cash equal to 101% of the principal amount thereof plus
accrued interest, if any, to the date of repurchase (the "Change of Control
Offer");
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization of the Issuer after giving effect to such
Change of Control);
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(3) the repurchase date (which shall be a Business Day and be not
earlier than 30 days or later than 60 days from the date such notice is
mailed) (the "Repurchase Date");
(4) that any Security not tendered for purchase will continue to
accrue interest;
(5) that interest on any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue after the repurchase of such
Security on the Repurchase Date;
(6) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the paying agent at the address specified in the
notice prior to the close of business on the Business Day prior to the
Repurchase Date;
(7) that Holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the third
Business Day (or such shorter periods as may be required by applicable law)
preceding the Repurchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
Securities the Holder delivered for purchase, and a statement that such
Holder is withdrawing its election to have such Securities purchased; and
(8) that Holders that elect to have their Securities purchased only in
part will be issued new Securities in a principal amount equal to then
unpurchased portion of the Securities surrendered.
(c) Notwithstanding the foregoing, for so long as the Securities are
in the form of Global Securities, the Issuer shall deliver to the U.S.
Depositary within the time periods specified above, for retransmittal to its
Agent Members, a notice substantially to the effect specified in clauses (1)
through (5) and (7) above, which notice shall also specify the required
procedures (furnished by the U.S. Depositary) for holders of interests in the
Global Securities to tender and receive payment of the purchase price
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for such interests (including the U.S. Depositary's "Repayment Option
Procedures," to the extent applicable), all in accordance with the U.S.
Depositary's rules, regulations and practices.
(d) On the Repurchase Date, the Issuer shall (i) accept for payment
Securities or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Trustee money sufficient without reinvestment to
pay the purchase price of all Securities or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee Securities so accepted
together with an Officers' Certificate identifying the Securities or portions
thereof tendered to the Issuer. The Trustee shall promptly mail to the Holders
of the Securities so accepted payment in an amount equal to the purchase price,
and promptly authenticate and mail to such Holders a new Security in a
principal amount equal to any unpurchased portion of the Security surrendered.
The Issuer will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Repurchase Date.
(e) The Issuer shall comply with Rule 14e-1 under the Exchange Act and
any other applicable laws and regulations in the even that a Change of Control
occurs and the Issuer is required to make a Change of Control Offer.
ARTICLE IV
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
-----------------------------------
SECTION 4.1 Event of Default Defined; Acceleration of Maturity; Waiver
of Default. In case of one or more of the following Events of Default (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing,
that is to say:
(a) default in the payment of all or any part of the principal or
Change of Control purchase price of, or premium, if any, on, any of the
Securities as and
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when the same shall become due and payable either at maturity, upon any
redemption or required repurchase, by declaration of acceleration or
otherwise;
(b) default in the payment of any installment of interest upon any of
the Securities as and when the same shall become due and payable, and
continuance of such default for a period of 30 days;
(c) an event of default, as defined in any instrument of the Issuer
under which there may be issued, or by which there may be secured or
evidenced, any Indebtedness of the Issuer that has resulted in the
acceleration of such Indebtedness, or any default occurring in payment of
any such Indebtedness at final maturity (and after the expiration of any
applicable grace periods), other than such Indebtedness (i) which is
payable solely out of the property or assets of a partnership, joint
venture or similar entity of which the Issuer is a participant, or which is
secured by a lien on the property or assets owned or held by such entity,
without further recourse to or liability of the Issuer, or (ii) the
principal of, and interest on, which, when added to the principal of and
interest on all other such Indebtedness (exclusive of Indebtedness under
clause (i) above), does not exceed $20,000,000; or
(d) failure on the part of the Issuer duly to observe or perform any
other of the covenants or agreements on the part of the Issuer in the
Securities or in this Indenture and such failure continues for a period of
30 days after the date on which written notice specifying such failure,
stating that such notice is a "Notice of Default" hereunder and demanding
that the Issuer remedy the same, shall have been given by registered or
certified mail, return receipt requested, to the Issuer by the Trustee, or
to the Issuer and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Securities at the time Outstanding; or
(e) one or more final judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or similar
entity for the payment of money shall be rendered against the Issuer or any
of its properties in an aggregate amount
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in excess of $20,000,000 (excluding the amount thereof covered by
insurance) and such judgment, decree or order shall remain unvacated,
undischarged and unstayed for more than 90 consecutive days, except while
being contested in good faith by appropriate proceedings; or
(f) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Issuer in an involuntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, or a decree or order
adjudging the Issuer a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Issuer under any applicable federal or
state law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer or for any
substantial part of its property or ordering the winding up or liquidation
of its affairs, shall have been entered, and such decree or order shall
remain unstayed and in effect for a period of 90 consecutive days; or
(g) the Issuer shall commence a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or consent to the entry of a
decree or order for relief in an involuntary case or proceeding under any
such law, or to the commencement of any bankruptcy or insolvency case or
proceeding against the Issuer, or the filing by the Issuer of a petition or
answer or consent seeking reorganization or relief under any such
applicable federal or state law, or the consent by the Issuer to the filing
of such petition or to the appointment of or the taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Issuer or of any substantial part of its property,
or the making by the Issuer of an assignment for the benefit of creditors,
or the taking of action by the Issuer in furtherance of any such action;
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then and in each and every such case (other than an Event of Default with
respect to the Issuer specified in 4.1(f) or 4.1(g) hereof), unless the
principal of all of the Securities shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Securities then Outstanding hereunder, by
notice in writing to the Issuer (and to the Trustee if given by
Securityholders), may declare the entire principal of all the Securities
and the interest accrued thereon to be due and payable immediately, and
upon any such declaration the same shall become immediately due and
payable. This provision, however, is subject to the condition that if, at
any time after the principal of the Securities shall have been so declared
due and payable, and before any judgment or decree for the payment of the
moneys due shall have been obtained or entered as hereinafter provided, the
Issuer shall pay or shall deposit with the Trustee a sum sufficient to pay
all matured installments of interest upon all the Securities and the
principal or Change of Control purchase price and premium, if any, of any
and all Securities that shall have become due otherwise than by
acceleration (with interest upon such principal and Change of Control
purchase price and premium, if any, and, to the extent that payment of such
interest is enforceable under applicable law, on overdue installments of
interest, at the rate of interest specified in the Securities, to the date
of such payment or deposit) and such amount as shall be sufficient to cover
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and all other reasonable expenses
and liabilities incurred and all reasonable advances made, by the Trustee
and each predecessor Trustee except as a result of negligence or bad faith,
and if any and all Events of Default under the Indenture, other than the
non-payment of the principal that shall have become due by acceleration,
shall have been cured, waived or otherwise remedied as provided herein,
then and in every such case the Holders of a majority in aggregate
principal amount of the Securities then Outstanding, by written notice to
the Issuer and to the Trustee, may waive all defaults (except, unless
theretofore cured, a default in payment of principal of, or Change of
Control purchase price or premium, if any, or interest on, the Securities)
and rescind and annul such declaration and its consequences, but no such
waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
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If an Event of Default specified in Section 4.1(f) or 4.1(g) hereof
occurs with respect to the Issuer, the principal of and accrued interest on the
Security shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholder.
SECTION 4.2 Collection of Indebtedness by Trustee; Trustee May Prove
Debt. The Issuer covenants that (a) in case default shall be made in the
payment of any installment of interest on any of the Securities when such
interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal or Change of Control purchase price
of, or premium, if any, on, any of the Securities when the same shall have
become due and payable, whether upon maturity or upon any redemption or by
declaration or acceleration or otherwise, then upon demand of the Trustee, the
Issuer shall pay to the Trustee for the benefit of the Holders of the
Securities the whole amount that then shall have become due and payable on all
such Securities of principal. Change of Control purchase price, premium or
interest, as the case may be (with interest to the date of such payment upon
the overdue principal, Change of Control purchase price or premium and, to the
extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the rate of interest specified in the
Securities); and in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including reasonable
compensation to the Trustee and each predecessor Trustee, their respective
agents, attorneys and counsel, and any reasonable expenses and liabilities
incurred, and all reasonable advances made, by the Trustee and each predecessor
Trustee except as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer may pay the
principal and Change of Control purchase price of and premium and interest on
the Securities to the registered Holders, whether or not the Securities be
overdue.
In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or
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in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against the Issuer or other obligor upon the
Securities and collect in the manner provided by law out of the property of the
Issuer or other obligor upon the Securities, wherever situated, the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the Issuer or
any other obligor upon the Securities under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, custodian, sequestrator or similar official shall
have been appointed for or taken possession of the Issuer or its property or
such other obligor, or in case of any other comparable judicial proceedings
relative to the Issuer or other obligor upon the Securities, or to the
creditors or property of the Issuer or such other obligor, the Trustee,
irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective or
whether the Trustee shall have made any demand pursuant to the provisions of
this Section 4.2, shall be entitled and empowered, by intervention in such
proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of
principal, Change of Control purchase price, premium and interest owing and
unpaid in respect of the Securities, and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for reasonable compensation to the Trustee
and each predecessor Trustee, and their respective agents, attorneys and
counsel, and for reimbursement of all reasonable expenses and liabilities
incurred, and all reasonable advances made, by the Trustee and each
predecessor Trustee, except as a result of negligence or bad faith) and of
the Securityholders, allowed in any judicial proceedings relative to the
Issuer or other obligor upon the Securities, or to the creditors or
property of the Issuer or such other obligor;
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(b) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of the Securities in any election of a trustee or a
standby trustee in arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or person performing similar functions
in comparable proceedings; and
(c) to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute all amounts received with
respect to the claims of the Securityholders and of the Trustee on their
behalf; and any trustee, receiver, or liquidator, custodian or other
similar official is hereby authorized by each of the Securityholders to
make payments to the Trustee, and, in the event that the Trustee shall
consent to the making of payments directly to the Securityholders, to pay
to the Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their respective
agents, attorneys and counsel, and all other reasonable expenses and
liabilities incurred, and all reasonable advances made, by the Trustee and
each predecessor Trustee except as a result of negligence or bad faith.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Securityholders any plan or reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding except, as aforesaid, to vote for the election of a trustee
in bankruptcy or similar person.
All rights of action and of asserting claims under this Indenture, or
under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities or the production thereof at any trial or
other proceedings relative thereto, and any such action or proceedings
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Trustee, each predecessor
Trustee and their respective agents and
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attorneys, shall be for the ratable benefit of the Holders of the Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
Holders of the Securities, and it shall not be necessary to make any Holders of
the Securities parties to any such proceedings.
SECTION 4.3 Application of Proceeds. Any moneys collected by the
Trustee pursuant to this Article shall be applied in the following order at the
date or dates fixed by the Trustee and, in case of the distribution of such
moneys on account of principal or interest, upon presentation of the several
Securities and stamping (or otherwise noting) thereon the payment, or issuing
Securities in reduced principal amounts in exchange for the presented
Securities if only partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses, including reasonable
compensation to the Trustee and each predecessor Trustee and their
respective agents and attorneys and of all reasonable expenses and
liabilities incurred, and all reasonable advances made, by the Trustee and
each predecessor Trustee except as a result of negligence or bad faith and
all other amounts due under Section 5.6 hereof;
SECOND: In case the principal and the Change of Control purchase price
and premium, if any, of the Securities shall not have become and be then
due and payable, to the payment of interest in default in the order of the
maturity of the installments of such interest, with interest (to the extent
that such interest has been collected by the Trustee) upon the overdue
installments of interest at the rate of interest specified in the
Securities, such payments to be made ratably to the persons entitled
thereto, without discrimination or preference;
THIRD: In case the principal or the Change of Control purchase price
of the Securities shall have become and shall be then due and payable, to
the payment of the whole amount then owing and unpaid upon
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all the Securities for principal, Change of Control purchase price,
premium, and interest, with interest upon the overdue principal, Change of
Control purchase price, premium, if any, and (to the extent that such
interest has been collected by the Trustee) upon overdue installments of
interest at the rate of interest specified in the Securities, and in case
such moneys shall be insufficient to pay in full the whole amount so due
and unpaid upon the Securities, then to the payment of such principal,
Change of Control purchase price, premium and interest, without preference
or priority of principal, Change of Control purchase price or premium over
interest, or of interest over principal or Change of Control purchase price
or premium, or of any installment of interest over any other installment of
interest, or of any Security over any other Security, ratably to the
aggregate of such principal and accrued and unpaid interest; and
FOURTH: To the payment of the remainder, if any, to the Issuer or any
other Person lawfully entitled thereto.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 4.3.
SECTION 4.4 Suits for Enforcement. In case an Event of Default has
occurred, has not been waived and is continuing, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
SECTION 4.5 Restoration of Rights on Abandonment of Proceedings. In
case the Trustee shall have proceeded to enforce any right under this Indenture
and such proceedings shall have been discontinued or abandoned for any reason,
or shall have been determined adversely to the Trustee, then and in every such
case the Issuer and the
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Trustee shall be restored respectively to their former positions and rights
hereunder, and all rights, remedies and powers of the Issuer, the Trustee and
the Securityholders shall continue as though no such proceedings had been
taken.
SECTION 4.6 Limitations of Suits by Securityholders. No Holder of any
Security shall have any right by virtue or by availing of any provision of this
Indenture to institute any action or proceeding at law or in equity or in
bankruptcy or otherwise upon or under or with respect to this Indenture, or for
the appointment of a trustee, receiver, liquidator, custodian or other similar
official or for any other remedy hereunder, unless such Holder previously shall
have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore provided, and unless also the Holders of not less than
25% in aggregate principal amount of the Securities then Outstanding shall have
made written request upon the Trustee to institute such action or proceedings
in its own name as trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby and the Trustee for 30 days after
its receipt of such notice, request and offer of indemnity shall have failed to
institute any such action or proceedings and no direction inconsistent with
such written request shall have been given to the Trustee pursuant to Section
4.8 hereof; it being understood and intended, and being expressly covenanted by
the taker and Holder of every Security with every other taker and Holder and
the Trustee, that no one or more Holders of Securities shall have any right in
any manner whatever by virtue or by availing of any provision of this Indenture
to affect, disturb or prejudice the rights of any other Holder of Securities,
or to obtain or seek to obtain priority over or preference to any other such
Holder or to enforce any fight under this indenture, except in the manner
herein provided and for the equal, ratable and common benefit of all Holders of
Securities. For the protection and enforcement of the provisions of this
Section 4.6 each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
SECTION 4.7 Powers and Remedies Cumulative, Delay or Omission Not
Waiver of Default. Except as provided in Section 2.7 hereof, no right or remedy
herein
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conferred upon or reserved to the Trustee or to the Securityholders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of any of the
Securities to exercise as aforesaid any such right or power accruing upon any
Event of Default occurring and continuing as aforesaid shall impair any such
right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein; and, subject to Section 4.6 hereof, every
power and remedy given by this Indenture or by law to the Trustee or to the
Securityholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Securityholders.
SECTION 4.8 Control by Securityholders. The Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee by this Indenture; provided that such direction shall not be
otherwise than in accordance with law and the provisions of this Indenture; and
provided further that (subject to the provisions of Section 5.1 hereof) the
Trustee shall have the right to decline to follow any such direction if the
Trustee, being advised by counsel, shall determine that the action or
proceeding so directed may not lawfully be taken or if the Trustee in good
faith by its board of directors, the executive committee, or a trust committee
of directors or Responsible Officers of the Trustee shall determine that the
action or proceedings so directed would involve the Trustee in personal
liability or if the Trustee in good faith shall so determine that the actions
or forbearances specified in or pursuant to such direction shall be unduly
prejudicial to the interests of Holders of the Securities not joining in the
giving of said direction, it being understood that (subject to Section 5.1
hereof) the Trustee shall have no duty to ascertain whether or not such actions
or forbearances are unduly prejudicial to such Holders.
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Nothing in this Indenture shall impair the right of the Trustee in its
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction by Securityholders.
SECTION 4.9 Waiver of Past Defaults. Prior to the declaration of the
maturity of the Securities as provided in Section 4.1 hereof, the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding may on behalf of the Holders of all the Securities waive any past
default or Event of Default hereunder and its consequences, except a default
(a) in the payment of principal or Change of Control purchase price of,
premium, if any, or interest on any of the Securities or (b) in respect of a
covenant or provision hereof that cannot be modified or amended without the
consent of the Holder of each Security affected. In the case of any such
waiver, the Issuer, the Trustee and the Holders of the Securities shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
Upon any such waiver, such default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 4.10 Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture (including, without limitation, Section 4.6
hereof), the right of any Holder to receive, and to institute suit to enforce,
payment of the principal and Change of Control purchase price of, and premium,
if any, and interest on the Securities on or after the respective due dates
expressed in such Securities (including upon redemption and acceleration of the
maturity of the principal of and premium, if any, and interest on the
Securities), shall not be affected or impaired, and shall be absolute and
unconditional.
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ARTICLE V
CONCERNING THE TRUSTEE
----------------------
SECTION 5.1 Duties and Responsibilities of the Trustee; During
Default; Prior to Default. The Trustee, prior to the occurrence of an Event of
Default and after the curing or waiving of all Events of Default that may have
occurred, undertakes to perform only such duties as are specifically set forth
in this Indenture. In case an Event of Default has occurred (which has not been
cured or waived) the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty
to
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examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of not less than a majority in principal amount of the
Securities at the time Outstanding relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that
the repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
SECTION 5.2 Certain Rights of the Trustee. Subject to Section 5.1
hereof:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or any
other certificate (including, without limitation, any certificate provided
to the Trustee pursuant to Section 3.5 hereof), statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, note,
coupon, security or other paper document believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Issuer mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless
other evidence in respect thereof be herein specifically
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prescribed) and any resolution of the Board of Directors may be evidenced
to the Trustee by a copy thereof certified by the Secretary or an Assistant
Secretary of the Issuer;
(c) the Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
appraisal, bond, debenture, note, coupon, security, or other paper or
document unless requested in writing so to do by the Holders of not less
than a majority in aggregate principal amount of the Securities then
Outstanding; provided that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it
in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding; the reasonable
expenses of every such examination shall be paid by the Issuer, or by the
Trustee or any predecessor Trustee and repaid by the Issuer upon demand;
and
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(g) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Issuer,
personally or by agent or attorney.
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof. The recitals contained herein
and in the Securities, except the Trustee's certificates of authentication,
shall be taken as the statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Issuer or any of the Securities or of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold Securities; Collections, etc.
The Trustee or any agent of the Issuer or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities with the same
rights it would have if it were not the Trustee or such agent and may otherwise
deal with the Issuer and receive, collect, hold and retain collections from the
Issuer with the same rights it would have if it were not the Trustee or such
agent.
SECTION 5.5 Moneys Held by Trustee. Subject to the provisions of
Section 9.4 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder, except as the Issuer and the Trustee otherwise
may agree.
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SECTION 5.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Issuer covenants and agrees to pay to the Trustee from time to time
as shall be agreed upon between the Issuer and the Trustee in writing from time
to time, and the Trustee shall be entitled to reasonable compensation (which
shall not be limited by any provision of law relating to the compensation of a
trustee of an express trust), and the Issuer covenants and agrees to pay or
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or on
behalf of it in accordance with any of the provisions of this Indenture
(including the reasonable compensation and expenses and disbursements of its
counsel and of all agents and other persons not regularly in its employ),
except to the extent any such expense, disbursement or advance may arise from
the Trustee's negligence or bad faith. The Issuer also covenants to indemnify
the Trustee and each predecessor Trustee for, and to hold it harmless against,
any and all loss, liability, damage, claims or expense arising out of or in
connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder and the performance of its duties
hereunder, including the costs and expenses of defending and investigating any
claim of liability in the premises, except to the extent any such loss,
liability or expense is due to its own negligence or bad faith. The obligations
of the Issuer under this Section 5.6 to compensate and indemnify the Trustee
and each predecessor Trustee and to pay or reimburse the Trustee and each
predecessor Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture.
SECTION 5.7 Right of Trustee to Rely on Officers' Certificate, etc.
Subject to Section 5.1 and Section 5.2 hereof, whenever in the administration
of the trusts of this Indenture the Trustee shall deem it necessary or
desirable that a matter be proved or established prior to taking or suffering
or omitting any action hereunder, such matter (unless other evidence in respect
thereof be herein specifically prescribed) may, in the absence of negligence or
bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee.
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SECTION 5.8 Persons Eligible for Appointment as Trustee. The Trustee
hereunder shall at all times be a corporation organized and doing business
under the laws of the United States or of a state thereof, having a combined
capital and surplus of at least $500,000,000, and which is authorized under
such laws to exercise corporate trust powers and subject to supervision or
examination by federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of a federal, state or District of Columbia supervising or examining authority,
then for the purposes of this Section 5.8, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. No obligor on the
Securities or Person directly or indirectly controlling, controlled by or under
common control with such obligor shall serve as Trustee.
SECTION 5.9 Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee may at any time resign by giving written notice of resignation
to the Issuer and by mailing notice thereof by first-class mail to Holders of
Securities at their last addresses as they shall appear on the Securities
Register. Upon receiving such notice of resignation, the Issuer shall promptly
appoint a successor trustee by written instrument in duplicate, executed by
authority of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor Trustee. If no
such successor trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Securityholder who has been a bona
fide Holder of a Security or Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deemed proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trustee Indenture
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Act, after written request thereafter by the Issuer or by any
Securityholder who has been a bona fide Holder of a Security or Securities
for at least six months;
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 5.8 hereof and shall fail to resign after written
request therefor by the Issuer or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjusted a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Issuer, one copy of which instrument shall be
delivered to the Trustee so removed and one copy of which shall be delivered to
the successor trustee, or, any Securityholder who has been a bona fide Holder
of a Security or Securities for at least six months may on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregated principal amount of the
Securities at the time Outstanding may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Issuer the evidence provided for in
Section 6.1 hereof of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 5.9 shall
become effective only upon acceptance of appointment by the successor trustee
as provided in Section 5.10 hereof.
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SECTION 5.10 Acceptance of Appointment by Successor Trustee. Any
successor trustee appointed as provided in Section 5.9 hereof shall execute and
deliver to the Issuer and to its predecessor Trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all rights,
powers, duties and obligations of its predecessor hereunder, with like effect
as if originally named as trustee herein; but, nevertheless, on the written
request of the Issuer or of the successor trustee, upon payment of its charges
then unpaid, the Trustee ceasing to act shall, subject to Section 9.4 hereof,
pay over the successor trustee all moneys at the time held by it hereunder and
shall execute and deliver an instrument transferring to such successor trustee
all such rights, powers, duties and obligations. Upon request of any such
successor trustee, the Issuer shall execute appropriate instruments in writing
for more fully and certainly vesting in and confirming to such successor such
rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such Trustee to
secure any amounts then due it pursuant to the provisions of Section 5.6
hereof.
Upon acceptance of appointment by a successor trustee as provided in
this Section 5.10, the Issuer shall mail notice thereof by first-class mail to
the Holders of Securities at their last addresses as they shall appear in the
Securities Register. If the acceptance of appointment is substantially
contemporaneous with the resignation then the notice called for by the
preceding sentence may be combined with the notice called for by Section 5.9
hereof. If the Issuer fails to mail such notice within 10 days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Issuer.
Notwithstanding replacement of the Trustee pursuant to this Section
5.10, the Issuer's obligations under Section 5.6 hereof shall continue for the
benefit of the retiring Trustee.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee. Any corporation into which the Trustee may be merged or
converted or with which
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it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under the provisions of Section 5.8 hereof, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor trustee, and in such cases such certificate shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have; provided, that the
fight to adopt the certificate of authentication of any predecessor Trustee or
to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
ARTICLE VI
CONCERNING THE SECURITYHOLDERS
------------------------------
SECTION 6.1 Evidence of Action Taken by Securityholders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Securityholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders, in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject
to Section 5.1 and Section 5.2
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hereof) conclusive in favor of the Trustee and the Issuer, if made in the
manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and of Holding of
Securities Record Date. Subject to Section 5.1 and Section 5.2 hereof, the
execution of any instrument by a Securityholder or his agent or proxy may be
provided in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The holding of Securities shall be provided by the Securities Register
or by a certificate of the Security Registrar thereof. The Issuer may set a
record date for purposes of determining the identity of Holders of Securities
entitled to vote or consent to any action referred to in Section 6.1 hereof,
which record date may be set at any time or from time to time by notice to the
Trustee for any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five days prior to the
proposed date of such vote or consent, and thereafter, notwithstanding any
other provisions hereof, only Holders of Securities of record on such record
date shall be entitled to so vote or give such consent or to withdraw such vote
or consent.
SECTION 6.3 Holders to Be Treated as Owners. The Issuer, the Trustee
and any agent of the Issuer or the Trustee may deem and treat the Person in
whose name any Security shall be registered upon the Securities Register as the
absolute owner of such Security (whether or not such Security shall be overdue
and notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal and Change of
Control purchase price of, and premium, if any, on and, subject to the
provisions of this Indenture, interest on such Security and for all other
purposes; and neither the Issuer nor the Trustee nor any agent of the Issuer or
the Trustee shall be affected by any notice to the contrary. All such payments
so made to any such Person, or upon his order, shall be valid and to the extent
of the sum or sums so paid, effectual to satisfy and discharge the liability
for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Issuer Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Securities have concurred in any direction, consent or waiver under this
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Indenture, Securities that are owned by the Issuer or any other obligor on the
Securities or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the obligor on the Securities
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities that the Trustee knows are so owned shall be so disregarded.
Securities so owned that have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection
in respect of any decision made by the Trustee in accordance with such advice.
Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly
an Officers' Certificate listing and identifying all Securities, if any, known
by the Issuer to be owned or held by or for the account of any of the
above-described Persons; and, subject to Section 5.1 and Section 5.2 hereof,
the Trustee shall be entitled to accept such Officers' Certificate as
conclusive evidence of the facts therein set forth and of the facts therein set
forth and of the fact that all Securities not listed therein are Outstanding
for the purpose of any such determination.
SECTION 6.5 Right of Revocation of Action Taken. At any time prior to
(but not after) the evidencing to the Trustee, as provided in Section 6.1
hereof, of the taking of any action by the Holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action, any Holder of a Security the serial number of
which is shown by the evidence to be included among the serial numbers of the
Securities, the Holders of which have consented to such action may, by filing
written notice at the Corporate Trust Office and upon proof of holding as
provided in this Article, revoke such action so far as concerns such Security.
Except as aforesaid any such action taken by the Holder of any Security shall
be conclusive and binding upon such Holder and upon all future Holders and
owners of such
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Security and of any Securities issued in exchange or substitution therefor,
irrespective of whether or not any notation in regard thereto is made upon any
such Security. Any action taken by the Holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action shall be conclusively binding upon the Issuer, the Trustee and
the Holders of all such Securities.
ARTICLE VII
SUPPLEMENTAL INDENTURES
-----------------------
SECTION 7.1 Supplemental Indentures Without Consent of
Securityholders. The Issuer, when authorized by a resolution of its Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as
security for the Securities any property or assets;
(b) to evidence the succession of another corporation to the Issuer,
or successive successions, and the assumption by the successor corporation
of the covenants, agreements and obligations of the Issuer pursuant to
Article Eight hereof;
(c) to add to the covenants of the Issuer such further covenants,
restrictions, conditions or provisions as the Board of Directors shall
consider to be for the protection of the Holders of Securities, and to make
the occurrence, or the occurrence and continuance of a default in any such
additional covenants, restrictions, conditions or provisions an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in respect
of any such additional covenant, restriction, condition or provision such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the
case of other defaults) or may provide for immediate enforcement upon such
an Event of Default or
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may limit the remedies available to the Trustee upon such an Event of
Default or may limit the right of the Holders of a majority in aggregate
principal amount of the Securities to waive such an Event of Default;
(d) to cure any ambiguity or to cure, correct or supplement any
defective provision contained herein or in the Securities, or to make such
other provisions in regard to matters or questions arising under this
Indenture or under any supplemental indenture as the Board of Directors may
deem necessary or desirable, and in any case which the Trustee and the
Issuer shall determine (i) are not inconsistent with this Indenture and the
Securities and (ii) shall not adversely affect the interests of the Holders
of the Securities; and
(e) to modify or supplement this Indenture or any indenture
supplemental hereto in such manner as to permit the qualification thereof
under the Trust Indenture Act of any other similar federal statute
hereafter in effect.
The Trustee is hereby authorized to join in the execution of any such
supplemental Indenture, to make any further appropriate agreements and
stipulations that may be therein continued and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section 7.1 may be executed without the consent of the Holders of any of the
Securities at the time Outstanding, notwithstanding any of the provisions of
Section 7.2 hereof.
SECTION 7.2 Supplemental Indentures With Consent of Securityholders.
With the consent (evidenced as provided in Article Six hereof) of the Holders
of not less than a majority in aggregate principal amount of the Securities at
the time Outstanding, the Issuer, when authorized by a resolution of its Board
of Directors, and the Trustee may, from time to time and at any time, modify
this Indenture or any indentures supplemental hereto or the rights of the
Holders of the Securities; provided, that no
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such supplemental indenture shall (a) change the Stated Maturity of the
principal of, or any installment of principal of or interest on, any Security,
or reduce the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any amount payable on redemption
thereof or upon a Change of Control or impair or affect the right of any
Securityholder to institute suit for the payment thereof or make any change to
Section 3.9 hereof that adversely affects the rights of the Holders of the
Securities, in each case without the consent of the Holder of each Security so
affected, or (b) without the consent of the Holders of all Securities then
Outstanding, (i) reduce the aforesaid percentage of Securities, the consent of
the Holders of which is required for any such modification, or the percentage
of Securities, the consent of the Holders of which is required for any waiver
provided for in this Indenture, (ii) change any obligation of the Issuer to
maintain an office or agency in the places and for the purposes specified in
Section 3.2 or (iii) make any change in Section 4.9 or this Section 7.2, except
to increase any percentages or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holders of
each Outstanding Security affected thereby.
Upon the request of the Issuer, accompanied by a copy of a resolution
of the Board of Directors certified by the Secretary or an Assistant Secretary
of the Issuer authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Securityholders
and other documents, if any, required by Section 6.1 hereof the Trustee shall
join with the Issuer in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to enter into such supplemental
indenture.
It shall not be necessary for the consent of the Securityholders under
this Section 7.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the
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provisions of this Section 7.2, the Issuer shall mail a notice thereof by
first-class mail to the Holders of Securities at their addresses as they shall
appear on the Securities Register, setting forth in general terms the substance
of such supplemental indenture. Any failure of the Issuer to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 7.3 Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith and
the respective rights, limitations of rights, obligations, duties and
immunities under this Indenture of the Trustee, the Issuer and the Holders of
Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all) purposes.
SECTION 7.4 Documents to Be Given to Trustee. The Trustee, subject to
the provisions of Section 5.1 and Section 5.2 hereof, may receive an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that any such
supplemental indenture complies with the applicable provisions of this
Indenture.
SECTION 7.5 Notation of Securities in Respect of Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article Seven may
bear a notation in form approved by the Trustee as to any matters provided for
by such supplemental indenture or as to any action taken at any such meeting by
the Issuer or the Trustee shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Issuer, authenticated by the Trustee and delivered in
exchange for the Securities then Outstanding.
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ARTICLE VIII
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
-----------------------------------------
SECTION 8.1 Covenant Not to Merge, Consolidate, Sell or Transfer
Assets Except Under Certain Conditions. (a) The Issuer shall not consolidate
with or merge into any other Person, or sell, convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and Issuer
shall not permit any Person to consolidate with or merge into the Issuer,
unless: (i) immediately prior to and immediately following such consolidation,
merger, sale or lease, no Event of Default shall have occurred and be
continuing and (ii) the Issuer is the surviving or continuing corporation, or
the surviving or continuing corporation or corporation that acquires by sale,
conveyance, transfer or lease is incorporated in the United States of America
or Canada and expressly assumes the payment and performance of all obligations
of the Issuer under the Indenture and the Securities.
(b) Except for the sale of the properties and assets of the Issuer
substantially as an entirety pursuant to subsection (a) above, and other than
assets required to be sold to conform with governmental regulations, the Issuer
shall not sell or otherwise dispose of any assets (other than short-term,
readily marketable investments purchased for cash management purposes with
funds not representing the proceeds of other asset sales) if on a pro forma
basis, the aggregate net book value of all such sales during the most recent
12-month period would exceed 10 percent of Consolidated Net Tangible Assets
computed as of the end of the most recent fiscal quarter preceding such sale;
provided, however, that any such sales shall be disregarded for purposes of
this 10 percent limitation if the proceeds are invested in assets in similar or
related lines of business of the Issuer and, provided further, that the Issuer
may sell or otherwise dispose of assets in excess of such 10 percent if the
proceeds from such sales or dispositions, which are not reinvested as provided
above, are retained by the Issuer as cash or cash equivalents or are used by
the Issuer to purchase Securities or 1996 Senior Notes which are then delivered
to the Trustee for cancelation.
SECTION 8.2 Successor Corporation Substituted. In case of any such
consolidation, merger, sale or trans-
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fer, and following such an assumption by the successor corporation, such
successor corporation shall succeed to and be substituted for the Issuer, with
the same effect as if it had been named herein.
Such successor corporation may cause to be signed, and may issue
either in its own name or in the name of the Issuer prior to such succession
any or all of the Securities issuable hereunder that theretofore shall not have
been signed by the Issuer and delivered to the Trustee; and, upon the order of
such successor corporation, instead of the Issuer, and subject to all the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall deliver any Securities that previously shall have
been signed and delivered by the officers of the Issuer to the Trustee for
authentication and any Securities that such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All of
the Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Securities
had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale or transfer such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
In the event of any such sale or transfer (other than a transfer by
way of lease) the Issuer or any successor corporation which shall theretofore
have become such in the manner described in this Article 8 shall be discharged
from all obligations and covenants under this Indenture and the Securities and
may be liquidated and dissolved.
SECTION 8.3 Opinion of Counsel to Trustee; Officers' Certificate. The
Trustee, subject to the provisions of Section 5.1 and Section 5.2 hereof, shall
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any such consolidation, merger, sale or transfer, and any such
assumption, and any such liquidation or dissolution, complies with the
applicable provisions of this Indenture.
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ARTICLE IX
SATISFACTION AND DISCHARGE
OF INDENTURE; UNCLAIMED MONEYS
------------------------------
SECTION 9.1 Satisfaction and Discharge of Indenture. If at any time
(a) the Issuer shall have paid or caused to be paid the principal and Change of
Control purchase price of and premium, if any, and interest on all the
Securities Outstanding hereunder, as and when the same shall have become due
and payable, or (b) the Issuer shall have delivered to the Trustee for
cancelation all Securities theretofore authenticated (other than any Securities
which shall have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in Section 2.7 hereof) or (c)(i) all such
Securities not theretofore delivered to the Trustee for cancelation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and (ii) the Issuer shall
have irrevocably deposited or caused to be deposited with the Trustee as trust
funds the entire amount in cash (other than moneys repaid by the Trustee or any
paying agent to the Issuer in accordance with Section 9.4 hereof) or U.S.
Government Obligations, maturing as to principal, premium, if any, and interest
in such amounts and at such times as will insure (without reinvestment) the
liability of cash sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity all such Securities not
theretofore delivered to the Trustee for cancelation, including principal,
premium, if any, and interest due or to become due to such date of maturity as
the case may be, and if, in any such case, the Issuer shall also pay or cause
to be paid all other sums payable hereunder by the Issuer, then this Indenture
shall cease to be of further effect (except as to (i) rights of registration of
transfer and exchange, and the Issuer's right to optional redemption, (ii)
substitution of apparently mutilated, defaced, destroyed, lost or stolen
Securities, (iii) rights of Holders to receive payments of principal thereof
(including any Change of Control purchase price previously accrued) and
premium, if any, and interest thereon, upon the original stated due dates
therefor (but not upon acceleration), (iv) the rights and obligations and
immunities of the Trustee hereunder and (v) the rights of
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the Securityholders as beneficiaries hereof with respect to the property so
deposited with the Trustee payable to all or any of them), and the Trustee, on
demand of the Issuer accompanied by an Officers' Certificate and an Opinion of
Counsel and at the cost and expense of the Issuer, shall execute proper
instruments acknowledging such satisfaction of and discharging this Indenture;
provided that the rights of Holders of the Securities to receive amounts in
respect of principal of and premium, if any, and interest or the Securities
held by them shall not be delayed longer than required by then applicable
mandatory rules or policies of any securities exchange upon which the
Securities are listed.
The Issuer agrees to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred and to compensate the Trustee for
any services thereafter reasonably and properly rendered by the Trustee in
connection with this Indenture or the Securities.
SECTION 9.2 Application by Trustee of Funds Deposited for Payment of
Securities. Subject to Section 9.4 hereof, all moneys deposited with the
Trustee pursuant to Section 9.1 hereof shall be held in trust and applied, by
it to the payment, either directly or through any paying agent (including the
Issuer acting as its own paying agent), to the Holders of the particular
Securities for the payment or redemption of which such moneys have been
deposited with the Trustee, of all sums due and to become due thereon for
principal and Change of Control purchase price, premium, if any, and interest;
but such money need not be segregated from other funds except to the extent
required by law.
SECTION 9.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture all moneys then held by
any paying agent under the provisions of this Indenture shall, upon demand of
the Issuer, be repaid to it or paid to the Trustee and thereupon such paying
agent shall be released from all further liability with respect to such moneys.
SECTION 9.4 Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Two Years. Any moneys deposited with or paid to the Trustee or
any paying agent for the payment of the principal or Change of Control purchase
price of or premium or interest on any Security
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and not applied but remaining unclaimed for two years after the date upon which
such principal, Change of Control purchase price, premium or interest shall
have become due and payable shall, upon the written request of the Issuer, be
repaid to the Issuer by the Trustee or such paying agent, and the Holder of
such Security shall, unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property laws, thereafter look
only to the issuer for any payment which such Holder may be entitled to
collect, and all liability of the Trustee or any paying agent with respect to
such moneys shall thereupon cease.
SECTION 9.5 Defeasance and Discharge of Indenture. The Issuer will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Securities, or the 23rd day after the deposit referred to in
subparagraph (A) hereof has been made, and the provisions of this Indenture
will no longer be in effect with respect to the Securities (and the Trustee, at
the expense of the Issuer, shall execute proper instruments acknowledging the
same), except as to:
(a) rights of registration of transfer and exchange, and the Issuer's
right of optional redemption, (b) substitution of apparently mutilated,
defaced, destroyed, lost or stolen securities, (c) rights of Holders to
receive payments of principal (including rights to receive any Change of
Control purchase price previously accrued) thereof and premium, if any, and
interest thereon, (d) the rights, obligations and immunities of the Trust
hereunder, (e) the rights of the Securityholders as beneficiaries hereof
with respect to the property so deposited with the Trustee payable to all
or any of them and (f) the obligations of the Issuer to maintain a place of
payment for the Securities under Section 3.1 hereof;
provided that the following conditions shall have been satisfied:
(A) with reference to this Section 9.5 the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 5.8 hereof) as
trust funds in trust, specifically pledged as security for, and dedi-
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cated solely to, the benefit of the Holders of the Securities, (i)
money in an amount, or (ii) U.S. Government Obligations which through
the payment of interest and principal in respect thereof in accordance
with their terms (without reinvestment) will provide not later than
one day before the due date of any payment referred to in clause (x)
or (y) of this subparagraph (A) money in an amount, or (iii) a
combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, after payment of all federal, state and local taxes or
other charges and assessments in respect thereof payable by the
Trustee, (x) the principal and Change of Control purchase price of,
premium, if any, and each installment of principal and interest on the
Outstanding Securities at the maturity date of such principal or
installment of principal or interest and (y) any mandatory sinking
fund payments or analogous payments applicable to the Securities on
the day on which such payments are due and payable in accordance with
the terms of this Indenture and the Securities;
(B) the Issuer has delivered to the Trustee (i) an Opinion of
Counsel to the effect that Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Issuer's
exercise of its option under this Section 9.5 and will be subject to
federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance
and discharge had not occurred, which Opinion of Counsel must be based
on (x) a change in applicable federal income tax law or related
Treasury Regulations after the date of this Indenture or (y) a ruling
received by the Issuer from the Internal Revenue Service to the same
effect and (ii) an Opinion of Counsel to the effect that the
defeasance trust does not constitute an "investment company" under the
Investment Company Act of 1940, as amended, and after the passage of
123 days following the deposit, the
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trust fund will not be subject to the effect of Section 547 of the
U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of
notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation
of, or constitute a default under, any other agreement or instrument
to which the Issuer is a party or by which the Issuer is bound; and
(D) if at such time the Securities are listed on a national
securities exchange, the Issuer has delivered to the Trustee an
Opinion of Counsel to the effect that the Securities will not be
delisted as a result of such deposit, defeasance and discharge.
SECTION 9.6 Defeasance of Certain Obligations. The Issuer may omit to
comply with any term, provision, or condition set forth in this Indenture in
Sections 3.8 and Section 3.9, and Section 4.l(d) (with respect to Sections 3.8
and 3.9) and Sections 4.1(c) and (e) shall be deemed not to be Events of
Default on the 123rd day after the deposit referred to in subparagraph (A)
hereof if:
(A) with reference to this Section 9.6, the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 5.6 hereof) as trust
funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of the Securities, (i) money in an amount,
or (ii) U.S. Government Obligations which bought the payment of interest
and principal in respect thereof in accordance with their terms (without
reinvestment) will provide not later than one day before the due date of
any payment referred to in clauses (x) or (y) of this Section 9.6, money in
an amount, or (iii) a combination thereof, sufficient, in
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the opinion of a nationally recognized firm of independent public
accountants expressed in a certification thereof delivered to the Trustee,
to pay and discharge, after payment of all federal, state and local taxes
or other charges and assessments in respect thereof payable by the Trustee,
(x) the principal and Change of Control purchase price of, premium, if any,
and each installment of principal and interest on the Outstanding
Securities at the maturity date of such principal or installment of
principal or interest and (y) any mandatory sinking fund payments or
analogous payments applicable to the Securities on the day on which such
payments are due and payable in accordance with the terms of this Indenture
and the Securities;
(B) the Issuer has delivered to the Trustee (i) an Opinion of Counsel
to the effect that Holders will not recognize income, gain or loss for
federal income tax purposes as a result of the Issuer's exercise of its
option under this Section 9.6 and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not occurred,
and (ii) an Opinion of Counsel to the effect that the defeasance trust does
not constitute an "investment company" under the Investment Company Act of
1940, as amended, and after the passage of 123 days following the deposit,
the trust fund will not be subject to the effect of Section 547 of the U.S.
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending
on the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of or constitute a default under any other
agreement or instrument to which the Issuer is a party or by which the
Issuer is bound; and
(D) if at such time the Securities are listed on a national securities
exchange, the Issuer has
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delivered to the Trustee an Opinion of Counsel to the effect that the
Securities will not be delisted as a result of such deposit, defeasance and
discharge.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
SECTION 10.1 Incorporators, Shareholders, Officers and Directors of
Issuer Exempt from Individual Liability. No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby, shall be had
against any incorporator, as such, or against any past, present or future
shareholder, officer or director, as such, of the Issuer or of any successor,
either directly or through the Issuer or any successor, under any rule of law,
statute or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance of the Securities by the
Holders thereof and as part of the consideration for the issue of the
Securities.
SECTION 10.2 Provisions of the Indenture for the Sole Benefit of
Parties and Securityholders. Nothing in this Indenture or in the Securities,
expressed or implied, shall give or be construed to give to any Person, other
than the parties hereto and their successors and the Holders (and, where
expressly set forth herein, owners of interests in any Global Security), any
legal or equitable right, remedy or claim under this Indenture or under any
covenant or provision herein contained, all such covenants and provisions being
for the sole benefit of the parties hereto and their successors and the Holders
(and, where expressly set forth herein, owners of interests in any Global
Security).
SECTION 10.3 Successors and Assigns of Issuer Bound by Indenture. All
the covenants, stipulations, promises and agreements in this Indenture
contained by or in behalf of the Issuer shall bind its successors and assigns,
whether so expressed or not.
SECTION 10.4 Notices and Demands on Issuer, Trustee and
Securityholders. Any notice or demand which by
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any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the Holders to or on the Issuer may be given or served by
being deposited postage prepaid, first-class mail (except as otherwise
specifically provided herein) addressed (until another address of the Issuer is
filed by the Issuer with the Trustee) to NRG Energy, Inc., 1221 Nicollet Mall,
Suite 700, Minneapolis, Minnesota 55403, Attention: Chief Financial Officer.
Any notice, direction, request or demand by the Issuer or any Securityholder to
or upon the Trustee shall be deemed to have been sufficiently given or made,
for all purposes, if given or made at the Corporate Trust Office or such office
or agency designated for such purpose in Section 3.2 hereof.
Where this Indenture provides for notice to Holders, such notice shall
be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to each Holder entitled
thereto, at his last address as it appears in the Securities Register. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case, by reason of the suspension of or irregularities in regular
mail service, it shall be impracticable to mail notice to the Issuer and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.5 Officers' Certificates and Opinions of Counsel,
Statements to Be Contained Therein. Upon any application or demand by the
Issuer to the Trustee to take any action under any of the provisions of this
Indenture, the Issuer shall furnish to the Trustee an
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Officers' Certificate stating that all conditions precedent provided for in
this Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent have been complied with, except that in the case of any
such application or demand as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or demand, no additional certificate or opinion need be
furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include (a) a statement that the
Person making such certificate or opinion has read such covenant or condition,
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based, (c) a statement that, in the opinion of such
Person, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with and (d) a statement as to whether or not, in
the opinion of such Person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the
certificate or opinion or representations with respect to the matters upon
which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous. Any certificate, statement or Opinion of Counsel may be based,
insofar as it relates to factual matters (information with respect to which is
in the possession of the Issuer) upon the certificate, statement or opinion of
or representations by an officer or officers of the Issuer, unless such counsel
knows that the certificate, statement or opinion or representations with
respect to the matters upon which his certificate, statement or opinion may be
based as aforesaid are erroneous, or in the exercise of reasonable care should
know that the same are erroneous.
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Any certificate, statement or opinion of an officer of the Issuer or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants or Investment Banker filed with the Trustee shall contain a
statement that such firm is independent.
SECTION 10.6 Payments Due on Saturdays, Sundays and Holidays. If the
date of maturity of interest on or principal, Change of Control purchase price,
or premium, if any, of the Securities or the date fixed for redemption of any
Security shall not be a Business Day, then payment of interest, principal,
Change of Control purchase price or premium need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the date of maturity or the date fixed for redemption, and no
interest shall accrue for the period after such date.
SECTION 10.7 New York Law to Govern. THIS INDENTURE SHALL, PURSUANT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW BE GOVERNED BY THE LAW
OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS
THEREOF (OTHER THAN SUCH SECTION 5-1401).
SECTION 10.8 Counterparts. This Indenture may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same agreement.
SECTION 10.9 Effect of Headings. The Article and Section Headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
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ARTICLE XI
REDEMPTION OF SECURITIES
------------------------
SECTION 11.1 Right of Optional Redemption Price. The Issuer at its
option may, at any time, redeem the Securities, in whole or in part, upon
payment of a redemption price equal to the principal amount of the Securities
to be redeemed plus accrued and unpaid interest thereon, if any, plus the
Applicable Premium.
SECTION 11.2 Notice of Redemption. Notice of redemption to the Holders
of Securities to be redeemed shall be given by the Issuer by mailing notice of
such redemption by first class mail, postage prepaid, at least 30 days and not
more than 60 days prior to the date fixed for redemption to such Holders of
Securities at their last addresses as they shall appear in the Securities
Register. Failure to give notice by mail, or any defect in the notice to the
Holder of any Security designated for redemption as a whole or in part shall
not affect the validity of the proceedings for the redemption of any other
Security.
The notice of redemption to each Holder shall specify that the
Securities are being redeemed pursuant to this Article 11, the date fixed for
redemption, the place or places of payment, the CUSIP and ISIN numbers (as
applicable), that payment will be made upon presentation and surrender of the
Securities, that interest accrued to the date fixed for redemption will be paid
as specified in this Article and that, on and after said date interest thereon
or on the portions thereof to be redeemed will cease to accrue.
The notice of redemption of Securities to be redeemed at the option of
the Issuer shall be given by the Issuer or, at the Issuer's request, by the
Trustee in the name and at the expense of the Issuer.
At least one Business Day prior to the redemption date specified in
the notice of redemption given as provided in this Section 11.2, the Issuer
shall deposit with the Trustee or with one or more paying agents (or, if the
Issuer is acting as its own paying agent, set aside, segregate and hold in
trust as provided in Section 3.4 hereof) an amount of money sufficient to
redeem on the
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redemption date all the Securities so called for redemption.
SECTION 11.3 Payment of Securities Called for Redemption. If notice of
redemption has been given as above provided, the Securities shall become due
and payable on the date and at the place stated in such notice at the
redemption price, and on and after said date (unless the Issuer shall default
in the payment of such Securities at the redemption price) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue and, except as provided in Section 5.5 and Section 9.4 hereof, such
Securities shall cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture, and the Holders
thereof shall have no right in respect of such Securities except the right to
receive the redemption price thereof. On presentation and surrender of such
Securities at a place of payment specified in said notice, said Securities
shall be paid and redeemed by the Issuer at the redemption price; provided,
that any semiannual payment of interest becoming due on the date fixed for
redemption shall be payable to the Holders of such Securities registered as
such on the relevant record date subject to the terms and provisions of Section
2.4 hereof.
If any Security called for redemption shall not be so paid, upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate
borne by the Security.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of June 17, 1997.
NRG ENERGY, INC.,
as Issuer
By: /s/JULIE JORGENSEN
------------------
Name: Julie Jorgensen
Title: Vice President and
General Counsel
Attest:
By: /s/KATHY A. AHNER
-----------------
Name: Kathy A. Ahner
Title: Notary Public
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /s/CURTIS D. SCHWEGMAN
----------------------
Name: Curtis D. Schwegman
Title: Assistant Vice President
Corporate Trust Services
Attest:
By: /s/KATHY A. AHNER
-----------------
Name: Kathy A. Ahner
Title: Notary Public
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EXHIBIT A
FORM OF SECURITY
[INCLUDE IF SECURITY IS A GLOBAL SECURITY DEPOSITED WITH THE U.S.
DEPOSITARY--UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN
EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY
OR CEDE & CO. IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE REFERRED TO ON THE
REVERSE HEREOF.]
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER
APPLICABLE SECURITIES LAW. NEITHER THE SENIOR NOTE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OR IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SENIOR NOTE BY ITS ACCEPTANCE THEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS SENIOR NOTE PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH NRG OR ANY
AFFILIATE OF NRG WAS THE OWNER OF THIS SENIOR NOTE (OR ANY PREDECESSOR OF THIS
SENIOR NOTE) ONLY (A) TO NRG, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS
SENIOR NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A") TO A PERSON IT REASONABLY BELIEVES IS A "QUALI-
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FIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, SUBJECT TO THE
RIGHT OF NRG PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE
(D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THE TRUSTEE AND NRG. SUCH HOLDER
FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SENIOR NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
A-2
<PAGE>
[FORM OF FACE OF SECURITY]
CUSIP 629377AC6
No. [ ]
$ [ ]
NRG ENERGY, INC.
7-1/2% Senior Notes Due 2007
NRG Energy, Inc. (the "Issuer"), for value received hereby promises to
pay to Cede & Co. or registered assigns the principal sum of [ ]
Dollars at the Issuer's office or agency for said purpose initially at the
Corporate Trust Office of Norwest Bank Minnesota, National Association (herein
called the "Trustee") at Corporate Trust, Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota 55479-0069 and at the office or agency of the Issuer for
said purpose in the Borough of Manhattan, The City of New York, on June 15,
2007 in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts, and
to pay interest, semi-annually in arrears on June 15 and December 15 of each
year, commencing December 15, 1997, on said principal sum in like coin or
currency at the rate per annum set forth above at said offices or agencies from
the most recent interest payment date to which interest on the Securities has
been paid or duly provided for, unless the date hereof is a date to which
interest on the Securities has been paid or duly provided for, in which case
from the date of this Security, or unless no interest has been paid or duly
provided for on the Securities, in which case from June 17, 1997, until payment
of said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after June 1 or December 1, as the case may
be, and before the following June 1 or December 1, this Security shall bear
interest from such June 15 or December 15; provided, that if the Issuer shall
default in the payment of interest due on such June 15 or December 15, then
this Security shall bear interest from the next preceding June 15 or December
15 to which interest on the Securities has been paid or duly provided for, or,
if no interest has been paid or duly provided for on the Securities, from June
17, 1997.
A-3
<PAGE>
In the event that (i) the Exchange Offer Registration Statement (as
defined in the Registration Rights Agreement between the Issuer and the initial
purchasers of the Securities dated June 12, 1997 (the "Registration Rights
Agreement")) is not filed with the Securities Exchange Commission (the
"Commission") on or prior to the 60th day following the date of original
issuance of the Securities, (ii) the Exchange Offer Registration Statement is
not declared effective prior to the 180th day following the date of original
issuance of the Securities or (iii) the Exchange Offer (as defined in the
Registration Rights Agreement) is not consummated or a Shelf Registration
Statement (as defined in the Registration Rights Agreement) with respect to the
Securities is not declared effective on or prior to the 215th day following the
date of original issuance of the Securities, interest will accrue (in addition
to stated interest on the Securities) from and including the next day following
each of (a) such 60-day period in the case of clause (i) above and (b) such
180-day period in the case of clause (ii) above and (c) such 215-day period in
the case of clause (iii) above. In each case such additional interest (the
"Special Interest") will be payable in cash semiannually in arrears each June
15, and December 15, commencing December 15, 1997, at a rate per annum equal to
0.25% of the principal amount of the Securities. The aggregate amount of
Special Interest payable pursuant to the above provisions will in no event
exceed 0.25% per annum of the principal amount of the Securities. Upon (1) the
filing of the Exchange Offer Registration Statement after the 60-day period
described in clause (i) above, (2) the effectiveness of the Exchange Offer
Registration Statement after the 180-day period described in clause (ii) above
or (3) the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 215-day period described
in clause (iii) above, the Special Interest payable on the Securities from the
date of such filing, effectiveness or consummation, as the case may be, will
cease to accrue and all accrued and unpaid Special Interest as of the
occurrence of (1), (2) or (3) shall be paid to the holders of the Securities
promptly thereafter. Following the occurrence of (1), (2) or (3) above, the
terms of the Securities shall revert to the original terms set forth in the
preceding paragraph.
In the event that a Shelf Registration Statement is declared
effective, if the Issuer fails to keep such Registration Statement continuously
effective for the period required by the Registration Rights Agreement, then
such time as the
A-4
<PAGE>
Shelf Registration Statement is no longer effective until the earlier of (i)
the date that the Shelf Registration Statement is again deemed effective, (ii)
the date that is the second anniversary of the date set forth on the reverse of
this Security or (iii) the date as of which all of the Securities are sold
pursuant to the Shelf Registration Statement, Special Interest shall accrue at
a rate per annum equal to 0.25% of the principal amount of the Securities and
shall be payable in cash semiannually in arrears each June 15 and December 15,
commencing December 15 1997. For all purposes this Security, Special Interest
will be treated as interest.
The interest so payable on any June 15 or December 15 will, except as
otherwise provided in the Indenture referred to on the reverse hereof, be paid
to the Person in whose name this Security is registered at the close of
business on the 1st day of June or the 1st day of December preceding such June
15 or December 15, whether or not such day is a Business Day; provided, that
principal, premium, if any, and interest shall be paid by mailing a check for
such to or upon the written order of the registered Holders of Securities
entitled thereto at their last address as it appears on the Securities Register
or, upon written application to the Trustee by a Holder of $1,000,000 or more
in aggregate principal amount of Securities, by wire transfer of immediately
available funds to an account maintained by such Holder with a bank or other
financial institution. Interest on this Security shall be computed on the basis
of a 360-day year of twelve 30-day months.
Interest on overdue principal and (to the extent permitted by
applicable law) on overdue installments of interest (including without
limitation during the 30-day period referred to in Section 4.1(b)) shall accrue
at the rate per annum set forth above.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
A-5
<PAGE>
This Security shall not be entitled to any benefit under the
Indenture, or be valid or obligatory, until the certificate of authentication
hereof shall have been duly signed by the Trustee acting under the Indenture.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
NRG ENERGY, INC.
[Seal]
By:
--------------------------------
Title:
ATTEST:
By:
- -------------------------------- --------------------------------
Name: Title:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA, NATION-
AL ASSOCIATION, as Trustee
--------------------------------
Authorized Signatory
A-6
<PAGE>
REVERSE OF SECURITY
NRG ENERGY, INC.
7-1/2% Senior Notes Due 2007
This Security is one of a duly authorized issue of debt securities of
the Issuer, limited to the aggregate principal amount of $[ ] (except
as otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of June 1, 1997 (the "Indenture"), duly
executed and delivered by the Issuer to the Trustee. Reference is hereby made
to the Indenture and all indentures supplemental thereto for a description of
the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Issuer and the Holders (the words "Holders" or
"Holder" meaning the registered holders or registered holder) of the
Securities. Capitalized terms used herein, but not otherwise defined herein,
shall have the meanings assigned to them in the Indenture.
In case an Event of Default shall have occurred and be continuing, the
principal of all the Securities may be declared due and payable, in the manner
and with the effect, and subject to the conditions, provided in the Indenture.
The Indenture provides that in certain events such declaration and its
consequences may be waived by the Holders of a majority in aggregate principal
amount of the Securities then Outstanding and that, prior to any such
declaration, such Holders may waive any past default under the Indenture and
its consequences except a default in the payment of principal of or premium, if
any, or interest on any of the Securities. Any such consent or waiver by the
Holder of this Security (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Security and any Security which may be issued in exchange or
substitution hereof, whether or not any notation thereof is made upon this
Security or such other Securities.
The Indenture permits the Issuer and the Trustee, with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Securities at the time
A-7
<PAGE>
Outstanding, evidenced as in the Indenture provided, to modify the Indenture or
any supplemental indentures or the rights of the Holders of the Securities;
provided that no such modification shall (a) change the Stated Maturity of the
principal of, or any installment of principal of or interest on, any Security,
or reduce the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any amount payable on the redemption
thereof or impair or affect the rights of any Securityholder to institute suit
for the payment thereof or make any change in Section 3.9 of the Indenture
(which relates to the obligation of the Issuer to offer to purchase the
Securities upon a Change of Control, as described below) which adversely
affects the rights of the Holders of the Securities without the consent of the
Holder of each Security so affected; (b) reduce the aforesaid percentage of
Securities, the consent of the Holders of which is required for any such
modification or the percentage of Securities, the consent of Holders of which
is required for any waiver provided for in the Indenture; (c) change any
obligation of the Issuer to maintain an office or agency for payment of and
transfer and exchange of the Securities; or (d) make certain changes to
provisions relating to waiver or to the provision for supplementing the
Indenture; in each case without consent of the Holders of all Securities then
Outstanding.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Issuer, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the place, times, and rate, and in the currency,
herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $100,000 and any integral multiple of $1,000 in
excess thereof.
At the office or agency of the Issuer referred to on the face hereof
and in the manner subject to the limitations provided in the Indenture,
Securities may be presented for exchange for a like aggregate principal amount
of Securities of other authorized denominations.
Upon due presentment for registration of transfer of this Security at
the above-mentioned office or agency of the Issuer, a new Security or
Securities of authorized denominations, for a like aggregate principal amount,
will be issued to the transferee as provided in the Indenture. No service
A-8
<PAGE>
charge shall be made for any such transfer, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto.
The Securities may be redeemed in whole or in part (if in part, by lot
or by such other method as the Trustee shall deem fair or appropriate) prior to
Stated Maturity at the option of the Issuer, on any date, upon mailing a notice
of such redemption not less than 30 nor more than 60 days prior to the date
fixed for redemption to the Holders of Securities, all as provided in the
Indenture, at a redemption price equal to the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of redemption, plus
the Applicable Premium. The Applicable Premium shall be computed by an
independent investment banking institution of national standing selected by the
Issuer and shall equal the excess (if any) of (i) the sum of the present values
of all the remaining scheduled payments of principal and interest from the
redemption date to maturity of the Security computed on a semi-annual basis by
discounting such payments using a rate equal to the Treasury Rate (as defined
in the Indenture) plus 25 basis points over (ii) the aggregate unpaid principal
amount of the Security to be redeemed, plus any accrued but unpaid interest
thereon.
In the event of a Change of Control (as defined in the Indenture), the
Issuer has the obligation, subject to certain conditions, to offer to purchase
the Securities at 101% of the principal amount thereof plus accrued interest to
the date of purchase in accordance with the procedures set forth in the
Indenture. As further described in the Indenture, a Change of Control will not
be deemed to have occurred if, after giving effect thereto, the Securities are
rated Investment Grade (as defined in the Indenture).
Subject to payment by the Issuer of a sum sufficient to pay the amount
due on redemption, interest on this Security shall cease to accrue upon the
date duly fixed for redemption of this Security.
The Issuer, the Trustee, and any authorized agent of the Issuer or the
Trustee, may deem and treat the registered Holder hereof as the absolute owner
of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by
anyone other than the Issuer or the Trustee or any authorized agent of the
Issuer or the Trustee), for the purpose of receiving
A-9
<PAGE>
payment of, or on account of, the principal hereof and premium, if any, and,
subject to the provisions on the face hereof, interest hereon and for all other
purposes, and neither the Issuer nor the Trustee nor any authorized agent of
the Issuer or the Trustee shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, or
premium, if any, of the interest on this Security, for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture or
any indenture supplemental thereto, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Issuer or of any
successor corporation, either directly or through the Issuer or any successor
corporation, whether by virtue of any constitution, statute or rule of law or
by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
A-10
<PAGE>
FORM OF ASSIGNMENT
I or we assign and transfer this Security to:
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- ---------------------------------------
- -------------------------------------------------------------------------------
Agent to transfer this Security on the books of the Issuer. The Agent may
substitute another to act for him.
Date: Your Signature:
------------------------ -------------------------
-----------------------------------
(Sign exactly as your name appears
on the other side of this Security)
*Signature Guarantee:
-----------------------------
*Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the
Registrar, which requirements include membership or
participation in STAMP or such other "signature
guarantee program" as may be determined by the
Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange
Act of 1934.
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Issuer pursuant to
Section 3.9 of the Indenture, check the Box: [ ].
A-11
<PAGE>
If you wish to have a portion of this Security purchased by the Issuer
pursuant to Section 3.9 of the Indenture, state the amount (in original
principal amount):
$
------------------------------
Date: Your Signature:
------------------------ -------------------------
(Sign exactly as your name appears on the other side of this
Security)
Signature Guarantee:
----------------------------------
------------------------------------------------------------
A-12
<PAGE>
EXHIBIT B
FORM OF RESTRICTED PERIOD CERTIFICATE
NRG ENERGY, INC.
[DATE]
The Depository Trust Company
[Address]
Norwest Bank Minnesota, North America,
As Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7 1/2% Senior Notes Due 2007
---------------------------------------------
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of June 1, 1997
(the "Indenture") from NRG Energy, Inc., to Norwest Bank Minnesota N.A., as
Trustee. Capitalized terms used and not defined herein shall have the meanings
given them in the Indenture.
This letter is related to U.S. $ principal amount of
Securities represented by the Restricted Regulation S Global Security, held by
the Trustee pursuant to Section 2.4 of the Indenture. We hereby certify that
the offering of the Securities has closed and that the restricted period (as
defined in Regulation S) with respect to the offer and sale of the Securities
has terminated.
NRG ENERGY, INC.
By:
-------------------------------
Name:
Title:
cc: Euroclear
CEDEL
B-1
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL SECURITY
TO RESTRICTED REGULATION S GLOBAL SECURITY
(Transfers or exchanges pursuant to
Section 2.6(b)(ii) of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7 1/2% Senior Notes
Due 2007 (the "Securities")
------------------------------------
Reference is hereby made to the Indenture dated as of June 1, 1997
(the "Indenture") from NRG Energy, Inc. to Norwest Bank Minnesota N.A., as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
This letter relates to U.S. $ principal amount of
Securities which are held in the form of the Rule 144A Global Security (CUSIP
No. 629377AC6) with the U.S. Depository in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested a transfer or
exchange of such beneficial interest for an interest in the Restricted
Regulation S Global Security (CUSIP No. U66962AB4) to be held by [Euroclear]
[Cedel] (Common Code ) through the U.S. Depositary.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer or exchange has been effected
in accordance with the transfer restrictions set forth in the Indenture and the
Securities and pursuant to and in accordance with Regulation S under the
Securities Act, and accordingly the Transferor does hereby certify that:
(1) the offer of the Securities was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States;]*
C-1
<PAGE>
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was pre-arranged
with a buyer in the United States;]1
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Initial Purchasers.
[Insert Name of Transferor]
By:
--------------------------------
Name:
Title:
Dated: , 199
----------------------- -
cc: NRG Energy, Inc.
- --------------
1 Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
C-2
<PAGE>
EXHIBIT D
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL SECURITY
TO UNRESTRICTED REGULATION S GLOBAL SECURITY
(Exchanges or transfers Pursuant to ss. 2.6(b)(iii)
of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7 1/2% Senior Notes
Due 2007 (the "Securities")
------------------------------------
Reference is hereby made to the Indenture as of June 1, 1997 (the
"Indenture") NRG Energy, Inc., to Norwest Bank Minnesota N.A., as Trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to U.S. $ principal amount of
Securities which are held in the form of the Rule 144A Global Security (CUSIP
No. 629377AC6 with the U.S. Depositary in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested an exchange or
transfer of such beneficial interest in the Securities for an interest in the
Unrestricted Regulation S Global Security (CUSIP No. U66962AB4).
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Indenture and the
Securities and, (i) with respect to transfers made in reliance on Regulation S
under the Securities Act, the Transferor does hereby certify that:
(1) the offer of the Securities was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States;]*
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securi-
D-1
<PAGE>
ties market and neither the Transferor nor any person acting on its behalf
knows that the transaction was pre-arranged with a buyer in the United
States;]2
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the United States Securities Act of 1933, as
amended (the "Securities Act");
(ii) with respect to transfers made in reliance on Rule 144 under the
Securities Act, certify that the Securities are being transferred in a
transaction permitted by Rule 144 under the Securities Act.
(iii) with respect to transfers made in reliance on another exemption from the
Securities Act (including without limitation Rule 144A), the following is the
basis for the exemption; , and
(iv) with respect to an exchange, either (x) the Security being exchanged is
not a "restricted security" as defined in Rule 144 under the Securities Act or
(y) the exchange is being made to facilitate a contemporaneous transfer with
Section 2.6(b)(iii) of the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Initial Purchasers.
[Insert Name of Transferor]
By:
--------------------------------
Name:
Title:
- --------------
2 Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
D-2
<PAGE>
Dated: , 199
----------------------- -
cc: NRG Energy, Inc.
D-3
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE
FROM RESTRICTED REGULATION S GLOBAL SECURITY OR UNRESTRICTED
REGULATION S GLOBAL SECURITY TO RULE 144A GLOBAL
SECURITY (Exchanges or transfers Pursuant to
Section 2.6(b)(iv) of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7 1/2% Senior Notes
Due 2007 (the "Securities")
------------------------------------
Reference is hereby made to the Indenture dated as of June 1, 1997
(the "Indenture") NRG Energy, Inc., to Norwest Bank Minnesota N.A., as Trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to U.S. $ principal amount of
Securities which are held in the form of the [[Restricted] [Unrestricted]
Regulation S Global Security (CUSIP No. (U66962AB4) with [Euroclear] [Cedel].3
(Common Code )] through the U.S. Depositary in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested a transfer or
exchange of such beneficial interest in the Securities for an interest in the
Rule 144A Global Security.
In connection with such request, and in respect of such Securities,
the Transferor does hereby certify that such Securities are being transferred
or exchanged in accordance with (i) the transfer restrictions set forth in
the Securities and (ii) Rule 144A under the Securities Act to a transferee that
the Transferor reasonably believes is purchasing the Securities for its own
account or an account with respect to which the transferee exercises sole
investment discretion and the transferee and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction.
- --------------
3 Select appropriate depositary.
E-1
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Initial Purchasers.
[Insert Name of Transferor]
By:
--------------------------------
Name:
Title:
Dated: , 199
----------------------- -
cc: NRG Energy, Inc.
E-2
<PAGE>
EXHIBIT 4.2
FORM OF EXCHANGE NOTE
[INCLUDE IF SECURITY IS A GLOBAL SECURITY DEPOSITED WITH THE U.S.
DEPOSITARY --UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN
EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY
OR CEDE & CO. IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE REFERRED TO ON THE
REVERSE HEREOF.]
1
<PAGE>
[FORM OF FACE OF SECURITY]
CUSIP [ ]
No. [ ]
$ [ ]
NRG ENERGY, INC.
7-1/2% Senior Notes Due 2007
NRG Energy, Inc. (the "Issuer"), for value received hereby promises to
pay to Cede & Co. or registered assigns the principal sum of [ ] Dollars at the
Issuer's office or agency for said purpose initially at the Corporate Trust
Office of Norwest Bank Minnesota, National Association (herein called the
"Trustee") at Corporate Trust, Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota 55479-0069 and at the office or agency of the Issuer for
said purpose in the Borough of Manhattan, The City of New York, on June 15,
2007 in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts, and
to pay interest, semi-annually in arrears on June 15 and December 15 of each
year, commencing December 15, 1997, on said principal sum in like coin or
currency at the rate per annum set forth above at said offices or agencies from
the most recent interest payment date to which interest on the Securities has
been paid or duly provided for, unless the date hereof is a date to which
interest on the Securities has been paid or duly provided for, in which case
from the date of this Security, or unless no interest has been paid or duly
provided for on the Securities, in which case from June 17, 1997, until payment
of said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after June 1 or December 1, as the case may
be, and before the following June 1 or December 1, this Security shall bear
interest from such June 15 or December 15; provided, that if the Issuer shall
default in the payment of interest due on such June 15 or December 15, then
this Security shall bear interest from the next preceding June 15 or December
15 to which interest on the Securities has been paid or duly provided for, or,
if no interest has been paid or duly provided for on the Securities, from June
17, 1997.
The interest so payable on any June 15 or December 15 will, except as
otherwise provided in the Indenture referred to on the reverse hereof, be paid
to the Person in whose name this Security is registered at the close of
business on the 1st day of June or the 1st day of December preceding such June
15 or December 15, whether or not such day is a Business Day; provided, that
principal, premium, if any, and interest shall be paid by mailing a check for
such to or upon the written order of the registered Holders of Securities
entitled thereto at their last address as it appears on the Securities
2
<PAGE>
Register or, upon written application to the Trustee by a Holder of $1,000,000
or more in aggregate principal amount of Securities, by wire transfer of
immediately available funds to an account maintained by such Holder with a bank
or other financial institution. Interest on this Security shall be computed on
the basis of a 360-day year of twelve 30- day months.
Interest on overdue principal and (to the extent permitted by
applicable law) on overdue installments of interest (including without
limitation during the 30-day period referred to in Section 4.1(b)) shall accrue
at the rate per annum set forth above.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
3
<PAGE>
This Security shall not be entitled to any benefit under the
Indenture, or be valid or obligatory, until the certificate of authentication
hereof shall have been duly signed by the Trustee acting under the Indenture.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
NRG ENERGY, INC.
[Seal]
By:
----------------------------------
Name:
Title:
ATTEST:
By:
- ---------------------------------- ----------------------------------
Name: Name:
Title: Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
-------------------------------------
Authorized Signatory
4
<PAGE>
REVERSE OF SECURITY
NRG ENERGY, INC.
7-1/2% Senior Notes Due 2007
This Security is one of a duly authorized issue of debt securities of
the Issuer, limited to the aggregate principal amount of $[ ] (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an Indenture dated as of June 1, 1997 (the "Indenture"), duly
executed and delivered by the Issuer to the Trustee. Reference is hereby made
to the Indenture and all indentures supplemental thereto for a description of
the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Issuer and the Holders (the words "Holders" or
"Holder" meaning the registered holders or registered holder) of the
Securities. Capitalized terms used herein, but not otherwise defined herein,
shall have the meanings assigned to them in the Indenture.
In case an Event of Default shall have occurred and be continuing, the
principal of all the Securities may be declared due and payable, in the manner
and with the effect, and subject to the conditions, provided in the Indenture.
The Indenture provides that in certain events such declaration and its
consequences may be waived by the Holders of a majority in aggregate principal
amount of the Securities then Outstanding and that, prior to any such
declaration, such Holders may waive any past default under the Indenture and
its consequences except a default in the payment of principal of or premium, if
any, or interest on any of the Securities. Any such consent or waiver by the
Holder of this Security (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Security and any Security which may be issued in exchange or
substitution hereof, whether or not any notation thereof is made upon this
Security or such other Securities.
The Indenture permits the Issuer and the Trustee, with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding, evidenced as in the Indenture provided, to
modify the Indenture or any supplemental indentures or the rights of the
Holders of the Securities; provided that no such modification shall (a) change
the Stated Maturity of the principal of, or any installment of principal of or
interest on, any Security, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, or reduce any
amount payable on the redemption thereof or impair or affect the rights of any
Securityholder to institute suit for the payment thereof or make any change in
Section 3.9 of the Indenture (which relates to the obligation of the Issuer to
offer to purchase the
5
<PAGE>
Securities upon a Change of Control, as described below) which adversely
affects the rights of the Holders of the Securities without the consent of the
Holder of each Security so affected; (b) reduce the aforesaid percentage of
Securities, the consent of the Holders of which is required for any such
modification or the percentage of Securities, the consent of Holders of which
is required for any waiver provided for in the Indenture; (c) change any
obligation of the Issuer to maintain an office or agency for payment of and
transfer and exchange of the Securities; or (d) make certain changes to
provisions relating to waiver or to the provision for supplementing the
Indenture; in each case without consent of the Holders of all Securities then
Outstanding.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Issuer, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the place, times, and rate, and in the currency,
herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $100,000 and any integral multiple of $1,000 in
excess thereof.
At the office or agency of the Issuer referred to on the face hereof
and in the manner subject to the limitations provided in the Indenture,
Securities may be presented for exchange for a like aggregate principal amount
of Securities of other authorized denominations.
Upon due presentment for registration of transfer of this Security at
the above-mentioned office or agency of the Issuer, a new Security or
Securities of authorized denominations, for a like aggregate principal amount,
will be issued to the transfer- ee as provided in the Indenture. No service
charge shall be made for any such transfer, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto.
The Securities may be redeemed in whole or in part (if in part, by lot
or by such other method as the Trustee shall deem fair or appropriate) prior to
Stated Maturity at the option of the Issuer, on any date, upon mailing a notice
of such redemption not less than 30 nor more than 60 days prior to the date
fixed for redemption to the Holders of Securities, all as provided in the
Indenture, at a redemption price equal to the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of redemption, plus
the Applicable Premium. The Applicable Premium shall be computed by an
independent investment banking institution of national standing selected by the
Issuer and shall equal the excess (if any) of (i) the sum of the present values
of all the remaining scheduled payments of principal and interest from the
redemption date to maturity of the Security computed on a semi-annual basis by
discounting such payments using a rate equal to the Treasury Rate (as defined
in the Indenture) plus 25 basis points
6
<PAGE>
over (ii) the aggregate unpaid principal amount of the Security to be redeemed,
plus any accrued but unpaid interest thereon.
In the event of a Change of Control (as defined in the Indenture), the
Issuer has the obligation, subject to certain conditions, to offer to purchase
the Securities at 101% of the principal amount thereof plus accrued interest to
the date of purchase in accordance with the procedures set forth in the
Indenture. As further described in the Indenture, a Change of Control will not
be deemed to have occurred if, after giving effect thereto, the Securities are
rated Investment Grade (as defined in the Indenture).
Subject to payment by the Issuer of a sum sufficient to pay the amount
due on redemption, interest on this Security shall cease to accrue upon the
date duly fixed for redemption of this Security.
The Issuer, the Trustee, and any authorized agent of the Issuer or the
Trustee, may deem and treat the registered Holder hereof as the absolute owner
of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by
anyone other than the Issuer or the Trustee or any authorized agent of the
Issuer or the Trustee), for the purpose of receiving payment of, or on account
of, the principal hereof and premium, if any, and, subject to the provisions on
the face hereof, interest hereon and for all other purposes, and neither the
Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, or
premium, if any, of the interest on this Security, for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture or
any indenture supplemental thereto, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Issuer or of any
successor corporation, either directly or through the Issuer or any successor
corporation, whether by virtue of any constitution, statute or rule of law or
by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
7
<PAGE>
FORM OF ASSIGNMENT
I or we assign and transfer this Security to:
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Agent to transfer this Security on the books of the Issuer. The Agent may
substitute another to act for him.
Date: Your Signature:
---------------- ----------------------------------
(Sign exactly as your name ap-
pears on the other side of this
Security)
*Signature Guarantee:
---------------------------------
*Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the
Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee
program" as may be determined by the Registrar in addition
to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934.
8
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Issuer pursuant to
Section 3.9 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Security purchased by the Issuer
pursuant to Section 3.9 of the Indenture, state the amount (in original
principal amount):
$
------------------
Date: Your Signature:
------------------- -------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:
-----------------------------
-----------------------------
9
<PAGE>
NRG ENERGY, INC.
$250,000,000 7 1/2% SENIOR NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
New York, New York
June 12, 1997
Salomon Brothers Inc
ABN AMRO Chicago Corporation
Chase Securities Inc.
As Representatives of the Initial Purchasers
In care of Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
NRG Energy, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to certain purchasers (the "Initial Purchasers"), upon the terms
set forth in a Purchase Agreement of even date herewith (the "Purchase
Agreement") its 7 1/2% Senior Notes Due 2007 (the "Securities") (the "Initial
Placement"). As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to your obligations
thereunder, the Company agrees with you, (i) for your benefit and the benefit
of the other Initial Purchasers and (ii) for the benefit of the holders from
time to time of the Transfer Restricted Securities (as defined herein)
(including you and the other Initial Purchasers) (each of the foregoing a
"Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
<PAGE>
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 30 day period following
the consummation of the Registered Exchange Offer, exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement
of the Company on an appropriate form under the Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
Purchasers) which is a broker-dealer, electing to exchange Securities acquired
for its own account as a result of market-making activities or other trading
activities, for New Securities.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
2
<PAGE>
"Indenture" means the Indenture relating to the Securities dated as of
June 1, 1997, between the Company and Norwest Bank Minnesota, National
Association, as trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of securities registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
"New Securities" means debt securities of the Company identical in all
material respects to the Securities (except that the cash interest and interest
rate step-up provisions and the transfer restrictions will be modified or
eliminated, as described herein), to be issued under the Indenture or the New
Securities Indenture.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by
such Registration Statement, and all amendments and supplements to the
Prospectus, including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement,
3
<PAGE>
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to Section
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 3 hereof which covers some
or all of the Securities or New Securities, as applicable, on an appropriate
form under Rule 415 under the Act, or any similar rule that may be adopted by
the Commission, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Transfer Restricted Security" means each Security or New Security
until (i) the date on which such Transfer Restricted Security has been
exchanged by a person other than a broker dealer for a New Security in the
Registered Exchange Offer that is freely transferable under the Act, (ii)
following the exchange by a broker dealer in the Registered Exchange Offer of a
Transfer Restricted Security for a New Security, the date on which such New
Security is sold to a purchaser who receives from such broker dealer on or
prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Transfer
Restricted Security has been effectively registered under the Act and disposed
of in accordance with the Shelf Registration statement or (iv) the date on
which such Transfer Restricted Security is distributed to the public pursuant
to Rule 144 under the Act or is saleable pursuant to Rule 144(k) under the Act.
"Trustee" means the trustee with respect to the Securities under the
Indenture.
4
<PAGE>
"Underwriter" means any underwriter of Securities in connection with
an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
Dealers; Private Exchange. (a) The Company shall prepare and, not later than 60
days following the Closing Date (or if the 60th day is not a business day, the
first business day thereafter), shall file with the Commission the Exchange
Offer Registration Statement with respect to the Registered Exchange Offer. The
Company shall use its best efforts to cause the Exchange Offer Registration
Statement to become effective under the Act within 180 days of the Closing Date
(or if the 180th day is not a business day, the first business day thereafter).
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such Holder
is not an affiliate of the Company within the meaning of the Act, acquires the
New Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the New
Securities) to trade such New Securities from and after their receipt without
any limitations or restrictions under the Act and without material restrictions
under the securities laws of a substantial proportion of the several states of
the United States.
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
5
<PAGE>
(iii) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder of Securities New Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(e) The Initial Purchasers and the Company acknowledge that, pursuant
to interpretations by the Commission's staff of Section 5 of the Act, and in
the absence of an applicable exemption therefrom, each Exchanging Dealer is
required to deliver a Prospectus in connection with a sale of any New
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer in exchange for Securities acquired for its own account as a
result of market-making activities or other trading activities. Accordingly,
the Company shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, and in Annex C hereto in the
underwriting or plan of distribution section of the Prospectus forming a
part of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; and
6
<PAGE>
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Act during the Exchange Offer
Registration Period for delivery by Exchanging Dealers in connection with
sales of New Securities received pursuant to the Registered Exchange Offer,
as contemplated by Section 5(h) below.
(f) In the event that any Initial Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of such Initial Purchaser, the Company shall issue and deliver to such
Initial Purchaser or the party purchasing New Securities registered under a
Shelf Registration Statement as contemplated by Section 3 hereof from such
Initial Purchaser, in exchange for such Securities, a like principal amount of
New Securities. The Company shall seek to cause the CUSIP Service Bureau to
issue the same CUSIP number for such New Securities as for New Securities
issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to
effect the Registered Exchange Offer as contemplated by Section 2 hereof, or
(ii) if for any other reason the Exchange Offer Registration Statement is not
declared effective within 180 days of the date hereof (or if the 180th day is
not a business day, the first business day thereafter), or (iii) if any Initial
Purchaser so requests with respect to Securities held by it following
consummation of the Registered Exchange Offer, or (iv) if any Holder (other
than an Initial Purchaser) is not eligible to participate in the Registered
Exchange Offer because of any change in law or applicable interpretations of
the staff of the Commission or otherwise or (v) in the case of any Initial
Purchaser that participates in the Registered Exchange Offer or acquires New
Securities pursuant to Section 2(f) hereof, such Initial Purchaser does not
receive freely tradeable New Securities in exchange for Securities (it being
understood that, for purposes of this Section 3, (x) the requirement that an
Initial Purchaser deliver a Prospectus containing the information required by
Items 507 and/or 508 of
7
<PAGE>
Regulation S-K under the Act in connection with sales of New Securities
acquired in exchange for such Securities shall result in such New Securities
being not "freely tradeable" but (y) the requirement that an Exchanging Dealer
deliver a Prospectus in connection with sales of New Securities acquired in the
Registered Exchange Offer in exchange for Securities acquired as a result of
market-making activities or other trading activities shall not result in such
New Securities being not "freely tradeable"), the following provisions shall
apply:
(a) The Company shall as promptly as practicable (but in no event more
than 30 days (or if the 30th day is not a business day, the first business day
thereafter) after so required or requested pursuant to this Section 3), file
with the Commission and thereafter shall use its best efforts to cause to be
declared effective under the Act by the 215th day (or if the 215th day is not a
business day, the first business day thereafter) after the original issuance of
the Securities a Shelf Registration Statement relating to the offer and sale of
the Securities or the New Securities, as applicable, by the Holders from time
to time in accordance with the methods of distribution elected by such Holders
and set forth in such Shelf Registration Statement (such Securities or New
Securities, as applicable, to be sold by Holders under such Shelf Registration
Statement being referred to herein as "Registrable Securities"); provided, that
with respect to New Securities received by an Initial Purchaser in exchange for
Securities constituting any portion of an unsold allotment, the Company may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph (a) with
respect thereto, and any such Exchange Offer Registration Statement, as so
amended, shall be referred to herein as, and governed by the provisions herein
applicable to, a Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years from the
date the Shelf Registration Statement is declared effective by the Commission
or until one year
8
<PAGE>
after such effective date if such Shelf Registration Statement is filed at the
request of an Initial Purchaser or such shorter period that will terminate when
all the Securities or New Securities, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement (in any such case, such period being called the "Shelf Registration
Period"). The Company shall be deemed not to have used its best efforts to keep
the Shelf Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of securities covered
thereby not being able to offer and sell such securities during that period,
unless (i) such action is required by applicable law, or (ii) such action is
taken by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly
thereafter complies with the requirements of Section 5(k) hereof, if
applicable.
4. Special Interest. In the event that either (i) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 60th
day following the Closing (or if the 60th day is not a business day, the first
business day thereafter), (ii) the Exchange Offer Registration Statement is not
declared effective prior to the 180th day following the Closing Date (or if the
180th day is not a business day, the first business day thereafter) or (iii)
the Registered Exchange Offer is not consummated or a Shelf Registration
Statement with respect to the Securities is not declared effective on or prior
to the 215th day following the date of original issuance of the Securities (or
if the 215th day is not a business day, the first business day thereafter),
interest will accrue (in addition to stated interest on the Securities) from
and including the next day following each of (a) such 60-day period in the case
of clause (i) above and (b) such 180-day period in the case of clause (ii)
above and (c) such 215-day period in the case of clause (iii) above. In each
case such additional interest (the "Special Interest") will be payable in cash
semiannually in arrears each June 15, and December 15, commencing December 15,
1997, at a rate per annum equal to 0.25% of the principal amount of the
Securities. The aggregate amount of Special Interest payable pursuant to the
above provisions will in no event exceed 0.25% per
9
<PAGE>
annum of the principal amount of the Securities. Upon (1) the filing of the
Exchange Offer Registration Statement after the 60-day period described in
clause (i) above, (2) the effectiveness of the Registered Exchange Offer
Registration Statement after the 180-day period described in clause (ii) above
or (3) the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after 215-day period described in
clause (iii) above, the Special Interest payable on the Securities from the
date of such filing, effectiveness or consummation, as the case may be, will
cease to accrue and all accrued and unpaid Special Interest as of the
occurrence of (1), (2) or (3) shall be paid to the holders of the Securities.
In the event that a Shelf Registration Statement is declared effective
pursuant to the preceding paragraph, if the Company fails to keep such
Registration Statement continuously effective for the period required by this
Agreement, then from such time as the Shelf Registration Statement is no longer
effective until the earlier of (i) the date that the Shelf Registration
Statement is again deemed effective, (ii) the date is the second anniversary of
the Closing Date or (iii) the date as of which all of the Securities are sold
pursuant to the Shelf Registration Statement, Special Interest shall accrue at
a rate per annum equal to 0.25% of the principal amount of the Securities and
shall be payable in cash semiannually in arrears each June 15 and December 15,
commencing December 15, 1997.
5. Registration Procedures. In connection with any Shelf Registration
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
(a) The Company shall furnish to you and to each Holder named therein,
prior to the filing thereof with the Commission, a copy of any Shelf
Registration Statement and any Exchange Offer Registration Statement, and
each amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall use its best efforts to reflect in
each such document, when so filed with the Commission, such comments as you
or Holder may propose.
10
<PAGE>
(b) The Company shall use its best efforts to ensure that (i) any
Registration Statement and any amendment thereto and any Prospectus forming
a part thereof and any amendment or supplement thereto complies in all
material respects with the Act and the rules and regulations thereunder,
(ii) any Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (iii) any Prospectus forming part
of any Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, in
the case of an Exchange Offer Registration Statement, any Exchanging Dealer
which has provided in writing to the Company a telephone or facsimile
number and address for notices, and, if requested by you or any such Holder
or Exchanging Dealer, confirm such advice in writing:
11
<PAGE>
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that,
as of such date, the statements therein are not misleading and do not
omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made)
not misleading (which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have
been made).
(d) The Company shall use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of any Registration Statement at the
earliest possible time.
(e) The Company shall furnish to each Holder of securities included
within the coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing any documents incorporated by reference
therein and all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such
12
<PAGE>
Holder may reasonably request; and the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling
Holders of securities in connection with the offering and sale of the
securities covered by such Prospectus or any amendment or supplement
thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, any documents incorporated by reference
therein, and, if the Exchanging Dealer so requests in writing any documents
incorporated by reference therein and all exhibits (including those
incorporated by reference).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies
of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may
reasonably request for delivery by such Exchanging Dealer in connection
with a sale of New Securities received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus or
any amendment or supplement thereto by any such Exchanging Dealer, as
aforesaid.
(i) In connection with any Shelf Registration Statement, the Company
shall register or qualify or cooperate with any the Holders of securities
named therein and such Holders' counsel in connection with the registration
or qualification of such securities for offer and sale under the securities
or blue sky laws of such jurisdictions as any such Holder reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the
securities covered by such Registration Statement; provided, however, that
the Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service
13
<PAGE>
of process or to taxation in any such jurisdiction where it is not then
so subject.
(j) Unless the applicable Securities shall be in book-entry only form,
the Company shall cooperate with the Holders of Securities to facilitate
the timely preparation and delivery of certificates representing Securities
to be sold pursuant to any Registration Statement free of any restrictive
legends and in such denominations and registered in such names as Holders
may request prior to sales of securities pursuant to such Registration
Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document so that, as
thereafter delivered to purchasers of the securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the applicable trustee with printed
certificates for such Securities or New Securities, in a form eligible for
deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders as soon as practicable after the
effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act in a timely manner.
14
<PAGE>
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the holder and the distribution of such securities as
the Company may from time to time reasonably require for inclusion in such
Registration Statement, and the Company may exclude from such registration
the Securities of any Holder that fails to furnish such information within
a reasonable time after receiving such request.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority
Holders agree should be included therein and to which the Company does not
unreasonably object and shall make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of the matters
to be incorporated in such Prospectus supplement or post-effective
amendment.
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such customary agreements (including underwriting agreements)
and take all other appropriate actions in order to expedite or facilitate
the registration or the disposition of the Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than
those set forth in Section 7 (or such other provisions and procedures
reasonably acceptable to the Company, the Majority Holders and the Managing
Underwriters, if any) with respect to all parties to be indemnified
pursuant to Section 7 hereof from Holders of Securities to the Company.
(r) In the case of any Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by the Holders of securities
to be registered thereunder, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such underwriter
all relevant financial and other re-
15
<PAGE>
cords, pertinent corporate documents and properties of the Company and its
subsidiaries; (ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or any
such underwriter, attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence
examinations; provided, however, that any information that is designated in
writing by the Company, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the Holders or
any such underwriter, attorney, accountant or other agent, unless such
disclosure is made in connection with a court proceeding or required by
law, or such information becomes available to the public generally or
through a third party without an accompanying obligation of
confidentiality; (iii) make such representations and warranties to the
Holders of securities registered thereunder and the underwriters, if any,
in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Purchase Agreement;
(iv) obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each selling Holder
of securities registered thereunder and the underwriters, if any, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten offerings;
and (vi) deliver such documents and certificates as may be reasonably
requested by
16
<PAGE>
the Majority Holders and the Managing Underwriters, if any, including those
to evidence compliance with Section 5(k) and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company. The foregoing actions set forth in clauses (iii), (iv), (v)
and (vi) of this Section 5(r) shall be performed at (A) the effective date
of such Registration Statement and each post-effective amendment thereto
and (B) each closing under any underwriting or similar agreement as and to
the extent required thereunder.
6. Registration Expenses. The Company shall bear all expenses incurred
in connection with the performance of its obligations under Sections 2, 3, 4
and 5 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith.
7. Indemnification and Contribution. (a) In connection with any
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of securities covered thereby (including each Initial Purchaser and,
with respect to any Prospectus delivery as contemplated in Section 5(h) hereof,
each Exchanging Dealer), the directors, officers, employees and agents of each
such Holder and each person who controls any such Holder within the meaning of
either the Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement as originally filed or in
any amendment thereof, or in any preliminary Prospectus or Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the
17
<PAGE>
statements therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will
not be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such Holder specifically for inclusion therein; provided further,
that with respect to any untrue statement or omission of material fact made in
the Registration Statement, any amendment thereto or the preliminary
Prospectus, the indemnity agreement contained in this Section 7(a) shall not
inure to the benefit of any Holder from whom the person asserting any such
loss, claim, damage or liability purchased the securities concerned, to the
extent that any such loss, claim, damage or liability of such Holder occurs
under the circumstance where it shall have been determined by a court of
competent jurisdiction by final and nonappealable judgment that (w) the
Company had previously furnished copies of the preliminary Prospectus to the
Holder, (x) delivery of the Prospectus was required to be made to such person,
(y) the untrue statement or omission of a material fact contained in the
preliminary Prospectus was corrected in the Prospectus and (z) there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such securities to such person, a copy of the Prospectus. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 7(d), any underwriters of Securities registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Initial Purchaser and the selling Holders provided in
this Section 7(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section 5(q)
hereof.
18
<PAGE>
(b) Each Holder of securities covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated in Section 5(h) hereof, each Exchanging Dealer) severally
agrees to indemnify and hold harmless (i) the Company, (ii) each of its
directors, (iii) each of its officers who signs such Registration Statement and
(iv) each person who controls the Company within the meaning of either the Act
or the Exchange Act to the same extent as the foregoing indemnity from the
Company to each such Holder, but only with reference to written information
relating to such Holder furnished to the Company by or on behalf of such Holder
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 7, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be
entitled to appoint as counsel one firm of attorneys of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party (together with one local counsel in each jurisdiction) in any action for
which indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reason-
19
<PAGE>
able fees, costs and expenses of such separate counsel (and local counsel) if
(i) the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the indemnifying
party, it being understood that the indemnifying party shall not be liable for
more than one separate firm (in addition to one local counsel in each
jurisdiction) for all indemnified parties in each jurisdiction in which any
claim or action arising out of the same general allegations or circumstances is
brought. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. An indemnifying party
will not, without its prior written consent, be liable for any settlement or
compromise or consent to the entry of any judgment.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which such indemnified party may be
20
<PAGE>
subject in such proportion as is appropriate to reflect the relative benefits
received by such indemnifying party, on the one hand, and such indemnified
party, on the other hand, from the Initial Placement and the Registration
Statement which resulted in such Losses; provided, however, that in no case
shall any Initial Purchaser or any subsequent Holder of any Security or New
Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of
a New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting
discount or commission applicable to the securities purchased by such
underwriter under the Registration Statement which resulted in such Losses. If
the allocation provided by the immediately preceding sentence is unavailable
for any reason, the indemnifying party and the indemnified party shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of such indemnifying party, on
the one hand, and such indemnified party, on the other hand, in connection with
the statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall be
deemed to be equal to the sum of (x) the total net proceeds from the Initial
Placement (before deducting expenses) as set forth on the cover page of the
Final Memorandum and (y) the total amount of additional interest which the
Company was not required to pay as a result of registering the securities
covered by the Registration Statement which resulted in such Losses. Benefits
received by the Initial Purchasers shall be deemed to be equal to the total
purchase discounts and commissions as set forth on the cover page of the Final
Memorandum, and benefits received by any other Holders shall be deemed to be
equal to the value of receiving Securities or New Securities, as applicable,
registered under the Act. Benefits received by any underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as set forth
on the cover page of the Prospectus forming a part of the Registration
Statement which resulted in such Losses. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the indemnifying party, on the one hand, or by the
indemni-
21
<PAGE>
fied party, on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 7, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred
to in Section 7 hereof, and will survive the sale by a Holder of securities
covered by a Registration Statement.
8. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with
the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of at least a majority of the then outstand-
22
<PAGE>
ing aggregate principal amount of Securities (or, after the consummation of
any Exchange Offer in accordance with Section 2 hereof, of New Securities);
provided that, with respect to any matter that directly or indirectly
affects the rights of any Initial Purchaser hereunder, the Company shall
obtain the written consent of each such Initial Purchaser against which
such amendment, qualification, supplement, waiver or consent is to be
effective. Notwithstanding the foregoing (except the foregoing proviso), a
waiver or consent to departure from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose securities
are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be given by
the Majority Holders, determined on the basis of securities being sold
rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
holder to the Company in accordance with the provisions of this
Section 8(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to Salomon Brothers Inc;
(2) if to you, initially at the respective addresses set forth
in the Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
23
<PAGE>
The Initial Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including, without the need for an express assignment or any consent by the
Company thereto, subsequent Holders of Securities and/or New Securities.
The Company hereby agrees to extend the benefits of this Agreement to any
Holder of Securities and/or New Securities and any such Holder may
specifically enforce the provisions of this Agreement as if an original
party hereto.
(e) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed
in accordance with the internal laws of the State of New York (without
regard to the conflict of law provisions thereof).
(h) Severability. In the event that any one of more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all of the rights and
privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of
Securi-
24
<PAGE>
ties or New Securities is required hereunder, Securities or New Securities,
as applicable, held by the Company or its Affiliates (other than subsequent
Holders of Securities or New Securities if such subsequent Holders are
deemed to be Affiliates solely by reason of their holdings of such
Securities or New Securities) shall not be counted in determining whether
such consent or approval was given by the Holders of such required
percentage.
25
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
NRG ENERGY, INC.
by: /s/ LEONARD A. BLUHM
---------------------
Name: Leonard A. Bluhm
Title: Executive V.P. and CFO
The foregoing Agreement is hereby accepted as of the date first above written.
SALOMON BROTHERS INC
ABN AMRO CHICAGO CORPORATION
CHASE SECURITIES INC.
by: SALOMON BROTHERS INC
by: /s/PETER H. KIND
----------------
Name: Peter H. Kind
Title: Director
26
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Securities where such
New Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date (as defined herein) and ending on the close of business
on the 90th day following the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on
the [ ]th day following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 199 , all dealers effecting
transactions in the New Securities may be required to deliver a prospectus1.
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Securities and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
- --------------
1 In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
For a period of [ ] days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
2
<PAGE>
ANNEX D
Rider A
- -------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-------------------------------------------
Address:
----------------------------------------
------------------------------------------------
Rider B
- -------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between NRG Energy, Inc., a Delaware corporation
("NRG"), and David H. Peterson (the "Executive"), ("Agreement") is dated as of
the 28th day of June, 1995.
WITNESSETH THAT
WHEREAS, The Board of Directors of NRG (the "Board") wishes to provide
for the employment of the Executive, and the Executive wishes to serve NRG, in
the capacities and on the terms and conditions set forth in this Agreement:
NOW THEREFORE, it is hereby agreed as follows:
1. Term. NRG shall employ the Executive, and the Executive shall serve
NRG, on the terms and conditions set forth in this Agreement, for the five-year
period, (the "Employment Period") commencing on June 28, 1995 (the "Effective
Time") and ending June 27, 2000.
2. Position and Duties.
(a) During the term of this Agreement, Executive shall serve as
the highest level executive officer of NRG, with such duties and
responsibilities not inconsistent therewith as may from time to time be
assigned to him by the Board of Directors of NRG. The Executive shall be a
member of the Board on the first day
<PAGE>
of the Employment Period, and the Board shall propose the Executive for
re-election to the Board throughout the Employment Period.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote reasonable attention and time during normal business hours to the
business and affairs of NRG and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to serve on corporate, industry, civic or
charitable boards or committees, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of NRG in accordance with this Agreement.
3. Compensation.
(a) Base Salary. The Executive's compensation during the
Employment Period shall be determined by the Board upon the recommendation of
the Compensation Committee of the Board, subject to the next sentence and
Section 3 (b). During the Employment Period, the Execu-
2
<PAGE>
tive shall receive an annual base salary ("Annual Base Salary") of not less
than his annual base salary from NRG as in effect immediately before the
Effective Time. The Annual Base Salary shall be payable in accordance with
NRG's regular payroll practice for its senior executives, as in effect from
time to time. During the Employment Period, the Annual Base salary shall be
reviewed for possible increase at least annually. Any increase in the Annual
Base Salary shall not limit or reduce any other obligation of NRG under this
Agreement. The Annual Base Salary shall not be reduced after any such increase,
and the term "Annual Base Salary" shall thereafter refer to the Annual Base
Salary as so increased.
(b) Other Compensation and Benefits.
(i) Retirement and Welfare Benefits. NRG agrees that during the
Employment Period it will provide Executive with retirement and
welfare benefits that, in the aggregate, are no less favorable to him
than those provided to any other officer of NRG. To the extent that
Executive's benefits are provided by plans sponsored by Northern
States Power Company ("NSP"), NRG agrees that Executive shall
participate in such plans on terms and conditions no less favorable
than those that apply to officers of NSP. To
3
<PAGE>
the extent that Executive's benefits are provided by plans sponsored
by NRG, NRG agrees that Executive shall participate in such plans on
terms and conditions no less favorable than those that apply to any
other officer of NRG.
(ii) Incentive Compensation. During the Employment Period, the
Executive shall participate in short-term incentive compensation plans
and long-term incentive compensation plans providing him with the
opportunity to earn, on a year-by-year basis, greater short-term and
long-term incentive compensation (the "Incentive Compensation") than
any other NRG officer.
(c) Additional Benefits.
(i) Supplemental Retirement Benefits. During the Employment
Period, the Executive shall participate in a supplemental executive
retirement plan ("SERP") such that the aggregate value of the
retirement benefits that he and his spouse will receive at the end of
the Employment Period under all defined benefit plans of NRG, NSP and
their affiliates (whether qualified or not) will be not less than the
aggregate value of the benefits he would have received had he
continued, through the end of the
4
<PAGE>
Employment Period to participate in the NSP Deferred Compensation
Plan, the NSP Excess Benefit Plan, and the NSP Pension Plan; provided,
that benefits under the SERP, shall also include the amount, if any,
that the NSP Pension Plan's actuaries reasonably estimate is necessary
to compensate Executive for the monthly defined benefit payments the
Executive did not receive, but would have received during the term of
this Agreement and prior to the date of his actual termination of
employment if monthly benefit payments had commenced at the end of the
month following the month in which the Executive first became eligible
for Early Retirement under the NSP Pension Plan. In addition, the SERP
shall offer the Executive the option to receive his benefits
thereunder in a single lump sum payment using actuarial assumptions
that the NSP Pension Plan's actuaries determine are reasonable in the
aggregate; provided, that such lump sum payment option shall be
subject to the consent of the Board in its sole discretion and must be
requested by the Executive not less than twelve months prior to the
Executive's termination of employment. Finally, if the Executive dies
while employed, or deemed pursuant to paragraph (a) of section 5 to be
employed
5
<PAGE>
by NRG, his surviving spouse (or, if, he has no surviving spouse, his
estate) shall be entitled to receive a benefit equal in value to the
difference between the pension benefit that the Executive would have
received if he had retired (rather than died ) on the date of his
death and received a lump sum pension benefit and the lump sum value
of the pension payable in the absence of this provision; provided,
that in the case where the Executive has no surviving spouse, the
benefit pursuant to this sentence shall be paid in a lump sum; and
provided, further, that in the case where the Executive has a
surviving spouse, the benefit pursuant to this sentence shall be paid
in the form of a single life annuity for her life unless she elects a
single lump sum payment and the Board, in its sole discretion,
consents to the lump sum payment. Notwithstanding anything in the
preceding sentence to the contrary, if despite reasonable efforts NRG
is unable to obtain insurance on the life of the Executive with a
death benefit equal to the anticipated after-tax cost to NRG of the
benefit described in the preceding sentence at an average annual
premium cost of less than $7,000, then the value of such benefit
payable to Executive's surviv-
6
<PAGE>
ing spouse or estate shall be reduced so that its after-tax cost to
NRG does not exceed the amount of insurance on the life of the
Executive that NRG could obtain at such cost.
(ii) During the Employment Period, the Company shall provide
the Executive with life insurance coverage (the "Life Insurance
Coverage") providing a death benefit to such beneficiary or
beneficiaries as the Executive may designate of not less than his
Annual Base Salary. Following the Employment Period, the Company shall
provide the Executive with a life insurance benefit at least equal to
the benefit that would have been provided to the executive after
termination of employment under the Northern States Power Company
Officer Survivor Benefit Plan as in effect immediately before the
Effective Time.
(d) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to receive fringe benefits that are no less favorable to him
than those provided to any other officer of NRG.
4. Termination of Employment.
(a) Death or disability. The Executive's employment shall terminate
automatically upon the
7
<PAGE>
Executive's death during the Employment Period. NRG shall be entitled to
terminate the Executive's employment because of the Executive's Disability
during the Employment period. "Disability" means that (i) the Executive has
been unable, for a period of 60 consecutive calendar days, to perform the
Executive's duties under this Agreement, as a result of physical or mental
illness or injury, and (ii) a physician selected by NRG or its insurers, and
acceptable to the Executive or the Executive's legal representative, has
determined that the Executive's incapacity is total and permanent. A
termination of the Executive's employment by NRG for Disability shall be
communicated to the Executive by written notice, and shall be effective on the
30th day after such notice is given to the Executive (the "Disability Effective
Date"), unless the Executive returns to full-time performance of the
Executive's duties before the Disability Effective Date.
(b) By the Company.
(i) NRG may terminate the Executive's employment during the
Employment Period for Cause or without Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this
8
<PAGE>
Agreement, after the Board of NRG delivers to the Executive a
written demand for substantial performance that specifically
identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties;
B. the failure to achieve reasonable minimum performance
goals established by the Board and consistent with NRG's then
current long-term business plan; or
C. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and
demonstrable damage to the business of NRG.
No act or failure to act on the part of the Executive shall be considered
"willful" if it is done, or omitted to be done, by the Executive due to
circumstances beyond the Executive's control (which may include, but are not
limited to, the Executive's physical or mental illness or injury).
(ii) A termination of the Executive's employment for Cause
shall be effected in accordance with the following procedures. NRG
shall give the Executive written notice ("Notice of Termination for
Cause") of its intention to terminate the Executive's employment for
Cause, setting forth in reasonable detail the specific conduct of the
Executive that it considers to constitute Cause and the specific
9
<PAGE>
provision(s) of this Agreement on which it relies, and stating the
date, time and place of the Special Board Meeting for Cause. The
"Special Board Meeting for Cause" means a meeting of the Board called
and held specifically for the purpose of considering the Executive's
termination for Cause, that takes place not less than ten and not more
than twenty business days after the Executive receives the Notice of
Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Special Board Meeting for
Cause. The Executive's termination for Cause shall be effective when
and if a resolution is duly adopted at the Special Board Meeting for
Cause by affirmative vote of a majority of the entire membership of
the Board, excluding NRG employee directors, stating that in the good
faith opinion of the Board, the Executive is guilty of the conduct
described in the Notice of Termination for Cause, and that conduct
constitutes Cause under this Agreement.
(iii) A termination of the Executive's employment without Cause
shall be effective when and if a resolution is duly adopted by
10
<PAGE>
the Board stating that the Executive is terminated without Cause.
(c) Good Reason.
(i) The Executive may terminate employment for Good Reason or
without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties
inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement, or any other action by NRG that results in a
diminution in the Executive's position, authority, duties or
responsibilities, unless such action is remedied by NRG promptly
after receipt of written notice thereof from the Executive;
B. any failure by NRG to comply with any provision of
Section 3 of this Agreement, unless such action is remedied by
NRG promptly after receipt of written notice thereof from the
Executive;
C. any purported termination of the Executive's employment
by NRG for a reason or in a manner not expressly permitted by
this Agreement;
D. any failure by NRG to comply with paragraph (c) of
Section 12 of this Agreement; or
E. any other substantial breach of this Agreement by NRG
that is not remedied by NRG promptly after receipt of written
notice thereof from the Executive.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving NRG written notice ("Notice of
Termination for
11
<PAGE>
Good Reason") of the termination, setting forth in reasonable detail
the specific conduct of NRG that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies.
A termination of employment by the Executive for Good Reason shall be
effective on the fifth business day following the date when the Notice
of Termination for Good Reason is given, unless the notice sets forth
a later date (which date shall in no event be later than 30 days after
the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving NRG written
notice of the termination.
(d) No Waiver. The failure to set forth any fact or circumstance in
a Notice of Termination for Cause, a Notice of Termination without Cause or a
Notice of Termination for Good Reason shall not constitute a waiver of the
right to assert, and shall not preclude the party giving notice from asserting,
such fact or circumstance in an attempt to enforce any right under or provision
of this Agreement.
(e) Date of Termination. The "Date of Termination" means the date
of the Executive's death, the
12
<PAGE>
Disability Effective Date, the date on which the termination of the Executive's
employment by JRG for Cause or without Cause or by the Executive for Good
Reason is effective, or the date on which the Executive gives NRG notice of a
termination of employment without Good Reason, as the case may be.
5. Obligations of NRG upon Termination.
(a) By NRG Other Than for Cause or Disability; By the Executive
for Good Reason. If, during the Employment Period, NRG terminates the
Executive's employment, other than for Cause or Disability, or the Executive
terminates employment for Good Reason, NRG shall continue to provide the
Executive with the compensation and benefits set forth in Section 3 as if he
had remained employed by NRG pursuant to this Agreement through the end of the
Employment Period and then retired (at which time he will be treated as
eligible for all retiree welfare benefits and other benefits provided to
retired senior executives, as set forth in Section 3(b) and (c)); provided,
that the Incentive Compensation for such period shall be equal to the greater
of the target Incentive Compensation that the Executive would have been
eligible to earn for such period or the Incentive Compensation awarded for the
last complete incentive plan year ending
13
<PAGE>
prior to Executive's Termination of Employment; provided, further, that in lieu
of stock-based or equity-based awards, the Executive shall be paid cash equal
to the fair market value at the time of grant, if any, (determined without
regard to any restrictions) of the awards that would otherwise have been
granted; and provided, finally, that during any period when the Executive is
eligible to receive welfare benefits of the type described in paragraph (b) (i)
of Section 3 under another employer-provided plan, the welfare benefits
provided by NRG under this paragraph (a) of Section 5 may be made secondary to
those provided under such other plan. The payments and benefits provided
pursuant to this paragraph (a) of Section 5 are intended as liquidated damages
for a termination of the Executive's employment by NRG other than for Cause or
Disability or for the actions of NRG leading to a termination of the
Executive's employment by the Executive for Good Reason, and shall be the sole
and exclusive remedy therefor.
(b) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, NRG shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated
14
<PAGE>
beneficiaries (or, if there is no such beneficiary, to the Executive's estate
or legal representative), in a lump sum in cash within 30 days after the Date
of Termination, the sum of the following amounts (the "Accrued Obligations"):
(1) any portion of the Executive's Annual Base Salary through the Date of
Termination that has not yet been paid; (2) an amount representing the
Incentive Compensation for the period that includes the Date of Termination,
computed by assuming that the amount of all such incentive Compensation would
be the same as the amount of such Incentive Compensation for the latest
corresponding period ending before the Date of Termination, and multiplying
that amount by a fraction, the numerator of which is the number of days in such
period through the Date of Termination, and the denominator of which is the
total number of days in the relevant period, (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) that has not yet been paid; and (4) any accrued but unpaid Incentive
Compensation and vacation pay; and NRG shall have no further obligations under
this Agreement, except as specified in Section 6 below.
(c) By NRG for Cause; By the Executive Other than for Good Reason.
If the Executive's employment
15
<PAGE>
is terminated by NRG for Cause during the Employment Period, NRG shall pay the
Executive the Annual Base Salary through the Date of Termination and the amount
of any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon), in each case to the extent not yet paid,
and NRG shall have no further obligations under this Agreement, except as
specified in Section 6 below. If the Executive voluntarily terminates
employment during the Employment Period, other than for Good Reason, NRG shall
pay the Accrued Obligations to the Executive in a lump sum in cash within 30
days of the Date of Termination, and NRG shall have no further obligations
under this Agreement, except as specified in Section 6 below.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by NRG or any of its affiliated companies
for which the Executive may qualify, nor, subject to paragraph (f) of Section
11, shall anything in this Agreement limit or otherwise affect such rights as
the Executive may have under any contract or agreement with NRG or any of its
affiliated companies; provided, however, that Executive waives any rights he
has or may
16
<PAGE>
hereafter acquire to participate in or to receive benefits under the NSP
Severance Plan, or any other severance plan, policy or arrangement that is
generally applicable to senior executives of NRG or NSP to the extent those
rights are based on his employment under this agreement or any prior
employment. Vested benefits and other amounts that the Executive is otherwise
entitled to receive under the Incentive Compensation, the Life Insurance
Coverage, or any other plan, policy, practice or program of, or any contract or
agreement with, NRG or any of its affiliated companies on or after the Date of
Termination shall be payable in accordance with the terms of each such plan,
policy, practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
7. Full Settlement. NRG's obligation to make the payments provided for
in, and otherwise to perform its obligations under, this Agreement shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that NRG may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any
of the provisions of this Agreement
17
<PAGE>
and, except as specifically provided in paragraph (a) of Section 5 with respect
to benefits described in paragraph (b) (i) of Section 3, such amounts shall not
be reduced, regardless of whether the Executive obtains other employment.
8. Noncompetition Agreement. During the period of the Executive's
employment by NRG and until the later of (i) one year after the Executive's
Date of Termination or (ii) in the event Section 5(a) applies, the end of the
Employment Period, Executive agrees that he will not, directly or indirectly
own, manage, operate, join, work for, control or participate in the ownership,
management, operation or control of, or be connected in any manner with, any
business (whether in corporate, proprietorship, or partnership form or
otherwise) as a more than 10% owner in such business, or member of a group
controlling such business where such business is engaged in any activity which
competes with the business of NRG as conducted on the Date of Termination of
Executive's employment from NRG or which will compete with any proposed
business activity of NRG in the planning stage on such Date of Termination.
During the period of the Executive's employment by NRG and until the later of
(i) two years after the Executive's Date of Termination or (ii) in the event
Section 5(a)
18
<PAGE>
applies, the end of the Employment Period, Executive agrees that he will not,
for his own benefit or for any other person, corporation or other entity (other
than NRG and its subsidiaries or affiliates) call on or solicit any customers
of NRG or any of its subsidiaries or affiliates for any business purpose that
competes with the business of NRG as conducted on the Date of Termination of
Executive's employment from NRG or which will compete with any proposed
business activity of NRG in the planning stage on such Date of Termination.
Executive acknowledges and agrees that the remedy at law for any breach of this
Section 8 will be inadequate and that NRG, in addition to any other relief
available to it, shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damage. In the event that the
provisions of this covenant not to compete should ever be judicially determined
to exceed the limitation permitted by applicable law, then the parties hereto
agree that such provisions shall be reformed to set forth the maximum
limitations permitted.
9. Confidential Information.
(a) "Confidential Information" as used in this Section means
information that is not generally known and that is proprietary to NRG or that
NRG is obligated to
19
<PAGE>
treat as proprietary. This information includes, without limitation:
(i) trade secret information about NRG, its strategies and its
products;
(ii) information concerning NRG's business, as NRG has
conducted it or as it may be conducted in the future; and
(iii) information concerning any of NRG's past, current, or
possible future products or services, including (without limitation)
information about NRG's research, development, accounting, marketing,
selling or leasing.
Any information that the Executive reasonably considers Confidential
Information, or that NRG treats as Confidential Information, will be presumed
to be Confidential Information (whether the Executive or others originated it
and regardless of how he obtained it).
(b) Except as required in his duties with NRG, during the period of
his employment by NRG and until the later of (i) two years after his Date of
Termination or (ii) in the event Section 5(a) applies, the end of the
Employment Period, the Executive will not use or disclose Confidential
Information to any person not authorized by NRG to receive it. When the
Executive's employment with
20
<PAGE>
NRG ends, he will promptly turn over to NRG all records and any compositions,
articles, devices, apparatus and other items that disclose, describe or embody
Confidential Information, including all copies, reproductions and specimens of
Confidential Information in his possession, regardless of who prepared them.
(c) Notwithstanding anything in this Agreement to the contrary,
Executive's obligations under Sections 8 and 9 of this agreement shall not be
limited by the term of this Agreement and shall continue in full force
following the expiration of the term of this Agreement or its earlier
termination, as described in those sections.
10. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of NRG, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon NRG and its successors and assigns.
21
<PAGE>
(c) NRG shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of NRG expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that NRG would have been
required to perform it if no such succession had taken place. As used in this
Agreement, "NRG" shall mean both NRG as defined above and any such successor
that assumes and agrees to perform this Agreement, by operation of law or
otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Minnesota, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage pre-paid,
addressed as follows:
22
<PAGE>
If to the Executive:
David H. Peterson
10720 Mississippi Boulevard NW
Coon Rapids, MN 55433
If to NRG:
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 11. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.
(d) Notwithstanding any other provision of this Agreement, NRG may
withhold from amounts payable
23
<PAGE>
under this Agreement all federal, state, local and foreign taxes that are
required to be withheld by applicable laws or regulations.
(e) The Executive's or NRG's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 4 of this
agreement) shall not be deemed to be a waiver of such provision or right or of
any other provisions of or right under this agreement.
(f) The Executive and NRG acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof.
(g) The rights and benefits of the Executive under this Agreement
may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be void. Payments
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.
24
<PAGE>
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
25
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board of Directors, NRG has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/DAVID PETERSON
---------------------
David Peterson
NRG Energy, Inc.
By /s/D.D. ANTONY
---------------
26
<PAGE>
NRG ENERGY, INC.
to
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
----------------------
INDENTURE
Dated as of January 31, 1996
----------------------
$125,000,000
7.625% Senior Notes Due 2006
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Certain Terms Defined................................................. 1
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES
2.1 Authentication and Delivery of Securities.............................. 7
2.2 Execution of Securities................................................ 8
2.3 Certificate of Authentication.......................................... 8
2.4 Form, Denomination and Date of Securities; Payments of Interest........ 8
2.5 Global Securities..................................................... 11
2.6 Registration, Registration of Transfer and Exchange................... 12
2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities............. 17
2.8 Cancellation of Securities; Destruction Thereof....................... 18
2.9 Temporary Securities.................................................. 18
2.10 Computation of Interest............................................... 19
ARTICLE III
COVENANTS OF
THE ISSUER AND THE TRUSTEE
3.1 Payment of Principal and Interest..................................... 19
3.2 Offices for Payments, etc............................................. 19
3.3 Appointment to Fill a Vacancy in Office of Trustee.................... 19
3.4 Paying Agents......................................................... 20
3.5 Certificate to Trustee................................................ 20
3.6 Securityholder's Lists................................................ 20
3.7 Reports by the Issuer................................................. 21
3.8 Limitation on Liens................................................... 21
i
<PAGE>
3.9 Net Worth............................................................. 22
3.10 Repurchase of Securities Upon a Change of Control..................... 22
ARTICLE IV
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
4.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default. 23
4.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt......... 26
4.3 Application of Proceeds............................................... 28
4.4 Suits for Enforcement................................................. 28
4.5 Restoration of Rights on Abandonment of Proceedings................... 29
4.6 Limitations of Suits by Securityholders............................... 29
4.7 Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default........................................................... 29
4.8 Control by Securityholders............................................ 30
4.9 Waiver of Past Defaults............................................... 30
4.10 Rights of Holders to Receive Payment.................................. 31
ARTICLE V
CONCERNING THE TRUSTEE
5.1 Duties and Responsibilities of the Trustee; During Default; Prior to
Default........................................................... 31
5.2 Certain Rights of the Trustee......................................... 32
5.3 Trustee Not Responsible for Recitals, Disposition of Securities or
Application of Proceeds Thereof................................... 33
5.4 Trustee and Agents May Hold Securities; Collections, etc.............. 33
5.5 Moneys Held by Trustee................................................ 33
5.6 Compensation and Indemnification of Trustee and Its Prior Claim....... 34
5.7 Right of Trustee to Rely on Officers' Certificate, etc................ 34
5.8 Persons Eligible for Appointment as Trustee........................... 34
5.9 Resignation and Removal; Appointment of Successor Trustee............. 34
5.10 Acceptance of Appointment by Successor Trustee........................ 35
5.11 Merger, Conversion, Consolidation or Succession to Business of Trustee 36
ARTICLE VI
CONCERNING THE SECURITYHOLDERS
6.1 Evidence of Action Taken by Securityholders........................... 37
6.2 Proof of Execution of Instruments and of Holding of Securities Record
Date.............................................................. 37
6.3 Holders to Be Treated as Owners....................................... 37
6.4 Securities Owned by Issuer Deemed Not Outstanding..................... 37
6.5 Right of Revocation of Action Taken................................... 38
ii
<PAGE>
ARTICLE VII
SUPPLEMENTAL INDENTURES
7.1 Supplemental Indentures Without Consent of Securityholders............ 38
7.2 Supplemental Indentures With Consent of Securityholders............... 39
7.3 Effect of Supplemental Indenture...................................... 40
7.4 Documents to Be Given to Trustee...................................... 40
7.5 Notation of Securities in Respect of Supplemental Indentures.......... 40
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
8.1 Covenant Not to Merge, Consolidate, Sell or Transfer Assets Except
Under Certain Conditions.......................................... 41
8.2 Successor Corporation Substituted..................................... 41
8.3 Opinion of Counsel to Trustee; Officers' Certificate.................. 42
ARTICLE IX
SATISFACTION AND DISCHARGE
OF INDENTURE; UNCLAIMED MONEYS
9.1 Satisfaction and Discharge of Indenture............................... 42
9.2 Application by Trustee of Funds Deposited for Payment of Securities... 43
9.3 Repayment of Moneys Held by Paying Agent.............................. 43
9.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two
Years............................................................. 43
9.5 Defeasance and Discharge of Indenture................................. 44
9.6 Defeasance of Certain Obligations..................................... 45
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Incorporators, Shareholders, Officers and Directors of Issuer Exempt
from Individual Liability......................................... 46
10.2 Provisions of the Indenture for the Sole Benefit of Parties and
Securityholders................................................... 46
10.3 Successors and Assigns of Issuer Bound by Indenture.................. 46
10.4 Notices and Demands on Issuer, Trustee and Securityholders........... 47
10.5 Officers' Certificates and Opinions of Counsel; Statements to Be
Contained Therein................................................. 47
10.6 Payments Due on Saturdays, Sundays and Holidays...................... 48
10.7 New York Law to Govern............................................... 48
10.8 Counterparts......................................................... 48
10.9 Effect of Headings................................................... 48
iii
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ARTICLE XI
REDEMPTION OF SECURITIES
11.1 Right of Optional Redemption Price................................... 49
11.2 Notice of Redemption................................................. 49
11.3 Payment of Securities Called for Redemption.......................... 49
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EXHIBIT A FORM OF SECURITY
EXHIBIT B FORM OF RESTRICTED PERIOD CERTIFICATE
EXHIBIT C FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE
FROM RULE 144A GLOBAL SECURITY OR IAI GLOBAL SECURITY TO
RESTRICTED REGULATION S GLOBAL SECURITY
EXHIBIT D FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE
FROM RULE 144A GLOBAL SECURITY OR IAI GLOBAL SECURITY TO
UNRESTRICTED REGULATION S GLOBAL SECURITY
EXHIBIT E FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE
FROM RESTRICTED REGULATION S GLOBAL SECURITY,
UNRESTRICTED REGULATION S GLOBAL SECURITY OR IAI GLOBAL
SECURITY TO RULE 144A GLOBAL SECURITY
EXHIBIT F FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE
FROM RULE 144A GLOBAL SECURITY, RESTRICTED REGULATION S
GLOBAL SECURITY OR UNRESTRICTED REGULATION S GLOBAL
SECURITY TO IAI GLOBAL SECURITY
v
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INDENTURE, dated as of January 31, 1996 from NRG ENERGY,
INC., a Delaware corporation (herein called the "Issuer"), to NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, as trustee (herein called the "Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer has duly authorized the issue of
$125,000,000 aggregate principal amount of its 7.625% Senior Notes Due 2006
(the "Securities") and, to provide, among other things, for the
authentication, delivery and administration thereof, the Issuer has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, all things necessary to make the Securities, when
executed by the Issuer and authenticated and delivered by the Trustee as in
this Indenture provided, the valid, binding and legal obligations of the
Issuer, and to constitute these presents a valid indenture and agreement
according to its terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the
Securities by the Holders (as defined herein) thereof, the Issuer and the
Trustee mutually covenant and agree for the equal and proportionate benefit of
the respective Holders from time to time of the Securities as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following terms
(except as otherwise expressly provided) for all purposes of this Indenture
shall have the respective meanings specified in this Section. All accounting
terms used herein and not expressly defined shall have the meanings given to
them in accordance with GAAP (as defined herein). The words "herein," "hereof"
and "hereunder" and other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other subdivision. The
terms defined in this Article include the plural as well as the singular.
"Agent Members" has the meaning set forth in Section 2.4(c).
"Applicable Premium" means, with respect to a Security at
any time, the excess (if any) of (i) the sum of the present values of all of
the remaining scheduled payments of principal of and interest on the
Securities from the applicable redemption date through the Stated Maturity of
such Security, computed on a semi-annual basis by discounting such payments
(assuming a 360-day year consisting of twelve 30-day months and using a rate
equal to the Treasury Rate plus 50 basis points) over (ii) the aggregate
unpaid principal amount of the Security to be redeemed plus any accrued but
unpaid interest thereon. The Applicable Premium
<PAGE>
shall be computed as of the third Business Day prior to the applicable
redemption date, and certified, by an Investment Banker.
"Board of Directors" means either the Board of Directors of
the Issuer or any committee of such Board duly authorized to act on behalf of
such Board.
"Business Day" means a day which is neither a legal holiday
nor a day on which banking institutions (including, without limitation, the
Federal Reserve System) are authorized or required by law or regulation to
close in The City of New York or the city of Minneapolis, Minnesota.
"Capital Stock" means, with respect to any Person, any and
all outstanding shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of, or interests in
(however designated), the equity of such Person including, without limitation,
all Common Stock and Preferred Stock and partnership and joint venture
interests of such Person.
"Cedel" has the meaning set forth in Section 2.4(b).
"Change of Control" means the occurrence of one or more of
the following events: (i) NSP (or its successors) shall cease to own a
majority of the outstanding Voting Stock of the Issuer, (ii) at any time
following the occurrence of the event described in clause (i), a Person or
group (as that term is used in Section 13(d)(3) of the Exchange Act) of
Persons (other than NSP) shall have become the beneficial owner, directly or
indirectly, or shall have acquired the absolute power to direct the vote, of
more than 35% of the outstanding Voting Stock of the Issuer or (iii) during
any twelve-month period, individuals who at the beginning of such period
constitute the Board of Directors (together with any new directors whose
election or nomination was approved by a majority of the directors then in
office who were either directors at the beginning of such period or who were
previously so approved) shall cease for any reason to constitute a majority of
the Board of Directors. Notwithstanding the foregoing, a Change of Control
shall be deemed not to have occurred if one or more of the above events occurs
or circumstances exist and, after giving effect thereto, the Securities are
rated Investment Grade. For purposes of clause (i), NSP's "successors" shall
be deemed to include the "Company," as that term is defined in the Amended and
Restated Agreement and Plan of Merger dated as of April 28, 1995, as amended
and restated as of July 26, 1995, between NSP and Wisconsin Energy
Corporation, a Wisconsin corporation, if the merger contemplated by such
agreement is consummated substantially in accordance with the terms specified
therein.
"Change of Control Offer" has the meaning set forth in
Section 3.10(b) hereof.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or, if at
any time after the execution of this Indenture such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act,
then the body (if any) performing such duties at such time.
"Common Stock" means, with respect to any Person, Capital
Stock of such Person that does not rank prior, as to the payment of dividends
or as to the distribution of assets upon
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any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of any other class of Capital Stock of such Person.
"Consolidated Current Assets" and "Consolidated Current
Liabilities" mean such assets and liabilities of the Issuer on a consolidated
basis as shall be determined in accordance with GAAP to constitute current
assets and current liabilities, respectively, provided that inventory shall be
valued at the lower of cost (using the average life method) or market.
"Consolidated Net Income" means, for any period, the net
income of the Issuer determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Tangible Assets" means, as of the date of
determination thereof, Consolidated Total Assets as of such date less the sum
of (i) Consolidated Current Liabilities and (ii) Intangible Assets.
"Consolidated Tangible Net Worth" means, as of the date of
determination thereof, shareholders' equity of the Issuer determined on a
consolidated basis in accordance with GAAP, less Intangible Assets.
"Consolidated Total Assets" means, as of the date of any
determination thereof, the total amount of all assets of the Issuer determined
on a consolidated basis in accordance with GAAP.
"Corporate Trust Office" means the principal office of the
Trustee at which the corporate trust business of the Trustee shall, at any
particular time, be principally administered, which office is, at the date as
of which this Indenture is dated, located at Corporate Trust, Norwest Center,
Sixth and Marquette, Minneapolis, Minnesota 55479-0069.
"Euroclear" has the meaning set forth in Section 2.4(b).
"Event of Default" means any event or condition specified as
such in Section 4.1 hereof that shall have continued for the period of time,
if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in the
U.S. applied on a basis consistent with the principles, methods, procedures
and practices employed in the preparation of the Issuer's audited financial
statements, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession.
"Global Security" has the meaning set forth in Section 2.4(c).
"Holder," "Holder of Securities," "Securityholder" and other
similar terms mean the registered holder of any Security.
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"IAI Global Security" has the meaning set forth in Section
2.4(b).
"Indebtedness" has the meaning set forth in Section 3.8.
"Indenture" means this instrument as originally executed and
delivered or, if amended or supplemented as herein provided, as so amended or
supplemented.
"Initial Purchasers" means Bear, Stearns & Co. Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Intangible Assets" means, as of the date of determination
thereof, all assets of the Issuer properly classified as intangible assets
determined on a consolidated basis in accordance with GAAP.
"Interest Payment Date" means, with respect to any Security,
the Stated Maturity of an installment of interest on such Security.
"Investment Banker" means an independent investment banking
institution of national standing selected by the Issuer.
"Investment Grade" means, with respect to the Securities, a
rating of Baa3 or higher by Moody's Investors Service, Inc. and a rating of
BBB- or higher by Standard and Poor's Ratings Group (or, if either or both of
the foregoing rating agencies ceases to rate the Securities for reasons beyond
the control of the Issuer, equivalent ratings by one or two (as the case may
be) other nationally recognized statistical rating organizations (as such term
is defined in Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act); provided that
if either of the foregoing rating agencies shall change its ratings
designations while the Securities are Outstanding, "Investment Grade" shall
mean the lowest ratings designation signifying "investment grade" issued by
such agencies (or higher).
"Issuer" means NRG Energy, Inc., a Delaware corporation,
and, subject to Article 8 hereof, its successors and assigns.
"Legend" has the meaning set forth in Section 2.6(d).
"Minimum Consolidated Tangible Net Worth" means an amount,
as of the date of any determination thereof, equal to the sum of $175 million
plus 25% of Consolidated Net Income for the period from and including April 1,
1996 to such determination date, but which amount shall in no event be less
than $175 million.
"NSP" means Northern States Power Company, a Minnesota
corporation.
"Officers' Certificate" means a certificate signed on behalf
of the Issuer by the Chairman of the Board of Directors or the President or
any Vice President and by the Chief Financial Officer or the Secretary or any
Assistant Secretary or the Treasurer or any Assistant Treasurer of the Issuer
and delivered to the Trustee. Each such certificate shall include the
statements provided for in Section 10.5 hereof, if and to the extent required
thereby.
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<PAGE>
"Opinion of Counsel" means an opinion in writing signed by
legal counsel satisfactory to the Trustee, who may be an employee of or
counsel to the Issuer. Each such opinion shall include the statements provided
for in Section 10.5 hereof, if and to the extent required thereby.
"Original Issue Date" of any Security (or portion thereof)
means the earlier of (a) the date of such Security or (b) the date of any
Security (or portion thereof) in exchange for which such Security was issued
(directly or indirectly) on registration of transfer, exchange or
substitution.
"Outstanding", when used with reference to Securities,
shall, subject to the provisions of Section 6.4 hereof, mean, as of any
particular time, all Securities authenticated and delivered by the Trustee
under this Indenture, except:
1. Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation, or which shall have been
paid pursuant to Section 2.7 hereof (other than any such Securities
in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Securities are held by a bona fide
purchaser in whose hands the Securities are valid obligations of the
Issuer); and
2. Securities, or portions thereof, for the payment or
redemption of which moneys or direct obligations of the United States
of America backed by its full faith and credit in the necessary
amount shall have been deposited in trust with the Trustee or with
any paying agent (other than the Issuer) or shall have been set
aside, segregated and held in trust by the Issuer (if the Issuer
shall act as its own paying agent), provided that if such Securities
are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been herein provided, or provision satisfactory
to the Trustee shall have been given as herein provided, or provision
satisfactory to the Trustee shall have been made for giving such
notice.
"Person" means an individual, a corporation, a partnership,
a limited liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of preferred or preference Capital
Stock of such Person that is outstanding or issued on or after the date of
this Indenture.
"Purchase Agreement" means the Purchase Agreement dated
January 29, 1996 between the Issuer and the Initial Purchasers.
"Regulation S" has the meaning set forth in Section 2.4(b).
"Repurchase Date" has the meaning set forth in Section
3.10(b).
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<PAGE>
"Responsible Officer", when used with respect to the
Trustee, means any officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Restricted Regulation S Global Security" has the meaning
set forth in Section 2.4(b). "Rule 144A" has the meaning set forth in Section
2.4(b).
"Rule 144A Global Security" has the meaning set forth in
Section 2.4(b).
"Rule 144A Information" has the meaning specified in Section
3.7.
"Securities Act" means the Securities Act of 1933, as
amended.
"Security" or "Securities" has the meaning set forth in the
recitals above.
"Securities Register" and "Security Registrar" have the
respective meanings specified in Section 2.6 hereof.
"Stated Maturity" means, with respect to any debt security
or any installment of interest thereon, the date specified in such debt
security as the fixed date on which any principal of such debt security or any
such installment of interest is due and payable.
"Treasury Rate" means, with respect to any Security to be
redeemed, a per annum rate (expressed as a semiannual equivalent and as a
decimal and, in the case of United States Treasury bills, converted to a bond
equivalent yield) determined and certified by an Investment Banker to be the
per annum rate equal to the semiannual yield to maturity of United States
Treasury securities maturing on the Average Life Date (as defined below) of
such Security, as determined by interpolation between the most recent weekly
average yields to maturity for two series of Treasury securities, (A) one
maturing as close as possible to, but earlier than, the Average Life Date of
such Security and (B) the other maturing as close as possible to, but later
than, the Average Life Date of such Security, in each case as published in the
most recent H.15(519) (or, if a weekly average yield to maturity for United
States Treasury securities maturing on the Average Life Date of such Security
is reported in the most recent H.15(519), as published in H.15(519)).
"H.15(519)" means "Statistical Release H.15(519), Selected Interest Rates," or
any successor publication, published by the Board of Governors of the Federal
Reserve System. The "most recent H.15(519)" means the latest H.15(519) that is
published prior to the close of business on the third Business Day prior to
the applicable redemption date. The "Average Life Date" for any Security to be
redeemed shall be the date that follows the redemption date by a period equal
to the Remaining Weighted Average Life of such Security. The "Remaining
Weighted Average Life" of such Security with respect to the redemption of such
Security is the number of days equal to the quotient obtained by dividing (A)
the sum of the products obtained by multiplying (1) the amount of each
remaining principal payment on such Security by (2) the number of days from
and including the redemption date, to but excluding the scheduled payment date
of such principal payment by (B) the unpaid principal amount of such Security.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
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<PAGE>
"Trustee" means the entity identified as "Trustee" in the
first paragraph hereof until the appointment of a successor trustee pursuant
to Article 5, after which "Trustee" shall mean such successor trustee.
"Unrestricted Regulation S Global Security" has the meaning
set forth in Section 2.4(b).
"U.S. Depositary" has the meaning set forth in Section 2.4(b).
"U.S. Government Obligations" means securities that are (i)
direct and unconditional obligations of the United States of America for the
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by, and acting as an agency or instrumentality
of, the United States of America, the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a
bank or trust company subject to federal or state supervision or examination
with a combined capital and surplus of at least $100,000,000, as custodian
with respect to any such U.S. Government Obligations or a specific payment of
interest on or principal of any such U.S. Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors (or persons fulfilling similar responsibilities) of such
Person.
ARTICLE II
ISSUE, EXECUTION, FORM AND
REGISTRATION OF SECURITIES
SECTION 2.1 Authentication and Delivery of Securities. Upon
the execution and delivery of this Indenture, or from time to time thereafter,
Securities in an aggregate principal amount not in excess of $125,000,000
(except as otherwise provided in Section 2.7 hereof) may be executed by the
Issuer and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Securities to or upon the written
order of the Issuer, signed by both (a) its Chairman of the Board Directors,
or any Vice Chairman of the Board of Directors, or its President or any Vice
President and (b) by its Chief Financial Officer, or its Secretary or any
Assistant Secretary, or its Treasurer or any Assistant Treasurer without any
further action by the Issuer. The Securities shall be direct, unconditional
obligations of the Issuer and shall rank pari passu without preference among
themselves and equally in priority of payment with all other present and
future unsubordinated, unsecured indebtedness of the Issuer.
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<PAGE>
SECTION 2.2 Execution of Securities. The Securities shall be
signed on behalf of the Issuer by both (a) its Chairman of the Board of
Directors or any Vice Chairman of the Board of Directors or its President or
any Vice President and (b) by its Chief Financial Officer or its Secretary or
any Assistant Secretary or its Treasurer or any Assistant Treasurer, under its
corporate seal which may, but need not, be attested. Such signatures may be
the manual or facsimile signatures of the present or any future such officers.
The seal of the Issuer may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Securities.
Typographical and other minor errors or defects in any such reproduction of
the seal or any such signature shall not affect the validity or enforceability
of any Security that has been duly authenticated and delivered by the Trustee.
In case any officer of the Issuer who shall have signed any
of the Securities shall cease to be such officer before the Security so signed
shall be authenticated and delivered by the Trustee or disposed of by the
Issuer, such Security nevertheless may be authenticated and delivered or
disposed of as though the Person who signed such Security had not ceased to be
such officer of the Issuer; and any Security may be signed on behalf of the
Issuer by such Persons as, at the actual date of the execution of such
Security, shall be the proper officers of the Issuer, although at the date of
the execution and delivery of this Indenture any such Person was not such
officer.
SECTION 2.3 Certificate of Authentication. Only such
Securities as shall bear thereon a certificate of authentication substantially
in the form recited in the form of Security attached as Exhibit A hereto,
executed by the Trustee by manual signature of one of its authorized
signatories, shall be entitled to the benefits of this Indenture or be valid
or obligatory for any purpose. Such certificate by the Trustee upon any
Security executed by the Issuer shall be conclusive evidence that the Security
so authenticated has been duly authenticated and delivered hereunder and that
the Holder is entitled to the benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of Securities;
Payments of Interest. (a) The Securities and the Trustee's certificate of
authentication shall be substantially in the form set forth in the form of
Security attached as Exhibit A hereto. The Securities shall be numbered,
lettered, or otherwise distinguished in such manner or in accordance with such
plans as the officers of the Issuer executing the same may determine with the
approval of the Trustee.
Any of the Securities may be issued with appropriate
insertions, omissions, substitutions and variations, and may have imprinted or
otherwise reproduced thereon such legend or legends, not inconsistent with the
provisions of this Indenture, as may be required to comply with any law or
with any rules or regulations pursuant thereto, or with the rules of any
securities market in which the Securities are admitted to trading, or to
conform to general usage.
(b) Securities offered and sold in reliance on Regulation S
under the Securities Act ("Regulation S") as provided in the Purchase
Agreement shall be issued in the form of a permanent Global Security (as
defined herein) in definitive, fully registered form without interest coupons
substantially in the form of Security attached as Exhibit A hereto with such
legends as may be applicable thereto in accordance with such form, which shall
be deposited on behalf of the purchasers of the Securities represented thereby
with the Trustee at the Corporate Trust Office, as custodian for The
Depository Trust Company (hereinafter, the "U.S. Depositary") and
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<PAGE>
registered in the name of a nominee of the U.S. Depositary, duly executed by
the Issuer and authenticated by the Trustee as hereinafter provided, for
credit to their respective accounts (or to such other accounts as they may
direct) at Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear") or Cedel, S.A. ("Cedel"). Until
the termination of the restricted period (as defined in Regulation S) with
respect to the offer and sale of the Securities, interests in such Global
Security may only be held by the Agent Members (as defined herein) for
Euroclear and Cedel. Until such time as the restricted period shall have
terminated, such Global Security shall be referred to herein as the
"Restricted Regulation S Global Security." After such time as the restricted
period shall have terminated, such Global Security shall be referred to herein
as the "Unrestricted Regulation S Global Security." The aggregate principal
amount of the Restricted Regulation S Global Security and the Unrestricted
Regulation S Global Security may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the U.S.
Depositary, as hereinafter provided. The Issuer shall notify the Trustee of
the termination of the restricted period by furnishing to the Trustee a
certificate substantially in the form of Exhibit B hereto.
Securities offered and sold in reliance on Rule 144A under
the Securities Act ("Rule 144A") as provided in the Purchase Agreement shall
be issued in the form of a permanent Global Security (the "Rule 144A Global
Security") in definitive fully registered form without interest coupons
substantially in the form of Security attached as Exhibit A hereto with such
legends as may be applicable thereto in accordance with the form of such
Security deposited with the Trustee, at the Corporate Trust Office, as
custodian for the U.S. Depositary, duly executed by the Issuer and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Rule 144A Global Security may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the U.S. Depositary, and the U.S. Depositary or its nominee, as the case may
be, as hereinafter provided.
Securities offered and sold to institutions that are
"accredited investors" within the meaning of Rule 501(a)(1), (2), (3) or (7)
of the Securities Act shall be issued in the form of a permanent Global
Security (the "IAI Global Security") in definitive fully registered form
without interest coupons substantially in the form of Security attached as
Exhibit A hereto with such legends as may be applicable thereto in accordance
with the form of such Security deposited with the Trustee, at the Corporate
Trust Office, as custodian for the U.S. Depositary, duly executed by the
Issuer and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the IAI Global Security may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian
for the U.S. Depositary, and the U.S. Depositary or its nominee, as the case
may be, as hereinafter provided.
(c) (i) This Section 2.4(c)(i) shall apply only to
Securities in global form ("Global Securities") deposited with the U.S.
Depositary.
The Issuer shall execute and the Trustee shall, in
accordance with this Section 2.4(c)(i), authenticate and deliver initially
Global Securities that (a) shall be registered in the name of the U.S.
Depositary for such Global Securities or the nominee of such U.S. Depositary,
(b) shall be deposited on behalf of Agent Members (as defined herein) with the
Trustee as custodian for the U.S. Depositary and (c) shall bear legends
substantially to the following effect:
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"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF [INSERT NAME AND ADDRESS OF U.S.
DEPOSITARY] TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN
EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION HEREOF IS
REGISTERED IN THE NAME OF [INSERT NAME OF U.S. NOMINEE OF
DEPOSITARY], OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF U.S.
DEPOSITARY], OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF U.S.
DEPOSITARY] (AND ANY PAYMENT HEREON IS MADE TO [INSERT NAME
OF NOMINEE OF U.S. DEPOSITARY]), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN [INSERT NAME OF U.S. DEPOSITARY OR A NOMINEE
THEREOF] IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, [INSERT NAME OF NOMINEE OF U.S. DEPOSITARY], HAS AN
INTEREST HEREIN".
"TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF [INSERT
NAME OF U.S. DEPOSITARY] OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF".
Members of, or participants in, a U.S. Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the U.S. Depositary or under any Global
Security, and the U.S. Depositary may be treated by the Issuer, the Trustee,
and any agent of the Issuer or the Trustee as the absolute owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Issuer, the Trustee or any agent of the
Issuer or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the U.S. Depositary or impair, as between
the U.S. Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any security.
(c) (ii) This Section 2.4(c)(ii) shall apply only to the
Global Security deposited on behalf of the purchasers of the Securities
represented thereby with the Trustee as custodian for the U.S. Depositary for
credit to their respective accounts (or to such other accounts as they may
direct) at Euroclear or Cedel insofar as interests in the Global Security are
held by the Agent Members for Euroclear or Cedel.
The provisions of the "Operating Procedures of the Euroclear
System" and the "Terms and Conditions Governing Use of Euroclear" and the
"Management Regulations" and "Instructions to Participants" of Cedel,
respectively, shall be applicable to such Global Security insofar as interests
therein are held by the Agent Members for Euroclear and Cedel. Account holders
or participants in Euroclear and Cedel shall have no rights under this
Indenture with
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respect to the Global Security, and the nominee of the U.S. Depositary may be
treated by the Issuer and the Trustee and any agent of the Issuer or the
Trustee as the owner of the Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the
Trustee or any agent of the Issuer or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the U.S.
Depositary or impair, as between the U.S. Depositary and its Agent Members,
the operation of customary practices governing the exercise of the rights of a
holder of any security.
(d) Each Security shall be dated the date of its
authentication and shall bear interest from the applicable date, and shall be
payable on the dates, specified on the face of the form of Security attached
as Exhibit A hereto.
(e) The Person in whose name any Security is registered at
the close of business on the record date specified in the Securities with
respect to any Interest Payment Date shall be entitled to receive the
interest, if any, payable on such Interest Payment Date notwithstanding any
transfer or exchange of such Security subsequent to the record date and prior
to such Interest Payment Date, except if and to the extent the Issuer shall
default in the payment of the interest due on such Interest Payment Date, in
which case such defaulted interest shall be paid to the Persons in whose names
Outstanding Securities are registered at the close of business on a subsequent
special record date, to be established (together with the related payment
date) by the Issuer with the consent of the Trustee. Such special record date
shall not be more than 15 nor less than 10 Business Days prior to the payment
date. Not more than 15 days prior to the special record date, the Issuer (or
the Trustee, in the name of and at the expense of the Issuer) shall mail to
Holders a notice that states the special record date, the related payment date
and the amount of interest to be paid. Notice of the proposed payment of such
defaulted interest and the special record date therefor having been mailed as
aforsaid, such defaulted interest shall be paid to the Persons in whose names
the Securities are registered on such special record date.
(f) The Securities shall be issuable in the denominations
specified in the form of Security attached as Exhibit A hereto.
SECTION 2.5 Global Securities. (a) Portions of a Global
Security deposited with the U.S. Depositary pursuant to Section 2.4 shall be
transferred in certificated form to the beneficial owners thereof only if such
transfer complies with Section 2.6 of this Indenture and (i) the U.S.
Depositary notifies the Issuer that it is unwilling or unable to continue as
U.S. Depositary for such Global Security or if at any time such U.S.
Depositary ceases to be a "clearing agency" registered under the Exchange Act
and a successor depositary is not appointed by the Issuer within 90 days of
such notice, or (ii) an Event of Default has occurred and is continuing with
respect to the Securities and payment of principal thereof and interest
thereon has been accelerated.
(b) Portions of any Global Security that are transferable to
the beneficial owners thereof pursuant to this Section 2.5 shall be
surrendered by the U.S. Depositary to the Trustee at its New York office for
registration of transfer, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such registration
of transfer of each portion of such Global Security, an equal aggregate
principal amount of Securities of authorized denominations. Any portion of a
Global Security whose registration is transferred pursuant to
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this Section 2.5 shall be executed, authenticated and delivered only in the
denominations specified in the form of Security attached as Exhibit A hereto
and registered in such names as the U.S. Depositary shall direct. Any Security
delivered in exchange for a portion of the Rule 144A Global Security shall
bear the Legend regarding transfer restrictions applicable to the Rule 144A
Global Security set forth on the form of Security attached as Exhibit A
hereto. Any Security delivered in exchange for a portion of the IAI Global
Security shall bear the Legend regarding transfer restrictions set forth on
the form of Security attached as Exhibit A hereto. Any Security delivered in
exchange for a portion of the Restricted or Unrestricted Regulation S Global
Security shall bear the Legend regarding transfer restrictions applicable to
the Restricted or Unrestricted Registration S Global Security, as the case may
be, set forth on the form of Security attached as Exhibit A hereto.
(c) Subject to the provisions of Section 2.4(c) above, the
registered Holder of any Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
(d) In the event of the occurrence of any of the events
specified in paragraph (a) of this Section 2.5, the Issuer shall promptly make
available to the Trustee a reasonable supply of certificated Securities in
definitive fully registered form without interest coupons.
(e) The Global Security issued and authenticated pursuant to
the first paragraph of Section 2.4(b) (both before and after the expiration of
the restricted period), the Rule 144A Global Security and the IAI Global
Security shall each be assigned separate securities identification, or
"CUSIP," numbers.
SECTION 2.6 Registration, Registration of Transfer and
Exchange. (a) The Issuer shall keep at each office or agency to be maintained
for the purpose as provided in Section 3.2 hereof a register or registers
(collectively referred to as the "Securities Register") in which, subject to
such reasonable regulations as it may prescribe, it will register or cause to
be registered, and will register or cause to be registered the transfer of,
Securities as in this Article provided. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers
of Securities as herein provided. If at any time the Trustee shall not be
serving as Security Registrar, at all reasonable times such Securities
Register shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any
Security at each such office or agency, the Issuer shall execute and the
Trustee shall authenticate and deliver in the name of the transferee or
transferees a new Security or Securities in authorized denominations for a
like aggregate principal amount.
Any Security or Securities may be exchanged for a Security
or Securities in other authorized denominations, in an equal aggregate
principal amount. Securities to be exchanged shall be surrendered at each
office or agency to be maintained by the Issuer for the purpose as provided in
Section 3.2 hereof, and the Issuer shall execute and the Trustee shall
authenticate and deliver in exchange therefor the Security or Securities which
the Securityholder making the exchange shall be entitled to receive, bearing
numbers not contemporaneously outstanding.
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All Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Issuer or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee
duly executed by, the Holder or its attorney duly authorized in writing.
The Issuer or Trustee shall not be required to exchange or
register a transfer of (a) any Securities for a period of 15 days next
preceding the first mailing of notice of redemption of Securities to be
redeemed or (b) any Securities selected, called or being called for redemption
except, in the case of any Security where public notice has been given that
such Security is to be redeemed in part, the portion thereof not so to be
redeemed.
All Securities issued upon any registration of transfer or
exchange of Securities shall be valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
(b) Notwithstanding any provision to the contrary herein, so
long as a Global Security remains outstanding and is held by or on behalf of
the U.S. Depositary, transfers of a Global Security, in whole or in part,
shall only be made (x) in the case of transfers of portions of a Global
Security to beneficial owners thereof in certificated form, in accordance with
Section 2.5, and (y) in all other cases, in accordance with this Section
2.6(b) (and subject, in each case, to the provisions of any Legend (as defined
herein) imprinted on such Global Security).
(i) Transfers of Global Securities as such. Subject to
clauses (ii) through (vi) of this Section 2.6(b), transfers of a
Global Security shall be limited to transfers of such Global Security
in whole, and not in part, to nominees of the U.S. Depositary or to a
successor of the U.S. Depositary or such successor's nominee.
(ii) Rule 144A Global Security or IAI Global Security to
Restricted Regulation S Global Security. If a holder of a beneficial
interest in the Rule 144A Global Security or the IAI Global Security
deposited with the U.S. Depositary wishes at any time to exchange or
transfer its interest in such Global Security to a Person who wishes
to take delivery thereof in the form of an interest in the Restricted
Regulation S Global Security, such holder may, subject to the rules
and procedures of the U.S. Depositary, exchange or transfer or cause
the exchange or transfer of such interest for an equivalent
beneficial interest in the Restricted Regulation S Global Security in
accordance with, and subject to, this clause (ii). Upon receipt by
the Trustee at the Corporate Trust Office of (1) instructions given
in accordance with the U.S. Depositary's procedures from an Agent
Member directing the Trustee to credit or cause to be credited a
beneficial interest in the Restricted Regulation S Global Security in
an amount equal to the beneficial interest in the Rule 144A Global
Security or the IAI Global Security, as the case may be, to be
exchanged or transferred, (2) a written order given in accordance
with the U.S. Depositary's procedures containing information
regarding the Euroclear or Cedel account to be credited with such
increase and the name of such account, and (3) a certificate in the
form of Exhibit C attached hereto given by the holder of such
beneficial interest stating that the exchange or transfer of such
interest has been made in compliance with the transfer restrictions
applicable to the Securities and pursuant to and in accordance
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with Regulation S, the Trustee shall instruct the U.S. Depositary to
reduce the Rule 144A Global Security or the IAI Global Security, as
the case may be, by the aggregate principal amount of the beneficial
interest in the Rule 144A Global Security or the IAI Global Security,
as the case may be, to be so exchanged or transferred and the Trustee
shall instruct the U.S. Depositary, concurrently with such reduction,
to increase the principal amount of the Restricted Regulation S
Global Security by the aggregate principal amount of the beneficial
interest in the Rule 144A Global Security or the IAI Global Security,
as the case may be, to be so exchanged or transferred, and to credit
or cause to be credited to the account of the person specified in
such instructions (who shall be the Agent Member for Euroclear or
Cedel, or both, as the case may be) a beneficial interest in the
Restricted Regulation S Global Security equal to the reduction in the
principal amount of the Rule 144A Global Security or the IAI Global
Security, as the case may be.
(iii) Rule 144A Global Security or IAI Global Security to
Unrestricted Regulation S Global Security. If a holder of a
beneficial interest in the Rule 144A Global Security or the IAI
Global Security, as the case may be, deposited with the U.S.
Depositary wishes at any time to exchange its interest in such Global
Security for an interest in the Unrestricted Regulation S Global
Security, or to transfer its interest in such Global Security to a
Person who wishes to take delivery thereof in the form of an interest
in the Unrestricted Regulation S Global Security, such holder may,
subject to the rules and procedures of the U.S. Depositary, exchange
or cause the exchange or transfer or cause the transfer of such
interest for an equivalent beneficial interest in the Unrestricted
Regulation S Global Security in accordance with, and subject to, this
clause (iii). Upon receipt by the Trustee at the Corporate Trust
Office of (1) instructions given in accordance with the U.S.
Depositary's procedures from an Agent Member directing the Trustee to
credit or cause to be credited a beneficial interest in the
Unrestricted Regulation S Global Security in an amount equal to the
beneficial interest in the Rule 144A Global Security or the IAI
Global Security, as the case may be, to be exchanged or transferred,
(2) a written order given in accordance with the U.S. Depositary's
procedures containing information regarding the participant account
of the U.S. Depositary and, in the case of a transfer pursuant to and
in accordance with Regulation S, the Euroclear or Cedel account to be
credited with such increase and (3) a certificate in the form of
Exhibit D attached hereto given by the holder of such beneficial
interest stating that the exchange or transfer of such interest has
been made in compliance with the transfer restrictions applicable to
the Securities and (A) in the case of an exchange, that either (x)
the Security being exchanged is not a "restricted security" as
defined in Rule 144 under the Securities Act, or (y) the exchange is
being made to facilitate a contemporaneous transfer that complies
with this clause (iii), (B) in the case of a transfer pursuant to
Regulation S, that the Security is being transferred pursuant to and
in accordance with Regulation S, (C) in the case of a transfer
pursuant to Rule 144, that the Security is being transferred pursuant
to and in accordance with Rule 144 or (D) in the case of a transfer
pursuant to another exemption from the Securities Act (including
without limitation Rule 144A), specifying the basis for such
exemption, the Trustee shall instruct the U.S. Depositary to reduce
the Rule 144A Global Security or the IAI Global Security, as the case
may be, by the aggregate principal amount of the beneficial interest
in the Rule 144A Global Security or the IAI Global Security, as the
case may be, to be
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so exchanged or transferred and the Trustee shall instruct the U.S.
Depositary, concurrently with such reduction, to increase the
principal amount of the Unrestricted Regulation S Global Security by
the aggregate principal amount of the beneficial interest in the Rule
144A Global Security or the IAI Global Security, as the case may be,
to be so exchanged or transferred, and to credit or cause to be
credited to the account of the person specified in such instructions
a beneficial interest in the Unrestricted Regulation S Global
Security equal to the reduction in the principal amount of the Rule
144A Global Security or the IAI Global Security, as the case may be.
(iv) Restricted Regulation S Global Security, Unrestricted
Regulation S Global Security or IAI Global Security to Rule 144A
Global Security. If a holder of a beneficial interest in the
Restricted Regulation S Global Security, the Unrestricted Regulation
S Global Security or the IAI Global Security deposited with the U.S.
Depositary wishes at any time to exchange or transfer its interest in
such Restricted Regulation S Global Security, Unrestricted Regulation
S Global Security or IAI Global Security to a Person who wishes to
take delivery thereof in the form of an interest in the Rule 144A
Global Security such holder may, subject to the rules and procedures
of Euroclear or Cedel and the U.S. Depositary, as the case may be,
exchange or transfer or cause the exchange or transfer of such
interest for an equivalent beneficial interest in the Rule 144A
Global Security, in accordance with, and subject to, this clause
(iv). Upon receipt by the Trustee, at the Corporate Trust Office of
(1) instructions from Euroclear or Cedel or the U.S. Depositary, as
the case may be, directing the Trustee to credit or cause to be
credited a beneficial interest in the Rule 144A Global Security equal
to the beneficial interest in the Restricted Regulation S Global
Security, the Unrestricted Regulation S Global Security or the IAI
Global Security to be exchanged or transferred, such instructions to
contain information regarding the Agent Member's account with the
U.S. Depositary to be credited with such increase, and, with respect
to an exchange or transfer of an interest in the Unrestricted
Regulation S Global Security, information regarding the Agent
Member's account with the U.S. Depositary to be debited with such
decrease, and (2) a certificate in the form of Exhibit E attached
hereto given by the holder of such beneficial interest and stating
that the person exchanging or transferring such interest in the
Restricted Regulation S Global Security, the Unrestricted Regulation
S Global Security or the IAI Global Security, as the case may be,
reasonably believes that the person acquiring such interest in the
Rule 144A Global Security is a qualified institutional buyer (as
defined in Rule 144A) and is obtaining such beneficial interest in a
transaction meeting the requirements of Rule 144A, Euroclear or Cedel
or the Trustee, as the case may be, shall instruct the U.S.
Depositary to reduce the Restricted Regulation S Global Security, the
Unrestricted Regulation S Global Security or the IAI Global Security,
as the case may be, by the aggregate principal amount of the
beneficial interest in the Restricted Regulation S Global Security,
the Unrestricted Regulation S Global Security or the IAI Global
Security to be exchanged or transferred, and the Trustee shall
instruct the U.S. Depositary, concurrently with such reduction to
increase the principal amount of the Rule 144A Global Security by the
aggregate principal amount of the beneficial interest in the
Restricted Regulation S Global Security, the Unrestricted Regulation
S Global Security or the IAI Global Security, as the case may be, to
be so exchanged or transferred, and to credit or cause to be credited
to the account of the person specified in such instructions a
beneficial interest in the Rule 144A Global Security equal to the
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reduction in the principal amount of the Restricted Regulation S
Global Security, the Unrestricted Regulation S Global Security or the
IAI Global Security, as the case may be.
(v) Rule 144A Global Security, Restricted Regulation S
Global Security or Unrestricted Regulation S Global Security to IAI
Global Security. If a holder of a beneficial interest in the Rule
144A Global Security, the Restricted Regulation S Global Security or
the Unrestricted Regulation S Global Security deposited with the U.S.
Depositary wishes at any time to exchange or transfer its interest in
such Global Security to a Person who wishes to take delivery thereof
in the form of an interest in the IAI Global Security such holder
may, subject to the rules and procedures of Euroclear or Cedel and
the U.S. Depositary, as the case may be, exchange or transfer or
cause the exchange or transfer of such interest for an equivalent
beneficial interest in the IAI Global Security, in accordance with,
and subject to, this clause (v). Upon receipt by the Trustee, at the
Corporate Trust Office of (1) instructions from Euroclear or Cedel or
the U.S. Depositary, as the case may be, directing the Trustee to
credit or cause to be credited a beneficial interest in the IAI
Global Security equal to the beneficial interest in the Restricted
Regulation S Global Security, the Unrestricted Regulation S Global
Security or the Rule 144A Global Security to be exchanged or
transferred, such instructions to contain information regarding the
Agent Member's account with the U.S. Depositary to be credited with
such increase, and, with respect to an exchange or transfer of an
interest in the Unrestricted Regulation S Global Security,
information regarding the Agent Member's account with the U.S.
Depositary to be debited with such decrease, and (2) a certificate in
the form of Exhibit F attached hereto given by the holder of such
beneficial interest and stating that the person exchanging or
transferring such interest reasonably believes that the person
acquiring such interest in the IAI Global Security is an institution
that is an "accredited investor" (as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) and is obtaining such beneficial
interest in a transaction exempt from the Securities Act, Euroclear
or Cedel or the Trustee, as the case may be, shall instruct the U.S.
Depositary to reduce the Restricted Regulation S Global Security, the
Unrestricted Regulation S Global Security or the Rule 144A Global
Security, as the case may be, by the aggregate principal amount of
the beneficial interest in such Global Securities to be exchanged or
transferred, and the Trustee shall instruct the U.S. Depositary,
concurrently with such reduction to increase the principal amount of
the IAI Global Security by the aggregate principal amount of the
beneficial interest in the Restricted Regulation S Global Security,
the Unrestricted Regulation S Global Security or the Rule 144A Global
Security, as the case may be, to be so exchanged or transferred, and
to credit or cause to be credited to the account of the person
specified in such instructions a beneficial interest in the IAI
Global Security equal to the reduction in the principal amount of the
Restricted Regulation S Global Security, the Unrestricted Regulation
S Global Security or the Rule 144A Global Security, as the case may
be.
(vi) Other Exchanges. In the event that a Global Security is
exchanged for Securities in definitive registered form without
interest coupons pursuant to Section 2.5 hereof, such Securities may
be exchanged or transferred for one another only in accordance with
such procedures as are substantially consistent with the provisions
of clauses (ii) through (v) above (including, without limitation, the
certification requirements
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intended to insure that such exchanges or transfers comply with Rule
144A, Rule 144 or Regulation S under and generally with the
Securities Act, as the case may be) and as may be from time to time
adopted by the Issuer and the Trustee.
(c) Successive registrations and registrations of transfers
and exchanges as aforesaid may be made from time to time as desired, and each
such registration shall be noted on the Security Register. No service charge
shall be made for any registration of transfer or exchange of the Securities,
but the Trustee may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith and any other
amounts required to be paid by the provisions of the Securities.
(d) If Securities are issued upon the registration of
transfer, exchange or replacement of Securities not bearing the legends
required by the form of Security attached as Exhibit A hereto (collectively,
the "Legend"), the Securities so issued shall bear the Legend. If Securities
are issued upon the registration of transfer, exchange or replacement of
Securities bearing the Legend, or if a request is made to remove the Legend on
a Security, the Securities so issued shall bear the Legend, or the Legend
shall not be removed, as the case may be, unless there is delivered to the
Issuer and the Trustee such satisfactory evidence, which may include an
opinion of counsel of recognized standing licensed to practice law in the
State of New York and experienced in matters involving the Securities Act, as
may be reasonably required by the Issuer that neither the Legend nor the
restrictions on transfer set forth therein are required to ensure that
transfers thereof comply with the provisions of Rule 144A, Rule 144 or
Regulation S under the Securities Act or that such Securities are not
"restricted securities" within the meaning of Rule 144 under the Securities
Act. Upon provision of such satisfactory evidence, the Trustee, at the
direction of the Issuer, shall authenticate and deliver a Security that does
not bear the Legend. If a legend is removed from the face of a Security and
the Security is subsequently held by an affiliate of the Issuer, the Legend
shall be reinstated.
SECTION 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen
Securities. In case any temporary or definitive Security shall become
mutilated, defaced or be apparently destroyed, lost or stolen, the Issuer in
its discretion may execute, and upon the written request of any officer of the
Issuer, the Trustee shall authenticate and deliver a new Security, bearing a
number not contemporaneously outstanding, in exchange and substitution for the
mutilated or defaced Security, or in lieu of and substitution for the Security
so apparently destroyed, lost or stolen. In every case the applicant for a
substitute Security shall furnish to the Issuer and to the Trustee and any
agent of the Issuer or the Trustee such security or indemnity as may be
required by them to indemnify and defend and to save each of them harmless
and, in every case of destruction, loss or theft, evidence to their
satisfaction of the apparent destruction, loss or theft of such Security and
of the ownership thereof.
Upon the issuance of any substitute Security, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith. In case
any Security which has matured or is about to mature, or has been called for
redemption in full, shall become mutilated or defaced or be apparently
destroyed, lost or stolen, the Issuer may, instead of issuing a substitute
Security, pay or authorize the payment of the same (without surrender thereof
except in the case of a mutilated or defaced Security),
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if the applicant for such payment shall furnish to the Issuer and to the
Trustee and any agent of the Issuer or the Trustee such security or indemnity
as any of them may require to save each of them harmless from all risks,
however remote, and, in every case of apparent destruction, loss or theft, the
applicant shall also furnish to the Issuer and the Trustee and any agent of
the Issuer or the Trustee evidence to their satisfaction of the apparent
destruction, loss or theft of such Security and of the ownership thereof.
Every substitute Security issued pursuant to the provisions
of this Section by virtue of the fact that any Security is apparently
destroyed, lost or stolen shall constitute an additional contractual
obligation of the Issuer, whether or not the apparently destroyed, lost or
stolen Security shall be at any time enforceable by anyone and shall be
entitled to all the benefits of (but shall be subject to all the limitations
of rights set forth in) this Indenture equally and proportionately with any
and all other Securities duly authenticated and delivered hereunder. All
Securities shall be held and owned upon the express condition that, to the
extent permitted by law, the foregoing provisions are exclusive with respect
to the replacement or payment of mutilated, defaced, or apparently destroyed,
lost or stolen Securities and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.8 Cancellation of Securities; Destruction Thereof.
All Securities surrendered for payment, redemption, registration of transfer
or exchange, if surrendered to the Issuer or any agent of the Issuer or the
Trustee, shall be delivered to the Trustee for cancellation or, if surrendered
to the Trustee, shall be canceled by it provided all conditions regarding such
cancellation have been met; and no Securities shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee shall cancel and dispose of all Securities surrendered for
registration of transfer, exchange, payment or cancellation in accordance with
the Trustee's policy of disposal unless the Issuer instructs the Trustee in
writing to deliver the Securities to the Issuer. If the Issuer shall acquire
any of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless and
until the same are delivered to the Trustee for cancellation.
SECTION 2.9 Temporary Securities. Pending the preparation of
definitive Securities, the Issuer may execute and the Trustee shall
authenticate and deliver temporary Securities (printed, lithographed,
typewritten or otherwise reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities shall be issuable as registered Securities
without coupons, of any authorized denomination, and substantially in the form
of the definitive Securities but with such omissions, insertions and
variations as may be appropriate for temporary Securities, all as may be
determined by the Issuer with the concurrence of the Trustee. Temporary
Securities may contain such reference to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer
and be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the definitive
Securities. Without unreasonable delay the Issuer shall execute and shall
furnish definitive Securities and thereupon temporary Securities may be
surrendered in exchange therefor without charge at each office or agency to be
maintained by the Issuer for the purpose pursuant to Section 3.2 hereof, and
the Trustee shall authenticate and deliver in exchange for such temporary
Securities a like aggregate principal amount of definitive Securities of
authorized
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denominations. Until so exchanged the temporary Securities shall be entitled
to the same benefits under this Indenture as definitive Securities.
SECTION 2.10 Computation of Interest. Interest on the
Securities shall be computed on the basis of a 360-day year of twelve 30-day
months.
ARTICLE III
COVENANTS OF
THE ISSUER AND THE TRUSTEE
SECTION 3.1 Payment of Principal and Interest. The Issuer
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal and Change of Control purchase price of, and premium, if any,
and interest on, each of the Securities at the place or places, at the
respective times and in the manner provided in the Securities. Payment of
principal and the Change of Control purchase price of, and premium and
interest on the Securities shall be paid by mailing a check to or upon the
written order of the registered Holders of Securities entitled thereto at
their last address as it appears on the Securities Register or, upon written
application to the Trustee by a Holder of $1,000,000 or more in aggregate
principal amount of Securities, by wire transfer of immediately available
funds to an account maintained by such Holder with a bank or other financial
institution; provided, however, that (subject to the provisions of Section 2.7
hereof) payment of principal and the Change of Control Price of, and premium,
if any, on, any Security may be conditioned upon presentation for payment of
the certificate representing such Security.
SECTION 3.2 Offices for Payments, etc. So long as any of the
Securities remain Outstanding, the Issuer shall maintain in the Borough of
Manhattan, The City of New York, the following: (a) an office or agency where
the Securities may be presented for payment, (b) an office or agency where the
Securities may be presented for registration of transfer and for exchange as
in this Indenture provided and (c) an office or agency where notices and
demands to or upon the Issuer in respect of the Securities or of this
Indenture may be served. The Issuer shall give to the Trustee written notice
of the location of any such office or agency and of any change of location
thereof. The Issuer hereby initially designates the Trustee's New York office
as such office or agency. In case the Issuer shall fail to maintain any such
office or agency or shall fail to give such notice of the location or of any
change in the location thereof, presentations and demands may be made and
notices may be served at the Corporate Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in Office of
Trustee. The Issuer, whenever necessary to avoid or fill a vacancy in the
office of Trustee, shall appoint, in the manner provided in Section 5.9
hereof, a Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.4 Paying Agents. The Trustee shall be the
principal paying agent for the Securities. Whenever the Issuer shall appoint a
paying agent other than the Trustee, it
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shall cause such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section,
(a) that it will hold all sums received by it as such agent
for the payment of the principal or Change of Control purchase price
of, or premium or interest on, the Securities (whether such sums have
been paid to it by the Issuer or by any other obligor on the
Securities) in trust for the benefit of the Holders of the Securities
or of the Trustee,
(b) that it will give the Trustee notice of any failure by
the Issuer (or by any other obligor on the Securities) to make any
payment of the principal or Change of Control purchase price of, or
premium or interest on, the Securities when the same shall be due and
payable and
(c) pay any such sums so held in trust by it to the Trustee
upon the Trustee's written request at any time during the continuance
of the failure referred to in clause (b) above.
The Issuer shall, prior to each due date of the principal or
Change of Control purchase price of, and premium, if any, or interest on the
Securities, deposit with the paying agent a sum sufficient to pay such
principal, Change of Control purchase price, premium or interest, and (unless
such paying agent is the Trustee) the Issuer shall promptly notify the Trustee
of any failure to take such action.
Anything in this Section 3.4 to the contrary
notwithstanding, the Issuer may at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by any paying agent
hereunder, as required by this Section 3.4, such sums to be held by the
Trustee upon the trusts herein contained.
Anything in this Section to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section 3.4 is subject
to the provisions of Section 9.3 and Section 9.4 hereof.
SECTION 3.5 Certificate to Trustee. The Issuer shall furnish
to the Trustee on or before March 31 in each year (beginning with March 31,
1996) a brief certificate from the principal executive, financial or
accounting officer of this Issuer as to his or her knowledge of the Issuer's
compliance with all covenants under this Indenture (such compliance to be
determined without regard to any period of grace or requirement of notice
provided under this Indenture).
SECTION 3.6 Securityholder's Lists. The Issuer shall furnish
or cause to be furnished to the Trustee a list in such form as the Trustee may
reasonably require of the names and addresses of the Holders of the Securities
(a) semiannually not more than 15 days after each record date for the payment
of semi-annual interest on the Securities, as specified in the form of
Security attached as Exhibit A hereto, as of such record date and (b) at other
times as the
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Trustee may request in writing, within thirty days after receipt by the Issuer
of any such request as of a date not more than 15 days prior to the time such
information is furnished.
SECTION 3.7 Reports by the Issuer. (a) If the Issuer is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, then the Issuer shall file with the Trustee and provide Securityholders,
within 15 days after it files them with the Commission, copies of its annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and
regulations prescribe) that the Issuer is required to file with the Commission
pursuant to Section 13 or 15(d) of Exchange Act.
(b) As long as the Issuer is not subject to Section 13 or
15(d) of the Exchange Act, at any time, upon the request of a Holder or any
owner of a beneficial interest in a Security, the Issuer shall promptly
furnish or cause to be furnished "Rule 144A Information" (as defined herein)
to such Holder or beneficial owner or to a prospective purchaser of such
Security designated by such Holder or beneficial owner in order to permit
compliance by such Holder or beneficial owner with Rule 144A under the
Securities Act in connection with the resale of such Security by such Holder
or beneficial owner. "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto).
(c) In addition to the requirement to furnish Rule 144A
Information as provided in subsection (b), the Issuer shall furnish or cause
to be furnished to Holders and (upon the request thereof delivered to the
Issuer or the Trustee) to holders of an interest in any Global Security (i)
annual consolidated comparative financial statements of the Issuer prepared in
accordance with GAAP (together with notes thereto, a report thereon by an
independent accountant of established national reputation and a management's
discussion and analysis of financial condition and results of operations),
such statements to be so furnished as soon as reasonably available and in any
event within 120 days after the end of the fiscal year covered thereby and
(ii) unaudited condensed consolidated comparative balance sheets and
statements of income and cash flows of the Issuer for each of the first three
fiscal quarters of each fiscal year and the corresponding quarter and
year-to-date period of the prior year prepared on a basis consistent with the
annual financial statements furnished pursuant to clause (c)(i), such
statements to be so furnished within 60 days after the end of each such
quarter.
SECTION 3.8 Limitation on Liens. So long as any of the
Securities are Outstanding, the Issuer shall not pledge, mortgage or
hypothecate, or permit to exist, any mortgage, pledge or other lien upon any
property at any time directly owned by the Issuer to secure any indebtedness
for money borrowed that is incurred, issued, assumed or guaranteed by the
Issuer ("Indebtedness"), without making effective provisions whereby the
Securities shall be equally and ratably secured with any and all such
Indebtedness and with any other Indebtedness similarly entitled to be equally
and ratably secured; provided, however, that this restriction shall not apply
to or prevent the creation or existence of (i) liens existing at the Original
Issuance Date of the Securities, (ii) purchase money liens that do not exceed
the cost or value of the purchased property, (iii) other liens not to exceed
10% of Consolidated Net Tangible Assets, and (iv) liens granted in connection
with extending, renewing, replacing or refinancing, in whole or in part,
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the Indebtedness (including, without limitation, increasing the principal
amount of such Indebtedness) secured by liens described in the foregoing
clauses (i) through (iii).
In the event that the Issuer shall propose to pledge,
mortgage or hypothecate any property at any time directly owned by it to
secure any Indebtedness, other than as permitted by clauses (i) through (iv)
of the previous paragraph, the Issuer shall (prior thereto) give written
notice thereof to the Trustee, who shall give notice to the Holders, and the
Issuer shall, prior to or simultaneously with such pledge, mortgage or
hypothecation, effectively secure all the Securities equally and ratably with
such Indebtedness.
SECTION 3.9 Net Worth. So long as any of the Securities are
Outstanding, the Issuer shall not permit its Consolidated Tangible Net Worth
at any time to be less than the Minimum Consolidated Tangible Net Worth.
SECTION 3.10 Repurchase of Securities Upon a Change of
Control. (a) Upon a Change of Control, each Holder of the Securities shall
have the right to require that the Issuer repurchase such Holder's Securities
at a repurchase price in cash equal to 101% of the principal amount thereof
plus accrued interest, if any, to the date of repurchase, in accordance with
the terms set forth in subsection (b) below.
(b) Within 30 days following any Change of Control, the
Issuer shall mail a notice to each Holder (with a copy to the Trustee)
stating:
(1) that a Change of Control has occurred and that such
Holder has the right to require the Issuer to repurchase such
Holder's Securities at a repurchase price in cash equal to 101% of
the principal amount thereof plus accrued interest, if any, to the
date of repurchase (the "Change of Control Offer");
(2) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization of the Issuer after
giving effect to such Change of Control);
(3) the repurchase date (which shall be a Business Day and
be not earlier than 30 days or later than 60 days from the date such
notice is mailed) (the "Repurchase Date");
(4) that any Security not tendered for purchase will
continue to accrue interest;
(5) that interest on any Security accepted for payment
pursuant to the Change of Control Offer shall cease to accrue after
the repurchase of such Security on the Repurchase Date;
(6) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer will be required to surrender
the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the paying
agent at the address specified in the notice prior to the close of
business on the Business Day prior to the Repurchase Date;
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(7) that Holders will be entitled to withdraw their election
if the paying agent receives, not later than the close of business on
the third Business Day (or such shorter periods as may be required by
applicable law) preceding the Repurchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Securities the Holder delivered for
purchase, and a statement that such Holder is withdrawing its
election to have such Securities purchased; and
(8) that Holders that elect to have their Securities
purchased only in part will be issued new Securities in a principal
amount equal to then unpurchased portion of the Securities
surrendered.
(c) Notwithstanding the foregoing, for so long as the
Securities are in the form of Global Securities, the Issuer shall deliver to
the U.S. Depositary within the time periods specified above, for retransmittal
to its Agent Members, a notice substantially to the effect specified in
clauses (1) through (5) and (7) above, which notice shall also specify the
required procedures (furnished by the U.S. Depositary) for holders of
interests in the Global Securities to tender and receive payment of the
purchase price for such interests (including the U.S. Depositary's "Repayment
Option Procedures," to the extent applicable), all in accordance with the U.S.
Depositary's rules, regulations and practices.
(d) On the Repurchase Date, the Issuer shall (i) accept for
payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Trustee money sufficient without
reinvestment to pay the purchase price of all Securities or portions thereof
so tendered and (iii) deliver or cause to be delivered to the Trustee
Securities so accepted together with an Officers' Certificate identifying the
Securities or portions thereof tendered to the Issuer. The Trustee shall
promptly mail to the Holders of the Securities so accepted payment in an
amount equal to the purchase price, and promptly authenticate and mail to such
Holders a new Security in a principal amount equal to any unpurchased portion
of the Security surrendered. The Issuer will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Repurchase
Date.
(e) The Issuer shall comply with Rule 14e-1 under the
Exchange Act and any other applicable laws and regulations in the event that a
Change of Control occurs and the Issuer is required to make a Change of
Control Offer.
ARTICLE IV
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 4.1 Event of Default Defined; Acceleration of
Maturity; Waiver of Default. In case one or more of the following Events of
Default (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing,
that is to say:
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(a) default in the payment of all or any part of the
principal or Change of Control purchase price of, or premium, if any,
on, any of the Securities as and when the same shall become due and
payable either at maturity, upon any redemption or required
repurchase, by declaration of acceleration or otherwise;
(b) default in the payment of any installment of interest
upon any of the Securities as and when the same shall become due and
payable, and continuance of such default for a period of 30 days;
(c) an event of default, as defined in any instrument of the
Issuer under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of the Issuer that has
resulted in the acceleration of such Indebtedness, or any default
occurring in payment of any such Indebtedness at final maturity (and
after the expiration of any applicable grace periods), other than
such Indebtedness (i) which is payable solely out of the property or
assets of a partnership, joint venture or similar entity of which the
Issuer is a participant, or which is secured by a lien on the
property or assets owned or held by such entity, without further
recourse to or liability of the Issuer, or (ii) the principal of, and
interest on, which, when added to the principal of and interest on
all other such Indebtedness (exclusive of Indebtedness under clause
(i) above), does not exceed $20,000,000; or
(d) failure on the part of the Issuer duly to observe or
perform any other of the covenants or agreements on the part of the
Issuer in the Securities or in this Indenture and such failure
continues for a period of 30 days after the date on which written
notice specifying such failure, stating that such notice is a "Notice
of Default" hereunder and demanding that the Issuer remedy the same,
shall have been given by registered or certified mail, return receipt
requested, to the Issuer by the Trustee, or to the Issuer and the
Trustee by the Holders of at least 25% in aggregate principal amount
of the Securities at the time Outstanding; or
(e) one or more final judgments, decrees or orders of any
court, tribunal, arbitrator, administrative or other governmental
body or similar entity for the payment of money shall be rendered
against the Issuer or any of its properties in an aggregate amount in
excess of $20,000,000 (excluding the amount thereof covered by
insurance) and such judgment, decree or order shall remain unvacated,
undischarged and unstayed for more than 90 consecutive days, except
while being contested in good faith by appropriate proceedings; or
(f) a court having jurisdiction in the premises shall enter
a decree or order for relief in respect of the Issuer in an
involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law now or hereafter in
effect, or a decree or order adjudging the Issuer a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of or in
respect of the Issuer under any applicable federal or state law, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial
part of its property or ordering the winding up or liquidation
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of its affairs, shall have been entered, and such decree or order
shall remain unstayed and in effect for a period of 90 consecutive
days; or
(g) the Issuer shall commence a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect or of
any other case or proceeding to be adjudicated a bankrupt or
insolvent, or consent to the entry of a decree or order for relief in
an involuntary case or proceeding under any such law, or to the
commencement of any bankruptcy or insolvency case or proceeding
against the Issuer, or the filing by the Issuer of a petition or
answer or consent seeking reorganization or relief under any such
applicable federal or state law, or the consent by the Issuer to the
filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Issuer or of any
substantial part of its property, or the making by the Issuer of an
assignment for the benefit of creditors, or the taking of action by
the Issuer in furtherance of any such action;
then and in each and every such case (other than an Event of Default with
respect to the Issuer specified in Section 4.1(f) or 4.1(g) hereof), unless
the principal of all of the Securities shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities then Outstanding hereunder, by notice in
writing to the Issuer (and to the Trustee if given by Securityholders), may
declare the entire principal of all the Securities and the interest accrued
thereon to be due and payable immediately, and upon any such declaration the
same shall become immediately due and payable. This provision, however, is
subject to the condition that if, at any time after the principal of the
Securities shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained
or entered as hereinafter provided, the Issuer shall pay or shall deposit with
the Trustee a sum sufficient to pay all matured installments of interest upon
all the Securities and the principal or Change of Control purchase price and
premium, if any, of any and all Securities that shall have become due
otherwise than by acceleration (with interest upon such principal and Change
of Control purchase price and premium, if any, and, to the extent that payment
of such interest is enforceable under applicable law, on overdue installments
of interest, at the rate of interest specified in the Securities, to the date
of such payment or deposit) and such amount as shall be sufficient to cover
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and all other reasonable expenses
and liabilities incurred and all reasonable advances made, by the Trustee and
each predecessor Trustee except as a result of negligence or bad faith, and if
any and all Events of Default under the Indenture, other than the non-payment
of the principal that shall have become due by acceleration, shall have been
cured, waived or otherwise remedied as provided herein, then and in every such
case the Holders of a majority in aggregate principal amount of the Securities
then Outstanding, by written notice to the Issuer and to the Trustee, may
waive all defaults (except, unless theretofore cured, a default in payment of
principal of, or Change of Control purchase price or premium, if any, or
interest on, the Securities) and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to
or shall affect any subsequent default or shall impair any right consequent
thereon.
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If an Event of Default specified in Section 4.1(f) or 4.1(g)
hereof occurs with respect to the Issuer, the principal of and accrued
interest on the Securities shall become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
Securityholder.
SECTION 4.2 Collection of Indebtedness by Trustee; Trustee
May Prove Debt. The Issuer covenants that (a) in case default shall be made in
the payment of any installment of interest on any of the Securities when such
interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal or Change of Control purchase
price of, or premium, if any, on, any of the Securities when the same shall
have become due and payable, whether upon maturity or upon any redemption or
by declaration of acceleration or otherwise, then upon demand of the Trustee,
the Issuer shall pay to the Trustee for the benefit of the Holders of the
Securities the whole amount that then shall have become due and payable on all
such Securities of principal, Change of Control purchase price, premium or
interest, as the case may be (with interest to the date of such payment upon
the overdue principal, Change of Control purchase price or premium and, to the
extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the rate of interest specified in the
Securities); and in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including reasonable
compensation to the Trustee and each predecessor Trustee, their respective
agents, attorneys and counsel, and any reasonable expenses and liabilities
incurred, and all reasonable advances made, by the Trustee and each
predecessor Trustee except as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer may pay
the principal and Change of Control purchase price of and premium and interest
on the Securities to the registered Holders, whether or not the Securities be
overdue.
In case the Issuer shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any action or proceedings
at law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceedings to judgment or final decree, and may
enforce any such judgment or final decree against the Issuer or other obligor
upon the Securities and collect in the manner provided by law out of the
property of the Issuer or other obligor upon the Securities, wherever
situated, the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the
Issuer or any other obligor upon the Securities under Title 11 of the United
States Code or any other applicable federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, custodian, sequestrator or similar official shall
have been appointed for or taken possession of the Issuer or its property or
such other obligor, or in case of any other comparable judicial proceedings
relative to the Issuer or other obligor upon the Securities, or to the
creditors or property of the Issuer or such other obligor, the Trustee,
irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand pursuant to the provisions
of this Section 4.2, shall be entitled and empowered, by intervention in such
proceedings or otherwise:
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(a) to file and prove a claim or claims for the whole amount
of principal, Change of Control purchase price, premium and interest
owing and unpaid in respect of the Securities, and to file such other
papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for reasonable
compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of
all reasonable expenses and liabilities incurred, and all reasonable
advances made, by the Trustee and each predecessor Trustee, except as
a result of negligence or bad faith) and of the Securityholders,
allowed in any judicial proceedings relative to the Issuer or other
obligor upon the Securities, or to the creditors or property of the
Issuer or such other obligor,
(b) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of the Securities in any election of a
trustee or a standby trustee in arrangement, reorganization,
liquidation or other bankruptcy or insolvency proceedings or person
performing similar functions in comparable proceedings, and
(c) to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute all
amounts received with respect to the claims of the Securityholders
and of the Trustee on their behalf; and any trustee, receiver, or
liquidator, custodian or other similar official is hereby authorized
by each of the Securityholders to make payments to the Trustee, and,
in the event that the Trustee shall consent to the making of payments
directly to the Securityholders, to pay to the Trustee such amounts
as shall be sufficient to cover reasonable compensation to the
Trustee, each predecessor Trustee and their respective agents,
attorneys and counsel, and all other reasonable expenses and
liabilities incurred, and all reasonable advances made, by the
Trustee and each predecessor Trustee except as a result of negligence
or bad faith.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Securityholders any plan or reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding except, as aforesaid, to vote for the election of a
trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this
Indenture, or under any of the Securities, may be enforced by the Trustee
without the possession of any of the Securities or the production thereof at
any trial or other proceedings relative thereto, and any such action or
proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for
the ratable benefit of the Holders of the Securities.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the Holders of the Securities, and it shall not be necessary to make any
Holders of the Securities parties to any such proceedings.
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SECTION 4.3 Application of Proceeds. Any moneys collected by
the Trustee pursuant to this Article shall be applied in the following order
at the date or dates fixed by the Trustee and, in case of the distribution of
such moneys on account of principal or interest, upon presentation of the
several Securities and stamping (or otherwise noting) thereon the payment, or
issuing Securities in reduced principal amounts in exchange for the presented
Securities if only partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses, including
reasonable compensation to the Trustee and each predecessor Trustee
and their respective agents and attorneys and of all reasonable
expenses and liabilities incurred, and all reasonable advances made,
by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith and all other amounts due under Section 5.6
hereof;
SECOND: In case the principal and the Change of Control
purchase price and premium, if any, of the Securities shall not have
become and be then due and payable, to the payment of interest in
default in the order of the maturity of the installments of such
interest, with interest (to the extent that such interest has been
collected by the Trustee) upon the overdue installments of interest
at the rate of interest specified in the Securities, such payments to
be made ratably to the persons entitled thereto, without
discrimination or preference;
THIRD: In case the principal or the Change of Control
purchase price of the Securities shall have become and shall be then
due and payable, to the payment of the whole amount then owing and
unpaid upon all the Securities for principal, Change of Control
purchase price, premium, and interest, with interest upon the overdue
principal, Change of Control purchase price, premium, if any, and (to
the extent that such interest has been collected by the Trustee) upon
overdue installments of interest at the rate of interest specified in
the Securities; and in case such moneys shall be insufficient to pay
in full the whole amount so due and unpaid upon the Securities, then
to the payment of such principal, Change of Control purchase price,
premium and interest, without preference or priority of principal,
Change of Control purchase price or premium over interest, or of
interest over principal or Change of Control purchase price or
premium, or of any installment of interest over any other installment
of interest, or of any Security over any other Security, ratably to
the aggregate of such principal and accrued and unpaid interest; and
FOURTH: To the payment of the remainder, if any, to the
Issuer or any other Person lawfully entitled thereto.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section 4.3.
SECTION 4.4 Suits for Enforcement. In case an Event of
Default has occurred, has not been waived and is continuing, the Trustee may
in its discretion proceed to protect and enforce the rights vested in it by
this Indenture by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any of such rights, either at law
or in equity or in bankruptcy or otherwise, whether for the specific
enforcement
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of any covenant or agreement contained in this Indenture or in aid of the
exercise of any power granted in this Indenture or to enforce any other legal
or equitable right vested in the Trustee by this Indenture or by law.
SECTION 4.5 Restoration of Rights on Abandonment of
Proceedings. In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely to the
Trustee, then and in every such case the Issuer and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Issuer, the Trustee and the Securityholders
shall continue as though no such proceedings had been taken.
SECTION 4.6 Limitations of Suits by Securityholders. No
Holder of any Security shall have any right by virtue or by availing of any
provision of this Indenture to institute any action or proceeding at law or in
equity or in bankruptcy or otherwise upon or under or with respect to this
Indenture, or for the appointment of a trustee, receiver, liquidator,
custodian or other similar official or for any other remedy hereunder, unless
such Holder previously shall have given to the Trustee written notice of
default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of not less than 25% in aggregate principal amount of the
Securities then Outstanding shall have made written request upon the Trustee
to institute such action or proceedings in its own name as trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby and the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such action or
proceedings and no direction inconsistent with such written request shall have
been given to the Trustee pursuant to Section 4.8 hereof; it being understood
and intended, and being expressly covenanted by the taker and Holder of every
Security with every other taker and Holder and the Trustee, that no one or
more Holders of Securities shall have any right in any manner whatever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holder of Securities, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce
any right under this Indenture, except in the manner herein provided and for
the equal, ratable and common benefit of all Holders of Securities. For the
protection and enforcement of the provisions of this Section 4.6 each and
every Securityholder and the Trustee shall be entitled to such relief as can
be given either at law or in equity.
SECTION 4.7 Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default. Except as provided in Section 2.7 hereof, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Securityholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
No delay or omission of the Trustee or of any Holder of any
of the Securities to exercise as aforesaid any such right or power accruing
upon any Event of Default occurring and
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continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and, subject to Section 4.6 hereof, every power and remedy given by
this Indenture or by law to the Trustee or to the Securityholders may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee or by the Securityholders.
SECTION 4.8 Control by Securityholders. The Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee by this Indenture;
provided that such direction shall not be otherwise than in accordance with
law and the provisions of this Indenture; and provided further that (subject
to the provisions of Section 5.1 hereof) the Trustee shall have the right to
decline to follow any such direction if the Trustee, being advised by counsel,
shall determine that the action or proceeding so directed may not lawfully be
taken or if the Trustee in good faith by its board of directors, the executive
committee, or a trust committee of directors or Responsible Officers of the
Trustee shall determine that the action or proceedings so directed would
involve the Trustee in personal liability or if the Trustee in good faith
shall so determine that the actions or forbearances specified in or pursuant
to such direction shall be unduly prejudicial to the interests of Holders of
the Securities not joining in the giving of said direction, it being
understood that (subject to Section 5.1 hereof) the Trustee shall have no duty
to ascertain whether or not such actions or forbearances are unduly
prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the
Trustee in its discretion to take any action deemed proper by the Trustee and
which is not inconsistent with such direction by Securityholders.
SECTION 4.9 Waiver of Past Defaults. Prior to the
declaration of the maturity of the Securities as provided in Section 4.1
hereof, the Holders of a majority in aggregate principal amount of the
Securities at the time Outstanding may on behalf of the Holders of all the
Securities waive any past default or Event of Default hereunder and its
consequences, except a default (a) in the payment of principal or Change of
Control purchase price of, premium, if any, or interest on any of the
Securities or (b) in respect of a covenant or provision hereof that cannot be
modified or amended without the consent of the Holder of each Security
affected. If a default shall occur hereunder by reason of the Issuer's failure
to comply with Section 3.9 hereof and the Issuer shall cease to be in breach
of such Section prior to the time that such default constitutes an Event of
Default, such default and its consequences shall be deemed waived by the
Holders without any further action required on the part of the Trustee or the
Holders. In the case of any such waiver, the Issuer, the Trustee and the
Holders of the Securities shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and
be deemed to have been cured and not to have occurred, and any Event of
Default arising therefrom shall be deemed to have been cured, and not to have
occurred for every purpose of this Indenture; but
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no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.
SECTION 4.10 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture (including, without
limitation, Section 4.6 hereof), the right of any Holder to receive, and to
institute suit to enforce, payment of the principal and Change of Control
purchase price of, and premium, if any, and interest on the Securities on or
after the respective due dates expressed in such Securities (including upon
redemption and acceleration of the maturity of the principal of and premium,
if any, and interest on the Securities), shall not be affected or impaired,
and shall be absolute and unconditional.
ARTICLE V
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the Trustee;
During Default; Prior to Default. The Trustee, prior to the occurrence of an
Event of Default and after the curing or waiving of all Events of Default that
may have occurred, undertakes to perform only such duties as are specifically
set forth in this Indenture. In case an Event of Default has occurred (which
has not been cured or waived) the Trustee shall exercise such of the rights
and powers vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(i) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for
the performance of such duties and obligations as are
specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions
expressed therein, upon any statements, certificates or
opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such
statements, certificates or opinions which by any provision
hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
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(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a majority in
principal amount of the Securities at the time Outstanding relating
to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there shall be reasonable ground
for believing that the repayment of such funds or adequate indemnity against
such liability is not reasonably assured to it.
SECTION 5.2 Certain Rights of the Trustee. Subject to
Section 5.1 hereof:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or
any other certificate (including, without limitation, any certificate
provided to the Trustee pursuant to Section 3.5 hereof), statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, note, coupon, security or other paper or document believed
by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request, direction, order or demand of the Issuer
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed) and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Issuer;
(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Indenture at the
request, order or direction of any of the Securityholders pursuant to
the provisions of this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities that might be incurred therein or
thereby;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture;
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(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note, coupon, security,
or other paper or document unless requested in writing so to do by
the Holders of not less than a majority in aggregate principal amount
of the Securities then Outstanding; provided that, if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding; the reasonable
expenses of every such examination shall be paid by the Issuer, or by
the Trustee or any predecessor Trustee and repaid by the Issuer upon
demand; and
(g) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Issuer, personally or by agent or
attorney.
SECTION 5.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of Proceeds Thereof. The recitals
contained herein and in the Securities, except the Trustee's certificates of
authentication, shall be taken as the statements of the Issuer, and the
Trustee assumes no responsibility for the correctness of the same. The Trustee
makes no representation as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Issuer of any of the Securities or of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold Securities;
Collections, etc. The Trustee or any agent of the Issuer or the Trustee, in
its individual or any other capacity, may become the owner or pledgee of
Securities with the same rights it would have if it were not the Trustee or
such agent and may otherwise deal with the Issuer and receive, collect, hold
and retain collections from the Issuer with the same rights it would have if
it were not the Trustee or such agent.
SECTION 5.5 Moneys Held by Trustee. Subject to the
provisions of Section 9.4 hereof, all moneys received by the Trustee shall,
until used or applied as herein provided, be held in trust for the purposes
for which they were received, but need not be segregated from other funds
except to the extent required by mandatory provisions of law. Neither the
Trustee nor any agent of the Issuer or the Trustee shall be under any
liability for interest on any moneys received by it hereunder, except as the
Issuer and the Trustee otherwise may agree.
SECTION 5.6 Compensation and Indemnification of Trustee and
Its Prior Claim. The Issuer covenants and agrees to pay to the Trustee from
time to time as shall be agreed upon between the Issuer and the Trustee in
writing from time to time, and the Trustee shall be entitled
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to, reasonable compensation (which shall not be limited by any provision of
law relating to the compensation of a trustee of an express trust), and the
Issuer covenants and agrees to pay or reimburse the Trustee and each
predecessor Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ), except to the
extent any such expense, disbursement or advance may arise from the Trustee's
negligence or bad faith. The Issuer also covenants to indemnify the Trustee
and each predecessor Trustee for, and to hold it harmless against, any and all
loss, liability, damage, claims or expense arising out of or in connection
with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder and the performance of its duties
hereunder, including the costs and expenses of defending and investigating any
claim of liability in the premises, except to the extent any such loss,
liability or expense is due to its own negligence or bad faith. The
obligations of the Issuer under this Section 5.6 to compensate and indemnify
the Trustee and each predecessor Trustee and to pay or reimburse the Trustee
and each predecessor Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture.
SECTION 5.7 Right of Trustee to Rely on Officers'
Certificate, etc. Subject to Section 5.1 and Section 5.2 hereof, whenever in
the administration of the trusts of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee.
SECTION 5.8 Persons Eligible for Appointment as Trustee. The
Trustee hereunder shall at all times be a corporation organized and doing
business under the laws of the United States or of a state thereof, having a
combined capital and surplus of at least $500,000,000, and which is authorized
under such laws to exercise corporate trust powers and subject to supervision
or examination by federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of a federal, state or District of Columbia supervising or examining
authority, then for the purposes of this Section 5.8, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. No
obligor on the Securities or Person directly or indirectly controlling,
controlled by or under common control with such obligor shall serve as
Trustee.
SECTION 5.9 Resignation and Removal; Appointment of
Successor Trustee. (a) The Trustee may at any time resign by giving written
notice of resignation to the Issuer and by mailing notice thereof by
first-class mail to Holders of Securities at their last addresses as they
shall appear on the Securities Register. Upon receiving such notice of
resignation, the Issuer shall promptly appoint a successor trustee by written
instrument in duplicate, executed by authority of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the mailing of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the
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appointment of a successor trustee, or any Securityholder who has been a bona
fide Holder of a Security or Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act, after written request
therefor by the Issuer or by any Securityholder who has been a bona
fide Holder of a Security or Securities for at least six months;
(ii) the Trustee shall cease to be eligible in accordance
with the provisions of Section 5.8 hereof and shall fail to resign
after written request therefor by the Issuer or by any such
Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver or liquidator of
the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation
or liquidation;
then, in any such case, the Issuer may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors of the Issuer, one copy of which instrument shall be
delivered to the Trustee so removed and one copy of which shall be delivered
to the successor trustee, or, any Securityholder who has been a bona fide
Holder of a Security or Securities for at least six months may on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount
of the Securities at the time Outstanding may at any time remove the Trustee
and appoint a successor trustee by delivering to the Trustee so removed, to
the successor trustee so appointed and to the Issuer the evidence provided for
in Section 6.1 hereof of the action in that regard taken by the
Securityholders.
(d) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions of this
Section 5.9 shall become effective only upon acceptance of appointment by the
successor trustee as provided in Section 5.10 hereof.
SECTION 5.10 Acceptance of Appointment by Successor Trustee.
Any successor trustee appointed as provided in Section 5.9 hereof shall
execute and deliver to the Issuer and to its predecessor Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with all
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as trustee herein; but, nevertheless, on the
written request of the Issuer or of
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the successor trustee, upon payment of its charges then unpaid, the Trustee
ceasing to act shall, subject to Section 9.4 hereof, pay over to the successor
trustee all moneys at the time held by it hereunder and shall execute and
deliver an instrument transferring to such successor trustee all such rights,
powers, duties and obligations. Upon request of any such successor trustee,
the Issuer shall execute appropriate instruments in writing for more fully and
certainly vesting in and confirming to such successor such rights and powers.
Any Trustee ceasing to act shall, nevertheless, retain a prior claim upon all
property or funds held or collected by such Trustee to secure any amounts then
due it pursuant to the provisions of Section 5.6 hereof.
Upon acceptance of appointment by a successor trustee as
provided in this Section 5.10, the Issuer shall mail notice thereof by
first-class mail to the Holders of Securities at their last addresses as they
shall appear in the Securities Register. If the acceptance of appointment is
substantially contemporaneous with the resignation then the notice called for
by the preceding sentence may be combined with the notice called for by
Section 5.9 hereof. If the Issuer fails to mail such notice within 10 days
after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Issuer.
Notwithstanding replacement of the Trustee pursuant to this
Section 5.10, the Issuer's obligations under Section 5.6 hereof shall continue
for the benefit of the retiring Trustee.
SECTION 5.11 Merger, Conversion, Consolidation or Succession
to Business of Trustee. Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be eligible under the provisions of
Section 5.8 hereof, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities shall
have been authenticated but not delivered, any such successor to the Trustee
may adopt the certificate of authentication of any predecessor Trustee and
deliver such Securities so authenticated; and, in case at that time any of the
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder
or in the name of the successor trustee, and in such cases such certificate
shall have the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have; provided,
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Securities in the name of any predecessor Trustee
shall apply only to its successor or successors by merger, conversion or
consolidation.
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ARTICLE VI
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by Securityholders. Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by Securityholders may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Securityholders, in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are
delivered to the Trustee. Proof of execution of any instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 5.1 and Section 5.2 hereof) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Article.
SECTION 6.2 Proof of Execution of Instruments and of Holding
of Securities Record Date. Subject to Section 5.1 and Section 5.2 hereof, the
execution of any instrument by a Securityholder or his agent or proxy may be
provided in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The holding of Securities shall be proved by the Securities Register
or by a certificate of the Security Registrar thereof. The Issuer may set a
record date for purposes of determining the identity of Holders of Securities
entitled to vote or consent to any action referred to in Section 6.1 hereof,
which record date may be set at any time or from time to time by notice to the
Trustee, for any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five days prior to the
proposed date of such vote or consent, and thereafter, notwithstanding any
other provisions hereof, only Holders of Securities of record on such record
date shall be entitled to so vote or give such consent or to withdraw such
vote or consent.
SECTION 6.3 Holders to Be Treated as Owners. The Issuer, the
Trustee and any agent of the Issuer or the Trustee may deem and treat the
Person in whose name any Security shall be registered upon the Securities
Register as the absolute owner of such Security (whether or not such Security
shall be overdue and notwithstanding any notation of ownership or other
writing thereon) for the purpose of receiving payment of or on account of the
principal and Change of Control purchase price of, and premium, if any, on
and, subject to the provisions of this Indenture, interest on such Security
and for all other purposes; and neither the Issuer nor the Trustee nor any
agent of the Issuer or the Trustee shall be affected by any notice to the
contrary. All such payments so made to any such Person, or upon his order,
shall be valid and, to the extent of the sum or sums so paid, effectual to
satisfy and discharge the liability for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Issuer Deemed Not
Outstanding. In determining whether the Holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities that are owned by the Issuer or any
other obligor on the Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the obligor on the Securities shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected
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in relying on any such direction, consent or waiver only Securities that the
Trustee knows are so owned shall be so disregarded. Securities so owned that
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Issuer or any
other obligor upon the Securities or any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Issuer or any other obligor on the Securities. In case of a dispute as to
such right, the advice of counsel shall be full protection in respect of any
decision made by the Trustee in accordance with such advice. Upon request of
the Trustee, the Issuer shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Securities, if any, known by the
Issuer to be owned or held by or for the account of any of the above-described
Persons; and, subject to Section 5.1 and Section 5.2 hereof, the Trustee shall
be entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
SECTION 6.5 Right of Revocation of Action Taken. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
6.1 hereof, of the taking of any action by the Holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action, any Holder of a Security the serial number of
which is shown by the evidence to be included among the serial numbers of the
Securities the Holders of which have consented to such action may, by filing
written notice at the Corporate Trust Office and upon proof of holding as
provided in this Article, revoke such action so far as concerns such Security.
Except as aforesaid any such action taken by the Holder of any Security shall
be conclusive and binding upon such Holder and upon all future Holders and
owners of such Security and of any Securities issued in exchange or
substitution therefor, irrespective of whether or not any notation in regard
thereto is made upon any such Security. Any action taken by the Holders of the
percentage in aggregate principal amount of the Securities specified in this
Indenture in connection with such action shall be conclusively binding upon
the Issuer, the Trustee and the Holders of all such Securities.
ARTICLE VII
SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures Without Consent of
Securityholders. The Issuer, when authorized by a resolution of its Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Securities any property or assets;
(b) to evidence the succession of another corporation to the
Issuer, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of
the Issuer pursuant to Article Eight hereof;
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(c) to add to the covenants of the Issuer such further
covenants, restrictions, conditions or provisions as its Board of
Directors shall consider to be for the protection of the Holders of
Securities, and to make the occurrence, or the occurrence and
continuance of a default in any such additional covenants,
restrictions, conditions or provisions an Event of Default permitting
the enforcement of all or any of the several remedies provided in
this Indenture as herein set forth; provided, that in respect of any
such additional covenant, restriction, condition or provision such
supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that
allowed in the case of other defaults) or may provide for immediate
enforcement upon such an Event of Default or may limit the remedies
available to the Trustee upon such an Event of Default or may limit
the right of the Holders of a majority in aggregate principal amount
of the Securities to waive such an Event of Default;
(d) to cure any ambiguity or to cure, correct or supplement
any defective provision contained herein or in the Securities, or to
make such other provisions in regard to matters or questions arising
under this Indenture or under any supplemental indenture as the Board
of Directors may deem necessary or desirable, and in any case which
the Trustee and the Issuer shall determine (i) are not inconsistent
with this Indenture and the Securities and (ii) shall not adversely
affect the interests of the Holders of the Securities; and
(e) to modify or supplement this Indenture or any indenture
supplemental hereto in such manner as to permit the qualification
thereof under the Trust Indenture Act or any other similar federal
statute hereafter in effect.
The Trustee is hereby authorized to join in the execution of
any such supplemental indenture, to make any further appropriate agreements
and stipulations that may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section 7.1 may be executed without the consent of the Holders of any of
the Securities at the time Outstanding, notwithstanding any of the provisions
of Section 7.2 hereof.
SECTION 7.2 Supplemental Indentures With Consent of
Securityholders. With the consent (evidenced as provided in Article Six
hereof) of the Holders of not less than a majority in aggregate principal
amount of the Securities at the time Outstanding, the Issuer, when authorized
by a resolution of its Board of Directors, and the Trustee may, from time to
time and at any time, modify this Indenture or any indentures supplemental
hereto or the rights of the Holders of the Securities; provided, that no such
supplemental indenture shall (a) change the Stated Maturity of the principal
of, or any installment of principal of or interest on, any Security, or reduce
the principal amount thereof, or reduce the rate or extend the time of payment
of interest thereon, or reduce any amount payable on redemption thereof or
upon a Change of Control or impair or affect the right of any Securityholder
to institute suit for the payment thereof or make any change to Section 3.10
hereof that adversely affects the rights of
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the Holders of the Securities, in each case without the consent of the Holder
of each Security so affected, or (b) without the consent of the Holders of all
Securities then Outstanding, (i) reduce the aforesaid percentage of
Securities, the consent of the Holders of which is required for any such
modification, or the percentage of Securities, the consent of the Holders of
which is required for any waiver provided for in this Indenture, (ii) change
any obligation of the Issuer to maintain an office or agency in the places and
for the purposes specified in Section 3.2 or (iii) make any change in Section
4.9 or this Section 7.2, except to increase any percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holders of each Outstanding Security affected
thereby.
Upon the request of the Issuer, accompanied by a copy of a
resolution of the Board of Directors certified by the Secretary or an
Assistant Secretary of the Issuer authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of
the consent of Securityholders and other documents, if any, required by
Section 6.1 hereof the Trustee shall join with the Issuer in the execution of
such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion, but shall not be obligated
to, enter into such supplemental indenture.
It shall not be necessary for the consent of the
Securityholders under this Section 7.2 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee
of any supplemental indenture pursuant to the provisions of this Section 7.2,
the Issuer shall mail a notice thereof by first-class mail to the Holders of
Securities at their addresses as they shall appear on the Securities Register,
setting forth in general terms the substance of such supplemental indenture.
Any failure of the Issuer to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such
supplemental indenture.
SECTION 7.3 Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof,
this Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations,
duties and immunities under this Indenture of the Trustee, the Issuer and the
Holders of Securities shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and
all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any and
all purposes.
SECTION 7.4 Documents to Be Given to Trustee. The Trustee,
subject to the provisions of Section 5.1 and Section 5.2 hereof, may receive
an Officers' Certificate and an Opinion of Counsel as conclusive evidence that
any such supplemental indenture complies with the applicable provisions of
this Indenture.
SECTION 7.5 Notation of Securities in Respect of
Supplemental Indentures. Securities authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article Seven may bear a notation in form approved by the Trustee as
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to any matter provided for by such supplemental indenture or as to any action
taken at any such meeting. If the Issuer or the Trustee shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and
the Board of Directors, to any modification of this Indenture contained in any
such supplemental indenture may be prepared by the Issuer, authenticated by
the Trustee and delivered in exchange for the Securities then Outstanding.
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 8.1 Covenant Not to Merge, Consolidate, Sell or
Transfer Assets Except Under Certain Conditions. (a) The Issuer shall not
consolidate with or merge into any other Person, or sell, convey, transfer or
lease its properties and assets substantially as an entirety to any Person,
and the Issuer shall not permit any Person to consolidate with or merge into
the Issuer, unless: (i) immediately prior to and immediately following such
consolidation, merger, sale or lease, no Event of Default shall have occurred
and be continuing and (ii) the Issuer is the surviving or continuing
corporation, or the surviving or continuing corporation or corporation that
acquires by sale, conveyance, transfer or lease is incorporated in the United
States of America or Canada and expressly assumes the payment and performance
of all obligations of the Issuer under the Indenture and the Securities.
(b) Except for the sale of the properties and assets of the
Issuer substantially as an entirety pursuant to subsection (a) above, and
other than assets required to be sold to conform with governmental
regulations, the Issuer shall not sell or otherwise dispose of any assets
(other than short-term, readily marketable investments purchased for cash
management purposes with funds not representing the proceeds of other asset
sales) if on a pro forma basis, the aggregate net book value of all such sales
during the most recent 12-month period would exceed 10 percent of Consolidated
Net Tangible Assets computed as of the end of the most recent fiscal quarter
preceding such sale; provided, however, that any such sales shall be
disregarded for purposes of this 10 percent limitation if the proceeds are
invested in assets in similar or related lines of business of the Issuer and,
provided further, that the Issuer may sell or otherwise dispose of assets in
excess of such 10 percent if the proceeds from such sales or dispositions,
which are not reinvested as provided above, are retained by the Issuer as cash
or cash equivalents or are used by the Issuer to purchase Securities which are
then delivered to the Trustee for cancellation.
SECTION 8.2 Successor Corporation Substituted. In case of
any such consolidation, merger, sale or transfer, and following such an
assumption by the successor corporation, such successor corporation shall
succeed to and be substituted for the Issuer, with the same effect as if it
had been named herein.
Such successor corporation may cause to be signed, and may
issue either in its own name or in the name of the Issuer prior to such
succession any or all of the Securities issuable hereunder that theretofore
shall not have been signed by the Issuer and delivered to the Trustee; and,
upon the order of such successor corporation, instead of the Issuer, and
subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Securities
that previously shall have been signed and delivered
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by the officers of the Issuer to the Trustee for authentication and any
Securities that such successor corporation thereafter shall cause to be signed
and delivered to the Trustee for that purpose. All of the Securities so issued
shall in all respects have the same legal rank and benefit under this
Indenture as the Securities theretofore or thereafter issued in accordance
with the terms of this Indenture as though all of such Securities had been
issued at the date of the execution hereof.
In case of any such consolidation, merger, sale or transfer
such changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
In the event of any such sale or transfer (other than a
transfer by way of lease) the Issuer or any successor corporation which shall
theretofore have become such in the manner described in this Article 8 shall
be discharged from all obligations and covenants under this Indenture and the
Securities and may be liquidated and dissolved.
SECTION 8.3 Opinion of Counsel to Trustee; Officers'
Certificate. The Trustee, subject to the provisions of Section 5.1 and Section
5.2 hereof, shall receive an Officers' Certificate and an Opinion of Counsel
as conclusive evidence that any such consolidation, merger, sale or transfer,
and any such assumption, and any such liquidation or dissolution, complies
with the applicable provisions of this Indenture.
ARTICLE IX
SATISFACTION AND DISCHARGE
OF INDENTURE; UNCLAIMED MONEYS
SECTION 9.1 Satisfaction and Discharge of Indenture. If at
any time (a) the Issuer shall have paid or caused to be paid the principal and
Change of Control purchase price of and premium, if any, and interest on all
the Securities Outstanding hereunder, as and when the same shall have become
due and payable, or (b) the Issuer shall have delivered to the Trustee for
cancellation all Securities theretofore authenticated (other than any
Securities which shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 2.7 hereof) or (c)(i) all
such Securities not theretofore delivered to the Trustee for cancellation
shall have become due and payable, or are by their terms to become due and
payable within one year or are to be called for redemption under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and (ii)
the Issuer shall have irrevocably deposited or caused to be deposited with the
Trustee as trust funds the entire amount in cash (other than moneys repaid by
the Trustee or any paying agent to the Issuer in accordance with Section 9.4
hereof) or U.S. Government Obligations, maturing as to principal, premium, if
any, and interest in such amounts and at such times as will insure (without
reinvestment) the availability of cash sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay at maturity all
such Securities not theretofore delivered to the Trustee for cancellation,
including principal, premium, if any, and interest due or to become due to
such date of maturity as the case may be, and if, in any such case, the Issuer
shall also pay or cause to be paid all other
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sums payable hereunder by the Issuer, then this Indenture shall cease to be of
further effect (except as to (i) rights of registration of transfer and
exchange, and the Issuer's right to optional redemption, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen Securities, (iii)
rights of Holders to receive payments of principal thereof (including any
Change of Control purchase price previously accrued) and premium, if any, and
interest thereon, upon the original stated due dates therefor (but not upon
acceleration), (iv) the rights and obligations and immunities of the Trustee
hereunder and (v) the rights of the Securityholders as beneficiaries hereof
with respect to the property so deposited with the Trustee payable to all or
any of them), and the Trustee, on demand of the Issuer accompanied by an
Officers' Certificate and an Opinion of Counsel and at the cost and expense of
the Issuer, shall execute proper instruments acknowledging such satisfaction
of and discharging this Indenture, provided that the rights of Holders of the
Securities to receive amounts in respect of principal of and premium, if any,
and interest on the Securities held by them shall not be delayed longer than
required by then-applicable mandatory rules or policies of any securities
exchange upon which the Securities are listed.
The Issuer agrees to reimburse the Trustee for any costs or
expenses thereafter reasonably and properly incurred and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Securities.
SECTION 9.2 Application by Trustee of Funds Deposited for
Payment of Securities. Subject to Section 9.4 hereof, all moneys deposited
with the Trustee pursuant to Section 9.1 hereof shall be held in trust and
applied by it to the payment, either directly or through any paying agent
(including the Issuer acting as its own paying agent), to the Holders of the
particular Securities for the payment or redemption of which such moneys have
been deposited with the Trustee, of all sums due and to become due thereon for
principal and Change of Control purchase price, premium, if any, and interest;
but such money need not be segregated from other funds except to the extent
required by law.
SECTION 9.3 Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture all moneys
then held by any paying agent under the provisions of this Indenture shall,
upon demand of the Issuer, be repaid to it or paid to the Trustee and
thereupon such paying agent shall be released from all further liability with
respect to such moneys.
SECTION 9.4 Return of Moneys Held by Trustee and Paying
Agent Unclaimed for Two Years. Any moneys deposited with or paid to the
Trustee or any paying agent for the payment of the principal or Change of
Control purchase price of, or premium or interest on any Security and not
applied but remaining unclaimed for two years after the date upon which such
principal, Change of Control purchase price, premium or interest shall have
become due and payable shall, upon the written request of the Issuer, be
repaid to the Issuer by the Trustee or such paying agent, and the Holder of
such Security shall, unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property laws, thereafter look
only to the Issuer for any payment which such Holder may be entitled to
collect, and all liability of the Trustee or any paying agent with respect to
such moneys shall thereupon cease.
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SECTION 9.5 Defeasance and Discharge of Indenture. The
Issuer will be deemed to have paid and will be discharged from any and all
obligations in respect of the Securities, on the 123rd day after the deposit
referred to in subparagraph (A) hereof has been made, and the provisions of
this Indenture will no longer be in effect with respect to the Securities (and
the Trustee, at the expense of the Issuer, shall execute proper instruments
acknowledging the same), except as to:
(a) rights of registration of transfer and exchange, and the
Issuer's right of optional redemption, (b) substitution of apparently
mutilated, defaced, destroyed, lost or stolen securities, (c) rights
of Holders to receive payments of principal (including rights to
receive any Change of Control purchase price previously accrued)
thereof and premium, if any, and interest thereon, (d) the rights,
obligations and immunities of the Trustee hereunder, (e) the rights
of the Securityholders as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them
and (f) the obligations of the Issuer to maintain a place of payment
for the Securities under Section 3.1 hereof;
provided that the following conditions shall have been satisfied:
(A) with reference to this Section 9.5 the Issuer
has irrevocably deposited or caused to be irrevocably
deposited with the Trustee (or another trustee satisfying
the requirements of Section 5.8 hereof) as trust funds in
trust, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of the Securities, (i)
money in an amount, or (ii) U.S. Government Obligations
which through the payment of interest and principal in
respect thereof in accordance with their terms (without
reinvestment) will provide not later than one day before the
due date of any payment referred to in clause (x) or (y) of
this subparagraph (A) money in an amount, or (iii) a
combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, after payment of all
federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, (x)
the principal and Change of Control purchase price of,
premium, if any, and each installment of principal and
interest on the Outstanding Securities at the maturity date
of such principal or installment of principal or interest
and (y) any mandatory sinking fund payments or analogous
payments applicable to the Securities on the day on which
such payments are due and payable in accordance with the
terms of this Indenture and the Securities;
(B) the Issuer has delivered to the Trustee (i) an
Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax
purposes as a result of the Issuer's exercise of its option
under this Section 9.5 and will be subject to federal income
tax on the same amount and in the same manner and at the
same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of
Counsel must be based on (x) a change in applicable federal
income tax law or related Treasury Regulations after the
date of this Indenture or (y) a ruling received by the
Issuer
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from the Internal Revenue Service to the same effect and
(ii) an Opinion of Counsel to the effect that the defeasance
trust does not constitute an "investment company" under the
Investment Company Act of 1940, as amended, and after the
passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the U.S.
Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law;
(C) immediately after giving effect to such deposit
on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would
become an Event of Default, shall have occurred and be
continuing on the date of such deposit or during the period
ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or
instrument to which the Issuer is a party or by which the
Issuer is bound; and
(D) if at such time the Securities are listed on a
national securities exchange, the Issuer has delivered to
the Trustee an Opinion of Counsel to the effect that the
Securities will not be delisted as a result of such deposit,
defeasance and discharge.
SECTION 9.6 Defeasance of Certain Obligations. The Issuer
may omit to comply with any term, provision, or condition set forth in this
Indenture in Sections 3.8 through 3.10, and Section 4.1(d) (with respect to
Sections 3.8 through 3.10) and Sections 4.1(c) and (e) shall be deemed not to
be Events of Default on the 123rd day after the deposit referred to in
subparagraph (A) hereof if
(A) with reference to this Section 9.6, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
5.8 hereof) as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of the
Securities, (i) money in an amount, or (ii) U.S. Government
Obligations which through the payment of interest and principal in
respect thereof in accordance with their terms (without reinvestment)
will provide not later than one day before the due date of any
payment referred to in clauses (x) or (y) of this Section 9.6 money
in an amount, or (iii) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, after payment of all federal,
state and local taxes or other charges and assessments in respect
thereof payable by the Trustee, (x) the principal and Change of
Control purchase price of, premium, if any, and each installment of
principal and interest on the Outstanding Securities at the maturity
date of such principal or installment of principal or interest and
(y) any mandatory sinking fund payments or analogous payments
applicable to the Securities on the day on which such payments are
due and payable in accordance with the terms of this Indenture and
the Securities;
(B) the Issuer has delivered to the Trustee (i) an Opinion
of Counsel to the effect that Holders will not recognize income, gain
or loss for federal income tax purposes as a result of the Issuer's
exercise of its option under this Section 9.6 and will be subject
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to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, and (ii) an Opinion of
Counsel to the effect that the defeasance trust does not constitute
an "investment company" under the Investment Company Act of 1940, as
amended, and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the
U.S. Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of
notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation
of, or constitute a default under, any other agreement or instrument
to which the Issuer is a party or by which the Issuer is bound; and
(D) if at such time the Securities are listed on a national
securities exchange, the Issuer has delivered to the Trustee an
Opinion of Counsel to the effect that the Securities will not be
delisted as a result of such deposit, defeasance and discharge.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Shareholders, Officers and
Directors of Issuer Exempt from Individual Liability. No recourse under or
upon any obligation, covenant or agreement contained in this Indenture, or in
any Security, or because of any indebtedness evidenced thereby, shall be had
against any incorporator, as such, or against any past, present or future
shareholder, officer or director, as such, of the Issuer or of any successor,
either directly or through the Issuer or any successor, under any rule of law,
statute or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance of the Securities by the
Holders thereof and as part of the consideration for the issue of the
Securities.
SECTION 10.2 Provisions of the Indenture for the Sole
Benefit of Parties and Securityholders. Nothing in this Indenture or in the
Securities, expressed or implied, shall give or be construed to give to any
Person, other than the parties hereto and their successors and the Holders
(and, where expressly set forth herein, owners of interests in any Global
Security), any legal or equitable right, remedy or claim under this Indenture
or under any covenant or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto and their
successors and the Holders (and, where expressly set forth herein, owners of
interests in any Global Security).
SECTION 10.3 Successors and Assigns of Issuer Bound by
Indenture. All the covenants, stipulations, promises and agreements in this
Indenture contained by or in behalf of the Issuer shall bind its successors
and assigns, whether so expressed or not.
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SECTION 10.4 Notices and Demands on Issuer, Trustee and
Securityholders. Any notice or demand which by any provision of this Indenture
is required or permitted to be given or served by the Trustee or by the
Holders to or on the Issuer may be given or served by being deposited postage
prepaid, first-class mail (except as otherwise specifically provided herein)
addressed (until another address of the Issuer is filed by the Issuer with the
Trustee) to NRG Energy, Inc., 1221 Nicollet Mall, Suite 700, Minneapolis,
Minnesota 55403, Attention: Chief Financial Officer. Any notice, direction,
request or demand by the Issuer or any Securityholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made at the Corporate Trust Office or such office or agency
designated for such purpose in Section 3.2 hereof.
Where this Indenture provides for notice to Holders, such
notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder entitled thereto, at his last address as it appears in the Securities
Register. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in
regular mail service, it shall be impracticable to mail notice to the Issuer
and Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.5 Officers' Certificates and Opinions of Counsel;
Statements to Be Contained Therein. Upon any application or demand by the
Issuer to the Trustee to take any action under any of the provisions of this
Indenture, the Issuer shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent provided for in this Indenture relating
to the proposed action have been complied with and an Opinion of Counsel
stating that in the opinion of such counsel all such conditions precedent have
been complied with, except that in the case of any such application or demand
as to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or demand,
no additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture
and delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include (a) a statement that the
Person making such certificate or opinion has read such covenant or condition,
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based, (c) a statement that, in the opinion of such
Person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant
or condition has been complied with and (d) a statement as to whether or not,
in the opinion of such Person, such condition or covenant has been complied
with.
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Any certificate, statement or opinion of an officer of the
Issuer may be based, insofar as it relates to legal matters, upon a
certificate or opinion of or representations by counsel, unless such officer
knows that the certificate or opinion or representations with respect to the
matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know
that the same are erroneous. Any certificate, statement or Opinion of Counsel
may be based, insofar as it relates to factual matters (information with
respect to which is in the possession of the Issuer) upon the certificate,
statement or opinion of or representations by an officer or officers of the
Issuer, unless such counsel knows that the certificate, statement or opinion
or representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the
Issuer or of counsel may be based, insofar as it relates to accounting
matters, upon a certificate or opinion of or representations by an accountant
or firm of accountants in the employ of the Issuer, unless such officer or
counsel, as the case may be, knows that the certificate or opinion or
representations with respect to the accounting matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or
in the exercise of reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants or Investment Banker filed with the Trustee shall contain a
statement that such firm is independent.
SECTION 10.6 Payments Due on Saturdays, Sundays and
Holidays. If the date of maturity of interest on or principal, Change of
Control purchase price, or premium, if any, of the Securities or the date
fixed for redemption of any Security shall not be a Business Day, then payment
of interest, principal, Change of Control purchase price or premium need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the date of maturity or the date fixed
for redemption, and no interest shall accrue for the period after such date.
SECTION 10.7 New York Law to Govern. THIS INDENTURE SHALL,
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO THE CHOICE
OF LAW PROVISIONS THEREOF (OTHER THAN SUCH SECTION 5- 1401).
SECTION 10.8 Counterparts. This Indenture may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same agreement.
SECTION 10.9 Effect of Headings. The Article and Section
Headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
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ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1 Right of Optional Redemption Price. The Issuer
at its option may, at any time on or after February 1, 2001, redeem the
Securities, in whole or in part, upon payment of a redemption price equal to
the principal amount of the Securities to be redeemed plus accrued and unpaid
interest thereon, if any, plus the Applicable Premium.
SECTION 11.2 Notice of Redemption. Notice of redemption to
the Holders of Securities to be redeemed shall be given by the Issuer by
mailing notice of such redemption by first class mail, postage prepaid, at
least 30 days and not more than 60 days prior to the date fixed for redemption
to such Holders of Securities at their last addresses as they shall appear in
the Securities Register. Failure to give notice by mail, or any defect in the
notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
The notice of redemption to each Holder shall specify that
the Securities are being redeemed pursuant to this Article 11, the date fixed
for redemption, the place or places of payment, the CUSIP and ISIN numbers (as
applicable), that payment will be made upon presentation and surrender of the
Securities, that interest accrued to the date fixed for redemption will be
paid as specified in this Article and that, on and after said date interest
thereon or on the portions thereof to be redeemed will cease to accrue.
The notice of redemption of Securities to be redeemed at the
option of the Issuer shall be given by the Issuer or, at the Issuer's request,
by the Trustee in the name and at the expense of the Issuer.
At least one Business Day prior to the redemption date
specified in the notice of redemption given as provided in this Section 11.2,
the Issuer shall deposit with the Trustee or with one or more paying agents
(or, if the Issuer is acting as its own paying agent, set aside, segregate and
hold in trust as provided in Section 3.4 hereof) an amount of money sufficient
to redeem on the redemption date all the Securities so called for redemption.
SECTION 11.3 Payment of Securities Called for Redemption. If
notice of redemption has been given as above provided, the Securities shall
become due and payable on the date and at the place stated in such notice at
the redemption price, and on and after said date (unless the Issuer shall
default in the payment of such Securities at the redemption price) interest on
the Securities or portions of Securities so called for redemption shall cease
to accrue and, except as provided in Section 5.5 and Section 9.4 hereof, such
Securities shall cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture, and the Holders
thereof shall have no right in respect of such Securities except the right to
receive the redemption price thereof. On presentation and surrender of such
Securities at a place of payment specified in said notice, said Securities
shall be paid and redeemed by the Issuer at the redemption price; provided,
that any semi-annual payment of interest becoming due on the date fixed for
redemption shall be payable to the Holders of such Securities registered as
such on the relevant record date subject to the terms and provisions of
Section 2.4 hereof.
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If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate
borne by the Security.
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IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of January 31, 1996.
NRG ENERGY, INC.,
as Issuer
By: /s/LEONARD A. BLUHM
-----------------------------
Name: Leonard A. Bluhm
Title: Vice President and CFO
Attest:
By: /s/ LEE R. CARLSON
----------------------------------------
Name: Lee R. Carlson
Title: Treasurer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /s/ RAYMOND S. HAVERSTOCK
------------------------------
Name: Raymond S. Haverstock
Title: Vice President
Attest:
By: /s/ PATRICIA A. FISHER
----------------------------------------
Name: Patricia A. Fisher
Title: Assistant Secretary
-51-
<PAGE>
EXHIBIT A
FORM OF SECURITY
[INCLUDE IF SECURITY IS A GLOBAL SECURITY DEPOSITED WITH THE U.S.
DEPOSITARY -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN
EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.6 OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.]
THE SENIOR NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION THEREOF, THE HOLDER (1)
AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS (OR SUCH SHORTER
PERIOD AS IS PRESCRIBED BY PARAGRAPH (k) OF RULE 144 UNDER THE SECURITIES ACT
AS THEN IN EFFECT) AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE SENIOR NOTE
EVIDENCED HEREBY AND THE LAST DATE ON WHICH NRG ENERGY, INC. (THE "COMPANY")
OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE
COMPANY WAS THE OWNER OF THE SENIOR NOTE (THE "RESTRICTION TERMINATION DATE")
RESELL OR OTHERWISE TRANSFER THE SENIOR NOTE EVIDENCED HEREBY EXCEPT (A) TO
THE COMPANY, (B) TO A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A, (C) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E)
A-1
<PAGE>
PURSUANT TO ANOTHER AVAILABLE EXEMPTION UNDER THE SECURITIES ACT, OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT; AND (2) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THE SENIOR NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE SENIOR NOTE EVIDENCED HEREBY IS ISSUED IN
CERTIFICATED FORM, IN CONNECTION WITH ANY TRANSFER OF THE SENIOR NOTE
EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IN
CONNECTION WITH ANY PROPOSED TRANSFER OF THE SENIOR NOTE EVIDENCED HEREBY
PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND
WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE.
[FORM OF FACE OF SECURITY]
CUSIP [629377AA0][629377AB8][U66962AA6]
[Common Code]
[ISIN][USU66962AA65]
No.
$
NRG ENERGY, INC.
7.625% Senior Notes Due 2006
NRG Energy, Inc. (the "Issuer"), for value received hereby promises
to pay to ___________________ or registered assigns the principal sum of
____________ Dollars at the Issuer's office or agency for said purpose
initially at the Corporate Trust Office of Norwest Bank Minnesota, National
Association (herein called the "Trustee") at Corporate Trust, Norwest Center,
Sixth and Marquette, Minneapolis, Minnesota 55479-0069 and at the office or
agency of the Issuer for said purpose in the Borough of Manhattan, The City of
New York, on February 1, 2006 in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, semi-annually in arrears on
February 1 and August 1 of each year, commencing August 1, 1996, on said
principal sum in like coin or currency at the rate per annum set forth above
at said offices or agencies from the most recent interest payment date to
which interest on the Securities has been paid or duly provided for, unless
the date hereof is a date to which interest on the Securities has been paid or
duly provided for, in which case from the date of this Security, or unless no
interest has been paid or duly provided for on the Securities, in which case
from January 31,
A-2
<PAGE>
1996, until payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing (unless the date hereof is January 31, 1996), if
the date hereof is after January 15th or July 15, as the case may be, and
before the following February 1 or August 1, this Security shall bear interest
from such February 1 or August 1; provided, that if the Issuer shall default
in the payment of interest due on such February 1 or August 1, then this
Security shall bear interest from the next preceding February 1 or August 1 to
which interest on the Securities has been paid or duly provided for, or, if no
interest has been paid or duly provided for on the Securities, from January
31, 1996. The interest so payable on any February 1 or August 1 will, except
as otherwise provided in the Indenture referred to on the reverse hereof, be
paid to the Person in whose name this Security is registered at the close of
business on the 15th day of January or the 15th day of July preceding such
February 1 or August 1, whether or not such day is a Business Day; provided,
that principal, premium, if any, and interest shall be paid by mailing a check
for such to or upon the written order of the registered Holders of Securities
entitled thereto at their last address as it appears on the Securities
Register or, upon written application to the Trustee by a Holder of $1,000,000
or more in aggregate principal amount of Securities, by wire transfer of
immediately available funds to an account maintained by such Holder with a
bank or other financial institution. Interest on this Security shall be
computed on the basis of a 360-day year of twelve 30-day months.
Interest on overdue principal and (to the extent permitted by
applicable law) on overdue installments of interest (including without
limitation during the 30-day period referred to in Section 4.1(b)) shall
accrue at the rate per annum set forth above.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
A-3
<PAGE>
This Security shall not be entitled to any benefit under the
Indenture, or be valid or obligatory, until the certificate of authentication
hereon shall have been duly signed by the Trustee acting under the Indenture.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
NRG ENERGY, INC.
[Seal]
By: ___________________________________
Title:
ATTEST:
______________________________ By: ___________________________________
Name: Title:
Title:
A-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
NRG ENERGY, INC.
7.625% Senior Notes Due 2006
This Security is one of a duly authorized issue of debt securities of
the Issuer, limited to the aggregate principal amount of $125,000,000 (except
as otherwise provided in the Indenture mentioned below), issued or to be
issued pursuant to an Indenture dated as of January 31, 1996 (the
"Indenture"), duly executed and delivered by the Issuer to the Trustee.
Reference is hereby made to the Indenture and all indentures supplemental
thereto for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Issuer and the Holders
(the words "Holders" or "Holder" meaning the registered holders or registered
holder) of the Securities. Capitalized terms used herein, but not otherwise
defined herein, shall have the meanings assigned to them in the Indenture.
In case an Event of Default shall have occurred and be continuing,
the principal of all the Securities may be declared due and payable, in the
manner and with the effect, and subject to the conditions, provided in the
Indenture. The Indenture provides that in certain events such declaration and
its consequences may be waived by the Holders of a majority in aggregate
principal amount of the Securities then Outstanding and that, prior to any
such declaration, such Holders may waive any past default under the Indenture
and its consequences except a default in the payment of principal of or
premium, if any, or interest on any of the Securities. Any such consent or
waiver by the Holder of this Security (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Security and any Security which may be
issued in exchange or substitution hereof, whether or not any notation thereof
is made upon this Security or such other Securities.
The Indenture permits the Issuer and the Trustee, with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding, evidenced as in the Indenture provided, to
modify the Indenture or any supplemental indentures or the rights of the
Holders of the Securities; provided that no such modification shall (a) change
the Stated Maturity of the principal of, or any installment of principal of or
interest on, any Security, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, or reduce any
amount payable on the redemption thereof or impair or affect the rights of any
Securityholder to institute suit for the payment thereof or make any change in
Section 3.10 of the Indenture (which relates to the obligation of the Issuer
to offer to purchase the Securities upon a Change of Control, as described
below) which adversely affects the rights of the Holders of the Securities
without the consent of the Holder of each Security so affected; (b) reduce the
aforesaid percentage of Securities, the consent of the Holders of which is
required for any such modification or the percentage of Securities, the
consent of Holders of which is required for any waiver provided for in the
Indenture; (c) change any obligation of the Issuer to maintain an office or
agency for
A-5
<PAGE>
payment of and transfer and exchange of the Securities; or (d) make certain
changes to provisions relating to waiver or to the provision for supplementing
the Indenture; in each case without consent of the Holders of all Securities
then Outstanding.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Security at the place, times, and rate,
and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $100,000 and any integral multiple of $1,000 in
excess thereof.
At the office or agency of the Issuer referred to on the face hereof
and in the manner subject to the limitations provided in the Indenture,
Securities may be presented for exchange for a like aggregate principal amount
of Securities of other authorized denominations.
Upon due presentment for registration of transfer of this Security at
the above-mentioned office or agency of the Issuer, a new Security or
Securities of authorized denominations, for a like aggregate principal amount,
will be issued to the transferee as provided in the Indenture. No service
charge shall be made for any such transfer, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto.
The Securities may be redeemed in whole or in part (if in part, by
lot or by such other method as the Trustee shall deem fair or appropriate)
prior to Stated Maturity at the option of the Issuer, on any date on or after
February 1, 2001, upon mailing a notice of such redemption not less than 30
nor more than 60 days prior to the date fixed for redemption to the Holders of
Securities, all as provided in the Indenture, at a redemption price equal to
the principal amount thereof plus accrued and unpaid interest thereon, if any,
to the date of redemption, plus the Applicable Premium. The Applicable Premium
shall be computed by an independent investment banking institution of national
standing selected by the Issuer and shall equal the excess (if any) of (i) the
sum of the present values of all the remaining scheduled payments of principal
and interest from the redemption date to maturity of the Security computed on
a semi-annual basis by discounting such payments using a rate equal to the
Treasury Rate (as defined in the Indenture) plus 50 basis points over (ii) the
aggregate unpaid principal amount of the Security to be redeemed, plus any
accrued but unpaid interest thereon.
In the event of a Change of Control (as defined in the Indenture),
the Issuer has the obligation, subject to certain conditions, to offer to
purchase the Securities at 101% of the principal amount thereof plus accrued
interest to the date of purchase in accordance with the procedures set forth
in the Indenture. As further described in the Indenture, a Change of Control
will not be deemed to have occurred if, after giving effect thereto, the
Securities are rated Investment Grade (as defined in the Indenture).
Subject to payment by the Issuer of a sum sufficient to pay the
amount due on redemption, interest on this Security shall cease to accrue upon
the date duly fixed for redemption of this Security.
A-6
<PAGE>
The Issuer, the Trustee, and any authorized agent of the Issuer or
the Trustee, may deem and treat the registered Holder hereof as the absolute
owner of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by
anyone other than the Issuer or the Trustee or any authorized agent of the
Issuer or the Trustee), for the purpose of receiving payment of, or on account
of, the principal hereof and premium, if any, and, subject to the provisions
on the face hereof, interest hereon and for all other purposes, and neither
the Issuer nor the Trustee nor any authorized agent of the Issuer or the
Trustee shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, or
premium, if any, or the interest on this Security, for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture or
any indenture supplemental thereto, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Issuer or of any
successor corporation, either directly or through the Issuer or any successor
corporation, whether by virtue of any constitution, statute or rule of law or
by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
A-7
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated:
This is one of the Securities referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
--------------------------------
Authorized Signatory
[FORM OF ASSIGNMENT]
I or we assign and transfer this Security to:
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Agent to transfer this Security on the books of the Issuer. The Agent may
substitute another to act for him.
Date:__________________ Your Signature:___________
----------------------------
(Sign exactly as your name
appears on the other side of
this Security)
*Signature Guarantee:________________________
*Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar, which
requirements include membership or participation in STAMP or such
other "signature guarantee program" as may be determined
A-8
<PAGE>
by the Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934.
[FORM OF OPTION OF HOLDER TO ELECT PURCHASE]
If you wish to have this Security purchased by the Issuer pursuant to
Section 3.10 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Security purchased by the
Issuer pursuant to Section 3.10 of the Indenture, state the amount (in
original principal amount):
$-------------------.
Date: __________________ Your Signature: ___________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: ___________________________
-----------------------------------
A-9
<PAGE>
EXHIBIT B
FORM OF RESTRICTED PERIOD CERTIFICATE
NRG ENERGY, INC.
[DATE]
The Depository Trust Company
[Address]
Norwest Bank Minnesota, North America,
As Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7.625% Senior Notes Due 1996
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of
January 31, 1996 (the "Indenture") from NRG Energy, Inc., to Norwest Bank
Minnesota N.A., as Trustee. Capitalized terms used and not defined herein
shall have the meanings given them in the Indenture.
This letter is related to U.S. $______________ principal
amount of Securities represented by the Restricted Regulation S Global
Security, held by the Trustee pursuant to Section 2.4 of the Indenture. We
hereby certify that the offering of the Securities has closed and that the
restricted period (as defined in Regulation S) with respect to the offer and
sale of the Securities has terminated.
NRG ENERGY, INC.
By:
-----------------------
Name:
Title:
cc: Euroclear
CEDEL
B-1
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL SECURITY
OR IAI GLOBAL SECURITY TO RESTRICTED REGULATION S GLOBAL SECURITY
(Transfers or exchanges pursuant to
Section 2.6(b)(ii) of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7.625% Senior Notes
Due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of
January 31, 1996 (the "Indenture") from NRG Energy, Inc. to Norwest Bank
Minnesota N.A., as Trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This letter relates to U.S.$______________ principal amount
of Securities which are held in the form of the [Rule 144A] [IAI] Global
Security (CUSIP No.[629377AA0][629377AB8]) with the U.S. Depositary in the
name of [insert name of transferor] (the "Transferor"). The Transferor has
requested a transfer or exchange of such beneficial interest for an interest
in the Restricted Regulation S Global Security (CUSIP No. U66962AA6) to be
held with [Euroclear] [Cedel] (Common Code ________) through the U.S.
Depositary.
In connection with such request and in respect of such
Securities, the Transferor does hereby certify that such transfer or exchange
has been effected in accordance with the transfer restrictions set forth in
the Indenture and the Securities and pursuant to and in accordance with
Regulation S under the Securities Act, and accordingly the Transferor does
hereby certify that:
(1) the offer of the Securities was not made to a person in
the United States;
[(2) at the time the buy order was originated, the
transferee was outside the United States or the Transferor and any person
acting on its behalf reasonably believed that the transferee was outside the
United States,]*
C-1
<PAGE>
[(2) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the
transaction was pre-arranged with a buyer in the United States,]*
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable, and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer and the Initial
Purchasers.
[Insert Name of Transferor]
By:
------------------------------
Name:
Title:
Dated: ____________________________, 199__
cc: NRG Energy, Inc.
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
C-2
<PAGE>
EXHIBIT D
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER OR EXCHANGE FROM RULE 144A GLOBAL SECURITY
OR IAI GLOBAL SECURITY TO UNRESTRICTED REGULATION S GLOBAL SECURITY
(Exchanges or transfers Pursuant to ss. 2.6(b)(iii)
of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7.625% Senior Notes
Due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of
January 31, 1996 (the "Indenture") NRG Energy, Inc., to Norwest Bank Minnesota
N.A., as Trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to U.S.$______________ principal amount
of Securities which are held in the form of the [Rule 144A] [IAI] Global
Security (CUSIP No. [629377AA0][629377AB8]) with the U.S. Depositary in the
name of [insert name of transferor] (the "Transferor"). The Transferor has
requested an exchange or transfer of such beneficial interest in the
Securities for an interest in the Unrestricted Regulation S Global Security
(CUSIP No. U66962AA6).
In connection with such request and in respect of such
Securities, the Transferor does hereby certify that such exchange or transfer
has been effected in accordance with the transfer restrictions set forth in
the Indenture and the Securities and, (i) with respect to transfers made in
reliance on Regulation S under the Securities Act, the Transferor does hereby
certify that:
(1) the offer of the Securities was not made to a person in
the United States;
[(2) at the time the buy order was originated, the
transferee was outside the United States or the Transferor and any
person acting on its behalf reasonably believed that the transferee
was outside the United States,]*
[(2) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither
the Transferor nor any person acting
D-1
<PAGE>
on its behalf knows that the transaction was pre-arranged with a
buyer in the United States,]*
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of
Regulation S, as applicable, and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the United States Securities Act of
1933, as amended (the "Securities Act");
(ii) with respect to transfers made in reliance on Rule 144 under the
Securities Act, certify that the Securities are being transferred in a
transaction permitted by Rule 144 under the Securities Act,
(iii) with respect to transfers made in reliance on another exemption from the
Securities Act (including without limitation Rule 144A), the following is the
basis for the exemption:_________________, and
(iv) with respect to an exchange, either (x) the Security being exchanged is
not a "restricted security" as defined in Rule 144 under the Securities Act or
(y) the exchange is being made to facilitate a contemporaneous transfer that
complies with Section 2.6(b)(iii) of the Indenture.
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer and the Initial
Purchasers.
[Insert Name of Transferor]
By:
-----------------------------------
Name:
Title:
Dated:___________________________, 199__
cc: NRG Energy, Inc.
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
D-2
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE
FROM RESTRICTED REGULATION S GLOBAL SECURITY, UNRESTRICTED
REGULATION S GLOBAL SECURITY OR
IAI GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY
(Exchanges or transfers Pursuant to
Section 2.6(b)(iv) of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7.625% Senior Notes
Due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of
January 31, 1996 (the "Indenture") from NRG Energy, Inc. to Norwest Bank
Minnesota N.A., as Trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This letter relates to U.S. $______________ principal amount
of Securities which are held in the form of the [[Restricted][Unrestricted]
Regulation S Global Security (CUSIP No. U66926AA6) with [Euroclear] [Cedel].*
(Common Code _______)] [IAI Global Security (CUSIP No. 629377AB8)] through the
U.S. Depositary in the name of [insert name of transferor] (the "Transferor").
The Transferor has requested a transfer or exchange of such beneficial
interest in the Securities for an interest in the Rule 144A Global Security.
In connection with such request, and in respect of such
Securities, the Transferor does hereby certify that such Securities are being
transferred or exchanged in accordance with (i) the transfer restrictions set
forth in the Securities and (ii) Rule 144A under the Securities Act to a
transferee that the Transferor reasonably believes is purchasing the
Securities for its own account or an account with respect to which the
transferee exercises sole investment discretion and the transferee and any
such account is a "qualified institutional buyer" within the meaning of Rule
144A, in each case in a transaction meeting the
* Select appropriate depositary.
E-1
<PAGE>
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer and the Initial
Purchasers.
[Insert Name of Transferor]
By:
-----------------------------
Name:
Title:
Dated:___________________________, 199__
cc: NRG Energy, Inc.
E-2
<PAGE>
EXHIBIT F
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
OR EXCHANGE FROM RULE 144A GLOBAL SECURITY, RESTRICTED
REGULATION S GLOBAL SECURITY OR UNRESTRICTED REGULATION S GLOBAL
SECURITY
TO IAI GLOBAL SECURITY
(Exchanges or transfers Pursuant to
Section 2.6(b)(v) of the Indenture)
Norwest Bank Minnesota, North America,
as Trustee
Corporate Trust
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Re: NRG Energy, Inc. 7.625% Senior Notes
Due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of
January 31, 1996 (the "Indenture") from NRG Energy, Inc. to Norwest Bank
Minnesota N.A., as Trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This letter relates to U.S.$______________ principal amount
of Securities which are held in the form of the [Rule 144A Global Security
(CUSIP No. 629377AA0) with the U.S. Depositary] [[Restricted][Unrestricted]
Regulation S Global Security (CUSIP No. U66962AA6) with [Euroclear] [Cedel]]*
in the name of [insert name of transferor] (the "Transferor"). The Transferor
has requested an exchange or transfer of such Global Security for an interest
in the IAI Global Security (CUSIP No. 629377AB8).
In connection with such request with respect to a transfer
or exchange for an interest in the IAI Global Security, the Transferor does
hereby certify that such exchange or transfer has been effected in accordance
with the transfer restrictions set forth in the Rule 144A Global Security, the
Restricted Regulation S Global Security and the Unrestricted Regulation S
Global Security (as the case may be) and, with respect to transfers made in
reliance on Rule 144 under the Securities Act, certify that the Securities are
being transferred in a transaction permitted by Rule 144 under the Securities
Act.
In connection with such request with respect to a transfer
or exchange for an interest in the IAI Global Security, and in respect of such
Rule 144A Global Security,
- --------
* Select appropriate depositary.
F-1
<PAGE>
Restricted Regulations S Global Security and Unrestricted Regulation S Global
Security (as the case may be), the Transferor does hereby certify that such
Global Security is being transferred or exchanged in accordance with (i) the
transfer restrictions set forth in the Global Securities and (ii) in
accordance with the Securities Act to a transferee that the Transferor
reasonably believes is purchasing the IAI Global Securities for its own
account or an account with respect to which the transferee exercises sole
investment discretion and the transferee and any such account is an
institution that is an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act, in each case purchasing
IAI Global Securities in a transaction exempt from the Securities Act and in
accordance with any applicable securities laws of any state of the United
States or any other jurisdiction.
This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer and the Initial
Purchasers.
[Insert Name of Transferor]
By:
-------------------------
Name:
Title:
Dated:_________________________, 199__
cc: NRG Energy, Inc.
F-2
<PAGE>
===============================================================================
REVOLVING CREDIT AGREEMENT
DATED AS OF
MARCH 17, 1997
AMONG
NRG ENERGY, INC.
THE BANKS PARTY HERETO,
AND
ABN AMRO BANK N.V.
As Agent
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1. DEFINITIONS; INTERPRETATION.................................... 1
Section 1.1. Definitions............................................ 1
Section 1.2. Interpretation......................................... 11
SECTION 2. THE REVOLVING CREDIT........................................... 12
Section 2.1. The Loan Commitment.................................... 12
Section 2.2. Letters of Credit...................................... 13
Section 2.3. Applicable Interest Rates.............................. 17
Section 2.4. Minimum Borrowing Amounts.............................. 19
Section 2.5. Manner of Borrowing Loans and Designating
Interest Rates Applicable to Loans..................... 20
Section 2.6. Interest Periods....................................... 22
Section 2.7. Maturity of Loans...................................... 23
Section 2.8. Prepayments............................................ 23
Section 2.9. Default Rate........................................... 24
Section 2.10. The Notes.............................................. 25
Section 2.11. Funding Indemnity...................................... 25
Section 2.12. Commitment Terminations................................ 26
SECTION 3. FEES AND EXTENSIONS............................................ 27
Section 3.1. Fees................................................... 27
Section 3.2. Extension of Termination Date.......................... 28
SECTION 4. PLACE AND APPLICATION OF PAYMENTS.............................. 28
Section 4.1. Place and Application of Payments...................... 28
SECTION 5. REPRESENTATIONS AND WARRANTIES................................. 29
Section 5.1. Corporate Organization and Authority................... 29
Section 5.2. Subsidiaries........................................... 29
Section 5.3. Corporate Authority and Validity of Obligations........ 30
Section 5.4. Financial Statements................................... 30
Section 5.5. No Litigation; No Labor Controversies.................. 30
Section 5.6. Taxes.................................................. 31
Section 5.7. Approvals.............................................. 31
Section 5.8. Validity of Notes...................................... 31
Section 5.9. ERISA.................................................. 32
Section 5.10. Government Regulation.................................. 32
Section 5.11. Margin Stock; Use of Proceeds.......................... 32
Section 5.12. Licenses and Authorizations; Compliance Laws........... 32
i
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PAGE
----
Section 5.13. Ownership of Property; Liens........................... 33
Section 5.14. No Burdensome Restrictions; Compliance
with Agreements........................................ 33
Section 5.15. Full Disclosure........................................ 33
SECTION 6. CONDITIONS PRECEDENT........................................... 33
Section 6.1. Initial Credit Event................................... 34
Section 6.2. All Credit Events...................................... 35
SECTION 7. COVENANTS...................................................... 36
Section 7.1. Corporate Existence; Subsidiaries...................... 36
Section 7.3. Taxes.................................................. 36
Section 7.4. ERISA.................................................. 37
Section 7.5. Insurance.............................................. 37
Section 7.6. Financial Reports and Other Information................ 37
Section 7.7. Bank Inspection Rights................................. 40
Section 7.8. Conduct of Business.................................... 40
Section 7.9. Liens.................................................. 41
Section 7.10. Use of Proceeds; Regulation U.......................... 41
Section 7.11. Mergers, Consolidations and Sales of Assets............ 41
Section 7.12. Consolidated Tangible Net Worth........................ 42
Section 7.13. Compliance with Laws................................... 42
Section 7.14. PUHCA.................................................. 43
SECTION 8. EVENTS OF DEFAULT AND REMEDIES................................. 43
Section 8.1. Events of Default...................................... 43
Section 8.2. Non-Bankruptcy Defaults................................ 45
Section 8.3. Bankruptcy Defaults.................................... 46
Section 8.4. Collateral for Undrawn Letters of Credit............... 46
Section 8.5. Notice of Default...................................... 47
Section 8.6. Expenses............................................... 47
SECTION 9. CHANGE IN CIRCUMSTANCES........................................ 47
Section 9.1. Change of Law.......................................... 47
Section 9.2. Unavailability of Deposits or Inability to Ascertain,
or Inadequacy of, LIBOR................................ 48
Section 9.4. Lending Offices........................................ 51
Section 9.5. Discretion of Bank as to Manner of Funding............. 52
SECTION 10. THE AGENT..................................................... 52
Section 10.1. Appointment and Authorization of Agent................. 52
Section 10.2. Agent and its Affiliates............................... 52
ii
<PAGE>
PAGE
----
Section 10.3. Action by Agent........................................ 52
Section 10.4. Consultation with Experts.............................. 53
Section 10.6. Indemnity.............................................. 54
Section 10.7. Resignation of Agent and Successor Agent............... 55
SECTION 11. MISCELLANEOUS................................................. 55
Section 11.1. Withholding Taxes...................................... 55
Section 11.2. No Waiver of Rights.................................... 57
Section 11.3. Non-Business Day....................................... 57
Section 11.4. Documentary Taxes...................................... 57
Section 11.5. Survival of Representations............................ 58
Section 11.6. Survival of Indemnities................................ 58
Section 11.7. Set-Off................................................ 58
Section 11.8. Notices................................................ 59
Section 11.9. Counterparts........................................... 60
Section 11.10. Successors and Assigns................................. 61
Section 11.11. Participants and Note Assignees........................ 61
Section 11.12. Assignment of Commitments by Banks..................... 62
Section 11.13. Amendments............................................. 62
Section 11.14. Headings............................................... 63
Section 11.15. Legal Fees, Other Costs and Indemnification............ 63
Section 11.16. Entire Agreement....................................... 64
Section 11.18. Governing Law.......................................... 64
Section 11.19. Submission to Jurisdiction; Waiver of Jury Trial....... 64
EXHIBITS
--------
A - Form of Notice of Payment Request
B - Form of Note
C - Form of Compliance Certificate
D - Form of Legal Opinion of Counsel to the Borrower
E - Form of Application
SCHEDULES
---------
Schedule 1 Pricing Grid
Schedule 5.2 Schedule of Existing Subsidiaries
Schedule 5.5 Litigation and Labor Controversies
Schedule 7.9 Existing Liens
iii
<PAGE>
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT, dated as of March 17, 1997 among NRG
Energy, Inc., a Delaware corporation (the "Borrower"), the banks from time to
time party hereto (each a "Bank," and collectively the "Banks") and ABN AMRO
Bank N.V. in its capacity as agent for the Banks hereunder (in such capacity,
the "Agent").
WITNESSETH THAT:
WHEREAS, the Borrower desires to obtain the several commitments of the
Banks to make available a revolving credit for loans and letters of credit (the
"Revolving Credit"), as described herein; and
WHEREAS, the Banks are willing to extend such commitments subject to
all of the terms and conditions hereof and on the basis of the representations
and warranties hereinafter set forth;
NOW, THEREFORE, in consideration of the recitals set forth above and
for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1.1. Definitions. The following terms when used herein have
the following meanings:
"Account" is defined in Section 8.4(b) hereof.
"Adjusted LIBOR" is defined in Section 2.3(b) hereof.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with their
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies of a Person (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise),
provided that, in any event for purposes of this definition: (i) any Person
which owns directly or indirectly 5% or more of the securities having ordinary
<PAGE>
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person; and (ii) each director and
executive officer of the Borrower or any Subsidiary shall be deemed an
Affiliate of the Borrower and each Subsidiary.
"Agent" is defined in the first paragraph of this Agreement and
includes any successor Agent pursuant to Section 10.7 hereof.
"Agreement" means this Revolving Credit Agreement, including all
Exhibits and Schedules hereto, as it may be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"Applicable Margin" means, at any time (i) with respect to Base Rate
Loans, the Base Rate Margin and (ii) with respect to Eurocurrency Loans, the
Eurocurrency Margin.
"Application" is defined in Section 2.2(b) hereof.
"Applicable Telerate Page" is defined in Section 2.3(b) hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Borrower pursuant to Section 6.1(e) hereof, or on any
updated such list provided by the Borrower to the Agent, or any further or
different officer of the Borrower so named by any Authorized Representative of
the Borrower in a written notice to the Agent.
"Bank" is defined in the first paragraph of this Agreement.
"Base Rate" is defined in Section 2.3(a) hereof.
"Base Rate Loan" means a Loan bearing interest prior to maturity at a
rate specified in Section 2.3(a) hereof.
"Base Rate Margin" means the percentage set forth in Schedule 1 hereto
beside the then applicable Rating.
2
<PAGE>
"Borrower" is defined in the first paragraph of this Agreement.
"Borrowing" means the total of Loans of a single type advanced,
continued for an additional Interest Period, or converted from a different type
into such type by the Banks on a single date and for a single Interest Period.
Borrowings of Loans are made and maintained ratably from each of the Banks
according to their Percentages. A Borrowing is "advanced" on the day Banks
advance funds comprising such Borrowing to the Borrower, is "continued" on the
date a new Interest Period for the same type of Loan commences for such
Borrowing, and is "converted" when such Borrowing is changed from one type of
Loan to the other, all as requested by the Borrower pursuant to Section 2.5(a).
"Business Day" means any day other than a Saturday or Sunday on which
Banks are not authorized or required to close in Chicago, Illinois and, if the
applicable Business Day relates to the borrowing or payment of a Eurocurrency
Loan, on which dealings in U.S. Dollars may be carried on by the Agent in the
interbank eurodollar market.
"Capital Lease" means at any date any lease of Property which, in
accordance with GAAP, would be required to be capitalized on the balance sheet
of the lessee.
"Capitalized Lease Obligations" means, for any Person, the amount of
such Person's liabilities under Capital Leases determined at any date in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" means the Revolving Credit Commitments.
"Compliance Certificate" means a certificate in the form of Exhibit C
hereto.
"Consolidated Capitalization" means Consolidated Tangible Net Worth
plus Indebtedness of the Borrower and its Subsidiaries.
"Consolidated Current Liabilities" mean such liabilities of the
Borrower on a consolidated basis as shall be
3
<PAGE>
determined in accordance with GAAP to constitute current liabilities.
"Consolidated Net Income" means, for any period, the net income (or
net loss) of the Borrower and its Subsidiaries for such period computed on a
consolidated basis in accordance with GAAP.
"Consolidated Net Tangible Assets" means, as of the date of
determination thereof, Consolidated Total Assets as of such date less the sum
of (i) Consolidated Current Liabilities and (ii) Intangible Assets.
"Consolidated Tangible Net Worth" means, as of the date of any
determination thereof, the amount reflected as stockholders' equity upon a
consolidated balance sheet of the Borrower and its Subsidiaries less, without
duplication, the total amount of such assets that constitute patents,
tradenames, trademarks, copyrights, franchises, experimental expense,
organization expense, unamortized debt discount and expense, deferred assets
other than deferred income taxes, prepaid insurance and prepaid taxes,
goodwill, and any other assets as are properly classified as "intangible
assets" in accordance with GAAP.
"Consolidated Total Assets" means, as of the date of determination
thereof, the total amount of all assets of the Borrower determined on a
consolidated basis in accordance with GAAP.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking
to which such Person is a party or by which it or any of its Property is bound.
"Controlled Group" means all members of a controlled group of
corporations and all trades and businesses (whether or not incorporated) under
common control that, together with the Borrower or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Credit Documents" means this Agreement, the Notes, the Fee Letter,
the Applications and the Letters of Credit.
"Credit Event" means the advancing of any Loan, the continuation of or
conversion into a Eurocurrency Loan, or
4
<PAGE>
the issuance of, or extension of the expiration date or increase in the amount
of, any Letter of Credit.
"Debt" means, for any Person, any Indebtedness of such Person only of
the types described in clauses (i) through (vi) of the definition of such term.
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.
"Effective Date" means the date on which the Agent has received signed
counterpart signature pages of this Agreement from each of the signatories (or,
in the case of a Bank, confirmation that such Bank has executed such a
counterpart and dispatched it for delivery to the Agent) and the documents
required by Section 6.1 hereof.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1802 et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. Section 1252 et seq., the Clean Water Act, 33
U.S.C. Section 1321 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
and any other federal, state, county, municipal, local or other statute, law,
ordinance or regulation which may relate to or deal with human health or the
environment, all as may be from time to time amended.
"ERISA" is defined in Section 5.8 hereof.
"Eurocurrency Loan" means a Loan bearing interest prior to maturity at
the rate specified in Section 2.3(b) hereof.
"Eurocurrency Margin" means the percentage set forth in Schedule 1
hereto beside the then applicable Rating.
"Eurocurrency Reserve Percentage" is defined in Section 2.3(b) hereof.
"Event of Default" means any of the events or circumstances specified
in Section 8.1 hereof.
5
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility Fee Rate" means the percentage set forth in Schedule 1
hereto beside the then applicable Rating.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Base Rate set forth
in Section 2.3(a) hereof.
"Fee Letter" means that certain letter between the Agent and the
Borrower dated as of the date hereof pertaining to fees to be paid by the
Borrower to the Agent for the Agent's sole account and benefit.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time, applied by the Borrower and its
Subsidiaries on a basis consistent with the preparation of the Borrower's
financial statements furnished to the Banks.
"Guaranty" by any Person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing
any Indebtedness, dividend or other obligation (including, without limitation,
limited or full recourse obligations in connection with sales of receivables or
any other Property) of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any Property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, or (y) to maintain working capital
or other balance sheet condition, or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, or (iii)
to lease property or to purchase Securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purpose of all computations made under this Agreement, the
amount of a Guaranty in respect
6
<PAGE>
of any obligation shall be deemed to be equal to the maximum aggregate amount
of such obligation or, if the Guaranty is limited to less than the full amount
of such obligation, the maximum aggregate potential liability under the terms
of the Guaranty.
"Hazardous Material" means any substance or material which is
hazardous or toxic, and includes, without limitation, (a) asbestos,
polychlorinated biphenyls, dioxins and petroleum or its by-products or
derivatives (including crude oil or any fraction thereof) and (b) any other
material or substance classified or regulated as "hazardous" or "toxic"
pursuant to any Environmental Law.
"Indebtedness" means and includes, for any Person, all obligations of
such Person, without duplication, which are required by GAAP to be shown as
liabilities on its balance sheet, and in any event shall include all of the
following whether or not so shown as liabilities (i) obligations of such Person
for borrowed money, (ii) obligations of such Person representing the deferred
purchase price of property or services, (iii) obligations of such Person
evidenced by notes, acceptances, or other instruments of such Person or arising
out of letters of credit issued for such Person's account, (iv) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person, (v)
Capitalized Lease Obligations of such Person and (vi) obligations for which
such Person is obligated pursuant to a Guaranty.
"Interest Period" is defined in Section 2.6 hereof.
"Intangible Assets" means, as of the date of determination thereof,
all assets of the Borrower properly classified as intangible assets determined
on a consolidated basis in accordance with GAAP.
"L/C Documents" means the Letters of Credit, any draft or other
document presented in connection with a drawing thereunder, the Applications
and this Agreement.
"L/C Fee Rate" means the percentage set forth in Schedule 1 hereto
beside the then applicable Rating.
7
<PAGE>
"L/C Obligations" means the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations.
"Lending Office" is defined in Section 9.4 hereof.
"Letter of Credit" is defined in Section 2.2(a) hereof.
"LIBOR" is defined in Section 2.3(b) hereof.
"LIBOR Index Rate" is defined in Section 2.3(b) hereof.
"Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale, security agreement or trust receipt, or a lease,
consignment or bailment for security purposes. The term "Lien" shall also
include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this definition, a Person
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, Capital Lease or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other Person for security purposes, and such retention of title shall
constitute a "Lien."
"Loan" is defined in Section 2.1(a) hereof and, as so defined,
includes a Base Rate Loan or Eurocurrency Loan, each of which is a "type" of
Loan hereunder.
"Material Adverse Effect" means any material adverse change in, or any
adverse development which materially affects or could reasonably be expected to
affect, the business, financial position or results of operations of the
Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower
to perform its obligations under the Credit Documents.
"Minimum Consolidated Tangible Net Worth" means an amount, as of the
date of any determination thereof, equal
8
<PAGE>
to the sum of $175,000,000 plus 25% of Consolidated Net Income for the period
from and including April 1, 1996 to such determination date but which amount
shall in no event be less than $175,000,000.
"Note" is defined in Section 2.10(a) hereof.
"Obligations" means all fees payable hereunder, all obligations of the
Borrower to pay principal or interest on Loans, all obligations of the Borrower
to pay L/C Obligations, and all other payment obligations of the Borrower
arising under or in relation to any Credit Document.
"Original Dollar Amount" means the amount of any Loan or L/C
Obligation.
"Participating Interest" is defined in Section 2.2(d) hereof.
"Percentage" means, for each Bank, the percentage of the Revolving
Credit Commitments represented by such Bank's Revolving Credit Commitment or,
if the Revolving Credit Commitments have been terminated, the percentage held
by such Bank (including through participation interests in L/C Obligations) of
the aggregate principal amount of all outstanding Obligations.
"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code that is either (i) maintained by a member of the Controlled Group
or (ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"PBGC" is defined in Section 5.9 hereof.
"Primergy Merger" means that certain merger between Northern States
Power Company, a Minnesota corporation and
9
<PAGE>
Wisconsin Energy Corporation, a Wisconsin corporation, to be consummated
pursuant to that certain Amended and Restated Agreement and Plan of Merger
dated as of April 28, 1995, as amended and restated as of July 26, 1995.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, whether now owned
or hereafter acquired.
"Rating" means the rating given to senior unsecured debt obligations
of the Borrower by Moody's Investors Service, Inc. and Standard & Poor's
Ratings Service, Inc., and any successors thereto.
"Reference Banks" means ABN AMRO Bank N.V., and one other
representative of the Banks. In the event that any of such Banks ceases to be a
"Bank" hereunder or fails to provide timely quotations of interests rates to
the Agent as and when required by this Agreement, then such Bank shall be
replaced by a new reference bank jointly designated by the Agent and the
Borrower.
"Reimbursement Obligation" is defined in Section 2.2(c) hereof.
"Replaceable Bank" is defined in Section 11.13(iii).
"Replacement Bank" is defined in Sectino 11.13(iii).
"Required Banks" means, as of the date of determination thereof, Banks
holding at least 66-2/3% of the Percentages.
"Revolving Credit Commitment" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Security" has the same meaning as in Section 2(l) of the Securities
Act of 1933, as amended.
"Subsidiary" means, as to the Borrower, any active, domestic
corporation or other entity of which one hundred percent (100%) of the
outstanding stock or comparable equity interests having ordinary voting power
for the election of the Board of Directors of such corporation or similar
governing body in the case of a non-corporation
10
<PAGE>
(irrespective of whether or not, at the time, stock or other equity interests
of any other class or classes of such corporation or other entity shall have or
might have voting power by reason of the happening of any contingency) is at
the time directly owned by the Borrower.
"Syndication Date" means the date on which additional Banks become
parties to this Agreement and make Commitments hereunder. The Syndication Date
shall occur, if at all, within ninety (90) days of the date hereof, unless such
date is extended by the mutual agreement of the parties hereto.
"Telerate Service" means the Dow Jones Telerate Service.
"Termination Date" means March 17, 2000, subject to any extension of
such date pursuant to Section 3.2 hereof.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable accrued benefits under such Plan exceeds (ii) the fair market
value of all Plan assets allocable to such benefits, all determined as of the
then most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the Controlled Group to
the PBGC or the Plan under Title IV of ERISA.
"U.S. Dollars" and "$" each means the lawful currency of the United
States of America.
"Voting Stock" of any Person means capital stock of any class or
classes or other equity interests (however designated) having ordinary voting
power for the election of directors or similar governing body of such Person.
"Welfare Plan" means a "welfare plan", as defined in Section 3(l) of
ERISA.
"Wholly-Owned" when used in connection with any Subsidiary of the
Borrower means a Subsidiary of which all of the issued and outstanding shares
of stock or other equity interests (other than directors' qualifying shares as
required by law) shall be owned by the Borrower and/or one or more of its
Wholly-Owned Subsidiaries.
11
<PAGE>
Section 1.2. Interpretation. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the terms defined.
All references to times of day in this Agreement shall be references to
Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, the same shall be
done in accordance with GAAP, to the extent applicable, except where such
principles are inconsistent with the specific provisions of this Agreement.
SECTION 2. THE REVOLVING CREDIT.
Section 2.1. The Loan Commitment. (a) General Terms. Subject to the
terms and conditions hereof, each Bank, by its acceptance hereof, severally
agrees to make a loan or loans (individually a "Loan" and collectively "Loans")
to the Borrower from time to time on a revolving basis in U.S. Dollars in an
aggregate outstanding Original Dollar Amount up to the amount of its revolving
credit commitment set forth on the applicable signature page hereof (such
amount, as reduced pursuant to Section 2.1(b) or Section 2.12 or changed as a
result of one or more assignments under Section 11.12 or 11.13(iii), its
"Revolving Credit Commitment" and, cumulatively for all the Banks, the
"Revolving Credit Commitments") before the Termination Date. The sum of the
aggregate Original Dollar Amount of Loans and of L/C Obligations at any time
outstanding shall not exceed the Revolving Credit Commitments in effect at such
time. Each Borrowing of Loans shall be made ratably from the Banks in
proportion to their respective Percentages. As provided in Section 2.5(a)
hereof, the Borrower may elect that each Borrowing of Loans be either Base Rate
Loans or Eurocurrency Loans. Loans may be repaid and the principal amount
thereof reborrowed before the Termination Date, subject to all the terms and
conditions hereof.
(b) Specific Terms Applicable to the Agent's Commitments.
Notwithstanding anything to the contrary set forth in clause (a) above, if, on
the Syndication Date, the aggregate Commitments of the Banks other than the
Agent is less than $75,000,000, then the commitment of the Agent shall be
reduced to an amount equal to twenty-five percent (25 %) of the aggregate
Commitments of all Banks, inclusive
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of the Agent, and this Agreement shall be modified accordingly.
Section 2.2. Letters of Credit. (a) General Terms. Subject to the
terms and conditions hereof, as part of the Revolving Credit the Agent shall
issue letters of credit denominated in U.S. Dollars (each a "Letter of Credit")
for the Borrower's account, provided that the aggregate L/C Obligations at any
time outstanding shall not exceed the difference between the Revolving Credit
Commitments in effect at such time and the aggregate Original Dollar Amount of
Loans then outstanding. Each Letter of Credit shall be issued by the Agent, but
each Bank shall be obligated to purchase an undivided percentage participation
interest of such Letter of Credit from the Agent pursuant to Section 2.2(d)
hereof in an amount equal to its Percentage of the amount of each drawing
thereunder and, accordingly, the undrawn face amount of each Letter of Credit
shall constitute usage of the Revolving Credit Commitment of each Bank pro rata
in accordance with each Bank's Percentage.
(b) Applications. At any time before the Termination Date, the Agent
shall, at the request of the Borrower, issue one or more Letters of Credit, in
a form satisfactory to the Agent, with expiration dates no later than the
Termination Date, in an aggregate face amount as set forth above, upon the
receipt of a duly executed application for the relevant Letter of Credit in the
form attached hereto as Exhibit E (each an "Application"). Notwithstanding
anything contained in any Application to the contrary (i) the Borrower's
obligation to pay fees in connection with each Letter of Credit shall be as set
forth in Section 3.1(c) hereof, and (ii) any drawing under a Letter of Credit
shall bear interest (which the Borrower hereby agrees to pay on demand) from
and after the date such drawing is paid at a rate per annum equal to the sum of
the Base Rate Margin plus the Base Rate from time to time in effect; provided,
however, if the Agent is not timely reimbursed for the amount of any drawing
under a Letter of Credit three (3) Business Days from the date such drawing is
paid, the Borrower's obligation to reimburse the Agent for the amount of such
drawing shall bear interest (which the Borrower hereby promises to pay on
demand) from and after the date three (3) Business Days after such drawing is
paid at a rate per annum equal to the sum of 2% plus the Base Rate Margin plus
the Base Rate from time to time in
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effect. The Agent will promptly notify the Banks of each issuance by it of a
Letter of Credit. If the Agent issues any Letters of Credit with expiration
dates that are automatically extended unless the Agent gives notice that the
expiration date will not so extend beyond its then scheduled expiration date,
the Agent will give such notice of non-renewal before the time necessary to
prevent such automatic extension if before such required notice date (i) the
expiration date of such Letter of Credit if so extended would be after the
Termination Date, (ii) the Commitments have been terminated or (iii) a Default
or Event of Default exists and the Required Banks have given the Agent
instructions not to so permit the extension of the expiration date of such
Letter of Credit. The Agent agrees to issue amendments to the Letter(s) of
Credit increasing the amount, or extending the expiration date, thereof at the
request of the Borrower subject to the conditions set forth herein (including
the conditions set forth in Section 6.2 and the other terms of this Section
2.2). Without limiting the generality of the foregoing, the Agent's obligation
to issue, amend or extend the expiration date of a Letter of Credit is subject
to the conditions set forth herein (including the conditions set forth in
Section 6.2 and the other terms of this Section 2.2).
(c) The Reimbursement Obligations. Subject to Section 2.2(b) hereof,
the obligation of the Borrower to reimburse the Agent for all drawings under a
Letter of Credit (a "Reimbursement Obligation") shall be governed by the
Application related to such Letter of Credit, except that reimbursement of each
drawing shall be made in immediately available funds at the Agent's principal
office in Chicago, Illinois by no later than 12:00 Noon (Chicago time) on the
date when such drawing is paid or, if such drawing was paid after 11:30 a.m.
(Chicago time), by the end of such day. If the Borrower does not make any such
reimbursement payment on the date due and the Banks fund their participations
therein in the manner set forth in Section 2.2(d) below, then all payments
thereafter received by the Agent in discharge of any of the relevant
Reimbursement Obligations shall be distributed in accordance with Section
2.2(d) below. In addition, for the benefit of the Agent and each Bank, the
Borrower agrees that, notwithstanding any provision of any Application, the
obligations of the Borrower under this Section 2.2(c) and each Application
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of
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this Agreement and the Applications, under all circumstances whatsoever,
including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of any L/C Document;
(ii) any amendment or waiver of or any consent to departure from
all or any of the provisions of any L/C Document;
(iii) the existence of any claim, set-off, defense or other right
the Borrower may have at any time against a beneficiary of a Letter of
Credit (or any Person for whom a beneficiary may be acting), the
Agent, any Bank or any other Person, whether in connection with this
Agreement, another L/C Document or any unrelated transaction;
(iv) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by the Agent under a Letter of Credit against
presentation to the Agent of a draft or certificate that does not
comply with the terms of the Letter of Credit, provided that the
Agent's determination that documents presented under the Letter of
Credit comply with the terms thereof did not constitute gross
negligence or willful misconduct of the Agent; or
(vi) any other act or omission to act or any other delay by the
Agent, any Bank or any other Person or any other event or circumstance
whatsoever that might, but for the provisions of this Section 2.2(c),
constitute a legal or equitable discharge of the Borrower's
obligations hereunder or under an Application.
(d) The Participating Interests. Each Bank, by its acceptance hereof,
severally agrees to purchase from the Agent, and the Agent hereby agrees to
sell to each such Bank, an undivided percentage participating interest (a
"Participating Interest"), to the extent of its Percentage,
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in each Letter of Credit issued by, and each Reimbursement Obligation owed to,
the Agent. Upon any failure by the Borrower to pay any Reimbursement Obligation
at the time required on the date the related drawing is paid, as set forth in
Section 2.2(c) above, or if the Agent is required at any time to return to the
Borrower or to a trustee, receiver, liquidator, custodian or other Person any
portion of any payment of any Reimbursement Obligation, each Bank shall, not
later than the Business Day it receives a certificate in the form of Exhibit A
hereto from the Agent to such effect, if such certificate is received before
1:00 p.m. (Chicago time), or not later than the following Business Day, if such
certificate is received after such time, pay to the Agent an amount equal to
its Percentage of such unpaid or recaptured Reimbursement Obligation together
with interest on such amount accrued from the date the related payment was made
by the Agent to the date of such payment by such Bank at a rate per annum equal
to (i) from the date the related payment was made by the Agent to the date two
(2) Business Days after payment by such Bank is due hereunder, the Federal
Funds Rate for each such day and (ii) from the date two (2) Business Days after
the date such payment is due from such Bank to the date such payment is made by
such Bank, the Base Rate in effect for each such day. Each such Bank shall
thereafter be entitled to receive its Percentage of each payment received in
respect of the relevant Reimbursement Obligation and of interest paid thereon,
with the Agent retaining its Percentage as a Bank hereunder.
The several obligations of the Banks to the Agent under this Section
2.2 shall be absolute, irrevocable and unconditional under any and all
circumstances whatsoever and shall not be subject to any set-off, counterclaim
or defense to payment which any Bank may have or have had against the Borrower,
the Agent, any other Bank or any other Person whatsoever. Without limiting the
generality of the foregoing, such obligations shall not be affected by any
Default or Event of Default or by any reduction or termination of any
Commitment of any Bank, and each payment by a Bank under this Section 2.2 shall
be made without any offset, abatement, withholding or reduction whatsoever. The
Agent shall be entitled to offset amounts received for the account of a Bank
under the Credit Documents against unpaid amounts due from such Bank to the
Agent hereunder (whether as fundings of participations, indemnities or
otherwise).
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(e) Indemnification. The Banks shall, to the extent of their
respective Percentages, indemnify the Agent (to the extent not reimbursed by
the Borrower) against any cost, expense (including reasonable counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from the Agent's gross negligence or willful misconduct) that the Agent may
suffer or incur in connection with any Letter of Credit. The obligations of the
Banks under this Section 2.2(e) and all other parts of this Section 2.2 shall
survive termination of this Agreement and of all other L/C Documents.
Section 2.3. Applicable Interest Rates. (a) Base Rate Loans. Each Base
Rate Loan made or maintained by a Bank shall bear interest during each Interest
Period it is outstanding computed on the basis of a year of 365 or 366 days, as
applicable, and actual days elapsed on the unpaid principal amount thereof from
the date such Loan is advanced, continued or created by conversion from a
Eurocurrency Loan until maturity (whether by acceleration or otherwise) at a
rate per annum equal to the sum of the Applicable Margin plus the Base Rate
from time to time in effect, payable on the last day of its Interest Period and
at maturity (whether by acceleration or otherwise).
"Base Rate" means for any day the greater of:
(i) the rate of interest announced by the Agent at its offices in
Chicago, Illinois, from time to time as its prime rate, or equivalent,
for U.S. Dollar loans as in effect on such day, with any change in the
Base Rate resulting from a change in said prime rate to be effective
as of the date of the relevant change in said prime rate; and
(ii) the sum of (x) the rate determined by the Agent to be the
prevailing rate per annum (rounded upwards, if necessary, to the
nearest one hundred-thousandth of a percentage point) at
approximately 10:00 a.m. (New York time) (or as soon thereafter as is
practicable) on such day (or, if such day is not a Business Day, on
the immediately preceding Business Day) for the purchase at face value
of overnight Federal funds, as published by the Federal Reserve bank
of New York, in an amount comparable to the principal amount owed to
the Agent for which such rate is being determined, plus (y) 1/2 of 1%
(0.50%).
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(b) Eurocurrency Loans. Each Eurocurrency Loan made or maintained by a
Bank shall bear interest during each Interest Period it is outstanding
(computed on the basis of a year of 360 days and actual days elapsed) on the
unpaid principal amount thereof from the date such Loan is advanced, continued,
or created by conversion from a Base Rate Loan until maturity (whether by
acceleration or otherwise) at a rate per annum equal to the sum of the
Applicable Margin plus the Adjusted LIBOR applicable for such Interest Period,
payable on the last day of the Interest Period and at maturity (whether by
acceleration or otherwise), and, if the applicable Interest Period is longer
than three months, on each day occurring every three months after the
commencement of such Interest Period. All payments of principal and interest on
a Loan (whether a Base Rate Loan or Eurocurrency Loan) shall be made in U.S.
Dollars.
"Adjusted LIBOR" means, for any Borrowing of Eurocurrency Loans, a
rate per annum determined in accordance with the following formula:
Adjusted LIBOR = LIBOR
---------------------------
1 - Eurocurrency Reserve Percentage
"LIBOR" means, for an Interest Period, (a) the LIBOR Index Rate for
such Interest Period as from time to time quoted by the Telerate Service, if
such rate is available, and (b) if the LIBOR Index Rate is not quoted by the
Telerate Service, the arithmetic average of the rates of interest per annum
(rounded upwards, if necessary, to the nearest one-sixteenth of one percent) at
which deposits in U.S. Dollars in immediately available funds are offered to
each Reference Bank at 11:00 a.m. (London, England time) two (2) Business Days
before the beginning of such Interest Period by major banks in the interbank
eurocurrency market for delivery on the first day of and for a period equal to
such Interest Period in an amount equal or comparable to the principal amount
of the Eurocurrency Loan scheduled to be made by the Agent as part of such
Borrowing.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one-sixteenth of one
percent) for deposits in U.S. Dollars for delivery on the first day of and for
a period equal to such Interest Period in an amount equal or comparable to the
principal amount of the Loan scheduled to
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be made by the Agent as part of such Borrowing, which appears on the Applicable
Telerate Page, as of 11:00 a.m. (London, England time) on the day two (2)
Business Days before the commencement of such Interest Period.
"Applicable Telerate Page" means the display page designated as "Page
3750" on the Telerate Service (or such other page as may replace such pages, as
appropriate, on that service or such other service as may be nominated by the
British Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for deposits
in U.S. Dollars).
"Eurocurrency Reserve Percentage" means the daily average for the
applicable Interest Period of the maximum rate, expressed as a decimal, at
which reserves (including, without limitation, any supplemental, marginal and
emergency reserves) are imposed during such Interest Period by the Board of
Governors of the Federal Reserve System (or any successor) on "eurocurrency
liabilities", as defined in such Board's Regulation D (or in respect of any
other category of liabilities that includes deposits by reference to which the
interest rate is determined or any category of extensions of credit or other
assets that include loans by non-United States offices of any Bank to United
States residents), subject to any amendments of such reserve requirement by
such Board or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the Eurocurrency Loans shall be
deemed to be "eurocurrency liabilities" as defined in Regulation D without
benefit or credit for any prorations, exemptions or offsets under Regulation D.
(c) Rate Determinations. The Agent shall determine each interest rate
applicable to Obligations and the Original Dollar Amount of Loans, and a
determination thereof by the Agent shall be conclusive and binding except in
the case of manifest error.
Section 2.4. Minimum Borrowing Amounts. Each Borrowing of Base Rate
Loans and Eurocurrency Loans denominated in U.S. Dollars shall be in an amount
not less than $1,000,000 and in integral multiples of $1,000,000 provided that
a Borrowing of Base Rate Loans applied to pay a Reimbursement Obligation
pursuant to Section 2.5(c) hereof shall be in an amount equal to such
Reimbursement Obligation.
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Section 2.5. Manner of Borrowing Loans and Designating Interest Rates
Applicable to Loans. (a) Notice to the Agent. The Borrower shall give written
notice to the Agent by no later than 10:00 a.m. (Chicago time) (i) at least
three (3) Business Days before the date on which the Borrower requests the
Banks to advance a Borrowing of Eurocurrency Loans and (ii) on the date the
Borrower requests the Banks to advance a Borrowing of Base Rate Loans. The
Loans included in each Borrowing shall bear interest initially at the type of
rate specified in such notice of a new Borrowing. Thereafter, the Borrower may
from time to time elect to change or continue the type of interest rate borne
by each Borrowing or, subject to Section 2.4's minimum amount requirement for
each outstanding Borrowing, a portion thereof, as follows: (i) if such
Borrowing is of Eurocurrency Loans, on the last day of the Interest Period
applicable thereto, the Borrower may continue part or all of such Borrowing as
Eurocurrency Loans for an Interest Period or Interest Periods specified by the
Borrower or convert part or all of such Borrowing into Base Rate Loans, (ii) if
such Borrowing is of Base Rate Loans, on any Business Day, the Borrower may
convert all or part of such Borrowing into Eurocurrency Loans for an Interest
Period or Interest Periods specified by the Borrower. The Borrower shall give
all such notices requesting the advance, continuation, or conversion of a
Borrowing to the Agent by telephone or telecopy (which notice shall be
irrevocable once given and, if by telephone, shall be promptly confirmed in
writing). Notices of the continuation of a Borrowing of Eurocurrency Loans for
an additional Interest Period or of the conversion of part or all of a
Borrowing of Eurocurrency Loans into Base Rate Loans or of Base Rate Loans into
Eurocurrency Loans must be given by no later than 10:00 a.m. (Chicago time) at
least three (3) Business Days before the date of the requested continuation or
conversion. All such notices concerning the advance, continuation, or
conversion of a Borrowing shall specify the date of the requested advance,
continuation or conversion of a Borrowing (which shall be a Business Day), the
amount of the requested Borrowing to be advanced, continued, or converted, the
type of Loans to comprise such new, continued or converted Borrowing and, if
such Borrowing is to be comprised of Eurocurrency Loans, the Interest Period
applicable thereto. The Borrower agrees that the Agent may rely on any such
telephonic or telecopy notice given by any person it in good faith believes is
an Authorized Representative without the
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necessity of independent investigation, and in the event any such notice by
telephone conflicts with any written confirmation, such telephonic notice shall
govern if the Agent has acted in reliance thereon. There may be no more than
five different Interest Periods in effect at any one time.
(b) Notice to the Banks. The Agent shall give prompt telephonic or
telecopy notice to each Bank of any notice from the Borrower received pursuant
to Section 2.5.(a) above. The Agent shall give notice to the Borrower and each
Bank by like means of the interest rate applicable to each Borrowing of
Eurocurrency Loans and the Original Dollar amount thereof.
(c) Borrower's Failure to Notify. Any outstanding Borrowing of Base
Rate Loans shall, subject to Section 6.2 hereof, automatically be continued for
an additional Interest Period on the last day of its then current Interest
Period unless the Borrower has notified the Agent within the period required by
Section 2.5(a) that it intends to convert such Borrowing into a Borrowing of
Eurocurrency Loans or notifies the Agent within the period required by Section
2.8(a) that it intends to prepay such Borrowing. If the Borrower fails to give
notice pursuant to Section 2.5(a) above of the continuation or conversion of
any outstanding principal amount of a Borrowing of Eurocurrency Loans before
the last day of its then current Interest Period within the period required by
Section 2.5(a) and has not notified the Agent within the period required by
Section 2.8(a) that it intends to prepay such Borrowing, such Borrowing shall
automatically be converted into a Borrowing of Base Rate Loans, subject to
Section 6.2 hereof. In the event the Borrower fails to give notice pursuant to
Section 2.5(a) above of a Borrowing equal to the amount of a Reimbursement
Obligation and has not notified the Agent by 10:00 a.m. (Chicago time) on the
day such Reimbursement Obligation becomes due that it intends to repay such
Reimbursement Obligation through funds not borrowed under this Agreement, the
Borrower shall be deemed to have requested a Borrowing of Base Rate Loans on
such day in the amount of the Reimbursement Obligation then due, subject to
Section 6.2 hereof, which Borrowing shall be applied to pay the Reimbursement
Obligation then due.
(d) Disbursement of Loans. Not later than 11:00 a.m. (Chicago time) on
the date of any requested advance of a
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new Borrowing of Eurocurrency Loans, and not later than 12:00 noon (Chicago
time) on the date of any requested advance of a new Borrowing of Base Rate
Loans, subject to Section 6 hereof, each Bank shall make available its Loan
comprising part of such Borrowing in funds immediately available at the
principal office of the Agent in Chicago, Illinois. The Agent shall make
available to the Borrower Loans at the Agent's principal office in Chicago,
Illinois or such other office as the Agent has previously agreed to, in
writing, with the Borrower.
(e) Agent Reliance on Bank Funding. Unless the Agent shall have been
notified by a Bank before the date on which such Bank is scheduled to make
payment to the Agent of the proceeds of a Loan (which notice shall be effective
upon receipt) that such Bank does not intend to make such payment, the Agent
may assume that such Bank has made such payment when due and the Agent may in
reliance upon such assumption (but shall not be required to) make available to
the Borrower the proceeds of the Loan to be made by such Bank and, if any Bank
has not in fact made such payment to the Agent, such Bank shall, on demand, pay
to the Agent the amount made available to the Borrower attributable to such
Bank together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to the Borrower and
ending on (but excluding) the date such Bank pays such amount to the Agent at a
rate per annum equal to the Federal Funds Rate. If such amount is not received
from such Bank by the Agent immediately upon demand, the Borrower will, on
demand, repay to the Agent the proceeds of the Loan attributable to such Bank
with interest thereon at a rate per annum equal to the interest rate applicable
to the relevant Loan.
Section 2.6. Interest Periods. As provided in Section 2.5(a) hereof,
at the time of each request to advance, continue, or create by conversion a
Borrowing of Eurocurrency Loans, the Borrower shall select an Interest Period
applicable to such Loans from among the available options. The term "Interest
Period" means the period commencing on the date a Borrowing of Loans is
advanced, continued, or created by conversion and ending: (a) in the case of
Base Rate Loans, on the last Business Day of the calendar quarter in which such
Borrowing is advanced, continued, or created by conversion (or on the last day
of the following calendar quarter if such Loan is advanced, continued or
created by conversion on the last Business Day
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of a calendar quarter), and (b) in the case of Eurocurrency Loans, 1, 2, 3, or
6 months thereafter; provided, however, that:
(a) any Interest Period for a Borrowing of Base Rate Loans that
otherwise would end after the Termination Date shall end on the
Termination Date;
(b) for any Borrowing of Eurocurrency Loans, the Borrower may not
select an Interest Period that extends beyond the Termination Date;
(c) whenever the last day of any Interest Period would otherwise
be a day that is not a Business Day, the last day of such Interest
Period shall be extended to the next succeeding Business Day, provided
that, if such extension would cause the last day of an Interest Period
for a Borrowing of Eurocurrency Loans to occur in the following
calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(d) for purposes of determining an Interest Period for a
Borrowing of Eurocurrency Loans, a month means a period starting on
one day in a calendar month and ending on the numerically
corresponding day in the next calendar month; provided, however, that
if there is no numerically corresponding day in the month in which
such an Interest Period is to end or if such an Interest Period begins
on the last Business Day of a calendar month, then such Interest
Period shall end on the last Business Day of the calendar month in
which such Interest Period is to end.
Section 2.7. Maturity of Loans. Unless an earlier maturity is provided
for hereunder (whether by acceleration or otherwise), each Loan shall mature
and become due and payable by the Borrower on the Termination Date.
Section 2.8. Prepayments. (a) The Borrower may prepay without premium
or penalty and in whole or in part (but, if in part, then: (i) if such
Borrowing is of Base Rate Loans, in an amount not less than $1,000,000, (ii) if
such Borrowing is of Eurocurrency Loans in an amount not less than $1,000,000,
and (iii) in an amount such that the minimum amount required for a Borrowing
pursuant to Section 2.4 hereof remains outstanding) any Borrowing of
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Eurocurrency Loans upon three Business Days prior notice to the Agent or, in
the case of a Borrowing of Base Rate Loans, notice delivered to the Agent no
later than 10:00 a.m. (Chicago time) on the date of prepayment, such prepayment
to be made by the payment of the principal amount to be prepaid and accrued
interest thereon to the date fixed for prepayment. In the case of Eurocurrency
Loans, such prepayment may only be made on the last day of the Interest Period
then applicable to such Loans. The Agent will promptly advise each Bank of any
such prepayment notice it receives from the Borrower. Any amount paid or
prepaid before the Termination Date may, subject to the terms and conditions of
this Agreement, be borrowed, repaid and borrowed again.
(b) If the aggregate principal amount of outstanding Loans and L/C
Obligations shall at any time for any reason exceed the Revolving Credit
Commitments then in effect, the Borrower shall, immediately and without notice
or demand, pay the amount of such excess to the Agent for the ratable benefit
of the Banks as a prepayment of the Loans and, if necessary, a prefunding of
Letters of Credit. Immediately upon determining the need to make any such
prepayment the Borrower shall notify the Agent of such required prepayment.
Each such prepayment shall be accompanied by a payment of all accrued and
unpaid interest on the Loans prepaid and shall be subject to Section 2.11.
Section 2.9. Default Rate. If any payment of principal on any Loan is
not made when due (whether by acceleration or otherwise), such Loan shall bear
interest, computed on the basis of a year of 360 days and actual days elapsed
(except for Loans based on the rate described in clause (i) of the definition
of Base Rate, in which case such Loan shall bear interest computed on the basis
of a year of 365 or 366 days, as applicable, and the actual number of days
elapsed) from the date such payment was due until paid in full, payable on
demand, at a rate per annum equal to:
(a) for any Base Rate Loan, the sum of two percent (2%) plus the
Applicable Margin plus the Base Rate from time to time in effect; and
(b) for any Eurocurrency Loan, the sum of two percent (2%) plus
the rate of interest in effect thereon at the time of such default
until the end of the Interest Period applicable thereto and, thereaf-
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ter, at a rate per annum equal to the sum of two percent (2%) plus the
Applicable Margin plus the Base Rate from time to time in effect.
Section 2.10. The Notes. (a) The Loans made to the Borrower by a Bank
shall be evidenced by a single promissory note of the Borrower issued to such
Bank in the form of Exhibit B hereto. Each such promissory note is hereinafter
referred to as a "Note" and collectively such promissory notes are referred to
as the "Notes."
(b) Each Bank shall record on its books and records or on a schedule
to its Note the amount of each Loan advanced, continued, or converted by it,
all payments of principal and interest and the principal balance from time to
time outstanding thereon, the type of such Loan, and, for any Eurocurrency
Loan, the Interest Period and the interest rate applicable thereto. The record
thereof, whether shown on such books and records of a Bank or on a schedule to
any Note, shall be prima facie evidence as to all such matters; provided,
however, that the failure of any Bank to record any of the foregoing or any
error in any such record shall not limit or otherwise affect the obligation of
the Borrower to repay all Loans made to it hereunder together with accrued
interest thereon. At the request of any Bank and upon such Bank tendering to
the Borrower the Note to be replaced, the Borrower shall furnish a new Note to
such Bank to replace any outstanding Note, and at such time the first notation
appearing on a schedule on the reverse side of, or attached to, such Note shall
set forth the aggregate unpaid principal amount of all Loans, if any, then
outstanding thereon.
Section 2.11. Funding Indemnity. If any Bank shall incur any loss,
cost or expense (including, without limitation, any loss of profit, and any
loss, cost or expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Bank to fund or maintain any
Eurocurrency Loan or the relending or reinvesting of such deposits or amounts
paid or prepaid to such Bank) as a result of:
(a) any payment (whether by acceleration or otherwise),
prepayment or conversion of a Eurocurrency Loan on a date other than
the last day of its Interest Period,
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(b) any failure (because of a failure to meet the conditions of
Section 6 or otherwise) by the Borrower to borrow or continue a
Eurocurrency Loan, or to convert a Base Rate Loan into a Eurocurrency
Loan, on the date specified in a notice given pursuant to Section
2.5(a) or established pursuant to Section 2.5(c) hereof,
(c) any failure by the Borrower to make any payment of principal
on any Eurocurrency Loan when due (whether by acceleration or
otherwise), or
(d) any acceleration of the maturity of a Eurocurrency Loan as a
result of the occurrence of any Event of Default hereunder,
then, upon the demand of such Bank, the Borrower shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense. If any Bank
makes such a claim for compensation, it shall provide to the Borrower, with a
copy to the Agent, a certificate executed by an officer of such Bank setting
forth the amount of such loss, cost or expense in reasonable detail (including
an explanation of the basis for and the computation of such loss, cost or
expense) and the amounts shown on such certificate if reasonably calculated
shall be conclusive absent manifest error.
Section 2.12. Commitment Terminations. The Borrower shall have the
right at any time and from time to time, upon five (5) Business Days prior
written notice to the Agent, to terminate the Revolving Credit Commitments
without premium or penalty, in whole or in part, any partial termination to be
(i) in an amount not less than $5,000,000, and (ii) allocated ratably among the
Banks in proportion to their respective Percentages, provided that the
Revolving Credit Commitments may not be reduced to an amount less than the sum
of the Original Dollar Amount of all Loans and all L/C Obligations then
outstanding. The Agent shall give prompt notice to each Bank of any such
termination of Commitments. Any termination of Revolving Credit Commitments
pursuant to this Section 2.12 may not be reinstated.
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SECTION 3. FEES AND EXTENSIONS.
Section 3.1. Fees.
(a) Certain Fees. The Borrower shall pay, or cause to be paid, to
the Agent certain fees set forth in the Fee Letter at the time
specified in the Fee Letter for payment of such amounts.
(b) Facility Fee. For the period from the Effective Date to and
including the Termination Date, the Borrower shall pay to the Agent
for the ratable account of the Banks in accordance with their
Percentages a facility fee accruing at a rate per annum equal to the
Facility Fee Rate on the average daily amount of the Commitments
(whether used or unused) less issued and outstanding Letters of
Credit, or if the Commitments have expired or terminated, on the
principal amount of Loans. Such facility fee is payable in arrears on
the last Business Day of each calendar quarter quarterly and on the
Termination Date, unless the Revolving Credit Commitments are
terminated in whole on an earlier date, in which event the fee for the
period to but not including the date of such termination shall be paid
in whole on the date of such termination.
(c) Letter of Credit Fees. (i) The Borrower shall pay to the
Agent for the account of each Bank letter of credit fees with respect
to the Letters of Credit at a rate per annum equal to the Letter of
Credit Fee Rate on the average daily maximum amount available to be
drawn under the outstanding Letters of Credit for the applicable
period computed on a quarterly basis in arrears on the last Business
Day of each calendar quarter and on the Termination Date.
(ii) The letter of credit fees payable under Section
3.1(c)(i) shall be due and payable quarterly in arrears on the
last Business Day of each calendar quarter during which Letters
of Credit are outstanding, commencing on the first such quarterly
date to occur after the Effective Date, through the Termination
Date, with the final payment to be made on the Termination Date
(or such later expiration date), unless the Revolving Credit
Commitments are terminated in
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whole on an earlier date, in which event the fee for the period
to but not including the date of such termination shall be paid
in whole on the date of such termination.
(iii) The Borrower shall pay to the Agent from time to time
on demand the normal issuance, presentation, amendment and other
processing fees, and other standard costs and charges, of the
Agent relating to Letters of Credit as from time to time in
effect.
(d) Fee Calculations. All fees payable under this Agreement shall
be payable in U.S. Dollars and shall be computed on the basis of a
year of 360 days, for the actual number of days elapsed. All
determinations of the amount of fees owing hereunder (and the
components thereof) shall be made by the Agent and shall be conclusive
absent manifest error.
Section 3.2. Extension of Termination Date. No later than ninety (90)
days before the second anniversary date of this Agreement the Borrower may make
a request for a one year extension of the Termination Date in a written notice
to the Agent. The Agent will promptly inform the Banks of any such request, and
each Bank shall notify the Agent in writing within thirty (30) days before the
anniversary date following such request whether it agrees to the requested
extension. If a Bank fails to so notify the Agent whether it agrees to such
extension, such Bank shall be deemed to have refused to grant the requested
extension. Upon receipt by the Agent of the written consent of all the Banks,
the Termination Date shall be automatically extended an additional year.
Otherwise, the Termination Date will remain as then scheduled.
SECTION 4. PLACE AND APPLICATION OF PAYMENTS.
Section 4.1. Place and Application of Payments. All payments of
principal of and interest on the Loans and the Reimbursement Obligations, and
of all other amounts payable by the Borrower under this Agreement, shall be
made by the Borrower to the Agent by no later than 12:00 Noon (Chicago time) on
the due date thereof at the principal office of the Agent in Chicago, Illinois
(or such other location in the United States as the Agent may designate to the
Borrower) or, if such payment is on a Reimbursement
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Obligation, no later than provided by Section 2.2(c) hereof. Any payments
received after such time shall be deemed to have been received by the Agent on
the next Business Day. All such payments shall be made free and clear of, and
without deduction for, any set-off, counterclaim, levy, withholding or any
other deduction of any kind in U.S. Dollars, in immediately available funds at
the place of payment. The Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest on
Loans or applicable fees ratably to the Banks and like funds relating to the
payment of any other amount payable to any Person to such Person, in each case
to be applied in accordance with the terms of this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to each Bank as to itself
and, where the following representations and warranties apply to Subsidiaries,
as to each of its Subsidiaries, as follows:
Section 5.1. Corporate Organization and Authority. The Borrower and
each of its Subsidiaries is, and at the Closing Date will be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, except where such failure to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect. Each is duly
qualified to transact business in each jurisdiction in which such qualification
is required, whether by reason of ownership or leasing of property or the
conduct of business or otherwise, except where failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect. Each has
the power and authority required to own, lease and operate its properties and
to conduct its business as currently conducted, except where failure to have
such power and authority would not, individually or in the aggregate, have a
Material Adverse Effect.
Section 5.2. Subsidiaries. Schedule 5.2 (as updated from time to time
pursuant to Section 7.1) hereto identifies each Subsidiary and the jurisdiction
of its incorporation. All of the issued and outstanding shares of capital stock
of each Subsidiary are validly issued and outstanding and fully paid and
nonassessable except as set forth on
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Schedule 5.2 hereto. All such shares owned by the Borrower are owned
beneficially, and of record, free of any Lien.
Section 5.3. Corporate Authority and Validity of Obligations. The
Borrower has full right and authority to enter into this Agreement and the
other Credit Documents to which it is a party, to make the borrowings herein
provided for, to issue its Notes in evidence thereof, to apply for the issuance
of the Letters of Credit, and to perform all of its obligations under the
Credit Documents to which it is a party. Each Credit Document to which it is a
party has been duly authorized, executed and delivered by the Borrower and
constitutes valid and binding obligations of the Borrower enforceable in
accordance with its terms. No Credit Document, nor the performance or
observance by the Borrower of any of the matters or things therein provided
for, contravenes any provision of law or any charter or by-law provision of the
Borrower or any material Contractual Obligation of or affecting the Borrower or
any of its Properties or results in or requires the creation or imposition of
any Lien on any of the Properties or revenues of the Borrower.
Section 5.4. Financial Statements. All financial statements heretofore
delivered to the Banks showing historical performance of the Borrower for each
of the Borrower's fiscal years ending on or before December 31, 1995, and for
the Borrower's quarter ended September 30, 1996 have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent, except as otherwise noted therein, with that of the previous fiscal
year. Each of such financial statements fairly presents on a consolidated basis
the financial condition of the Borrower and its Subsidiaries as of the dates
thereof and the results of operations for the periods covered thereby. The
Borrower and its Subsidiaries have no material contingent liabilities other
than those disclosed in such financial statements referred to in this Section
5.4 or in comments or footnotes thereto, or in any report supplementary
thereto, heretofore furnished to the Banks. Since December 31, 1995, there has
been no material adverse change in the business, operations, Property or
financial or other condition, or business prospects, of the Borrower or any of
its Subsidiaries.
Section 5.5. No Litigation; No Labor Controversies. (a) Except as set
forth on Schedule 5.5 (as amended from
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time to time in accordance with the provisions hereof), there is no litigation
or governmental proceeding pending, or to the knowledge of the Borrower,
threatened, against the Borrower or any Subsidiary which, if adversely
determined, could (individually or in the aggregate) have a Material Adverse
Effect.
(b) Except as set forth on Schedule 5.5 (as amended from time to time
in accordance with the provisions hereof), there are no labor controversies
pending or, to the best knowledge of the Borrower, threatened against the
Borrower or any Subsidiary which could have a Material Adverse Effect.
Section 5.6. Taxes. The Borrower and its Subsidiaries have filed all
United States federal tax returns, and all other tax returns, required to be
filed and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Subsidiary, except such taxes, if
any, as are being contested in good faith and for which adequate reserves have
been provided. No notices of tax liens have been filed and no claims are being
asserted concerning any such taxes, which liens or claims are material to the
financial condition of the Borrower or any of its Subsidiaries (individually or
in the aggregate). The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries for any taxes or other governmental charges are
adequate.
Section 5.7. Approvals. Except as contemplated by Section 7.14,
authorization, consent, license, exemption, filing or registration with any
court or governmental department, agency or instrumentality, nor any approval
or consent of the stockholders of the Borrower or any Subsidiary or from any
other Person, is necessary to the valid execution, delivery or performance by
the Borrower or any Subsidiary of any Credit Document to which it is a party.
Section 5.8. Validity of Notes. When executed, authenticated and
delivered pursuant to the provisions of this Agreement against payment of the
consideration therefor, the Notes will be duly issued and will constitute
legal, valid and binding obligations of the Borrower, enforceable in accordance
with their terms, except for the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally, and will rank pari passu
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with all other outstanding unsecured indebtedness of the Borrower.
Section 5.9. ERISA. With respect to each Plan, the Borrower and each
other member of the Controlled Group has fulfilled its obligations under the
minimum funding standards of and is in compliance in all material respects with
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
with the Code to the extent applicable to it and has not incurred any liability
to the Pension Benefit Guaranty Corporation ("PBGC") or a Plan under Title IV
of ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA. The Borrower does not have any contingent liabilities for any
post-retirement benefits under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
Section 5.10. Government Regulation. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Prior to the consummation of the Primergy
Merger, no approvals by the SEC under the Public Utility Holding Company Act of
1935, as amended, are required in connection with the execution by the Borrower
of the Credit Documents or the performance by the Borrower of any of the
transactions contemplated thereby.
Section 5.11. Margin Stock; Use of Proceeds. Neither the Borrower nor
any Subsidiary is engaged principally, or as one of its primary activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock ("margin stock" to have the same meaning herein as in Regulation U
of the Board of Governors of the Federal Reserve System). The proceeds of the
Loans and Letters of Credit are to be used solely for the purposes set forth in
and permitted by Section 7.10. The Borrower will not use the proceeds of any
Loan or Letter of Credit in a manner that violates any provision of Regulation
U or X of the Board of Governors of the Federal Reserve System.
Section 5.12. Licenses and Authorizations; Compliance Laws. The
Borrower and each of its Subsidiaries has all necessary licenses, permits and
governmental authorizations to own and operate its Properties and to carry on
its business as currently conducted and contemplated. The Borrower and each of
its Subsidiaries is in compliance with
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all applicable laws, regulations, ordinances and orders of any governmental or
judicial authorities except for any such law, regulation, ordinance or order
which, the failure to comply therewith, could not reasonably expected to have a
Material Adverse Effect.
Section 5.13. Ownership of Property; Liens. The Borrower and each
Subsidiary has good title to or valid leasehold interests in all its Property.
None of the Borrower's Property is subject to any Lien, except as permitted in
Section 7.9.
Section 5.14. No Burdensome Restrictions; Compliance with Agreements.
Neither the Borrower nor any Subsidiary is (a) party or subject to any law,
regulation, rule or order, or any Contractual Obligation that (individually or
in the aggregate) could have a Material Adverse Effect or (b) in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in, nor has any event occurred (and is continuing) that
constitutes or would (whether or not with the giving of notice and/or with the
passage of time and/or the fulfillment of any other requirement) constitute, to
the knowledge of the Borrower, a default or any breach or failure to perform by
the Borrower under any indenture, mortgage, loan agreement lease or other
agreement or instrument to which it is a party, which default could have a
Material Adverse Effect.
Section 5.15. Full Disclosure. All information heretofore furnished by
the Borrower to the Agent or any Bank for purposes of or in connection with the
Credit Documents or any transaction contemplated thereby is, and all such
information hereafter furnished by the Borrower to the Agent or any Bank will
be, true and accurate in all material respects and not misleading on the date
as of which such information is stated or certified.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of each Bank to advance, continue, or convert any Loan,
or of the Agent to issue, extend the expiration date (including by not giving
notice of non-renewal) of or increase the amount of any Letter of Credit, shall
be subject to the following conditions precedent:
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Section 6.1. Initial Credit Event. Before or concurrently with the
initial Credit Event:
(a) The Agent shall have received for each Bank the favorable
written opinion of counsel to the Borrower in substantially the form
attached hereto as Exhibit D hereto;
(b) The Agent shall have received for each Bank copies of (i) the
Articles of Incorporation, together with all amendments, and a
certificate of good standing, for the Borrower, both certified as of a
date not earlier than 20 days prior to the date hereof by the
appropriate governmental officer of the Borrower's jurisdiction of
incorporation and (ii) the Borrower's bylaws (or comparable
constituent documents) and any amendments thereto, certified in each
instance by its Secretary or an Assistant Secretary;
(c) The Agent shall have received for each Bank copies of
resolutions of the Borrower's Board of Directors authorizing the
execution and delivery of the Credit Documents and the consummation of
the transactions contemplated thereby together with specimen
signatures of the persons authorized to execute such documents on the
Borrower's behalf, all certified in each instance by its Secretary or
Assistant Secretary;
(d) The Agent shall have received for each Bank such Bank's duly
executed Note of the Borrower dated the date hereof and otherwise in
compliance with the provisions of Section 2.10(a) hereof;
(e) The Agent shall have received for each Bank a list of the
Borrower's Authorized Representatives and such other documents as any
Bank may reasonably request;
(f) All legal matters incident to the execution and delivery of
the Credit Documents shall be satisfactory to the Banks; and
(g) The Agent shall have received a certificate by the chief
financial officer, treasurer, vice president of finance or corporate
controller of the Borrower, stating that on the date of such initial
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Credit Event no Default or Event of Default has occurred and is
continuing.
Section 6.2. All Credit Events. As of the time of each Credit Event
hereunder (including the initial Credit Event):
(a) In the case of a Borrowing, the Agent shall have received the
notice required by Section 2.5 hereof, in the case of the issuance of
any Letter of Credit, the Agent shall have received a duly completed
Application for a Letter of Credit and, in the case of an extension or
increase in the amount of a Letter of Credit, a written request
therefor, in a form acceptable to the Agent;
(b) Each of the representations and warranties set forth in
Section 5 hereof shall be and remain true and correct in all material
respects as of said time, taking into account any amendments to such
Section (including, without limitation, any amendments to the
Schedules referenced therein) made after the date of this Agreement in
accordance with its provisions, except that if any such representation
or warranty relates solely to an earlier date it need only remain true
as of such date;
(c) The Borrower shall be in full compliance with all of the
terms and conditions hereof, and no Default or Event of Default shall
have occurred and be continuing or would occur as a result of such
Credit Event;
(d) No event of default by the Borrower has been declared and is
continuing under any existing debt agreements; and
(e) Such Credit Event shall not violate any order, judgment or
decree of any court or other authority or any provision of law or
regulation applicable to any Bank (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System).
Each request for a Borrowing hereunder and each request for the
issuance of, increase in the amount of, or extension of the expiration date of,
a Letter of Credit
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shall be deemed to be a representation and warranty by the Borrower on the date
of such Credit Event as to the facts specified in paragraphs (b) and (c) of
this Section 6.2, provided, that solely in the case of a Credit Event which is
a continuation of a previous Borrowing, the Borrower shall not be deemed to
have made any representation or warranty with regard to the matters set forth
in Section 5.5(a) and (b) hereof.
SECTION 7. COVENANTS.
The Borrower covenants and agrees that, so long as any Loan or any L/C
Obligation is outstanding hereunder, or any Commitment is available to or in
use by the Borrower hereunder, except to the extent compliance in any case is
waived in writing by the Required Banks:
Section 7.1. Corporate Existence; Subsidiaries. The Borrower shall,
and shall cause each of its Subsidiaries to, preserve and maintain its
corporate existence, subject to the provisions of Section 7.11 hereof.
Section 7.2. Maintenance. The Borrower will maintain, preserve and
keep its plants, Properties and equipment necessary to the proper conduct of
its business in reasonably good repair, working order and condition and will
from time to time make all reasonably necessary repairs, renewals,
replacements, additions and betterments thereto so that at all times such
plants, Properties and equipment shall be reasonably preserved and maintained,
and the Borrower will cause each of its Subsidiaries to do so in respect of
Property owned or used by it; provided, however, that nothing in this Section
7.2 shall prevent the Borrower or a Subsidiary from discontinuing the operation
or maintenance of any such Properties if such discontinuance is not
disadvantageous to the Banks or the holders of the Notes, and is, in the
judgment of the Borrower, desirable in the conduct of its business or the
business of its Subsidiary.
Section 7.3. Taxes. The Borrower will duly pay and discharge, and will
cause each of its Subsidiaries duly to pay and discharge, all taxes, rates,
assessments, fees and governmental charges upon or against it or against its
Properties, in each case before the same becomes delinquent and before
penalties accrue thereon, unless and to the extent that the same is being
contested in good faith by
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appropriate proceedings and reserves in conformity with GAAP have been provided
therefor on the books of the Borrower.
Section 7.4. ERISA. The Borrower will promptly pay and discharge all
obligations and liabilities arising under ERISA of a character which if unpaid
or unperformed might result in the imposition of a Lien against any of its
properties or assets and will promptly notify the Agent of (i) the occurrence
of any reportable event (as defined in ERISA) affecting a Plan, other than any
such event of which the PBGC has waived notice by regulation, (ii) receipt of
any notice from PBGC of its intention to seek termination of any Plan or
appointment of a trustee therefor, (iii) its intention to terminate or withdraw
from any Plan, and (iv) the occurrence of any event affecting any Plan which
could result in the incurrence by the Borrower of any material liability, fine
or penalty, or any material increase in the contingent liability of the
Borrower under any post-retirement Welfare Plan benefit. The Agent will
promptly distribute to each Bank any notice it receives from the Borrower
pursuant to this Section 7.4.
Section 7.5. Insurance. The Borrower will insure, and keep insured,
and will cause each of its Subsidiaries to insure, and keep insured, with good
and responsible insurance companies, all insurable Property owned by it of a
character usually insured by companies similarly situated and operating like
Property. To the extent usually insured (subject to self-insured retentions) by
companies similarly situated and conducting similar businesses, the Borrower
will also insure, and cause each of its Subsidiaries to insure, employers' and
public and product liability risks with good and responsible insurance
companies. The Borrower will upon request of the Agent furnish to the Agent a
summary setting forth the nature and extent of the insurance maintained
pursuant to this Section 7.5.
Section 7.6. Financial Reports and Other Information. (a) The Borrower
will maintain a system of accounting in accordance with GAAP and will furnish
to the Banks and their respective duly authorized representatives such
information respecting the business and financial condition of the Borrower and
its subsidiaries as any Bank may reasonably request; and without any request,
the Borrower will furnish each of the following to each Bank:
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(i) within 120 days after the end of each fiscal year of the
Borrower, (A) a copy of the Borrower's audited financial statements
for such fiscal year, including the consolidated balance sheet of the
Borrower for such year and the related statement of income and
statement of cash flow, as certified by independent public accountants
of recognized national standing selected by the Borrower in accordance
with GAAP with such accountants' unqualified opinion to the effect
that the financial statements have been prepared in accordance with
GAAP and present fairly in all material respects in accordance with
GAAP the consolidated financial position of the Borrower and its
subsidiaries as of the close of such fiscal year and the results of
their operations and cash flows for the fiscal year then ended and
that an examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted
auditing standards and, accordingly, such examination included such
tests of the accounting records and such other auditing procedures as
were considered necessary in the circumstances; (B) a copy of the
Borrower's unaudited consolidating financials for such fiscal year,
including a consolidating unaudited balance sheet of the Borrower, and
the related statement of income and shall use its best efforts to
provide a statement of cash flow in a format acceptable to the Agent;
all of the foregoing prepared by the Borrower in reasonable detail in
accordance with GAAP and certified by the Borrower's chief financial
officer, vice president of finance or corporate controller as fairly
presenting the financial condition as at the dates thereof and the
results of operations for the periods covered thereby;
(ii) within 60 days after the end of each of the first three
quarterly fiscal periods of the Borrower, a condensed consolidated
unaudited balance sheet of the Borrower, and the related statement of
income and statement of cash flow, as of the close of such period, all
of the foregoing prepared by the Borrower in reasonable detail in
accordance with GAAP and certified by the Borrower's chief financial
officer, vice president of finance or corporate controller as fairly
presenting the financial condition as at the dates thereof and the
results of operations for the periods covered thereby;
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(iii) within the period provided in subsection (i) above, the
written statement of the accountants who certified the audit report
thereby required that in the course of their audit they have obtained
no knowledge of any Default or Event of Default, or, if such
accountants have obtained knowledge of any such Default or Event of
Default, they shall disclose in such statement the nature and period
of the existence thereof;
(iv) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports the Borrower sends
to its shareholders, and copies of all other regular, periodic and
special reports and all registration statements the Borrower files
with the SEC or any successor thereto, or with any national securities
exchanges.
(b) Each financial statement furnished to the Banks pursuant to
subsection (i) or (ii) of this Section 7.6 shall be accompanied by (A) a
written certificate signed by the Borrower's chief financial officer, vice
president of finance, or corporate controller to the effect that (i) no Default
or Event of Default has occurred during the period covered by such statements
or, if any such Default or Event of Default has occurred during such period,
setting forth a description of such Default or Event of Default and specifying
the action, if any, taken by the Borrower to remedy the same, (ii) the
representations and warranties contained in Section 5 hereof are true and
correct in all material respects as though made on the date of such certificate
(other than those made solely as of an earlier date, which need only remain
true as of such date), taking into account any amendments to such Section
(including, without limitation, any amendments to the Schedules referenced
therein) made after the date of this Agreement in accordance with its
provisions and except as otherwise described therein, and (B) a Compliance
Certificate in the form of Exhibit C hereto showing the Borrower's compliance
with the covenants set forth in Sections 7.9, 7.11, 7.12 and 7.13 hereof.
(c) The Borrower will promptly (and in any event within three Business
Days after an officer of the Borrower has knowledge thereof) give notice to the
Agent and each Bank:
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(i) of the occurrence of any Default or Event of Default;
(ii) of any payment default or payment event of default
aggregating $20,000,000 or more under any Contractual Obligation of
the Borrower;
(iii) of any material adverse change in the business, operations,
Property or financial or other condition of the Borrower and its
Subsidiaries (individually or in the aggregate);
(iv) of any litigation or governmental proceeding of the type
described in Section 5.5 hereof; and
(v) of any change in the information set forth on the Schedules
hereto.
Section 7.7. Bank Inspection Rights. Upon reasonable notice from any
Bank, the Borrower will, at the Borrower's expense, (such expenses to be
reasonably incurred) permit such Bank (and such Persons as any Bank may
designate) during normal business hours to visit and inspect, under the
Borrower's guidance, any of the properties of the Borrower or any of its
Subsidiaries, to examine all of their books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and with their independent public accountants (and by this provision
the Borrower authorizes such accountants to discuss with the Banks (and such
Persons as any Bank may designate subject to confidentiality agreements
reasonably acceptable to the Borrower) the finances and affairs of the Borrower
and its Subsidiaries) all at such reasonable times and as often as may be
reasonably requested; provided, however, that except upon the occurrence and
during the continuation of any Default or Event of Default, not more than one
such set of visits and inspections may be conducted each calendar quarter.
Section 7.8. Conduct of Business. The Borrower will not engage in any
line of business other than business associated with or related to energy
generation, transmission and distribution or other infrastructure lines of
business.
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Section 7.9. Liens. The Borrower will not create, incur, permit to
exist or to be incurred any Lien of any kind on any Property owned by the
Borrower; provided, however, that this Section 7.9 shall not apply to nor
operate to prevent:
(a) Liens upon any Property acquired by the Borrower to secure
any Indebtedness of the Borrower incurred at the time of the
acquisition of such Property to finance the purchase price of such
Property, provided that any such Lien shall apply only to the Property
that was so acquired and the aggregate principal amount of
Indebtedness secured by such Liens shall not exceed the cost or value
of the acquired Property;
(b) Liens existing on the date hereof and listed on Schedule 7.9
hereto which were in existence as of the date of issue of the
Borrower's 7.625% senior notes due 2006;
(c) Other liens not to exceed 10% of Consolidated Net Tangible
Assets; and
(d) Any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Lien
referred to in the foregoing paragraphs (a) through (c), inclusive.
Section 7.10. Use of Proceeds; Regulation U. The proceeds of each
Borrowing, and the credit provided by Letters of Credit, will be used by the
Borrower for working capital, issuance of letters of credit and general
corporate purposes. The Borrower will not use any part of the proceeds of any
of the Borrowings or of the Letters of Credit directly or indirectly to
purchase or carry any margin stock (as defined in Section 5.1 hereof) or to
extend credit to others for the purpose of purchasing or carrying any such
margin stock.
Section 7.11. Mergers, Consolidations and Sales of Assets.
(a) The Borrower will not consolidate with or merge into any
other Person or sell, convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and the Borrower
shall not
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permit any Person to consolidate with or merge into the Borrower,
unless: (i) immediately prior to and immediately following such
consolidation, merger, sale or lease, and after giving effect thereto,
no Default or Event of Default shall have occurred and be continuing;
and (ii) the Borrower is the surviving or continuing corporation, or
the surviving or continuing corporation that acquires by sale,
conveyance, transfer or lease is incorporated in the United States or
Canada and expressly assumes the payment and performance of all
Obligations of the Borrower under the Credit Documents.
(b) Except for the sale of the properties and assets of the
Borrower substantially as an entirety pursuant to subsection (a)
above, and other than assets required to be sold to conform with
governmental regulations, the Borrower shall not sell or otherwise
dispose of any assets (other than short-term, readily marketable
investments purchased for cash management purposes with funds not
representing the proceeds of other asset sales) if on a pro forma
basis, the aggregate net book value of all such sales during the most
recent 12-month period would exceed 10 percent of Consolidated Net
Tangible Assets computed as of the end of the most recent fiscal
quarter preceding such sale; provided, however, that any such sales
shall be disregarded for purposes of this 10 percent limitation if the
proceeds are invested in assets in similar or related lines of
business of the Borrower and, provided further, that the Borrower may
sell or otherwise dispose of assets in excess of such 10 percent if
the proceeds from such sales or dispositions, which are not reinvested
as provided above, are retained by the Borrower as cash or cash
equivalents.
Section 7.12. Consolidated Tangible Net Worth. (a) The Borrower will
at all times maintain a ratio of Consolidated Tangible Net Worth to
Consolidated Capitalization of at least 0.32 to 1.00, and (b) the Borrower will
at all times cause its Consolidated Tangible Net Worth to be equal to or
greater than the Minimum Consolidated Tangible Net Worth.
Section 7.13. Compliance with Laws. Without limiting any of the other
covenants of the Borrower in this Section 7, the Borrower will conduct its
business, and otherwise
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be, in compliance with all applicable laws, regulations, ordinances, writs,
judgments, injunctions, decrees, awards and orders of any governmental or
judicial authorities; provided, however, that the Borrower shall not be
required to comply with any such law, rule, regulation, ordinance, writ,
judgments, injunction, decree, award or order if the failure to comply
therewith could not reasonably be expected to have a Material Adverse Effect.
Section 7.14. PUHCA. From and after the consummation of the Primergy
Merger, the Borrower will obtain, or cause to be obtained, all necessary
approvals, if any, under the Public Utility Holding Company Act of 1935, as
amended, in connection with the Borrower's performance under the Credit
Documents.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) The Borrower shall (i) fail to make when due any payment of
principal on the Notes, or (ii) fail to make when due, and continuance
of such failure for three or more Business Days, payment of interest
on the Notes or any fee or other amount required to be made to the
Agent pursuant to the Credit Documents;
(b) Any representation or warranty made or deemed to have been
made by or on behalf of the Borrower in the Credit Documents or on
behalf of the Borrower in any certificate, statement, report or other
writing furnished by or on behalf of the Borrower to the Agent
pursuant to the Credit Documents or any other instrument, document or
agreement shall prove to have been false or misleading in any material
respect on the date as of which the facts set forth are stated or
certified or deemed to have been stated or certified;
(c) The Borrower shall fail to comply with Section 7 hereof and
such failure to comply shall continue for 30 calendar days after
notice thereof to the Borrower by the Agent;
(d) The Borrower shall fail to comply with any agreement,
covenant, condition, provision or term con-
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tained in the Credit Documents (and such failure shall not constitute
an Event of Default under any of the other provisions of this Section
8) and such failure to comply shall continue for 30 calendar days
after notice thereof to the Borrower by the Agent;
(e) The Borrower shall become insolvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or
shall acquiesce in the appointment of a custodian, trustee or receiver
of the Borrower or for a substantial part of the property thereof or,
in the absence of such application, consent or acquiescence, a
custodian, trustee or receiver shall be appointed for the Borrower or
for a substantial part of the property thereof and shall not be
discharged within 90 days;
(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted
by or against the Borrower, and, if instituted against the Borrower,
shall have been consented to or acquiesced in by the Borrower, or
shall remain undismissed for 90 days, or an order for relief shall
have been entered against the Borrower, or the Borrower shall take any
corporate action to approve institution of, or acquiescence in, such a
proceeding;
(g) Any dissolution or liquidation proceeding shall be instituted
by or against the Borrower and, if instituted against the Borrower,
shall be consented to or acquiesced in by the Borrower or shall remain
for 90 days undismissed, or the Borrower shall take any corporate
action to approve institution of, or acquiescence in, such a
proceeding;
(h) A judgment or judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or
entity for the payment of money in excess of the sum of $20,000,000 in
the aggregate shall be rendered against the Borrower (excluding the
amount thereof covered by insurance) or any of the Borrower's
properties and such judgment, decree or order shall remain unvacated
and undischarged and unstayed for 90 consecutive days, except while
being contested in good faith by appropriate proceedings;
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(i) The institution by the Borrower of steps to terminate any
Plan if in order to effectuate such termination, the Borrower would be
required to make a contribution to such Plan, or would incur a
liability or obligation to such Plan, in excess of $20,000,000, or the
institution by the PBGC of steps to terminate any Plan;
(j) A default in payment of any principal of or any interest
aggregating $20,000,000 or more on any bond, debenture, note or other
evidence of indebtedness of the Borrower or under any indenture or
other instrument under which any such evidence of indebtedness has
been issued or by which it is governed that has resulted in the
acceleration of such indebtedness; or
(k) if at any time Northern States Power Company, a Minnesota
corporation, or its successors, ceases to own a majority of the
outstanding Voting Stock of the Borrower. For purposes of this
subsection (k), Northern States Power Company's "successors" shall be
deemed to include the "Company" as that term is defined in the Amended
and Restated Agreement and Plan of Merger dated as of April 28, 1995,
as amended and restated as of July 26, 1995, between Northern States
Power Company and Wisconsin Energy Corporation, a Wisconsin
corporation.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default other
than those described in subsections (e) or (f) of Section 8.1 hereof has
occurred and is continuing, the Agent shall, by written notice to the Borrower:
(a) if so directed by the Required Banks, terminate the remaining Commitments
and all other obligations of the Banks hereunder on the date stated in such
notice (which may be the date thereof); (b) if so directed by the Required
Banks, declare the principal of and the accrued interest on all outstanding
Notes to be forthwith due and payable and thereupon all outstanding Notes,
including both principal and interest thereon, shall be and become immediately
due and payable together with all other amounts payable under the Credit
Documents without further demand, presentment, protest or notice of any kind;
and (c) if so directed by the Required Banks, demand that the Borrower
immediately pay to the Agent, subject to Section 8.4, the full amount then
available for drawing under each or any Letter of
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Credit, and the Borrower agrees to immediately make such payment and
acknowledges and agrees that the Banks would not have an adequate remedy at law
for failure by the Borrower to honor any such demand and that the Agent, for
the benefit of the Banks, shall have the right to require the Borrower to
specifically perform such undertaking whether or not any drawings or other
demands for payment have been made under any Letter of Credit. The Agent, after
giving notice to the Borrower pursuant to Section 8.1(c), 8.1(d) or this
Section 8.2, shall also promptly send a copy of such notice to the other Banks,
but the failure to do so shall not impair or annul the effect of such notice.
Section 8.3. Bankruptcy Defaults. When any Event of Default described
in subsections (e) or (f) of Section 8.1 hereof has occurred and is continuing,
then all outstanding Notes shall immediately become due and payable together
with all other amounts payable under the Credit Documents without presentment,
demand, protest or notice of any kind, the obligation of the Banks to extend
further credit pursuant to any of the terms hereof shall immediately terminate
and the Borrower shall immediately pay to the Agent, subject to Section 8.4,
the full amount then available for drawing under all outstanding Letters of
Credit, the Borrower acknowledging that the Banks would not have an adequate
remedy at law for failure by the Borrower to honor any such demand and that the
Banks, and the Agent on their behalf, shall have the right to require the
Borrower to specifically perform such undertaking whether or not any draws or
other demands for payment have been made under any of the Letters of Credit.
Section 8.4. Collateral for Undrawn Letters of Credit. (a) If the
payment or prepayment of the amount available for drawing under any or all
outstanding Letters of Credit is required under Section 2.8(b) or under Section
8.2 or 8.3 above, the Borrower shall forthwith pay the amount required to be so
prepaid, to be held by the Agent as provided in subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be held
by the Agent in a separate collateral account (such account, and the credit
balances, properties and any investments from time to time held therein, and
any substitutions for such account, any certificate of deposit or other
instrument evidencing any of the foregoing and all
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proceeds of and earnings on any of the foregoing being collectively called the
"Account") as security for, and for application by the Agent (to the extent
available) to, the reimbursement of any payment under any Letter of Credit then
or thereafter made by the Agent, and to the payment of the unpaid balance of
any Loans and all other Obligations. The Account shall be held in the name of
and subject to the exclusive dominion and control of the Agent for the benefit
of the Agent and the Banks. If and when requested by the Borrower, the Agent
shall invest funds held in the Account from time to time in direct obligations
of, or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America with a remaining maturity of one
year or less, provided that the Agent is irrevocably authorized to sell
investments held in the Account when and as required to make payments out of
the Account for application to amounts due and owing from the Borrower to the
Agent or Banks; provided, however, that if (i) the Borrower shall have made
payment of all such obligations referred to in subsection (a) above, (ii) all
relevant preference or other disgorgement periods relating to the receipt of
such payments have passed, and (iii) no Letters of Credit, Commitments, Loans
or other Obligations remain outstanding hereunder, then the Agent shall repay
to the Borrower any remaining amounts held in the Account.
Section 8.5. Notice of Default. The Agent shall give notice to the
Borrower under Section 8.1(c) or 8.1(d) hereof promptly upon being requested to
do so by any Bank and shall thereupon notify all the Banks thereof.
Section 8.6. Expenses. The Borrower agrees to pay to the Agent and
each Bank, and any other holder of any Note outstanding hereunder, all
reasonable costs and expenses incurred or paid by the Agent or such Bank or any
such holder, including attorneys' fees and court costs, in connection with any
Default or Event of Default by the Borrower hereunder or in connection with the
enforcement of any of the Credit Documents.
SECTION 9. CHANGE IN CIRCUMSTANCES.
Section 9.1. Change of Law. Notwithstanding any other provisions of
this Agreement or any Note if at any time after the date hereof any change in
applicable law or regulation or in the interpretation thereof makes it unlawful
for any Bank to make or continue to maintain
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Eurocurrency Loans or to perform its obligations as contemplated hereby, such
Bank shall promptly give notice thereof to the Borrower and such Bank's
obligations to make or maintain Eurocurrency Loans under this Agreement shall
terminate until it is no longer unlawful for such Bank to make or maintain
Eurocurrency Loans. The Borrower shall prepay on demand the outstanding
principal amount of any such affected Eurocurrency Loans, together with all
interest accrued thereon at a rate per annum equal to the interest rate
applicable to such Loan; provided, however, subject to all of the terms and
conditions of this Agreement, the Borrower may then elect to borrow the
principal amount of the affected Eurocurrency Loans from such Bank by means of
Base Rate Loans from such Bank, which Base Rate Loans shall not be made ratably
by the Banks but only from such affected Bank.
Section 9.2. Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period
for any Borrowing of Eurocurrency Loans:
(a) the Agent determines that deposits in U.S. Dollars (in the
applicable amounts) are not being offered to it in the eurocurrency
interbank market for such Interest Period, or that by reason of
circumstances affecting the interbank eurocurrency market adequate and
reasonable means do not exist for ascertaining the applicable LIBOR;
or
(b) Banks having 25% or more of the aggregate amount of the
Revolving Credit Commitments reasonably determine and so advise the
Agent that LIBOR as reasonably determined by the Agent will not
adequately and fairly reflect the cost to such Banks or Bank of
funding their or its Eurocurrency Loans or Loan for such Interest
Period;
then the Agent shall forthwith give notice thereof to the Borrower and the
Banks, whereupon until the Agent notifies the Borrower that the circumstances
giving rise to such suspension no longer exist, the obligations of the Banks or
of the relevant Bank to make Eurocurrency Loans in the currency so affected
shall be suspended.
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Section 9.3. Increased Cost and Reduced Return. (a) If, on or after
the date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Bank (or its
Lending Office) with any request or directive (whether or not having the force
of law but, if not having the force of law, compliance with which is customary
in the relevant jurisdiction) of any such authority, central bank or comparable
agency:
(i) shall subject any Bank (or its Lending Office) to any tax,
duty or other charge with respect to its Eurocurrency Loans, its
Notes, its Letter(s) of Credit, or its participation in any thereof,
any Reimbursement Obligations owed to it or its obligation to make
Eurocurrency Loans, issue a Letter of Credit, or to participate
therein, or shall change the basis of taxation of payments to any Bank
(or its Lending Office) of the principal of or interest on its
Eurocurrency Loans, Letter(s) of Credit, or participations therein or
any other amounts due under this Agreement in respect of its
Eurocurrency Loans, Letter(s) of Credit, or participations therein,
any Reimbursement Obligations owed to it, or its obligation to make
Eurocurrency Loans, issue a Letter of Credit, or acquire
participations therein (except for changes in the rate of tax on the
overall net income or profits of such Bank or its Lending Office
imposed by the jurisdiction in which such Bank or its lending office
is incorporated in which such Bank's principal executive office or
Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any
such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding with respect to any Eurocurrency Loans
any such requirement included in an applicable Eurocurrency Reserve
Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Lending Office) or shall impose
on any Bank (or its Lending Office) or on the interbank market any
other condition affecting its Eurocurrency Loans, its Notes, its
Letter(s) of
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Credit, or its participation in any thereof, any Reimbursement
Obligation owed to it, or its obligation to make Eurocurrency Loans,
to issue a Letter of Credit, or to participate therein; and the result
of any of the foregoing is to increase the cost to such Bank (or its
Lending Office) of making or maintaining any Eurocurrency Loan,
issuing or maintaining a Letter of Credit, or participating therein,
or to reduce the amount of any sum received or receivable by such Bank
(or its Lending Office) under this Agreement or under its Notes with
respect thereto, by an amount deemed by such Bank to be material,
then, within fifteen (15) days after demand by such Bank (with a copy
to the Agent), the Borrower shall be obligated to pay to such Bank
such additional amount or amounts as will compensate such Bank for
such increased cost or reduction. In the event any law, rule,
regulation or interpretation described above is revoked, declared
invalid or inapplicable or is otherwise rescinded, and as a result
thereof a Bank is determined to be entitled to a refund from the
applicable authority for any amount or amounts which were paid or
reimbursed by Borrower to such Bank hereunder, such Bank shall refund
such amount or amounts to Borrower without interest.
(b) If, after the date hereof, any Bank or the Agent shall have
determined that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein (including, without
limitation, any revision in the Final Risk-Based Capital Guidelines of the
Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A;
12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the
Currency (12 CFR Part 3, Appendix A), or in any other applicable capital rules
heretofore adopted and issued by any governmental authority), or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive regarding capital adequacy (whether or not having the
force of law but, if not having the force of law, compliance with which is
customary in the applicable jurisdiction) of any such authority, central bank
or comparable agency, has or would have the effect of reducing the rate of
return on such Bank's capital, or on the capital of any corporation controlling
such Bank, as a consequence of its obligations hereunder to a level below
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that which such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within fifteen (15) days after demand by such Bank (with a copy
to the Agent), the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
(c) Each Bank that determines to seek compensation under this Section
9.3 shall notify the Borrower and the Agent of the circumstances that entitle
the Bank to such compensation pursuant to this Section 9.3 and will designate a
different Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section 9.3 and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
(d) If any Bank (other than ABN AMRO Bank N.V.) has demanded
compensation or given notice of its intention to demand compensation under this
Section 9.3 or the Borrower is required to pay any additional amount to any
Bank under Section 9.3, the Borrower shall have the right, with the assistance
of the Agent, to seek a substitute Bank or Banks reasonably satisfactory to the
Agent (which may be one or more of the Banks) to replace such Bank under this
Agreement. The Bank to be so replaced shall cooperate with the Borrower and
substitute Bank to accomplish such substitution, provided that all of such
Bank's Loan Commitment is replaced.
Section 9.4. Lending Offices. Each Bank may, at its option, elect to
make its Loans hereunder at the branch, office or affiliate specified on the
appropriate signature page hereof or in the assignment agreement which any
assignee bank executes pursuant to Section 11.12 hereof (each a "Lending
Office") for each type of Loan available hereunder or at such other of its
branches, offices or affiliates as it may from time to time elect and designate
in a written notice to the Borrower and the Agent.
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Section 9.5. Discretion of Bank as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Bank shall be
entitled to fund and maintain its funding of all or any part of its Loans in
any manner it sees fit, it being understood, however, that for the purposes of
this Agreement all determinations hereunder shall be made as if each Bank had
actually funded and maintained each Eurocurrency Loan through the purchase of
deposits of U.S. Dollars in the eurocurrency interbank market having a maturity
corresponding to such Loan's Interest Period and bearing an interest rate equal
to LIBOR for such Interest Period.
SECTION 10. THE AGENT.
Section 10.1. Appointment and Authorization of Agent. Each Bank hereby
appoints ABN AMRO Bank N.V. as the Agent under the Credit Documents and hereby
authorizes the agent to take such action as Agent on its behalf and to exercise
such powers under the Credit Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto.
The relationship between the Agent and the Banks is and shall be that of agent
and principal only, and nothing contained in this Agreement or any other Credit
Document shall be construed to constitute the Agent as a trustee or fiduciary
for any Bank or the Borrower.
Section 10.2. Agent and its Affiliates. The Agent shall have the same
rights and powers under this Agreement and the other Credit Documents as any
other Bank and may exercise or refrain from exercising the same as though it
were not the Agent, and the Agent and its affiliates may accept deposits from,
lend money to, and generally engage in any kind of business with the Borrower
or any Affiliate of the Borrower as if it were not the Agent under the Credit
Documents. The term "Bank" as used herein and in all other Credit Documents,
unless the context otherwise clearly requires, includes the Agent in its
individual capacity as a Bank. References in Section 2 hereof to the Agent's
Loans, or to the amount owing to the Agent for which an interest rate is being
determined, refer to the Agent in its individual capacity as a Bank.
Section 10.3. Action by Agent. If the Agent receives from the Borrower
a written notice of an Event of Default pursuant to Section 7.6(c)(i) hereof,
the Agent shall
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promptly give each of the Banks written notice thereof. The obligations of the
Agent under the Credit Documents are only those expressly set forth therein.
Without limiting the generality of the foregoing, the Agent shall not be
required to take any action hereunder with respect to any Default or Event of
Default, except as expressly provided in Sections 8.2 and 8.5. In no event,
however, shall the Agent be required to take any action in violation of
applicable law or of any provision of any Credit Document, and the Agent shall
in all cases be fully justified in failing or refusing to act hereunder or
under any other Credit Document unless it shall be first indemnified to its
reasonable satisfaction by the Banks against any and all costs, expense, and
liability which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall be entitled to assume that no Default or Event
of Default exists unless notified to the contrary by a Bank or the Borrower. In
all cases in which this Agreement and the other Credit Documents do not require
the Agent to take certain actions, the Agent shall be fully justified in using
its discretion in failing to take or in taking any action hereunder and
thereunder.
Section 10.4. Consultation with Experts. The Agent may consult with
legal counsel, independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
Section 10.5. Liability of Agent; Credit Decision. Neither the Agent
nor any of its directors, officers, agents, or employees shall be liable for
any action taken or not taken by it in connection with the Credit Documents (i)
with the consent or at the request of the Required Banks or (ii) in the absence
of its own gross negligence or willful misconduct. Neither the Agent nor any of
its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify: (i) any statement, warranty or
representation made in connection with this Agreement, any other Credit
Document or any Credit Event; (ii) the performance or observance of any of the
covenants or agreements of the Borrower or any other party contained herein or
in any other Credit Document; (iii) the satisfaction of any condition specified
in Section 6 hereof, except receipt of items required to be delivered to the
Agent; or (iv) the
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validity, effectiveness, genuineness, enforceability, perfection, value, worth
or collectability hereof or of any other Credit Document or of any other
documents or writing furnished in connection with any Credit Document; and the
Agent makes no representation of any kind or character with respect to any such
matter mentioned in this sentence. The Agent may execute any of its duties
under any of the Credit Documents by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Banks, the Borrower, or
any other Person for the default or misconduct of any such agents or
attorneys-in-fact selected with reasonable care. The Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate, other
document or statement (whether written or oral) believed by it to be genuine or
to be sent by the proper party or parties. In particular and without limiting
any of the foregoing, the Agent shall have no responsibility for confirming the
accuracy of any Compliance Certificate or other document or instrument received
by it under the Credit Documents. The Agent may treat the payee of any Note as
the holder thereof until written notice of transfer shall have been filed with
the Agent signed by such payee in form satisfactory to the Agent. Each Bank
acknowledges that it has independently and without reliance on the Agent or any
other Bank, and based upon such information, investigations and inquiries as it
deems appropriate, made its own credit analysis and decision to extend credit
to the Borrower in the manner set forth in the Credit Documents. It shall be
the responsibility of each Bank to keep itself informed as to the
creditworthiness of the Borrower and any other relevant Person, and the Agent
shall have no liability to any Bank with respect thereto.
Section 10.6. Indemnity. The Banks shall ratably, in accordance with
their respective Percentages, indemnify and hold the Agent, and its directors,
officers, employees, agents and representatives harmless from and against any
liabilities, losses, costs or expenses suffered or incurred by it under any
Credit Document or in connection with the transactions contemplated thereby,
regardless of when asserted or arising, except to the extent they are promptly
reimbursed for the same by the Borrower and except to the extent that any event
giving rise to a claim was caused by the gross negligence or willful misconduct
of the party seeking to be indemnified. The obligations of the Banks under this
Section 10.6 shall survive termination of this Agreement.
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Section 10.7. Resignation of Agent and Successor Agent. The Agent may
resign at any time by giving written notice thereof to the Banks and the
Borrower. Upon any such resignation of the Agent, the Required Banks shall have
the right to appoint a successor Agent with the consent of the Borrower. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, with the consent of the Borrower, appoint a successor Agent,
which shall be any Bank hereunder or any commercial bank organized under the
laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $200,000,000. Upon the acceptance of
its appointment as the Agent hereunder, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring or
removed Agent under the Credit Documents, and the retiring Agent shall be
discharged from its duties and obligations thereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 10 and
all protective provisions of the other Credit Documents shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.
SECTION 11. MISCELLANEOUS.
Section 11.1. Withholding Taxes. (a) Payments Free of Withholding.
Subject to Section 11.1(b) hereof, each payment by the Borrower under this
Agreement or the other Credit Documents shall be made without withholding for
or on account of any present or future taxes (other than overall net income
taxes on the recipient). If any such withholding is so required, the Borrower
shall make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest accrues
thereon and forthwith pay such additional amount as may be necessary to ensure
that the net amount actually received by each Bank and the Agent free and clear
of such taxes (including such taxes on such additional amount) is equal to the
amount which that Bank or the Agent (as the case may be) would have received
had such withholding not been made. If the Agent or any Bank pays any amount in
respect of any such taxes, penalties or interest the Borrower shall reimburse
the Agent or that Bank for that payment on demand in the currency in which such
55
<PAGE>
payment was made. If the Borrower pays any such taxes, penalties or interest,
it shall deliver official tax receipts evidencing that payment or certified
copies thereof to the Bank or Agent on whose account such withholding was made
(with a copy to the Agent if not the recipient of the original) on or before
the thirtieth day after payment. If any Bank or the Agent determines it has
received or been granted a credit against or relief or remission for, or
repayment of, any taxes paid or payable by it because of any taxes, penalties
or interest paid by the Borrower and evidenced by such a tax receipt, such Bank
or Agent shall, to the extent it can do so without prejudice to the retention
of the amount of such credit, relief, remission or repayment, pay to the
Borrower such amount as such Bank or Agent determines is attributable to such
deduction or withholding and which will leave such Bank or Agent (after such
payment) in no better or worse position than it would have been in if the
Borrower had not been required to make such deduction or withholding. Nothing
in this Agreement shall interfere with the right of each Bank and the Agent to
arrange its tax affairs in whatever manner it thinks fit nor oblige any Bank or
the Agent to disclose any information relating to its tax affairs or any
computations in connection with such taxes.
(b) U.S. Withholding Tax Exemptions. Each Bank that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code)
shall submit to the Borrower and the Agent on or before the earlier of the date
the initial Borrowing is made hereunder and thirty (30) days after the date
hereof, two duly completed and signed copies of either Form 1001 (relating to
such Bank and entitling it to a complete exemption from withholding under the
Code on all amounts to be received by such Bank, including fees, pursuant to
the Credit Documents and the Loans) or Form 4224 (relating to all amounts to be
received by such Bank, including fees, pursuant to the Credit Documents and the
Loans) of the United States Internal Revenue Service. Thereafter and from time
to time, each Bank shall submit to the Borrower and the Agent such additional
duly completed and signed copies of one or the other of such Forms (or such
successor forms as shall be adopted from time to time by the relevant United
States taxing authorities) as may be (i) requested by the Borrower in a written
notice, directly or through the Agent, to such Bank and (ii) required under
then-current United States law or regulations to avoid or reduce United States
withholding
56
<PAGE>
taxes on payments in respect of all amounts to be received by such Bank,
including fees, pursuant to the Credit Documents or the Loans.
(c) Inability of Bank to Submit Forms. If any Bank determines, as a
result of any change in applicable law, regulation or treaty, or in any
official application or interpretation thereof, that it is unable to submit to
the Borrower or Agent any form or certificate that such Bank is obligated to
submit pursuant to subsection (b) of this Section 11.1 or that such Bank is
required to withdraw or cancel any such form or certificate previously
submitted or any such form or certificate otherwise becomes ineffective or
inaccurate, such Bank shall promptly notify the Borrower and Agent of such fact
and the Bank shall to that extent not be obligated to provide any such form or
certificate and will be entitled to withdraw or cancel any affected form or
certificate, as applicable.
Section 11.2. No Waiver of Rights. No delay or failure on the part of
the Agent or any Bank or on the part of the holder or holders of any Note in
the exercise of any power or right under any Credit Document shall operate as a
waiver thereof, nor as an acquiescence in any default, nor shall any single or
partial exercise thereof preclude any other or further exercise of any other
power or right, and the rights and remedies hereunder of the Agent, the Banks
and the holder or holders of any Notes are cumulative to, and not exclusive of,
any rights or remedies which any of them would otherwise have.
Section 11.3. Non-Business Day. If any payment of principal or
interest on any Loan or of any other Obligation shall fall due on a day which
is not a Business Day, interest or fees (as applicable) at the rate, if any,
such Loan or other Obligation bears for the period prior to maturity shall
continue to accrue on such Obligation from the stated due date thereof to and
including the next succeeding Business Day, on which the same shall be payable.
Section 11.4. Documentary Taxes. The Borrower agrees that it will pay
any documentary, stamp or similar taxes payable in respect to any Credit
Document, including interest and penalties, in the event any such taxes are
assessed, irrespective of when such assessment is made and
57
<PAGE>
whether or not any credit is then in use or available hereunder.
Section 11.5. Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Credit Documents,
and shall continue in full force and effect with respect to the date as of
which they were made as long as any credit is in use or available hereunder.
Section 11.6. Survival of Indemnities. All indemnities and all other
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield of the Banks with respect to the Loans, including, but not
limited to, Section 2.11, Section 9.3 and Section 11.15 hereof, shall survive
the termination of this Agreement and the other Credit Documents and the
payment of the Loans and all other Obligations.
Section 11.7. Set-Off. (a) In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence of any Event of Default, each Bank and each subsequent
holder of any Note is hereby authorized by the Borrower at any time or from
time to time, without notice to the Borrower or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, and in whatever currency denominated) and any other Indebtedness at
any time held or owing by that Bank or that subsequent holder to or for the
credit or the account of the Borrower, whether or not matured, against and on
account of the obligations and liabilities of the Borrower to that Bank or that
subsequent holder under the Credit Documents, including, but not limited to,
all claims of any nature or description arising out of or connected with the
Credit Documents, irrespective of whether or not (a) that Bank or that
subsequent holder shall have made any demand hereunder or (b) the principal of
or the interest on the Loans or Notes and other amounts due hereunder shall
have become due and payable pursuant to Section 8 and although said obligations
and liabilities, or any of them, may be contingent or unmatured.
58
<PAGE>
(b) Each Bank agrees with each other Bank a party hereto that if such
Bank shall receive and retain any payment, whether by set-off or application of
deposit balances or otherwise, on any of the Loans or Reimbursement Obligations
in excess of its ratable share of payments on all such obligations then
outstanding to the Banks, then such Bank shall purchase for cash at face value,
but without recourse, ratably from each of the other Banks such amount of the
Loans or Reimbursement Obligations, or participations therein, held by each
such other Banks (or interest therein) as shall be necessary to cause such Bank
to share such excess payment ratably with all the other Banks; provided,
however, that if any such purchase is made by any Bank, and if such excess
payment or part thereof is thereafter recovered from such purchasing Bank, the
related purchases from the other Banks shall be rescinded ratably and the
purchase price restored as to the portion of such excess payment so recovered,
but without interest. For purposes of this Section 11.7(b), amounts owed to or
recovered by, the Agent in connection with Reimbursement Obligations in which
Banks have been required to fund their participation shall be treated as
amounts owed to or recovered by the Agent as a Bank hereunder.
Section 11.8. Notices. Except as otherwise specified herein, all
notices under the Credit Documents shall be in writing (including telecopy or
other electronic communication) and shall be given to a party hereunder at its
address or telecopier number set forth below or such other address or
telecopier number as such party may hereafter specify by notice to the Agent
and the Borrower, given by courier, by United States certified or registered
mail, or by other telecommunication device capable of creating a written record
of such notice and its receipt. Notices under the Credit Documents to the Banks
shall be addressed to their respective addresses, telecopier or telephone
numbers set forth on the signature pages hereof or in the assignment agreement
which any assignee bank executes pursuant to Section 11.12 hereof, and to the
Borrower and to the Agent to:
If to the Borrower:
NRG Energy, Inc.
1221 Nicollet Mall
Suite 700
Minneapolis, MN 55403-2445
59
<PAGE>
Attention: Treasurer
Facsimile: (612) 373-5341
Telephone: (612) 373-5306
If to the Agent:
ABN AMRO Bank
Agency Services
335 Madison Avenue
New York, New York 10017
Attention: Linda Boardman
Telecopy: (212) 682-0364
Telephone: (212) 370-8509
With copies to:
ABN AMRO Bank
135 South LaSalle Street
Suite 711
Chicago, Illinois 60670
Attention: David B. Bryant/Kevin McFadden
Facsimile: (312) 904-6217
Telephone: (312) 904-2799/904-2131
ABN AMRO Bank
135 South LaSalle Street
Suite 625
Chicago, Illinois 60670
Attention: Tonda Hayes
Facsimile: (312) 606-8435
Telephone: (312) 904-2676
Each such notice, request or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in this Section 11.8 or on the signature pages hereof and a
confirmation of receipt of such telecopy has been received by the sender, (ii)
if given by courier, when delivered, (iii) if given by mail, three business
days after such communication is deposited in the mail, registered with return
receipt requested, addressed as aforesaid or (iv) if given by any other means,
when delivered at the addresses specified in this Section 11.8; provided that
any notice given pursuant to Section 2 hereof shall be effective only upon
receipt.
60
<PAGE>
Section 11.9. Counterparts. This Agreement may be executed in any
number of counterpart signature pages, and by the different parties on
different counterparts, each of which when executed shall be deemed an original
but all such counterparts taken together shall constitute one and the same
instrument.
Section 11.10. Successors and Assigns. This Agreement shall be binding
upon the Borrower and its successors and assigns, and shall inure to the
benefit of each of the Banks and the benefit of their respective successors and
assigns, including any subsequent holder of any Note. The Borrower may not
assign any of its rights or obligations under any Credit Document without the
written consent of all of the Banks.
Section 11.11. Participants and Note Assignees. Each Bank shall have
the right at its own cost to grant participations (to be evidenced by one or
more agreements or certificates of participation) in the Loans made, Revolving
Credit Commitments held and/or participations in Letters of Credit, by such
Bank at any time and from time to time, and to assign its rights under such
Loans or the Note evidencing such Loans to a federal reserve bank; provided
that (i) no such participation or assignment shall relieve any Bank of any of
its obligations under this Agreement, (ii) no such assignee or participant
shall have any rights under this Agreement except as provided in this Section
11.11, and (iii) the Agent shall have no obligation or responsibility to such
participant or assignee, except that nothing herein is intended to affect the
rights of an assignee of a Note to enforce the Note assigned. Any party to
which such a participation or assignment has been granted shall have the
benefits of Section 2.11 and Section 9.3, but shall not be entitled to receive
any greater payment under either such Section than the Bank granting such
participation would have been entitled to receive in connection with the rights
transferred. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrower hereunder,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such participation
agreement may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement that would (A) increase any Revolving
Credit
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<PAGE>
Commitment of such Bank if such increase would also increase the participant's
obligations, (B) forgive any amount of or postpone the date for payment of any
principal of or interest on any Loan or of any fee payable hereunder in which
such participant has an interest or (C) reduce the stated rate at which
interest or fees in which such participant has an interest accrue hereunder.
Section 11.12. Assignment of Commitments by Banks. Each Bank shall
have the right at any time, with the written consent of the Borrower and Agent
(which consent shall not be unreasonably withheld), to assign all or any part
of its Revolving Credit Commitment (including the same percentage of its Note,
outstanding Loans and participations in Letters of Credit) to one or more other
Persons; provided that such assignment is in an amount of at least $10,000,000
or the entire Revolving Credit Commitment of such Bank, and if such assignment
is not for such Bank's entire Revolving Credit Commitment then such Bank's
Revolving Credit Commitment after giving effect to such assignment shall not be
less than $10,000,000; and provided further that neither the consent of the
Borrower nor of the Agent shall be required for any Bank to assign all or part
of its Revolving Credit Commitment to any Affiliate of the assigning Bank. Each
such assignment shall set forth the assignees address for notices to be given
under Section 11.8 hereof hereunder and its designated Lending Office pursuant
to Section 9.4 hereof. Upon any such assignment, delivery to the Agent of an
executed copy of such assignment agreement and the forms referred to in Section
11.1 hereof, if applicable, and the payment of a $3,500 recordation fee to the
Agent, the assignee shall become a Bank hereunder, all Loans, participations in
Letters of Credit and the Revolving Credit Commitment it thereby holds shall be
governed by all the terms and conditions hereof and the Bank granting such
assignment shall have its Revolving Credit Commitment, and its obligations and
rights in connection therewith, reduced by the amount of such assignment;
provided, however, in the event a Bank assigns all of its Revolving Credit
Commitment at the request of the Borrower, pursuant to Section 11.13(iii)
below, no recordation fee shall be required hereunder.
Section 11.13. Amendments. Any provision of the Credit Documents may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by (a)
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<PAGE>
the Borrower, (b) the Required Banks, and (c) if the rights or duties of the
Agent are affected thereby, the Agent; provided that:
(i) no amendment or waiver pursuant to this Section 11.13 shall
(A) increase any Commitment of any Bank without the consent of such
Bank or (B) reduce the amount of or postpone any fixed date for
payment of any principal of or interest on any Loan or Reimbursement
Obligation or of any fee payable hereunder without the consent of each
Bank;
(ii) no amendment or waiver pursuant to this Section 11.13 shall,
unless signed by each Bank, change this Section 11.13, or the
definition of Required Banks, or affect the number of Banks required
to take any action under the Credit Documents; and
(iii) if the Borrower requests an amendment to this Agreement
which requires the approval of all of the Banks and one of the Banks
(a "Replaceable Bank") does not approve it, the Borrower may propose
that another bank which is reasonably acceptable to the Agent (a
"Replacement Bank") be substituted for and replace the Replaceable
Bank for purposes of this Agreement. If a Replacement Bank is so
substituted for the Replaceable Bank, the Replaceable Bank shall enter
into an assignment agreement with the Replacement Bank, the Borrower
and the Agent to assign and transfer to the Replacement Bank, the
Replaceable Bank's Commitment hereunder; provided, however, if a
Replacement Bank can't be found, then the Borrower may elect to take
out the Replaceable Bank and reduce the facility accordingly by making
a prepayment in the amount of such Replaceable Bank's Commitment
(including the same percentage of its Note, outstanding Loans and
participations in Letters of Credit) plus all accrued and unpaid
interest thereon. Notwithstanding anything to the contrary contained
herein, in no event shall the Agent be a Replaceable Bank.
Section 11.14. Headings. Section headings used in this Agreement are
for reference only and shall not affect the construction of this Agreement.
Section 11.15. Legal Fees, Other Costs and Indemnification. The
Borrower agrees to pay all reasonable costs
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<PAGE>
and expenses of the Agent in connection with the preparation and negotiation of
the Credit Documents, including, without limitation, the reasonable fees and
disbursements of Foley & Lardner, counsel to the Agent, in connection with the
preparation and execution of the Credit Documents and any amendment, waiver or
consent related hereto, whether or not the transactions contemplated herein are
consummated. The Borrower further agrees to indemnify each Bank, the Agent, and
their respective directors, agents, officers and employees, against all losses,
claims, damages, penalties, judgments, liabilities and expenses (including,
without limitation, all expenses of litigation or preparation therefor, whether
or not the indemnified Person is a party thereto) which any of them may incur
or reasonably pay arising out of or relating to any Credit Document or any of
the transactions contemplated thereby or the direct or indirect application or
proposed application of the proceeds of any Loan or Letter of Credit, other
than those which arise from the gross negligence or willful misconduct of the
party claiming indemnification. The Borrower, upon demand by the Agent or a
Bank at any time, shall reimburse the Agent or Bank for any reasonable legal or
other expenses incurred in connection with investigating or defending against
any of the foregoing except if the same is directly due to the gross negligence
or willful misconduct of the party to be indemnified.
Section 11.16. Entire Agreement. The Credit Documents constitute the
entire understanding of the parties thereto with respect to the subject matter
thereof and any prior or contemporaneous agreements, whether written or oral,
with respect thereto are superseded thereby.
Section 11.17. Construction. The parties hereto acknowledge and agree
that neither this Agreement nor the other Credit Documents shall be construed
more favorably in favor of one than the other based upon which party drafted
the same, it being acknowledged that all parties hereto contributed
substantially to the negotiation of this Agreement and the other Credit
Documents.
Section 11.18. Governing Law. This Agreement and the other Credit
Documents, and the rights and duties of the parties hereto, shall be construed
and determined in accordance with the internal laws of the State of New York.
64
<PAGE>
Section 11.19. Submission to Jurisdiction; Waiver of Jury Trial. THE
BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO ANY CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
65
<PAGE>
In Witness Whereof, the parties hereto have caused this Agreement to
be duly executed and delivered in Chicago, Illinois by their duly authorized
officers as of the day and year first above written.
NRG ENERGY, INC.
By: /s/ LEE R. CARLSON
---------------------------
Name: Lee R. Carlson
-------------------------
Title: Treasurer
------------------------
Commitment $25,000,000 ABN AMRO BANK N.V., in its
individual capacity as a
Bank and as Agent
By: /s/ DAVID B. BRYANT
---------------------------
Name: David B. Bryant
-------------------------
Title: Vice President
------------------------
By: /s/ KEVIN S. MCFADDEN
---------------------------
Name: Kevin S. McFaddden
-------------------------
Title: Vice President
------------------------
Lending Offices:
Base Rate Loans:
135 South LaSalle Street
Suite 625
Chicago, Illinois 60674-9135
Attn.: Loan Administration
Eurocurrency Loans:
135 South LaSalle Street Suite 625
Chicago, Illinois 60674-9135
Attn.: Loan Administration
66
<PAGE>
EXHIBIT 12.1
NRG ENERGY, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---------- -------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes . $(5,307) $4,528 $ 32,010 $ 40,011 $ 14,323 $ 856 $ 4,881
Undistributed equity in operating
earnings of unconsolidated
affiliates ........................ (633) (874) (18,511) (20,074) (17,827) (4,491) (6,713)
Equity in gain from project
termination settlements ........... -- -- -- (29,850) -- -- --
Cash distributions from project
termination settlements............ -- -- -- 14,179 15,671 15,671 --
---------- -------- ---------- ---------- ---------- --------- ---------
(5,940) 3,654 13,499 4,266 12,167 12,036 (1,832)
Interest expense ................... 1,622 2,679 6,682 7,089 15,430 3,225 4,063
Interest capitalized ............... -- -- 45 253 364 100 125
Amortization of debt issuance
costs.............................. 44 41 42 41 149 44 75
Reasonable approximation of the
interest factor of rental expense 33 50 59 265 247 88 62
---------- -------- ---------- ---------- ---------- --------- ---------
Total fixed charges ............... 1,699 2,770 6,828 7,648 16,190 3,457 4,325
Earnings ........................... $(4,241) $6,424 $ 20,327 $ 11,914 $ 28,357 $15,493 $ 2,493
========== ======== ========== ========== ========== ========= =========
Ratio of earnings to fixed charges
(C)(D) ............................ (A) 2.32 2.98 1.56 1.75 4.48 (B)
</TABLE>
- ------------
(A) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(B) Due primarily to undistributed equity earnings exceeding income before
income taxes, NRG was unable to fully cover fixed charges. Earnings did
not cover fixed charges by $1,832.
(C) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
(D) The 1996 ratio of earnings to fixed charges calculation includes the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would have
been unable to fully cover fixed charges and earnings would not have
covered fixed charges by $3,504 for 1996 and by $3,635 for the three
months ended March 31, 1996.
<PAGE>
NRG SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY State Formation
<S> <C>
NRG ENERGY, INC. DELAWARE
Ardaric Pty Limited Australia
Ashputtel Pty Limited Australia
Bioconversion Partners, L.P. California
Cadillac Renewable Energy LLC Delaware
Center SynCoal Partnership, L.P. Delaware
Cobee Holdings Inc. Delaware
Collinsville Operations Pty Ltd Australia
Collinsville Power Joint Venture (unincorporated) Australia
Compania Boliviana de Energia Electrica S.A. Nova Scotia
Coniti Holding B.V. Netherlands
Cypress Energy Partners, Limited Partnership Delaware
ECK Generating, s.r.o. Czech Republic
Elk River Resource Recovery, Inc. Minnesota
Energeticke Centrum Kladno, s.r.o. Czech Republic
Energy Developments Limited Australia
Enfield Energy Centre Limited England
Fresh Kills Cogen Inc. Delaware
Gladstone Power Station Joint Venture (unincorporated) Australia
Graystone Corporation Minnesota
Gunwale B.V. Netherlands
Horizon Energy Partnership Australia
Horizon Energy Management Pty Ltd Australia
Horizon Energy Projects Pty Ltd Australia
Hunneric Pty Limited Australia
Interenergy Limited Ireland
Jackson Valley Energy Partners, L.P. California
Kiksis B.V. Netherlands
Kissimee Power Partners, Limited Partnership Delaware
Kladno Power (No. 1) B.V. Netherlands
Kladno Power (No. 2) B.V. Netherlands
Kraftwerk Schkopau Betriebsgesellschaft mbH Germany
Kraftwerk Schkopau GbR Germany
Lambique Beheer B.V. Netherlands
Le Paz Incorporated Minnesota
Louisiana Energy Services, L.P. Delaware
<PAGE>
SUBSIDIARY State Formation
Louisiana Generating LLC Delaware
MIBRAG B.V. Netherlands
Matra Powerplant Holding B.V. Netherlands
Minnesota Farm Company, L.L.C. Delaware
Minnesota Waste Processing Company, L.L.C. Delaware
Mitteldeutsche Braunkohlengesellschaft mbH (MIBRAG mbH) Germany
NEO Corporation Minnesota
NRG Australia, Ltd. Delaware
NRG Cadillac Inc. Delaware
NRG Collinsville Operating Services Pty Ltd Australia
NRG del Coronado Inc. Delaware
NRG Energeticky Provoz s.r.o. Czech Republic
NRG Energy CZ, s.r.o. Czech Republic
NRG Energy Center, Inc. Minnesota
d/b/a Minneapolis Energy Center
NRG Energy Development GmbH Germany
NRG Energy Jackson Valley I, Inc. California
NRG Energy Jackson Valley II, Inc. California
NRG Energy Ltd. England
NRG Generating (U.S.) Inc. Delaware
NRG Gladstone Operating Services Pty Ltd Australia
NRG Gladstone Superannuation Pty Ltd Australia
NRG Hartford, Inc. Delaware
NRG Hazleton Inc. Delaware
NRG Hazleton II Inc. Delaware
NRG International, Inc. Delaware
NRG (Morris) Cogen, LLC Delaware
NRG Morris Inc. Delaware
NRG Operating Services, Inc. Delaware
NRG Parlin Inc. Delaware
NRG San Diego Inc. Delaware
NRG Services Corporation Delaware
NRG Sunnyside Inc. Delaware
NRG Sunnyside Operations GP Inc. Delaware
NRG Sunnyside Operations LP Inc. Delaware
NRGenerating Holdings (No. 1) B.V. Netherlands
NRGenerating Holdings (No. 3) B.V. Netherlands
NRGenerating Holdings (No. 4) B.V. Netherlands
NRGenerating Holdings (No. 5) B.V. Netherlands
NRGenerating Holdings (No. 6) B.V. Netherlands
NRGenerating Holdings (No. 7) B.V. Netherlands
NRGenerating Holdings (No. 8) B.V. Netherlands
NRGenerating Holdings (No. 9) B.V. Netherlands
NRGenerating Holdings (No. 10) B.V. Netherlands
<PAGE>
SUBSIDIARY State Formation
NRGenerating Holdings (No. 11) B.V. Netherlands
NRGenerating International B.V. Netherlands
NRGenerating Rupali B.V. Netherlands
New Roads Generating LLC Delaware
Norstar Energy Operations, L.L.C. Delaware
Norstar Power Company, L.L.C. Delaware
North American Thermal Systems Limited Liability Company Ohio
O'Brien California Cogen Limited California
O'Brien Cogeneration, Inc. II Delaware
Okeechobee Power I, Inc. Delaware
Okeechobee Power II, Inc. Delaware
Okeechobee Power III, Inc. Delaware
Oklahoma Loan Acquisition Corporation Delaware
P.T. Dayalistrik Pratama Indonesia
Pittsburgh Thermal, Limited Partnership Delaware
Powder River SynCoal Partnership, L.P. Delaware
Power Operations, Inc. Delaware
RSD Power Partners, L.P.
Rosebud SynCoal Partnership Colorado
Saale Energie GmbH Germany
Saale Energie Services GmbH Germany
Sachsen Holding B.V. Netherlands
San Francisco Thermal, Limited Partnership Delaware
San Joaquin Valley Energy I, Inc. California
San Joaquin Valley Energy IV, Inc. California
San Joaquin Valley Energy Partners I, L.P. California
San Joaquin Valley Energy Partners IV, L.P. California
Scoria Incorporated Minnesota
Scudder Latin American Power I-C L.D.C. Cayman Islands,
British West Indies
Scudder Latin American Power I-P L.D.C. Cayman Islands,
British West Indies
Sunnyside Cogeneration Associates Utah
Sunnyside Operations Associates L.P. Delaware
Sunshine State Power B.V. Netherlands
Sunshine State Power (No. 2) B.V. Netherlands
Tosli Investments B.V. Netherlands
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 8, 1997
relating to the financial statements of NRG Energy, Inc. for the two years
ended December 31 1996, which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Minneapolis, Minnesota
August 11, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of NRG Energy, Inc. on
Form S-1 of our report dated March 24, 1995, appearing in the Prospectus,
which is a part of this Registration Statement, and to the references to us
under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 11, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
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____CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
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NRG ENERGY, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 41-1724239
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
(Address of principal executive offices) (Zip code)
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7 1/2% SENIOR NOTES DUE 2007
(Title of the indenture securities)
<PAGE>
Item 1. General Information. Furnish the following information as
to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor
is not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility. Norwest Bank
incorporates by reference into this Form
T-1 the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the trustee
now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust Company
of Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust Company
of Minneapolis.*
c. A copy of the certificate of the Acting Comptroller
of the Currency dated January 12, 1943, as to change
of corporate title of Northwestern National Bank and
Trust Company of Minneapolis to Northwestern
National Bank of Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller
of the Currency certifying approval of consolidation
and merger effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with various other
banks under the title of "Norwest Bank Minnesota,
National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise corporate
trust powers issued January 2, 1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-7575.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 1st day of August, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ CURTIS D. SCHWEGMAN
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Curtis D. Schwegman
Assistant Vice President
<PAGE>
EXHIBIT 6
August 1, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ CURTIS D. SCHWEGMAN
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Curtis D. Schwegman
Assistant Vice President
