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NRG GENERATING (U.S.) INC.
1221 Nicollet Mall
Suite 610
Minneapolis, Minnesota 55403-2444
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 22, 1997
Notice is hereby given that the Annual Meeting of
Stockholders of NRG Generating (U.S.) Inc., a Delaware
corporation (the "Company"), will be held on Thursday, May 22,
1997, at 1:30 p.m., Central Daylight Time, at the Windows on
Minnesota, 50th Floor, IDS Center, 710 Marquette Avenue,
Minneapolis, Minnesota 55402 for the following purposes:
1. To elect eight directors for terms expiring at the
1998 annual meeting of stockholders;
2. To ratify the appointment of Price Waterhouse LLP as
the Company's independent public accountants;
3. To approve the Company's 1997 Stock Option Plan
authorizing the Company to grant options to purchase
up to 250,000 shares of the Company's Common Stock to
members of the Board of Directors, officers and key
employees of the Company or its subsidiaries; and
4. To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
April 22, 1997 as the record date for determining the
stockholders entitled to notice of, and to vote at, the Annual
Meeting or any adjournment thereof. A list of such stockholders
will be maintained at the Company's headquarters during the ten-
day period prior to the date of the Annual Meeting and will be
available for inspection by stockholders, for any purpose germane
to the meeting, during ordinary business hours.
We hope you will be represented at the meeting by signing
and returning the enclosed proxy card in the accompanying
envelope as promptly as possible, whether or not you expect to be
present in person. Your vote is important, and the Board of
Directors appreciates the cooperation of stockholders in
directing proxies to vote at the meeting.
By Order of the Board of Directors,
/s/ Karen A. Brennan
Karen A. Brennan
Secretary
Minneapolis, Minnesota
April 24, 1997
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NRG GENERATING (U.S.) INC.
1221 Nicollet Mall
Suite 610
Minneapolis, Minnesota 55403-2444
612-373-8834
____________
PROXY STATEMENT
April 24, 1997
GENERAL INFORMATION
The Board of Directors (the "Board of Directors") of NRG
Generating (U.S.) Inc., a Delaware corporation (the "Company"),
is furnishing this Proxy Statement to the holders of common stock
(the "Common Stock") of the Company in connection with the
solicitation of proxies for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 1:30 p.m.,
Central Daylight Time, on Thursday, May 22, 1997 and at any and
all adjournments thereof.
A proxy delivered pursuant to this solicitation is revocable
at the option of the person giving the same at any time before it
is exercised. A proxy may be revoked, prior to its exercise, (1)
by executing and delivering a later dated proxy card, (2) by
delivering written notice of the revocation of the proxy to the
Secretary of the Company prior to the Annual Meeting, or (3) by
attending and voting at the Annual Meeting. Attendance at the
Annual Meeting, in and of itself, will not constitute a
revocation of a proxy. Unless previously revoked, the shares
represented by the enclosed proxy will be voted in accordance
with the stockholder's directions if the proxy is duly executed
and returned prior to the Annual Meeting. If no directions are
specified, the shares will be voted FOR the election of the
director nominees recommended by the Board of Directors, FOR the
ratification of the appointment of Price Waterhouse LLP as the
Company's independent public accountants, FOR approval of the
Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"),
and in accordance with the discretion of the named proxies on
other matters properly brought before the Annual Meeting.
The Company will bear the expense of preparing, printing and
mailing this Proxy Statement and soliciting the proxies sought
hereby. In addition to the use of the mails, proxies may be
solicited by officers, directors and employees of the Company,
who will not receive additional compensation therefor, in person,
or by telephone, telegraph or facsimile transmission. The Company
also will request brokerage firms, banks, nominees, custodians
and fiduciaries to forward proxy materials to the beneficial
owners of shares of Common Stock as of the record date and will
provide reimbursement for the cost of forwarding the proxy
materials in accordance with customary practice. Your cooperation
in promptly signing and returning the enclosed proxy card will
help to avoid additional expense.
At April 1, 1997 the Company had 6,440,514 shares of Common
Stock issued and outstanding. Each share of Common Stock entitles
the holder to one vote. Only stockholders of record at the close
of business on April 22, 1997 will be entitled to notice of, and
to vote at, the Annual Meeting.
This Proxy Statement and the enclosed proxy card are first
being mailed to stockholders on or about April 24, 1997.
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OUTSTANDING VOTING SECURITIES OF THE COMPANY
AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding
shares of Common Stock or shares of common stock of Northern
States Power Company (hereinafter referred to as "NSP"; the stock
of NSP referred to as "NSP Stock")(1) beneficially owned as of
April 1, 1997 (except as otherwise noted below) by persons
believed by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock and by the
directors and named executive officers set forth in the Summary
Compensation Table herein and the directors and executive
officers of the Company as a group, and the percentage of the
outstanding shares of Common Stock represented thereby. Other
than as set forth below, no director or executive officer of the
Company is known to be the beneficial owner of any shares of
Common Stock. Except as noted below, the Company believes that
each of the persons listed has sole investment and voting power
with respect to the shares included in the table.
(1) NSP is the parent of NRG Energy, Inc. ("NRG Energy"), which
holds 41.86% of the Common Stock of the Company.
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<TABLE>
<CAPTION>
Name of Beneficial Owner Title of Class Amount and Nature of Percent of
Beneficial Ownership (1) Class
Five Percent Stockholders:
<S> <C> <C> <C>
NRG Energy, Inc. (2) Common Stock 2,710,357(9) 41.86%
1221 Nicollet Mall
Suite 700
Minneapolis,
Minnesota 55403-2445
Wexford Management LLC Common Stock 443,976(3) 6.9%
411 West Putnam Avenue
Greenwich, CT 06830
Directors and
Named Executive Officers:
David H. Peterson Common Stock 1,000 *
NSP Stock 3,460 *
Leonard A. Bluhm Common Stock 1,000 *
NSP Stock 6,102(4) *
Lawrence I. Littman Common Stock -0- *
Craig Mataczynski Common Stock 500 *
NSP Stock 3,317(5) *
Robert T. Sherman, Jr. Common Stock -0- *
Spyros S. Skouras, Jr. Common Stock -0- *
Charles J. Thayer Common Stock 10,000(6) *
Ronald J. Will Common Stock 2,500 *
NSP Stock 7,219(7) *
Directors and Executive Common Stock 15,500 *
Officers as a Group (9 persons) NSP Stock 20,098(8) *
</TABLE>
* represents less than one percent.
(1) The information contained in this table with respect to
Common Stock ownership reflects "beneficial ownership" as
determined in accordance with Rule 13-d under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(2) On April 30, 1996, NRG Energy, Inc. acquired 41.86% of the
outstanding shares of Common Stock of the Company and 100%
of the common stock of certain acquired subsidiaries for
$107,418,000, as adjusted by provisions set forth in the
Stock Purchase Agreement.
(3) Consists of 348,672 shares of common stock owned directly by
Wexford Capital Partners II, LP and 95,304 shares of Common
Stock owned directly by Wexford Overseas Partners Fund I,
LP. Through an investment management agreement, Wexford
Management LLC, which manages the funds, has sole voting and
investment power of the funds. Mr. Skouras serves as Senior
Vice President of Wexford Management LLC. The information
above was provided by Wexford Management LLC.
(4) The NSP Stock includes 2,750 shares of NSP Stock subject to
options which may be exercised within 60 days.
(5) The NSP Stock includes 2,887 shares of NSP Stock subject to
options which may be exercised within 60 days.
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(6) The shares are owned by Chartwell Capital Ltd. of which Mr.
Thayer is the 100% owner.
(7) The NSP Stock includes 2,636 shares of NSP Stock subject to
options which may be exercised within 60 days and 1,853
shares of NSP Stock which are owned by Mr. Will's spouse but
for which he shares investment power and 98 shares which he
owns jointly with his spouse and for which he shares
investment power.
(8) The NSP Stock includes 6,603 shares of NSP Stock subject to
options which may be exercised within 60 days.
(9) NRG Energy Inc. has the right to convert $3,000,000 under a
loan agreement with the Company for common stock of the
Company which would equal, on a fully diluted basis, 5.6% of
the Company's Common Stock as of April 30, 1996. See
"Compensation Committee Interlocks and Insider
Participation."
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
Action will be taken at the Annual Meeting for the election
of eight directors, each of whom will serve until the 1998 annual
meeting of stockholders and until his or her successor is elected
and qualified.
The Company's Bylaws provide that no fewer than two of the
nominees of the Board of Directors must consist of independent
directors and must be nominated by the Independent Directors
Committee. The Independent Directors Committee has nominated Mr.
Thayer and Mr. Littman as the two independent directors who have
met the Bylaw qualifications of an independent director and has
proposed that they and Mr. Skouras constitute the Independent
Directors Committee. Proxies cannot be voted for a greater
number of persons than the number of nominees named therein.
The Composite Fourth Amended and Restated Plan of
Reorganization ("Reorganization Plan") for O'Brien Environmental
Energy, Inc. ("O'Brien Energy")(2) initially fixed the number of
directors for the reconstituted Board at seven directors, of whom
(i) four were to be designated by NRG Energy, (ii) one was to be
designated by Wexford Management LLC ("Wexford"), (iii) one was
to be designated by the official committee of equity security
holders of O'Brien Energy ("Equity Committee") and (iv) one was
to be jointly designated by Wexford and each of the holders of
Class A Common Stock and Class B Common Stock of O'Brien Energy
who are members of the Equity Committee. Effective May 1, 1997,
subject to the employment of Robert T. Sherman, Jr. as President
and Chief Executive Officer, the Company's Bylaws were amended to
increase the number of members of the Board of Directors to
eight.
The Board of Directors has no reason to believe that any of
the nominees for director will not be available to stand for
election as director. However if some unexpected occurrence
should require the substitution by the Board of Directors of some
other person or persons for any one or more of the nominees, the
proxies may be voted in accordance with the discretion of the
named proxies FOR such substitute nominees.
(2) In September of 1994, O'Brien Energy filed for protection
under Chapter 11 of the U. S. Bankruptcy Code. Pursuant to the
Reorganization Plan, O'Brien Environmental Energy Inc. was
renamed "NRG Generating (U.S.) Inc."
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The following table sets forth the principal occupations for
at least the last five years and the current directorships of the
eight nominees for director to be elected pursuant to Proposal
No. 1.
Leonard A. Bluhm, Age 51.
Mr. Bluhm is Chief Executive Officer of the Company and is
Executive Vice President and Chief Financial Officer of NRG
Energy, Inc. From May 1, 1996 to December 31, 1996, Mr. Bluhm
served as President and Chief Executive Officer of the Company
under a Leased Employee Agreement with NRG Energy, Inc. From
January 1, 1997 through April 30, 1997, Mr. Bluhm has served and
will continue to serve as Chief Executive Officer of the Company.
Mr. Bluhm is also President of all of the Company's subsidiaries.
Prior to April 1996, Mr. Bluhm served as Vice President and Chief
Financial Officer of NRG Energy from 1993 to 1996, Chief
Financial Officer of Cypress Energy Partners from April 1992 to
January 1993 and as Director of international operations and
mergers, acquisition and special projects from 1991 to 1992. Mr.
Bluhm was appointed a Director of the Company on September 20,
1996 and was elected Chairman of the Board effective December 31,
1996.
Lawrence I. Littman, Age 66.
Mr. Littman was General Manager of Liberty Cab & Limousine
Company from January 1, 1992 to May 1, 1996 and served as Chief
Executive Officer of that company from January 1, 1967 until
January 1, 1992. From June 1984 to June 1993, he served as Chief
Executive Officer for Lil Stable, Inc. Mr. Littman was appointed
an independent Director of the Company on April 30, 1996,
pursuant to the Reorganization Plan.
Craig A. Mataczynski, Age 36.
Mr. Mataczynski is Vice President of U.S. Business
Development for NRG Energy. From May 1993 to December 1994, Mr.
Mataczynski was President of NEO Corporation ("NEO"), a wholly
owned subsidiary of NRG Energy. Prior to joining NEO, Mr.
Mataczynski served in various managerial capacities at NSP in the
Power Generation Business Unit and Corporate Strategy. Mr.
Mataczynski was appointed a Director of the Company pursuant to
the Reorganization Plan and Assistant Secretary of the Company on
April 30, 1996.
David H. Peterson, Age 55.
Mr. Peterson has served as Chairman of the Board of NRG
Energy since 1995. He has also served as President of NRG Energy
since July 1989 and Chief Executive Officer of NRG Energy since
1994. Mr. Peterson was appointed Director of the Company on
April 30, 1996 pursuant to the Reorganization Plan. The Board of
Directors elected Mr. Peterson Chairman of the Board on April 30,
1996 and he served in that position until December 31, 1996 when
Mr. Bluhm became Chairman.
Robert T. Sherman, Jr., Age 44
Mr. Sherman was elected President and Chief Executive
Officer of the Company by the Board of Directors on March 27,
1997 effective May 1, 1997, subject to the fulfillment of normal
pre-employment conditions. Also effective May 1, 1997, and
subject to his employment, Mr. Sherman was elected to the newly
created position on the Board of Directors. See "Proposal No. 1 -
Election of Directors" above. From 1991 to May 1997, Mr. Sherman
was Vice President at
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Cogen Technologies, and from 1985 to 1991 he served in various
capacities as a senior officer of CRSS, Inc.
Spyros S. Skouras, Jr., Age 44.
Mr. Skouras is Senior Vice President of Wexford Management
LLC. Prior to joining Wexford in April of 1995, Mr. Skouras
served as President of Skouras Capital from 1991 to 1994 and as
Chief Operating Officer of Prudential-Grace Lines, Inc. from 1976
to 1989. Mr. Skouras served as a Director of O'Brien Energy from
1995 until 1996 and was appointed a Director of the Company on
April 30, 1996 pursuant to the Reorganization Plan.
Charles Thayer, Age 53.
Mr. Thayer has served as Managing Director of Chartwell
Capital Ltd., a private investment firm, since 1989. From June
1993 until August 1993, he was Chairman and Interim Chief
Executive Officer of Sunbeam Corporation and was Vice Chairman of
that company from April 1996 until August 1996. Mr. Thayer is a
Director of Sunbeam Corporation and Digital Wireless Corporation.
Mr. Thayer was appointed an independent Director of the Company
on April 30, 1996 pursuant to the Reorganization Plan.
Ronald J. Will, Age 56
Mr. Will has served as Vice President, operations and
engineering, of NRG Energy since 1991. From September of 1989
until February of 1991, he served as President and Chief
Executive Officer of NRG Thermal. Mr. Will was appointed a
Director of the Company on April 30, 1996 pursuant to the
Reorganization Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES
LISTED IN PROPOSAL NO. 1.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected annually
and serve at the pleasure of the Board of Directors. The
following sets forth certain information with respect to the
executive officers of the Company.
Leonard A. Bluhm, Age 51.
Chief Executive Officer.
See "Proposal No. 1: Election of Directors" for biographical
information concerning Mr. Bluhm.
Robert T. Sherman, Jr. was elected President and Chief
Executive Officer of the Company by the Board of Directors on
March 27, 1997, effective May 1, 1997, subject to the fulfillment
of normal pre-employment conditions. See "Proposal No. 1:
Election of Directors" for biographical information concerning
Mr. Sherman.
7
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Timothy P. Hunstad, Age 39.
Vice President and Chief Financial Officer.
Mr. Hunstad has served as Vice President and Chief Financial
Officer of the Company since September 1, 1996. Prior to joining
the Company, he was President of NEO Corporation from January 1,
1995 until September 1, 1996 and Managing Director, Finance, of
NRG Energy from July 1, 1994 until December 31, 1994. Mr.
Hunstad served as Treasurer of NRG Australia, Ltd. from March
1993 until June 30, 1994 and Director, Project Finance, of NRG
Energy from September 1, 1992 until March 1993. Previously, he
was employed with E.F. Johnson Company as Director of Corporate
Development from January 1991 until July 1992.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The following discussion of meetings of the Board of
Directors and the committees thereof includes meetings occurring
during the Company's six-month fiscal year beginning on July 1,
1996 and ending December 31, 1996.
From July 1, 1996 through December 31, 1996, the Board of
Directors of the Company met four times. No member of the Board
of Directors attended fewer than 75% of the total number of
meetings held by the Board of Directors and the committees on
which such director served during that period.
The standing committees of the Board of Directors of the
Company, which were formed April 30, 1996 pursuant to the
Reorganization Plan, are the Audit, Compensation and Independent
Directors Committees. Their principal functions and the names of
the directors currently serving as members of those committees
are set forth below.
Audit Committee
The members of the Audit Committee are Messrs. Charles J.
Thayer, Spyros S. Skouras, Jr. and Ronald J. Will. The Audit
Committee has such powers, authority and responsibilities as are
normally incident to the functions of an Audit Committee. Typical
Audit Committee functions are to initiate or review the results
of all audits or investigations into the business affairs of the
Company and its subsidiaries, conduct pre- and post- audit
reviews with the Company's management, financial employees and
independent auditors, and review the Company's quarterly and
annual financial statements and reports. The Audit Committee met
one time during the period from July 1, 1996 to December 31,
1996.
Compensation Committee
The current members of the Compensation Committee are
Messrs. Charles J. Thayer, Lawrence I. Littman and Leonard A.
Bluhm. On December 12, 1996 Mr. Bluhm replaced Mr. David H.
Peterson as a member of the Compensation Committee. The
Compensation Committee administers the Company's 1996 Stock
Option Plan and has the powers and authority granted to it by any
incentive compensation plan for employees of the Company or any
of its subsidiaries and such other powers, authority and
responsibilities as may be determined by the Board. The
Compensation Committee determines the compensation of (a)
employees of the Company who
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are directors of the Company; and (b) after receiving and
considering the recommendation of the chief executive officer and
the president of the Company, all other employees of the Company
who are officers of the Company or who occupy such other
positions as may be designated by the Compensation Committee.
The Compensation Committee met three times during the period from
July 1, 1996 to December 31, 1996.
Independent Directors Committee
The members of the Independent Directors Committee are
Messrs. Charles J. Thayer, Spyros S. Skouras, Jr. and Lawrence
I. Littman. The Independent Directors Committee has three
members, two of whom must be Independent Directors. Prior to the
annual meeting, the Independent Directors Committee nominates
those individuals who will serve as Independent Directors on the
Board as well as constitute the three members of the Independent
Directors Committee. It designates the individuals to fill any
vacancies on the Board that are to be filled by a member of the
Independent Directors Committee and that arise between annual
meetings of shareholders. The Independent Directors Committee
also has the sole authority and responsibility to make all
decisions and take all actions on behalf of the Company under
certain agreements between NRG Energy and the Company, including
the Co-Investment Agreement (described below). The Independent
Directors Committee met twice during the period from July 1, 1996
to December 31, 1996.
PROPOSAL NO. 2:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP ("Price Waterhouse") has served as the
Company's independent public accountants since April 30, 1996,
and has been reappointed by the Board of Directors to serve in
that capacity for the period to end December 31, 1997. A
representative of Price Waterhouse will be available at the
Annual Meeting to respond to appropriate questions and will be
given an opportunity to make a statement on behalf of Price
Waterhouse, if desired.
Although not formally required, the Board of Directors
decided to submit the reappointment of the independent auditors
of the Company to the stockholders for ratification as a matter
of sound corporate practice. If the stockholders do not ratify
the appointment of Price Waterhouse, the Board of Directors will
reconsider the reappointment of the independent auditors. If the
stockholders ratify the appointment, the Board of Directors, in
its sole discretion, may still direct the appointment of new
independent auditors at any time during 1998 if the Board of
Directors believes that such a change would be in the best
interests of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE AS
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
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PROPOSAL NO. 3:
APPROVAL OF THE NRG GENERATING (U.S.) INC. 1997 STOCK OPTION PLAN
On March 27, 1997, the Board of Directors of the Company
adopted the NRG Generating (U.S.) Inc. 1997 Stock Option Plan
which authorizes the Company to grant options to purchase up to
250,000 shares of the Company's Common Stock. Under the 1997
Stock Option Plan, the Company has the authority to grant its
officers, directors and key employees either nonqualified stock
options ("NQSOs") or incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Nonemployee directors may only receive
NQSOs under the 1997 Stock Option Plan.
In order for the Company to issue ISOs, shareholder approval
of the plan is required under both the Code and the 1997 Stock
Option Plan. Accordingly, at the Annual Meeting, the 1997 Stock
Option Plan is being submitted to the shareholders for their
approval so that the Company may issue such ISOs.
The following summary outlined below is qualified in its
entirety by reference to the full text of the 1997 Stock Option
Plan, which is set forth in the attached Appendix A.
Purpose of the 1997 Stock Option Plan
The purpose of the 1997 Stock Option Plan is to maximize the
long-term success of the Company, to ensure a balanced emphasis
on both current and long-term performance, to enhance
participant's identification with shareholders' interests and to
facilitate the attraction and retention of key individuals with
outstanding ability. The 1997 Stock Option Plan provides for the
grant to members of the Board of Directors, officers and key
employees of the Company and its subsidiaries of options to
purchase shares of the Common Stock of the Company.
Major Provisions of the 1997 Stock Option Plan
The major provisions of the 1997 Stock Option Plan are as
follows:
Eligibility: The persons who are eligible to receive awards
pursuant to the 1997 Stock Option Plan are members of the Board
of Directors, officers and key employees of the Company or its
subsidiaries, as the Board of Directors selects from time to
time, who occupy responsible managerial, professional or advisory
positions and who have the capability of making a substantial
contribution to the success of the Company. Directors who are
not employees or officers of the Company are ineligible to
receive ISOs under the 1997 Stock Option Plan. The Company
estimates that at the present time approximately four of its
approximately 120 employees are eligible to participate in the
1997 Stock Option Plan.
Administration: In adopting the 1997 Stock Option Plan, the
Board of Directors designated a committee (the "Committee"), to
administer the 1997 Stock Option Plan. References in this
discussion of the 1997 Stock Option Plan to the Committee shall
be deemed to include the Committee or any other committee or
person whom the Board of Directors designates to administer the
1997 Stock Option Plan.
Option Types: The 1997 Stock Option Plan permits the
Committee to grant, in its discretion, ISOs and NQSOs. Stock
options designated as ISOs will comply with Section 422 of
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the Code. NQSOs, which are options that are not ISOs, entitle the
holder to purchase up to the number of shares of Common Stock of
the Company specified in the grant.
Option Price: The Committee determines the exercise price
per share of the options but, in the case of ISOs, the price will
in no event be less than the Fair Market Value (as defined in the
1997 Stock Option Plan) of a share of Common Stock on the date
the ISO is granted. Payment for shares of Common Stock purchased
upon exercise of an option shall be made in cash or by optionee's
personal check, certified check or bank draft or, in the
Committee's discretion determined at the time of the grant: (i)
in shares of Common Stock owned by the optionee or with shares of
Common Stock withheld from the shares otherwise deliverable to
the optionee upon exercise of an option; (ii) by delivery of an
irrevocable direction to a securities broker to sell shares of
Common Stock and deliver all or a portion of the proceeds to the
Company in payment for the Common Stock; (iii) by delivery of the
optionee's promissory note while granting options or other
Incentive Awards pursuant to the 1997 Stock Option Plan; or (iv)
in any combination of the foregoing.
Nontransferability: During the lifetime of the participant,
options awarded under the 1997 Stock Option Plan may be exercised
only by such person or by such person's guardian or legal
representative.
Time and Manner of Exercise: Options may be exercised in
whole at any time, or in part from time to time, with respect to
whole shares only, within the period permitted for exercise and
shall be exercised by written notice to the Company. In addition
to the payment of the option price, the participant shall pay to
the Company in cash or in Common Stock the amount the Company is
required to withhold or pay under federal or state law with
respect to the exercise of the option or, in the alternative, the
number of shares delivered by the Company under exercise of the
option shall be appropriately reduced to reimburse the Company
for such payment. Except as otherwise provided in the 1997 Stock
Option Plan, an ISO may not be exercised at any time unless the
holder is then an employee of the Company, its parent or
subsidiary.
Amendment or Termination of the 1997 Stock Option Plan: The
Board of Directors may terminate and in any respect amend or
modify the 1997 Stock Option Plan, except that shareholder
approval is required in order to (i) increase the total number of
shares of Common Stock available under the 1997 Stock Option Plan
(unless such increase is a result of changes in capitalization as
described in the 1997 Stock Option Plan); (ii) materially
increase the benefits accruing to participants under the 1997
Stock Option Plan; (iii) materially modify the requirements as to
eligibility for participation in the 1997 Stock Option Plan; (iv)
extend the period during which any option may be granted or
exercised; or (v) extend the term of the 1997 Stock Option Plan.
Except as otherwise provided in the 1997 Stock Option Plan, no
amendment, modification, or termination of the 1997 Stock Option
Plan shall in any manner adversely affect the rights of any
participant under the 1997 Stock Option Plan without the consent
of such participant.
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Federal Income Tax Consequences of the 1997 Stock Option Plan
Incentive Stock Options: If an option under the 1997 Stock
Option Plan is treated as an ISO, the optionee generally
recognizes no regular taxable income as the result of the grant
or exercise of the option. However, an amount equal to the
difference between the Fair Market Value of the stock on the date
of exercise and the exercise price will be treated as an item of
adjustment in the year of exercise for purposes of the
alternative minimum tax.
The Company will not be allowed a deduction for federal
income tax purposes in connection with the grant or exercise of
an ISO, regardless of the applicability of the alternative
minimum tax to the optionee. The Company will be entitled to a
deduction, however, to the extent that ordinary income is
recognized by the optionee upon a disqualifying disposition (see
below).
Upon a sale or exchange of the shares at least two years
after the grant of an ISO and one year after exercise of the
option, gain or loss will be recognized by the optionee equal to
the difference between the sale price and the exercise price.
Such gain or loss will be characterized for federal income tax
purposes as long-term capital gain or loss. The Company is not
entitled to any deduction under these circumstances.
If any optionee disposes of shares acquired upon issuance of
an ISO prior to completion of either of the above holding
periods, the optionee will have made a "disqualifying
disposition" of the shares. In such event, the optionee will
recognize ordinary income at the time of disposition equal to the
difference between the exercise price and the lower of the Fair
Market Value of the stock at the date of the option exercise or
the sale price of the stock. The Company generally will be
entitled to a deduction in the same amount as the ordinary income
recognized by the optionee on a disqualifying disposition if the
optionee's total compensation is deemed reasonable in amount.
The optionee also will recognize capital gain on such
disqualifying disposition in an amount equal to the difference
between (i) the amount realized by the optionee upon such
disqualifying disposition of the stock and (ii) the exercise
price, increased by the total amount of ordinary income, if any,
recognized by the optionee upon such disqualifying disposition
(as described in the second sentence of the preceding paragraph).
Any such capital gain resulting from a disqualifying disposition
of shares acquired upon exercise of an ISO will be long-term
capital gain if the shares with respect to which such gain or
loss is realized have been held for more than twelve months.
NQSOs: An optionee generally recognizes no taxable income
as the result of the grant of any NQSO, assuming that the option
does not have a readily ascertainable fair market value at the
time it is granted (which is usually the case with plans of this
type). Upon exercise of an NQSO, an optionee will normally
recognize ordinary compensation income for federal tax purposes
equal to the excess, if any, of the then Fair Market Value of the
shares over the exercise price. Optionees who are employees will
be subject to withholding with respect to income recognized upon
exercise of an NQSO.
The Company will be entitled to a tax deduction to the
extent and in the year that ordinary income is recognized by the
exercising optionee, so long as the optionee's total compensation
is deemed reasonable in amount.
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Upon a sale of shares acquired pursuant to the exercise of
an NQSO, any difference between the sale price and the Fair
Market Value of the shares on the date of exercise will be
treated as capital gain or loss, and will qualify for long-term
capital gain or loss treatment if the shares have been held for
more than twelve months.
Market Price of the Common Stock
The closing price of the Common Stock as reported by the
NASDAQ News Service was $11.25 per share on March 31, 1997. As of
such date the aggregate market value of the shares of Common
Stock available for issuance under the 1997 Stock Option Plan was
$2.8 million.
On March 27, 1997 the Committee granted ISOs for 205,000
shares to Robert T. Sherman, Jr., contingent upon his becoming
President and Chief Executive Officer of the Company. This grant
includes a Base Option grant of 105,000 shares and a Performance
Based Option grant of 100,000 shares which will vest in one or
two tranches only if and when the price of the Company's Common
Stock reaches certain threshold values.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
1997 STOCK OPTION PLAN.
EXECUTIVE AND DIRECTOR COMPENSATION
The following table sets forth all compensation, including
bonuses and other payments, paid or accrued by the Company during
the six month period ended December 31, 1996 and the fiscal year
ended June 30, 1996 to the Company's current chief executive
officer.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
All Other
Salary Compensation
Name and Principal Position Year ($) Bonus($) ($)
<S> <C> <C> <C> <C>
Leonard A. Bluhm, Period from July 31,
Chief Executive 1996 to December
Officer & President (1) 31, 1996 18,608 40,000 0
President (1)
Fiscal Year 1996 81,076 0 0
</TABLE>
(1) Mr. Bluhm became President and Chief Executive Officer on
April 30, 1996. He resigned as President of the Company
effective December 31, 1996. He is an employee of NRG
Energy and his services are leased to the Company pursuant
to a Leased Employee Agreement with NRG Energy. Mr.
Bluhm's compensation is paid by NRG Energy who is
reimbursed by the Company. See "Related Party
Transactions."
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Director Compensation
Each non-employee director of the Company receives an annual
retainer fee of $14,000, and is entitled to a $1,000 fee paid
quarterly for each meeting attended in person ($500 for
telephonic attendance) and $500 for each scheduled committee
meeting attended in person ($250 for telephonic attendance) and
reimbursement of reasonable expenses incurred in attending
meetings of the Board and its Committees. Directors may also
receive grants of nonqualified options to purchase Common Stock
under the 1996 Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
Interlocks: The members of the Compensation Committee are
Messrs. Charles J. Thayer, chairman, Lawrence I. Littman, David
H. Peterson (through December 12, 1996) and Leonard A. Bluhm.
Mr. Bluhm is Executive Vice President and Chief Financial Officer
of NRG Energy, which holds 41.86% of the Common Stock of the
Company.
Certain Transactions: On May 1, 1996, the Company entered
into a Management Services Agreement and a Co-Investment
Agreement with NRG Energy. The Management Services Agreement
provides that NRG Energy will provide management, administrative
and certain other services to the Company in connection with the
day to day business of the Company. The Company expensed
approximately $608,000 from May 1, 1996 through December 31, 1996
(of which $479,000 was expensed during the six month period ended
December 31, 1996) pursuant to the Management Services Agreement
with NRG Energy.
Pursuant to the Co-Investment Agreement, NRG Energy agreed
to offer to the Company ownership interests in certain power
projects which were initially developed by NRG Energy or with
respect to which NRG Energy has entered into a binding
acquisition agreement with a third party. If any eligible
project reaches certain contract milestones (which include the
execution of a binding power purchase agreement and fuel supply
agreement and the completion of a feasibility and engineering
study) by April 30, 2003, NRG Energy has agreed to offer to sell
to the Company all of NRG Energy's ownership interest in such
project. Eligible projects include, with certain limited
exceptions, any proposed or existing electric power plant within
the United States NRG Energy initially develops or in which NRG
Energy proposes to acquire an ownership interest. NRG Energy is
obligated under the Co-Investment Agreement to offer to the
Company, during the three year period ending on April 30, 1999,
projects with an aggregate equity value of at least $60,000,000
or a minimum of 150 net MW. No offers were made to the Company
during the six month period ending December 31, 1996 pursuant to
the Co-Investment Agreement.
During the six month period ending December 31, 1996, NRG
Energy provided approximately $645,000 in project and
construction management services rendered in connection with
Gray's Ferry Project partnership of which the Company is one-
third owner.
Effective May 23, 1996, NRG Energy guaranteed payment of pre-
existing liabilities of NRG Generating (Newark) Cogeneration,
Inc. ("Newark") and NRG Generating (Parlin) Cogeneration, Inc.
("Parlin"), wholly-owned subsidiaries of the Company, of up to $5
million, which amount will be reduced as certain defined
milestones are reached and will be eliminated no later than May
23, 2001. On June 28, 1996, NRG Energy advanced Parlin
approximately $56 million to pay off the Parlin nonrecourse
financing which included a $3.1 million cost to terminate an
interest rate swap agreement. At December 31, 1996, loans
aggregating approximately $14.4 million remained outstanding to
NRG Energy.
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<PAGE>
Effective June 28, 1996, the Company guaranteed up to $25
million of obligations in connection with the financing of a $155
million loan made by Credit Suisse to Parlin and Newark.
In March 1996, NRG Energy and O'Brien (Schuylkill)
Cogeneration Inc. ("OSC"), a wholly-owned subsidiary of the
Company, entered into a $10 million loan agreement to provide a
means of funding an OSC capital contribution obligation to the
Grays Ferry Partnership. No amounts have yet been borrowed under
the note. In connection with NRG Energy's assistance with the
Gray's Ferry project, its financing and the note, the Company
granted NRG Energy the right to convert a portion of borrowings
under the note to Common Stock of the Company. The option
agreement provides that the Company can convert $3 million of
borrowings under the note for common stock of the reorganized
Company which would equal, on a fully diluted basis, 5.6% of the
shares of the Common Stock of the Company as of April 30, 1996.
Power Operations, Inc., a wholly-owned subsidiary of the
Company ("Power Operations"), assumed operations and maintenance
responsibilities for the Company's Newark facility and the
Company's Parlin facility, in each case replacing the former
operator, on November 8, 1996, and December 31, 1996,
respectively. Effective January 1, 1997, Power Operations was
sold by the Company to NRG Energy for $10.00 plus the amount of
Power Operations' outstanding accounts receivable and an
indemnification by NRG Energy to the Company for certain
potential losses or other liabilities that might occur with
respect to the termination of the prior operator of the Newark
and Parlin facilities and the assumption by Power Operations of
operations and maintenance responsibilities for such facilities.
The terms of this transaction were approved by the Independent
Directors Committee of the Company's Board of Directors as
required by the Company's Bylaws.
RELATED PARTY TRANSACTIONS
The Company entered into a Liquidating Asset Agreement with
Wexford Management LLC ("Wexford") pursuant to which Wexford was
granted authority to liquidate certain assets of the Company, for
which Wexford is to receive an asset liquidation fee. The
maximum fee available to Wexford is $1,500,000. During the six
month period ended December 31, 1996, Wexford earned
approximately $316,000 for the sale of unused equipment and the
sale of O'Brien Thermal Technologies, Inc. Mr. Skouras is Senior
Vice President of Wexford.
The Company entered into a Leased Employee Agreement with
NRG Energy, whereby NRG Energy agreed to lease its employee,
Leonard A. Bluhm, to the Company to perform the duties of
President and Chief Executive Officer of the Company. For the
six month period ended December 31, 1996, the Company paid NRG
Energy $132,154 which included the salary paid to Mr. Bluhm and
other amounts necessary to reimburse NRG Energy for expenditures
associated with or resulting from Mr. Bluhm's employment.
See "Compensation Committee Interlocks and Insider
Participation - Certain Transactions" above for a description of
certain transactions and relationships between the Company and
NRG Energy. Mr. Peterson is Chairman of the Board, President and
Chief Executive Officer of NRG Energy and Messrs. Mataczynski and
Will are Vice Presidents of NRG Energy. Until September 1, 1996,
Mr. Timothy P. Hunstad, who is the Vice President and Chief
Financial Officer of the Company, was President of NEO
Corporation, a wholly-owned subsidiary of NRG Energy.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee discusses
generally the Committee's executive compensation objectives
following reorganization on April 30, 1996. Prior to April 30,
1996, the Company was managed by a bankruptcy court appointed
administrator and compensation for this individual was per
agreement with the court.
Executive Compensation Objectives
The Committee's objective is to provide a competitive
compensation program that will attract and retain the expertise
required for managing in the fast-changing power industry sector.
Further, the objective is to provide the appropriate incentives
to match compensation with performance in both the short term as
well as the long term. The components of the compensation program
as described below clearly link the interests of management with
those of the shareholders.
Total executive compensation (base salary plus incentive
compensation) is compared with similar companies in the
Independent Power Producer ("IPP") industry. Generally, the
committee will target total pay levels that are near the median
of the group (adjusted for company size) although a larger
portion of the Company's pay will be targeted to incentive
compensation as compared with the comparison group.
Executive Compensation Components
Total executive compensation since April 30, 1996 consists
of three primary components: base salary, short-term-incentive
and long-term incentive compensation. The compensation
components of the President and Chief Executive Officer from July
1, 1996 through December 31, 1996 are described separately since
during this period of time the President and Chief Executive
Officer was also an employee of NRG Energy, Inc. and his services
were provided to the Company under a Leased Employee Agreement.
Base Salary: Base salary levels are largely determined by
comparison with the salaries of similar positions in the IPP
industry sector through surveys collected by the Human Resources
group of member IPPs. The Company's compensation program includes
a short-term incentive component that is included for market
comparison purposes.
Short-Term-Incentive: The Short-Term-Incentive Plan is
designed to support the achievement of important business
objectives that will result in the Company's long-term success.
Participation in the short-term plan is limited and is approved
annually by the Compensation Committee. Short-term incentive
award potential varies by position with actual awards linked to
financial and business development goals.
Long-Term Incentive Compensation: Long-term incentives for
executive officers and the operations manager are provided
through grants of stock options under the 1996 Stock Option Plan.
Stock options provide gains to executives only if, in the long
term, the Company's common stock price improves over the fair
market value of the stock (as determined under the plan) on the
date options are granted. Additionally, long-term performance is
encouraged since most of the options vest annually at a rate of
33 1/3 percent on the anniversary date of the grant. The 1996
Stock Option Plan permits the use of NQSOs or ISOs. As discussed
elsewhere, the following
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<PAGE>
NQSOs were granted on October 23, 1996:
President & Chief Executive Officer 105,000 shares (3)
Vice President & Chief Financial Officer 75,000 shares
Operations Manager 30,000 shares
It is anticipated that ISOs may be granted in 1997 or 1998
based on specific annual performance targets which would likely
include achievement of earnings targets and progress towards
growth objectives.
President & Chief Executive Officer: From July 1, 1996
through December 31, 1996, the President and Chief Executive
Officer performed under a Leased Employee Agreement with NRG
Energy. During this period of time, the President and Chief
Executive Officer remained an employee of the NRG Energy and was
eligible for NRG Energy's benefits. In addition, he is eligible
for the long-term incentives provided through the Company's stock
options provided he remains in an appropriate capacity through
the vesting periods.
Summary
The committee's objective in setting executive compensation
and in establishing the appropriate balance between fixed and
long-term compensation is designed to clearly link pay and
performance. Very simply, executives are rewarded when and to
the extent shareholders are rewarded. To achieve these goals,
the committee annually reviews pay programs and makes
modifications as it deems necessary to continue to attract,
retain and motivate talented, experienced executives.
Charles J. Thayer, Chairman
Leonard A. Bluhm
Lawrence I. Littman
PERFORMANCE GRAPH
The following performance graph compares the percentage
change in the cumulative weighted average total return on the
common stock of the Company with the total cumulative returns
during the same period of (1) the Nasdaq Composite Index and (2)
an index of comparable peer issuers constructed by the Company.
The index of comparable peer issuers is composed of AES
Corporation, Calpine Corporation and California Energy Company
Inc. during the periods that each company has been publicly
traded. In compliance with Securities and Exchange Commission
Regulations, the returns of each of the comparable companies have
been weighted according to capitalization during the period from
May 1, 1996.
(3) The President and Chief Executive Officer was granted NQSOs
for 105,000 shares, of which 75,000 were canceled after Mr.
Bluhm resigned as President and Chief Executive Officer.
17
<PAGE>
NRG Generating Weighted Nasdaq
(U.S.) Inc. Comparables Composites
May 1996 100 100 100
December 1996 149 166 122
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers, and persons who beneficially
own more than 10% of any class of the Company's equity
securities, to file with the Commission initial reports ("Form
3") of beneficial ownership and reports of changes ("Form 4") in
beneficial ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than 10%
beneficial owners are required by Commission regulation to
furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written
representations that no other reports were required, all Section
16(a) filing requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied with for the
six month period ended December 31, 1996, except for the failure
to timely file Mr. Hunstad's Initial Report on Form 3, which has
since been filed. In addition, Mr. Skouras has amended his Form
3.
OTHER MATTERS
The Board of Directors knows of no other matters to be
brought before the Annual Meeting. However, if any other matters
are properly brought before the Annual Meeting, it is the
intention of the named proxies in the accompanying proxy to vote
in accordance with their judgment on such matters.
VOTING REQUIREMENTS
With regard to Proposal No.1, the election of directors,
votes may be cast for or votes may be withheld from each nominee.
Directors will be elected by plurality vote. Therefore, votes
that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may not be specified with
respect to the election of directors and, under applicable
Delaware law, broker non-votes will have no effect on the outcome
of the election of directors.
With regard to Proposal No. 2, the ratification of
independent public accountants, and Proposal No. 3, approval of
the 1997 Stock Option Plan, votes may be cast for or against the
matter, or stockholders may abstain from voting on the matter.
Approval of each such matter requires the affirmative vote of at
least a majority of the shares of Common Stock present or
18
<PAGE>
represented by proxy at the meeting and entitled to vote.
Therefore, abstentions will have the effect of votes against the
approval of the matter. However, under applicable Delaware law,
a broker non-vote will have no effect on the outcome of either
proposal.
If no directions are specified in any duly signed and dated
proxy card received by the Company, the shares represented by
that proxy card will be counted as present for quorum purposes
and will be voted by the named proxies FOR the election of the
director nominees recommended by the Board of Directors, FOR the
ratification of the appointment of Price Waterhouse as the
Company's independent public accountants, FOR approval of the
1997 Stock Option Plan, and in accordance with the discretion of
the named proxies on other matters properly brought before the
Annual Meeting.
STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES
The Bylaws of the Company provide that any stockholder of
record who is entitled to vote for the election of directors at a
meeting called for that purpose may nominate persons for election
to the Board of Directors subject to the following notice
requirements.
As described more fully in the Company's Bylaws, a
stockholder desiring to nominate a person for election to the
Board of Directors must send a written notice to the Secretary of
the Company setting forth (i) the name and residence address of
the stockholder of the Company who intends to make a nomination
or bring up any other matter; (ii) a representation that the
stockholder is a holder of the Company's voting stock and intends
to appear in person or by proxy at the meeting to make the
nomination or bring up the matter specified in the notice; (iii)
with respect to notice of an intent to make a nomination, (A) a
description of all arrangements or any other person or persons
(naming such person) pursuant to which the nomination or
nominations are to be made by the stockholder; and (B) such other
information regarding each nominee proposed by such stockholder
as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated by the Board of
Directors; and (iv) with respect to notice of an intent to bring
up any other matter, a description of the matter and any material
interest of the stockholder in the matter.
Pursuant to the Company's Bylaws, to be timely, notice of
persons to be nominated by a stockholder as a director at a
meeting of stockholders must be delivered to or mailed and
received by the Secretary of the Company not less than 120 days
nor more than 180 days prior to the annual meeting. The
obligation of stockholders to comply with the forgoing Bylaw
provision is in addition to the requirements of the proxy rules
if the stockholder intends to solicit proxies in favor of the
election of its nominee(s).
STOCKHOLDER PROPOSALS
The 1998 Annual Meeting of Stockholders ("1998 Annual
Meeting") is anticipated to be held in May of 1998. Stockholder
proposals to be included in the Company's Proxy Statement
relating to the 1998 Annual Meeting must be received within a
reasonable time prior to the meeting at the Company's principal
executive offices, 1221 Nicollet Mall, Suite 610, Minneapolis,
Minnesota 55403-2444, Attention: Secretary. Stockholders of the
Company who intend to
19
<PAGE>
nominate candidates for election as a director or to bring
business before the meeting must also comply with the applicable
procedures set forth in the Company's Bylaws. See "Stockholder
Nomination of Director Candidates." The Company will furnish
copies of such Bylaw provisions upon written request to the
Secretary of the Company at the aforementioned address.
AVAILABILITY OF FORM 10-K
A copy of the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as filed with the Commission, is being
mailed with this Proxy Statement.
The foregoing Notice and Proxy Statement are sent by order
of the Board of Directors.
/s/ Karen A. Brennan
Karen A. Brennan
Secretary
April 24, 1997
20
<PAGE>
NRG GENERATING (U.S.) INC.
1997 STOCK OPTION PLAN
Effective as of the 1st day of May, 1997.
<PAGE>
APPENDIX
NRG GENERATING (U.S.) INC.
1997 STOCK OPTION PLAN
ARTICLE I
1.1 Name and Purpose. The name of this Plan is
the "NRG Generating (U.S.) Inc. 1997 Stock Option Plan"
(the "Plan"). Its purpose is (a) to maximize the long-
term success of NRG Generating (U.S.) Inc. (the
"Company"), (b) to ensure a balanced emphasis on both
current and long-term performance, (c) to enhance
Participants' identification with shareholders'
interests, and (d) to facilitate the attraction and
retention of key individuals with outstanding ability.
1.2 Definitions. Whenever used in the Plan, the
following terms shall have the meaning set forth below:
(a) "Board of Directors" or "Board" shall
mean the Board of Directors of NRG Generating
(U.S.) Inc. as constituted from time to time.
(b) "Change of Control" shall have the
meaning ascribed by Section 5.5 hereof.
(c) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(d) "Common Stock" shall mean the common
voting shares of the Company.
(e) "Committee" shall mean the Compensation
Committee of the Board or such other committee or
subcommittee of the Board as may have been or may
be designated or appointed by the Board.
(f) "Company" shall mean NRG Generating
(U.S.) Inc. or any successor thereto.
(g) "Control Transaction" shall have the
meaning ascribed by Section 5.5 hereof.
(h) "Disability" shall mean total and
permanent disability as defined in Code Section
22(e).
(i) "Employee" shall mean any person who is
currently a common law employee of the Company or
any of its Subsidiaries.
(j) "Effective Date" shall mean the date the
Plan is adopted by the Board, subject to approval
by the shareholders of the Company at a meeting
held within twelve (12) months following the date
of adoption by the Board.
(k) "Fair Market Value" or "FMV" shall mean
the fair market value of the Common Stock, which
shall be determined as follows:
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<PAGE>
(i) if the Common Stock is listed
on any established stock exchange or a national
market system, including, without limitation, the
NASDAQ National Market, its fair market value
shall be the average, over the twenty (20) trading
days preceding the date of the grant of an option,
of the closing selling prices for such stock on
the principal securities exchange or national
market system on which the Common Stock is at the
time listed for trading. If there are no sales of
Common Stock on that date, then the closing
selling price for the Common Stock on the next
preceding day for which such closing selling price
is quoted shall be determinative of fair market
value; or
(ii) if the Common Stock is not
traded on an exchange or a national market system,
its Fair Market Value shall be determined in good
faith by the Committee, possibly based upon, but
not limited to, a fair market value concept
averaged over the twenty (20) trading days
preceding the date of the grant of an option or
other relevant date, and such determination shall
be conclusive and binding on all persons.
In no event shall the Fair Market Value equal
less than the par value of the Common Stock.
(l) "Incentive Stock Option" shall mean a
stock option within the meaning of Section 422 of
the Code granted pursuant to Section 4.1 hereof.
(m) "Nonqualified Stock Option" shall mean
an Option, other than an Incentive Stock Option,
granted pursuant to Section 4.1 hereof.
(n) "Option" shall mean, individually and
collectively, an Incentive Stock Option and a
Nonqualified Stock Option to purchase Common
Stock.
(o) "Option Price" shall mean the price per
share of Common Stock set by the Committee upon
the grant of an Option.
(p) "Parent" shall mean any corporation
which qualifies as a parent of the Company under
the definition of "parent corporation" under Code
Section 424(e).
(q) "Participant" shall mean any person who
satisfies the criteria set forth in Article III
hereof.
(r) "Person" shall mean any individual,
partnership, association, corporation, trust or
other legal entity.
3
<PAGE>
(s) "Separation Date" shall mean, as
determined by the Committee, the date on which a
Participant's Service as a member of the Board
terminates or employment with the Company or a
Subsidiary terminates for reasons other than
transfer of employment to a Parent or Subsidiary.
Whether any leave of absence shall constitute
termination of employment for purposes of this
Plan shall be determined in each case by the
Committee at its sole discretion.
(t) "Subsidiary" shall mean a subsidiary
corporation of the Company as defined in Code
Section 424(f).
(u) "Termination for Cause" shall mean the
termination of the Participant's employment with
the Company for any of the following reasons: (i)
any act of malfeasance or wrongdoing affecting the
company, its Parent or Subsidiaries, (ii) the
breach of any covenant not to compete, or
employment contact, with the Company, its Parent
or Subsidiaries, or (iii) engaging in any other
conduct which would warrant Participant's
discharge for cause, excluding general
dissatisfaction with the performance of
Participant's duties, but including any act of
disloyalty or conduct clearly tending to bring
discredit upon the Company, its Parent or
Subsidiaries.
Where the context requires, words in the masculine
gender shall include the feminine and neuter genders, words
in the singular shall include the plural, and words in the
plural shall include the singular.
1.3 Plan Duration. The Plan shall remain in effect
for ten (10) years from the Effective Date or until
terminated by the Board, whichever comes first.
ARTICLE II
2.1 Plan Administration.
(a) The Plan shall be administered by the
Committee. The Committee is authorized to
establish such rules and to appoint such agents as
it deems appropriate for the proper administration
of the Plan, and to make such determinations
(which shall be sufficiently evidenced if set
forth in any written action of the Committee or in
any written stock option agreement) and to take
such steps in connection with the Plan or the
benefits provided hereunder as it deems necessary
or advisable. The Committee also is authorized to
delegate administrative functions to others to the
extent such action is not inconsistent with the
express provisions of this Plan.
(b) The Committee shall have the authority,
in its sole discretion and from time to time to
take the following actions:
4
<PAGE>
(i) select those individuals who meet
the participation requirements of the Plan;
(ii) grant Options provided by the Plan
in such form and amount as the Committee shall
determine;
(iii) impose such limitations,
restrictions and conditions upon any such Options
as the Committee shall deem appropriate; and
(iv) interpret the Plan, adopt, amend
and rescind rules and regulations related to the
Plan, and make all other determinations and take
all other action necessary or advisable for the
implementation and administration of the Plan.
(c) The decision of the Committee with
respect to any question arising as to the grant of
an Option to a Participant in the Plan, the term,
form and amount of Options under the Plan, or any
other matter concerning the Plan shall be final,
conclusive, and binding on both the Company and
the Participants.
ARTICLE III
3.1 Eligibility. The Participants in the Plan shall
be selected by the Committee from the directors of the
Company and the officers and key Employees of the
Company or its Subsidiaries who occupy responsible
managerial, professional or advisory positions and who
have the capability of making a substantial
contribution to the success of the Company. In making
this selection and in determining the form and amount
of Options, the Committee shall consider any factors
deemed relevant, including the individual's functions,
responsibilities, value of services to the Company or
its Subsidiaries and past and potential contributions
to the Company's profitability and sound growth.
Participants who are not otherwise Employees may
receive Nonqualified Stock Options but may not receive
Incentive Stock Options under the Plan.
ARTICLE IV
4.1 Options. The Committee shall determine the forms
and amounts of Options for Participants. All Options
shall be subject to the terms and conditions of the
Plan and to such other terms and conditions consistent
with the Plan as the Committee deems appropriate.
Options under the Plan need not be uniform and
Incentive Stock Options and Nonqualified Stock Options
may be granted in one agreement. Options may take the
following forms, in the Committee's sole discretion:
5
<PAGE>
(a) Incentive Stock Options.
(i) The Committee may grant Incentive
Stock Options within the meaning of Code Section
422 to purchase Common Stock. In addition to
other restrictions contained in the Plan, an
Incentive Stock Option (1) shall not be exercised
more than ten (10) years following the date of
grant, (2) shall not have an Option Price less
than the FMV of Common Stock on the date the
Incentive Stock Option is granted, (3) shall
otherwise comply with Code Section 422, and (4)
shall be designated in writing as an "Incentive
Stock Option" by the Committee. The date an
Incentive Stock Option is granted shall mean the
date selected by the Committee as of which the
Committee allots a specific number of shares to a
Participant pursuant to the Plan. Notwithstanding
the foregoing, the Option Price of an Incentive
Stock Option granted to any owner of 10% or more
of the total combined voting power of the Company,
its Parent or Subsidiaries shall be no less than
110% of FMV and such Option shall be not
exercisable after the expiration of five years
from the date of its grant. No Incentive Stock
Option shall be granted to any Participant who is
not otherwise an Employee.
(ii) The grant of an Incentive Stock
Option shall be evidenced by a written Incentive
Stock Option Agreement, executed by the Company
and the holder of an Incentive Stock Option,
stating the number of shares of Common Stock
subject to the Incentive Stock Option evidenced
thereby, and in such form as the Committee may
from time to time determine.
(b) Nonqualified Stock Options.
(i) The Committee may grant
Nonqualified Stock Options to purchase Common
Stock which are not intended to qualify as
Incentive Stock Options under Code Section 422 and
which are designated in writing by the Committee
as "Nonqualified Stock Options." At the time of
the grant, the Committee shall determine the
Option exercise period, the Option Price, and such
other conditions or restrictions on the exercise
of the Nonqualified Stock Option as the Committee
deems appropriate.
(ii) The Committee shall cause the
Company to enter into a written Nonqualified Stock
Option Agreement with the Participant stating that
the Options are Nonqualified Stock Options, the
number of shares of Common Stock subject to the
Nonqualified Stock Option, any conditions and
restrictions on the exercise of the Option imposed
by the Plan and the Committee, and in such form as
the Committee shall from time to time determine.
4.2 Option Exercise. Except as otherwise provided in
Article V hereof, an Incentive Stock Option may not be
exercised at any time unless the holder thereof is then
an Employee of the Company, its Parent or Subsidiary.
Options may be exercised in whole at any
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time, or in part from time to time, with respect
to whole shares only, within the period permitted for
the exercise thereof, and shall be exercised by written
notice of intent to exercise the Option with respect to
a specified number of shares delivered to the Company's
Secretary at the Company's principal office, and
payment in full to the Company at said office of the
amount of the Option Price for the number of shares of
Common Stock with respect to which the Option is then
being exercised. In addition to and at the time of
payment of the Option Price, the Participant shall pay
to the Company in cash or in Common Stock, the full
amount, if any, that the Company is required to
withhold or pay under federal or state law with respect
to the exercise of the Option. Alternatively, the
number of shares delivered by the Company upon exercise
of the Option shall be appropriately reduced to
reimburse the Company for such payment.
4.3 Payment. Payment of the purchase price upon
exercise of any Option granted under this Plan shall be
made in cash or by optionee's personal check, certified
check or bank draft, payable to the order of the
Company in lawful money of the United States; provided,
however, that the Committee, in its sole discretion,
may permit an optionee to pay the Option Price in whole
or in part (a) with shares of Common Stock owned by the
optionee or with shares of Common Stock withheld from
the shares otherwise deliverable to the optionee upon
exercise of an Option (in each case only to the extent
that such an exercise of the Option would not result in
an accounting compensation charge with respect to the
shares used to pay the Option Price); (b) by delivery
on a form prescribed by the Committee of an irrevocable
direction to a securities broker approved by the
Committee to sell shares of Common Stock and deliver
all or a portion of the proceeds to the Company in
payment for the Common Stock; (c) by delivery of the
optionee's promissory note with such recourse,
interest, security, and redemption provisions as the
Committee in its discretion determines appropriate; or
(d) in any combination of the foregoing. Any such
alternative permissible methods of exercise of any
Incentive Stock Option shall be set forth in the stock
option agreement relating to such Incentive Stock
Option. In the event the Option Price is paid in whole
or in part with shares of Common Stock such shares
shall be valued at their FMV as of the date of exercise
of the Option. Such shares shall be delivered along
with any portion to be paid in cash or by promissory
note within five (5) days after the date of exercise.
If the Participant fails to pay the Option Price within
such five (5) day period, the Committee shall have the
right to take whatever action it deems appropriate,
including terminating the Option or voiding the
exercise of the Option. The Company shall not issue or
transfer Common Stock upon the exercise of an Option
until the Option Price is paid in full.
ARTICLE V
5.1 Termination of Employment or Service as a
Director. Except as provided in this Article V or
except as otherwise determined by the Committee, all
Options under the Plan shall terminate upon the
termination of the Participant's employment or service
as
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a director of the Company as of the Participant's
Separation Date.
5.2 Death of a Participant. In the event of the death
of a Participant prior to the exercise of all Options
granted to such Participant, all unexercised Options
shall become immediately exercisable and the
administrator of the deceased Participant's estate, the
executor under his or her will, or the person(s) to
whom the Options shall have been validly transferred by
such executor or administrator pursuant to the will or
laws of intestate succession shall have the right,
within one year from the date of such Participant's
death, but not beyond the expiration date of the
Options, to exercise such Options.
5.3 Retirement or Termination.
(a) In the event of termination of a
Participant's employment or service as a director
of the Company prior to the exercise of all
Incentive Stock Options granted to the
Participant, such Participant shall have the
right, within three (3) months of his Separation
Date, but not beyond the expiration date of such
Options, to exercise such Incentive Stock Options
to the extent exercisable on his Separation Date.
(b) In the event of the termination of a
Participant's employment prior to the exercise of
all Nonqualified Stock Options granted to the
Participant, such Participant shall have the
right, within three (3) months of his Separation
Date, but not beyond the expiration date of such
Nonqualified Stock Options, to exercise such
Nonqualified Stock Options, to the extent
exercisable on his Separation Date.
5.4 Disability.
(a) In the event of the termination of a
Participant's employment by Disability prior to
the exercise of all Incentive Stock Options
granted to the Participant, all unexercised
Incentive Stock Options shall become immediately
exercisable and such Participant or his legal
representative shall have the right, within twelve
(12) months of his Separation Date, but not beyond
the expiration date of such Incentive Stock
Options, to exercise such Incentive Stock Options.
(b) In the event of the termination of a
Participant's employment by Disability prior to
the exercise of all Nonqualified Stock Options
granted to the Participant, all unexercised
Nonqualified Stock Options shall become
immediately exercisable and such Participant or
his legal representative shall have the right,
within twelve (12) months of his Separation Date,
but not beyond the expiration date of such
Nonqualified Stock Options, to exercise such
Nonqualified Stock Options.
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5.5 Change of Control.
(a) For purposes of this Section 5.5, a
"Change in Control" shall be deemed to occur upon:
(i) the direct or indirect
acquisition by any Person or related group of
Persons (other than an acquisition from or by
the Company or by a Company-sponsored
employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of securities
possessing more than fifty (50%) of the total
combined voting power of the Company's
outstanding Common Stock;
(ii) a change in the composition of
the Board over a period of thirty-six (36)
months or less such that a majority of the
Board members (rounded up to the next whole
number) ceases, by reason of one or more
contested elections for Board membership or
by one or more actions by written consent of
shareholders, to be comprised of individuals
who either (1) have been Board members
continuously since the beginning of such
period or (2) have been elected or nominated
for election as Board members during such
period by at least a majority of the Board
members described in clause (1) who were
still in office at the time such election or
nomination was approved by the Board; or
(iii) the merger or
consolidation of the Company into NRG Energy,
Inc.
(b) For purposes of this Section 5.5, a
"Corporate Transaction" shall be deemed to occur
upon any of the following transactions to which
the Company is a party:
(i) approval by the Company's
shareholders of a merger or consolidation in
which the Company is not the surviving
entity, except for a transaction the
principal purpose of which is to change the
state in which the Company is incorporated;
(ii) approval by the Company's
shareholders of the sale, transfer or other
disposition of all or substantially all of
the assets of the Company (including the
capital stock of the Company's subsidiary
corporations) in connection with a complete
liquidation or dissolution of the Company; or
(iii) approval by the Company's
shareholders of any reverse merger in which
the Company is the surviving entity but in
which securities possessing more than fifty
(50%) of the total combined voting power
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of the Company's outstanding securities are
transferred to a Person or Persons different
from those who held such securities
immediately prior to such merger.
(c) In its discretion, the Committee may
provide in any stock option agreement (or in an
amendment thereto) evidencing an Option hereunder
that, in the event of any Corporate Transaction or
an event giving rise to a Change in Control, any
outstanding options covered by such an agreement
shall be fully vested, nonforfeitable and become
exercisable as of the date of the Change in
Control or Corporate Transaction or as otherwise
determined in accordance with this Section 5.5(c).
However, the Committee may provide in any such
agreement that, in the case of a Corporate
Transaction, the Committee may determine that an
outstanding Option will not be so accelerated if
and to the extent (i) such Option is either to be
assumed by the successor or parent thereof or to
be replaced with a comparable Option to purchase
shares of the capital stock of the successor
corporation or parent thereof, or (ii) such Option
is to be replaced with a cash incentive program of
the successor corporation that preserves the
option spread existing at the time of the
Corporate Transaction and provides for subsequent
payment in accordance with the same vesting
schedule applicable to such Option. Any stock
option agreement incorporating a Change in Control
or Corporate Transaction acceleration provision
shall provide that, with respect to any Corporate
Transaction described in clauses (i) or (ii) of
Section 5.5(b) above, the Committee may, upon no
less than 60 days notice to the optionee (an
"Acceleration Notice") determine that such
optionee's Options will terminate as of the
effective date of such Corporate Transaction, in
which event such Options shall be fully vested,
nonforfeitable and become exercisable immediately
as of the date of such Acceleration Notice.
(d) If the Committee determines to
incorporate a Change in Control or Corporate
Transaction acceleration provision in any option
agreement hereunder, the agreement shall provide
that, (i) in the event of a Change in Control or
Corporate Transaction described in clauses (a)(i),
(a)(ii) and (b)(iii) of Section 5.5 above or in
the event the Acceleration Notice is not timely
given, the Option shall remain exercisable for the
remaining term of the Option notwithstanding the
provisions of Article V hereof or any
corresponding provisions of the stock option
agreement, subject to any limitations thereto
which may be applicable to Incentive Stock Options
and (ii) in the event of a Corporate Transaction
described in clauses a(iii), b(i) or (b)(ii) of
Section 5.5 above, which is preceded by a timely
Acceleration Notice, the Option shall terminate as
of the effective date of the Corporate Transaction
described therein. In no event shall any Option
under the Plan be exercised after the expiration
of the term provided for in the related stock
option agreement.
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(e) The Committee may provide in any option
agreement hereunder that, should the Company
dispose of its equity holding in any subsidiary
corporation effected by (i) merger or
consolidation involving that subsidiary; (ii) the
sale of all or distribution of substantially all
of the assets of that subsidiary; or (iii) the
Company's sale of or distribution to shareholders
of substantially all of the outstanding capital
stock of such subsidiary ("Subsidiary
Disposition") while a holder of the Option is
engaged in the performance of services for the
affected subsidiary corporation, then such Option
shall, immediately prior to the effective date of
such Subsidiary Disposition, become fully
exercisable with respect to all of such shares at
the time represented by such Option and may be
exercised with respect to any or all of such
shares. Any such Option shall remain so
exercisable until the expiration or sooner
termination of the term of the Option.
ARTICLE VI
6.1 Limitation of Shares of Common Stock Available
under the Plan.
(a) Shares of stock which may be issued
under the Plan shall be authorized and unissued or
treasury shares of Common Stock. The total number
of shares of Common Stock available to be granted
by the Committee as Options to the Participants
under the Plan, and the maximum number of shares
of Common Stock with respect to which Options may
be granted to any Participant during any calendar
year, shall not exceed 250,000 shares (which
number may be increased by the Committee, without
shareholder approval, to reflect adjustments
pursuant to Section 7.1 below).
(b) The grant of Incentive Stock Options and
Nonqualified Stock Options shall reduce the
available shares by the number of shares subject
to such Options.
(c) The lapse or cancellation of an
Incentive Stock Option or Nonqualified Stock
Option shall increase the available shares by the
number of shares released from such Option.
ARTICLE VII
7.1 Adjustment Upon Changes in Capitalization. In the
event of any change in the outstanding Common Stock by
reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the
Committee may appropriately adjust the number and kind
of shares which may be issued under the Plan, the
number and kind of shares subject to Options
theretofore granted under the Plan, the Option Price of
Options theretofore granted under the Plan, and any and
all other matters deemed appropriate by the Committee.
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ARTICLE VIII
8.1 Employment. The establishment of the Plan and
Options hereunder shall not be construed as conferring
on any Participant any right to continued employment,
and the employment of any Participant may be terminated
without regard to the effect which such action might
have upon him as a Participant.
8.2 Rights as a Shareholder. The recipient of any
Option under the Plan shall have no rights as a
shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued to
him.
8.3 Non-Assignability. During the life of the
Participant, Options awarded under this Plan shall be
exercisable only by such person or by such person's
guardian or legal representative.
8.4 Shareholder Approval. Continuance of the Plan for
purposes of granting Incentive Stock Options shall be
subject to approval by the shareholders of the Company
within twelve (12) months after the date the Plan is
adopted by the Board. Any Incentive Stock Options
granted hereunder shall become effective only upon such
shareholder approval. The Committee may grant
Incentive Stock Options or Nonqualified Stock Options
under the Plan prior to such shareholder approval, but
until shareholder approval is obtained, no such Option
shall be exercisable. In the event that such
shareholder approval is not obtained within the period
provided above, all Options previously granted pursuant
to the Plan shall terminate. If such shareholder
approval is obtained at a meeting of shareholders, the
Plan must be approved by a majority of the votes cast
at such meeting at which a quorum representing a
majority of all outstanding voting stock of the Company
is, either in person or by proxy, present and voting on
the Plan. If such shareholder approval is obtained by
written consent, it must be obtained by the written
consent of the holders of a majority of all outstanding
voting stock of the Company.
8.5 Amendment, Modification, and Termination of the
Plan. The Board, at any time, may terminate and in any
respect amend or modify the Plan; provided, however,
that no such action, without approval of the Company's
shareholders, may:
(a) increase the total number of shares of
Common Stock available under the Plan, other than
increases pursuant to Section 7.1 hereof;
(b) materially increase the benefits
accruing to Participants under the Plan;
(c) materially modify the requirements as to
eligibility for participation in the Plan;
(d) extend the period during which any
Option may be granted or exercised; or
(e) extend the term of the Plan.
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Except as provided in Section 7.1 hereof, no
amendment, modification, or termination of the Plan
shall in any manner adversely affect the rights of any
Participant under the Plan without the consent of such
Participant.
8.6 Indemnification. Each person who is or shall have
been a member of the Board shall be indemnified and
held harmless by the Company against and from any loss,
cost, liability, or expense that may be imposed upon or
reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding
to which he may be a party or in which he may be
involved by reason of any action or failure to act
under the Plan and against and from any and all amounts
paid by him in satisfaction of judgment in any such
action, suit, or proceeding against him. Such person
shall give the Company an opportunity, at its own
expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
8.7 Reliance on Reports. Each member of the Committee
shall be fully justified in relying or acting in good
faith upon any report made by the independent public
accountants of the Company and upon any other
information furnished in connection with the Plan by
any person or persons other than himself. In no event
shall any person who is or shall have been a member of
the Committee be liable for any determination made or
other action taken or any omission to act in reliance
upon any such report or information or for any action
taken, including the furnishing of information, or
failure to act, if in good faith.
8.8 Governing Law. To the extent that federal law
shall not be held to have preempted local law, this
Plan shall be governed by the laws of the State of
Delaware. If any provision of the Plan shall be held
invalid or unenforceable, the remaining provisions
hereof shall continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused the NRG
Generating (U.S.) Inc. 1997 Stock Option Plan to be executed by
its duly authorized officer pursuant to resolutions of the Board
to be effective as of the 1st day of May, 1997.
NRG Generating (U.S.) Inc.
By: /s/ Timothy P. Hunstad
Timothy P. Hunstad
Vice President and Chief Financial Officer
