<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___________
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1997
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission File Number 1-9208
NRG GENERATING (U.S.) INC.
(Exact name of Registrant as Specified in Charter)
Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
___________
1221 Nicollet Mall, Suite 610
Minneapolis, Minnesota 55403-2445
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 373-
8834
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13
or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date: 6,440,514 shares of Common Stock, $0.01 par value per
share, as of November 10, 1997.
<PAGE>
NRG GENERATING (U.S.) INC.
FORM 10-Q
September 30, 1997
INDEX
Page
Part I - Financial Information:
Item 1. Financial Statements 2
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations -
Three months and nine months ended September 30, 1997
and September 30, 1996 3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and September 30, 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Index to Exhibits 17
1
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NRG GENERATING (U.S.) INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 831 $ 3,187
Restricted cash and cash equivalents......................... 10,679 8,174
Accounts receivable, net..................................... 12,056 11,920
Receivables from related parties............................. 63 186
Notes receivable, current.................................... 50 1,119
Inventories.................................................. 3,102 2,897
Other current assets......................................... 1,025 992
Total current assets....................................... 27,806 28,475
Property, plant and equipment, net............................. 128,335 132,203
Equipment held for sale........................................ 1,598 2,628
Project development costs...................................... 356 346
Notes receivable, noncurrent................................... 0 83
Investments in equity affiliates............................... 8,547 3,653
Deferred financing costs, net.................................. 5,233 5,530
Other assets................................................... 636 706
Total assets............................................... $ 172,511 $ 173,624
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 4,120 $ 6,131
Accounts payable and accrued interest due NRG Energy, Inc.... 1,177 1,256
Current portion of nonrecourse long-term debt................ 10,711 10,820
Accrued interest payable..................................... 314 1,104
Prepetition liabilities...................................... 538 1,433
Short-term borrowings........................................ 1,635 2,388
Other current liabilities.................................... 2,648 2,852
Total current liabilities.................................. 21,143 25,984
Loans due NRG Energy, Inc., net of current portion............. 19,288 14,388
Nonrecourse long-term debt, net of current portion............. 141,950 150,311
Deferred income taxes.......................................... 13,404 13,404
Other noncurrent liabilities................................... 0 50
Total liabilities.......................................... 195,785 204,137
Stockholders' equity:
Preferred stock, par value $.01, 20,000,000 shares
authorized; none issued or outstanding..................... 0 0
New common stock, par value $.01, 50,000,000 shares
authorized, 6,474,814 shares issued, 6,440,514 shares
outstanding as of September 30, 1997 and
December 31, 1996.......................................... 64 64
Additional paid-in capital................................... 62,719 62,719
Accumulated deficit.......................................... (85,593) (92,944)
Other........................................................ (464) (352)
Total stockholders' equity (deficit)....................... (23,274) (30,513)
Total liabilities and stockholders' equity (deficit)....... $ 172,511 $ 173,624
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Energy................................ $ 11,030 $ 11,564 $ 32,423 $ 42,188
Equipment sales and services.......... 5,243 6,552 14,435 19,577
Rental revenues....................... 616 596 1,543 1,471
Development fees and other............ 0 997 0 2,119
16,889 19,709 48,401 65,355
COST OF REVENUES:
Cost of energy........................ 3,462 4,155 10,694 28,467
Cost of equipment sales and services.. 4,425 5,222 11,986 16,614
Cost of rental revenues............... 419 462 1,242 1,213
Cost of development fees and other.... 0 981 0 2,030
8,306 10,820 23,922 48,324
Gross profit........................ 8,583 8,889 24,479 17,031
Selling, general and
administrative expenses.............. 2,080 2,281 5,996 10,762
Income from operations.............. 6,503 6,608 18,483 6,269
Interest and other income............. 184 167 616 1,177
Reorganization costs.................. 0 0 0 (8,251)
Interest and debt expense............. (3,670) (3,374) (11,001) (12,921)
Income (loss) before income taxes... 3,017 3,401 8,098 (13,726)
Provision for income taxes (benefit)... 224 238 747 (251)
Income (loss) before
extraordinary item................. 2,793 3,163 7,351 (13,475)
Extraordinary item, net of income
taxes................................. 0 1,643 0 1,643
Net income (loss)................... $ 2,793 $ 4,806 $ 7,351 $ (11,832)
Net income (loss) per share before
extraordinary item.................... $ 0.42 $ 0.50 $ 1.10 $ (2.58)
Extraordinary item income per share.... $ 0.00 $ 0.25 $ 0.00 $ 0.31
Net income (loss) per share............ $ 0.42 $ 0.75 $ 1.10 $ (2.27)
Weighted average shares outstanding.... 6,693 6,422 6,661 5,217
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
NRG GENERATING (U.S.) INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).............................................. $ 7,351 $ (11,832)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Extraordinary item......................................... 0 (1,643)
Depreciation and amortization.............................. 5,425 6,074
Amortization of debt discount and deferred financing costs. 297 1,403
Deferred tax expense (benefit)............................. 0 (958)
Project development costs expensed......................... 0 180
Bankruptcy fees accrued.................................... 0 (1,899)
Loss on disposition of property and equipment.............. 585 0
Other, net................................................. (95) (4,293)
Changes in operating assets and liabilities:
Accounts receivable, net................................. (253) 2,173
Inventories............................................. (280) 1,740
Receivables from related parties......................... 120 823
Other assets............................................. (59) (1)
Accounts payable and other current liabilities........... (2,164) (523)
Accrued interest payable................................. (770) (4,626)
Net cash provided by (used in) operating activities.... 10,157 (13,382)
Cash Flows from Investing Activities:
Capital expenditures........................................... (1,636) (12)
Proceeds from disposition of property and equipment............ 552 0
Investment in equity affiliates................................ (4,900) 0
Proceeds from sale of subsidiaries............................. 0 7,500
Project development costs...................................... (15) (1,718)
Collections on notes receivable................................ 1,152 790
Deposits into restricted cash accounts, net.................... (2,505) (4,336)
Other, net..................................................... 0 260
Net cash (used in) provided by investing activities.... (7,352) 2,484
Cash Flows from Financing Activities:
Proceeds from NRG Energy, Inc. loans........................... 4,900 125,078
Proceeds from long-term debt................................... 0 155,226
Repayments of NRG Energy, Inc. loans........................... 0 (113,689)
Repayments of long-term debt................................... (8,455) (89,244)
NRG capital contribution....................................... 0 21,178
Net proceeds (repayments) of short-term borrowings............. (711) 636
Payments on prepetition liabilities............................ (895) (70,180)
Deferred financing costs....................................... 0 (5,708)
Redemption of preferred shares................................. 0 (4,957)
Preferred dividends paid....................................... 0 (57)
Net cash (used in) provided by financing activities.... (5,161) 18,283
Net (decrease) increase in cash and cash equivalents............ (2,356) 7,385
Cash and cash equivalents, beginning of period.................. 3,187 3,132
Cash and cash equivalents, end of period........................ $ 831 $ 10,517
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid during the period.............................. $ 12,500 $ 12,921
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
NRG GENERATING (U.S.) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1997
(Dollars in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NRG Generating (U.S.) Inc. ("NRGG" or the "Company") and its
subsidiaries develop and own cogeneration projects which produce
electricity and thermal energy for sale to industrial and commercial
users and public utilities. In addition, the Company, through its
subsidiaries, sells and rents power generation, cogeneration and
standby/peak shaving equipment and services.
Basis of Presentation
The consolidated financial statements include the accounts of all
majority-owned subsidiaries of the Company. All significant
intercompany investments, accounts and transactions have been
eliminated. The investments in and the operating results of companies
in which the Company has an ownership of 50% or less are included in
the financial statements on the basis of the equity method of
accounting.
The accompanying unaudited consolidated financial statements and
notes should be read in conjunction with the Company's Report on Form
10-K for the fiscal year ended December 31, 1996. In the opinion of
management, the consolidated financial statements reflect all
adjustments necessary for a fair presentation of the interim periods
presented. Results of operations for an interim period may not give a
true indication of results for the year.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of shares of common stock and
common stock equivalents outstanding during each period. Common stock
equivalents result from dilutive stock options and restricted stock
computed using the treasury stock method.
In March 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("FAS No. 128"). FAS No. 128
applies to entities with publicly held common stock or potential common
stock and is effective for financial statements issued for periods
ending after December 15, 1997. Under FAS No. 128 the presentation of
primary earnings per share is replaced with a presentation of basic
earnings per share. FAS No. 128 requires dual presentation of basic
and diluted earnings per share for entities with complex capital
structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders
by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. Management believes the adoption of
FAS No. 128 will not have a material effect on the financial
statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1997
(Dollars in thousands)
2. LOANS DUE NRG ENERGY, INC.
The loan balance due to NRG Energy, Inc. ("NRG Energy") on September
30, 1997 is $19,288. Of this balance, $14,388 has a maturity date of
April 30, 2001 and $4,900 has a maturity date of June 30, 2005. The
$4,900 amount was borrowed under a $10,000 loan agreement between NRGG
(Schuylkill) Cogeneration, Inc. ("NSC"), a wholly-owned subsidiary of
the Company, and NRG Energy. This loan agreement provides funding for
the NSC capital contribution obligation to the Grays Ferry Cogeneration
Partnership, for the purpose of developing, constructing, owning,
maintaining and operating a 150 megawatt ("MW") natural gas and oil
fired cogeneration facility to produce steam and electricity in
Philadelphia.
3. PROVISION FOR INCOME TAXES
No provision for federal income taxes has been recorded since the
Company has net federal operating loss carryforwards which have not
been recognized in prior periods.
4. EXTRAORDINARY ITEM
During the quarter ended September 30, 1996, the Company negotiated
a buyout of a subsidiary's capital lease obligation. The lender agreed
to accept a $1,100 payment in full satisfaction of the lease. The
transaction resulted in an extraordinary gain of $1,643 (net of $124 of
state income taxes).
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this Item 2 updates, and should be read
in conjunction with, the information set forth in Part II, Item 7, of
the Company's Report on Form 10-K for the fiscal year ended December
31, 1996. Capitalized terms used in this Item 2 which are not defined
herein have the meaning ascribed to such terms in the Notes to the
Company's financial statements included in Part I, Item 1 of this
Report on Form 10-Q. All dollar amounts set forth in this Item 2 are
in thousands.
General
NRG Generating (U.S.) Inc. is engaged primarily in the business of
developing, owning and operating cogeneration projects which produce
electricity and thermal energy for sale under long-term contracts with
industrial and commercial users and public utilities. In addition to
its energy business, the Company sells and rents power generation and
cogeneration equipment through subsidiaries located in the United
States and the United Kingdom.
In its role as a developer and owner of energy projects, the Company
has developed the following projects in which it currently has an
ownership interest:
(a) The 52 megawatt ("MW") Newark Boxboard Project (the
"Newark Project"), located in Newark, New Jersey, began
operations in November 1990 and is owned by the Company's
wholly-owned subsidiary NRG Generating (Newark) Cogeneration
Inc. ("Newark");
(b) The 122 MW E.I. du Pont Parlin Project (the "Parlin
Project"), located in Parlin, New Jersey, began operations in
June 1991 and is owned by the Company's wholly-owned
subsidiary NRG Generating (Parlin) Cogeneration Inc.
("Parlin"); and
(c) The 22 MW Philadelphia Cogeneration Project (the
"Philadelphia Project"), located in Philadelphia,
Pennsylvania, began operations in May 1993.
The Company also owns a one-third interest in the Grays Ferry
Cogeneration Partnership (the "Grays Ferry Partnership") which owns a
150 MW cogeneration project (the "Grays Ferry Project"), located in
Philadelphia, Pennsylvania. The Grays Ferry Project is currently under
construction with commercial operation currently expected to occur in
December 1997. The Company also is currently evaluating a number of
prospective projects for the purpose of determining whether to make an
investment.
The Company's power purchase agreements ("PPAs") with utilities have
typically contained, and may in the future contain, price provisions
which in part are linked to the utilities' cost of generating
electricity. In addition, the Company's fuel supply prices, with
respect to future projects, may be fixed in some cases or may be linked
to fluctuations in energy prices. These circumstances can result in
high volatility in gross profit margins and reduced operating income,
either of which could have a material adverse effect on the Company's
financial position or results of operations. Effective April 30, 1996,
the Company renegotiated its PPAs with Jersey Central Power and Light
Company ("JCP&L"), the primary electricity purchaser from its Newark
and Parlin Projects. Under the amended PPAs, JCP&L is responsible
7
<PAGE>
for all fuel supply and delivery. Under the prior PPAs the Company was
responsible for such costs which were reflected in energy revenues and
costs. The Company believes that this change in the PPAs has and will
in the future reduce volatility in gross margins by eliminating the
Company's exposure to fluctuations in the price of natural gas.
Although energy revenues as well as the cost of energy revenues are
expected to decline under the amended PPAs, the Company does not expect
the changes made to the PPAs to have a material impact on its operating
gross margins over time. However, there can be no assurance that any
of the foregoing steps will improve or maintain gross profit margins in
the future.
Both the Newark and Parlin Projects were previously certified as
qualifying facilities ("QFs") by the Federal Energy Regulatory
Commission ("FERC") under the Public Utility Regulatory Policies Act of
1978 ("PURPA"). The effect of QF status is generally to exempt a
project's owners from relevant provisions of the Federal Power Act, the
Public Utility Holding Company Act of 1935 ("PUHCA"), and state utility-
type regulation. However, as permitted under the terms of its
renegotiated PPAs, Parlin has chosen to file rates with FERC as a
public utility under the Federal Power Act. The effect of this filing
was to relinquish the Parlin Project's claim to QF status. The FERC
approved Parlin's rates effective April 30, 1996 and has determined
Parlin to be an exempt wholesale generator ("EWG"). As an EWG, Parlin
is exempt from PUHCA, and the ownership of Parlin by the Company does
not subject the Company to regulation under PUHCA. Finally, as a
seller of power exclusively at wholesale, Parlin is not generally
subject to state regulation and, in any case, the Company believes that
Parlin complies with all applicable requirements of state utility law.
In addition to the energy business, the Company sells and rents
power generation and cogeneration equipment and provides related
services. The Company operates its equipment sales, rentals and
services business principally through two subsidiaries. In the United
States, the equipment sales, rentals and services business operates
under the name of O'Brien Energy Services Company ("OES"). NRG
Generating Limited, a wholly-owned United Kingdom subsidiary, is the
holding company for a number of subsidiaries that operate in the United
Kingdom under the common name of Puma ("Puma").
Revenues
Energy revenues for the third quarter 1997 of $11,030 decreased from
revenues of $11,564 for the comparable period in 1996. Energy revenues
for the first nine months of 1997 of $32,423 decreased from $42,188 for
the comparable period in 1996. Energy revenues primarily reflect
billings associated with the Parlin and Newark Projects and the
Company's Philadelphia Water Department standby project. The 1996
periods presented also included revenues associated with landfill gas
operations, which the Company sold April 30, 1996. The decrease in
energy revenues in the quarter as compared to the same period one year
ago was primarily attributable to discretionary curtailments imposed by
JCP&L at the Newark cogeneration facility of 416 hours versus 180 hours
in the comparable 1996 quarter. Under the PPA that the Company has
with JCP&L on the Newark facility, JCP&L is entitled to curtail the
facility for 700 hours per year on a discretionary basis. The decrease
in energy revenues in the nine months ended September 30, 1997 as
compared to the same period one year ago was primarily attributable to
the discretionary curtailments imposed at the Newark cogeneration
facility and the amended PPAs affecting both Parlin and Newark. The
8
<PAGE>
Company does not anticipate that such discretionary curtailments will
have a significant impact on revenues in the fourth quarter.
Revenues recognized at Parlin and Newark were $6,170 and $3,791 for
the third quarter 1997 and $5,803 and $4,708 for the comparable period
in 1996, respectively. Revenues recognized at Parlin and Newark were
$16,776 and $12,500 for the first nine months of 1997 and $21,835 and
$17,053 for the comparable period in 1996, respectively. The decrease
was primarily due to the discretionary curtailments imposed at the
Newark cogeneration facility and the amended PPAs.
Energy revenues from the Company's Philadelphia Water Department
standby facility project for the third quarter 1997 of $1,069 increased
from $1,053 for the comparable period in 1996. Energy revenues from
this project for the first nine months of 1997 of $3,147 increased from
$3,084 for the comparable period in 1996. Energy revenues from the
Company's landfill gas projects for the third quarter and first four
months of 1996 were none and $216, respectively. On April 30, 1996,
the landfill gas projects were sold to NRG Energy.
Equipment sales and services revenues for the third quarter 1997 of
$5,243 decreased from $6,552 for the comparable period in 1996.
Equipment sales and services revenues for the first nine months of 1997
of $14,435 decreased from $19,577 for the comparable period in 1996.
The revenue decrease in the quarter and nine month periods ended
September 30, 1997 from the comparable periods one year ago was
primarily attributable to the sale of the Company's American Hydrotherm
business in December 1996.
OES equipment sales and services revenues for the third quarter 1997
of $1,538 increased from revenues of $922 for the quarter ended
September 30, 1996. OES equipment sales and services revenues for the
first nine months of 1997 of $4,266 increased from $2,991 in the nine
months ended September 30, 1996. The increase was primarily due to
higher sales volume. As noted above, American Hydrotherm, which had
revenues of $1,238 and $4,776 for the quarter and nine months ended
September 30, 1996, respectively, was sold in December 1996. Puma
equipment sales and services revenues for the third quarter 1997 of
$3,705 decreased from $4,392 for the quarter ended September 30, 1996.
Puma equipment sales and services revenues for the first nine months of
1997 of $10,169 decreased from $11,810 in the nine months ended
September 30, 1996. The decrease was primarily due to the unfavorable
impact of foreign currency rates in some of Puma's Asian markets.
Rental revenues for the third quarter 1997 of $616 increased from
$596 for the quarter ended September 30, 1996. Rental revenues for the
first nine months of 1997 of $1,543 increased from $1,471 in the nine
months ended September 30, 1996. The deviations in each case were due
primarily to fluctuations in sales volume.
There were no development fees and other revenues for the third
quarter and first nine months of 1997 compared to $997 and $2,119,
respectively, for the comparable periods of 1996. The decrease was
primarily attributable to the Company's assignment of contract rights
for the sale of gas to the Artesia Cogeneration partnership. These
contract rights were assigned in January 1997 to NRG Energy in a
transaction that was approved by the Independent Directors Committee of
the Board of Directors.
9
<PAGE>
Costs and Expenses
Cost of energy revenues for the third quarter 1997 of $3,462
decreased from $4,155 for the quarter ended September 30, 1996. Cost
of energy revenues for the first nine months of 1997 of $10,694
decreased from $28,467 in the nine months ended September 30, 1996.
The decreases were primarily the result of the amended PPAs in which
JCP&L began assuming the cost of fuel for the Parlin and Newark
facilities.
Cost of equipment sales and services for the third quarter 1997 of
$4,425 decreased from $5,222 for the quarter ended September 30, 1996.
Cost of equipment sales and services for the first nine months of 1997
of $11,986 decreased from $16,614 in the nine months ended September
30, 1996. The decreases were primarily due to lower costs from the
Puma operations and the sale of American Hydrotherm.
Cost of rental revenues for the third quarter 1997 of $419 decreased
from $462 for the quarter ended September 30, 1996. Cost of rental
revenues for the first nine months of 1997 of $1,242 increased from
$1,213 in the nine months ended September 30, 1996. The deviation for
each comparable period was due primarily to fluctuations in sales
volume.
There were no costs of development fees and other for the third
quarter and first nine months of 1997 compared to $981 and $2,030 for
the comparable periods of 1996, respectively. The decrease was
primarily attributable to the Company's assignment of contract rights
for the sale of gas to the Artesia Cogeneration partnership.
The Company's gross profit for the third quarter 1997 of $8,583
(50.8% of sales) decreased from the quarter ended September 30, 1996
gross profit of $8,889 (45.1% of sales). Gross profit for the first
nine months of 1997 of $24,479 (50.6% of sales) increased from gross
profit of $17,031 (26.1% of sales) for the nine months ended September
30, 1996. The gross profit increases, as a percent of revenue, were
primarily attributable to results from the energy segment, including
particularly fluctuations in the recovery of fuel costs through energy
revenues under the Parlin and Newark Project PPAs in effect until April
30, 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the third
quarter 1997 of $2,080 decreased from $2,281 for the quarter ended
September 30, 1996. SG&A for the first nine months of 1997 of $5,996
decreased from $10,762 for the nine months ended September 30, 1996.
The reduction for the first nine months of 1996 was primarily due to a
$3,100 cost incurred to terminate the interest rate swap agreement in
connection with the refinancing of Parlin nonrecourse project debt.
Fiscal 1997 SG&A expenses benefited from lower payroll costs and
related tax costs as well as reduced insurance expenses and legal fees.
Interest and Other Income
Interest and other income for the third quarter 1997 of $184
increased from interest and other income of $167 for the quarter ended
September 30, 1996. Interest and other income for the first nine
months of 1997 of $616 decreased from interest and other income of
$1,177 for the nine months ended September 30, 1996. The decrease
10
<PAGE>
for the comparable nine month periods was primarily attributable to a
one time gain of $1,000 in the quarter ended March 31, 1996 for the
admission of a third partner into the Grays Ferry Partnership offset in
part by the net costs associated with the sale of the landfill gas
projects.
During the first quarter of 1997 the Company recognized a gain from
the sale of its interest in a development project in Pakistan. This
gain was offset by a loss on the sale of unused equipment and fees paid
by the Company to Wexford Management LLC under the Liquidating Asset
Management Agreement.
Reorganization Costs
Reorganization costs represent all costs incurred after filing for
bankruptcy that relate to the Company's reorganization and
restructuring efforts. Reorganization costs for the nine months ended
September 30, 1996 were $8,251 and none were incurred in the nine
months ended September 30, 1997. These costs consist primarily of
professional and administrative fees and expenses.
Interest and Debt Expense
Interest and debt expense for the third quarter 1997 of $3,670
increased from third quarter 1996 interest and debt expense of $3,374.
Interest and debt expense for the first nine months of 1997 of $11,001
decreased from interest and debt expense of $12,921 for the nine months
ended September 30, 1996. The increase for the comparable quarters was
primarily attributable to interest expense on the NRG loan. The
decrease in the nine month periods was due primarily to post-petition
interest on prepetition liabilities included in the nine month period
ended September 30, 1996, offset in part by the interest expense on the
NRG loan. In addition, the average interest rate was lower in the nine
month period ended September 30, 1997 than in the comparable period one
year ago due to the refinancing of the Newark and Parlin Projects.
Extraordinary Item
During the quarter ended September 30, 1996, the Company negotiated
a buyout of a subsidiary's capital lease obligation. The lender agreed
to accept a $1,100 payment in full satisfaction of the lease. The
transaction resulted in an extraordinary gain of $1,643 (net of $124 of
state income taxes).
Income Taxes
The provision for income taxes for the quarter and nine months ended
September 30, 1997 relates primarily to state income taxes on earnings
of the Company's subsidiaries.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income
(loss) by the weighted average shares of common stock and common stock
equivalents outstanding. Fully dilutive net income (loss) per share is
not presented because conversion of any common stock equivalents does
not have a material dilutive effect on reported net income (loss) per
share. Weighted average shares increased for the quarter and nine
11
<PAGE>
month periods ended September 30, 1997 from the comparable periods one
year ago primarily due to the purchase of 2,710,357 common shares by
NRG Energy on April 30, 1996 and due to the issuance of stock options
under the 1996 Stock Option Plan and 1997 Stock Option Plan.
Liquidity and Capital Resources
In May 1996, the Company's wholly-owned subsidiaries Newark and
Parlin entered into a Credit Agreement (the "Credit Agreement") which
established provisions for a $155,000 fifteen-year loan (of which
$145,351 was outstanding at September 30, 1997) and a $5,000 five-year
debt service reserve line of credit. The interest rate on the
outstanding principal is variable based on, at the option of Newark and
Parlin, LIBOR plus a 1.125% margin or a defined base rate plus a 0.375%
margin, with nominal margin increases in the sixth and eleventh year.
Concurrent with the Credit Agreement, Newark and Parlin entered into an
interest rate swap agreement with respect to 50% of the principal
amount outstanding under the Credit Agreement. This interest rate swap
agreement fixes the interest rate on the 50% portion of the principal
amount outstanding at 6.9% plus the margin.
NRGG Schuylkill Cogeneration, Inc. (formerly known as O'Brien
(Schuylkill) Cogeneration, Inc.) ("NSC"), a wholly-owned subsidiary of
the Company, owns a one-third partnership interest in the Grays Ferry
Project currently under construction. In March 1996, the partnership
entered into a credit agreement with Chase Manhattan Bank N.A. to
finance the project. The credit agreement obligates each of the
project's three partners to make a $10,000 capital contribution prior
to the commercial operation of the facility, which is anticipated to
occur by the end of 1997.
NRG Energy has entered into a loan commitment to provide NSC the
funding, if needed, for the NSC capital contribution obligation to the
Grays Ferry Partnership. At September 30, 1997, NSC had borrowed
$4,900 from NRG Energy under this loan agreement and contributed the
proceeds to the Grays Ferry Partnership.
In connection with this loan commitment for the Grays Ferry Project,
the Company granted NRG Energy the right to convert $3,000 of
borrowings under the commitment into 356,255 shares of common stock of
the Company. At September 30, 1997, no such borrowings had been
converted into common stock. Subsequent to such date NRG Energy
exercised such conversion right in full, thereby reducing the amount
outstanding under such commitment 10 $1,900.
At September 30, 1997, loans of $14,388 remained outstanding to NRG
Energy under another loan agreement.
The Company and NRG Energy have entered into a Co-Investment
Agreement pursuant to which NRG Energy has agreed to offer to the
Company ownership interests in certain power projects which are
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 PPA 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
12
<PAGE>
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 or a minimum of 150 net MW.
To facilitate the Company's ability to acquire ownership interests
which may be offered pursuant to its Co-Investment Agreement, NRG
Energy has agreed to finance the Company's purchase of such ownership
interests at commercially competitive terms to the extent funds are
unavailable to the Company on comparable terms from other sources. Any
such financing provided by NRG Energy under the terms of the Co-
Investment Agreement is required to be recourse to the Company and
secured by a lien on the ownership interest acquired. Such financing
also is required to be repaid from the net proceeds received by the
Company from offerings of equity or debt securities of the Company
(when market conditions permit such offerings to be made on favorable
terms) after taking into account the working capital and other cash
requirements of the Company as determined by its Board of Directors.
The Company has been offered, and is currently evaluating the
investment in two projects by NRG Energy pursuant to the Co-Investment
Agreement. The Company is in negotiations with NRG Energy on whether
and on what terms such transaction will be accepted by the Company.
There can be no assurance that either project will be accepted by the
Company.
The Company's Board of Directors has decided not to liquidate the
Philadelphia Cogeneration Project, which was identified in the
Liquidating Asset Management Agreement. As a result of this decision,
Wexford Management LLC received compensation in accordance with the
terms of the Liquidating Asset Management Agreement during the quarter
ending September 30, 1997. The Company is continuing its strategic
analysis regarding its investment in the Company's equipment sales,
rental and services businesses.
Except for the historical information contained within this
Management's Discussion and Analysis of Financial Condition and Results
of Operations, the accompanying consolidated financial statements, and
the Notes to Consolidated Financial Statements, the matters reflected
or discussed in this report which relate to the Company's beliefs,
expectations, plans, future estimates and the like are forward-looking
statements that involve risks and uncertainties including but not
limited to: business conditions and growth in the general economy;
regulatory and other legal developments affecting the markets in which
the Company operates and changes in environmental laws; volatility in
gross margins caused by seasonal factors that cannot be controlled by
the Company; competitive factors, such as price pressures and other
factors which may make it more difficult for the Company to secure
future projects and may increase project development costs and/or
reduce operating margins; the success of the Company's business
partners, including its energy customers and fuel suppliers; the
successful completion of the Grays Ferry Project; the successful
completion and addition of new energy projects and various other
factors including without limitation those discussed in this report and
the Company's Report on Form 10-K for the fiscal year ended December
31, 1996 under the caption "Item 1. Business - Risk Factors." Such
factors may cause the Company's actual results to differ materially
from those discussed herein and in forward-looking statements made
herein.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 Legal Proceedings.
Except as disclosed in the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1997, there were no material
developments in any litigation disclosed in the Company's interim
report on Form 10-K for the period ended December 31, 1996 during the
period covered by this report. The Company is party to other legal
proceedings, but the Company believes that the outcome of these matters
(either individually or in the aggregate) will not have a material
adverse effect on the business or financial condition of the Company.
14
<PAGE>
ITEM 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
The "Index to Exhibits" following the signature page is
incorporated herein by reference.
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed by the registrant
during the fiscal quarter ended September 30, 1997:
None.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
NRG GENERATING (U.S.), INC.
Registrant
Date: November 13, 1997 By: /s/ Timothy P. Hunstad
Timothy P. Hunstad
Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
16
<PAGE>
INDEX TO EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the Company
filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
dated April 30, 1996 and incorporated herein by this reference.
3.2 Amended and Restated Bylaws of the Company.
10.1 NRG Generating (U. S.) Inc. 1997 Stock Option Plan filed as
Appendix A to the Company's Proxy Statement dated April 24, 1997
and incorporated herein by this reference.
10.2 Employment Agreement dated March 28, 1997 between the Company and
Robert T. Sherman, Jr.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule (for SEC filing purposes only)
17
<PAGE>
NRG GENERATING (U.S.) INC.
RESTATED BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
1.1. Annual.
The annual meeting of stockholders for the election of
directors, ratification or rejection of the selection of auditors and
the transaction of such other business as may properly be brought
before the meeting shall be held within five months after the end of
the corporation's fiscal year, or such other time as may be determined
by the board of directors at such time, date and place as the board
shall determine by resolution.
1.2. Special.
Special meetings of stockholders may be called by the board of
directors or the chairman of the board of directors or the Independent
Directors' Committee (as described in Section 3.1(b)), at such place,
date and time and for such purpose or purposes as shall be set forth in
the notice of such meeting.
1.3. Notice of Meetings.
Written notice of each meeting of stockholders shall be given
by the chairman of the board and/or the secretary in compliance with
the provisions of Delaware law.
1.4. List of Stockholders Entitled to Vote.
The secretary shall prepare, 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.
<PAGE>
1.5. Quorum.
At each meeting of the stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws,
the holders of sixty percent of the voting power of the outstanding
shares of stock entitled to vote at the meeting, present in person or
by proxy, shall 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 1.9 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.
1.6. Organization.
The chairman or, if he so designates or is absent, the chief
executive officer or, in their absence, an executive vice president or
vice president designated by the board of directors, shall preside at
meetings of the stockholders. The secretary of the corporation shall
act as secretary, but in his absence the presiding officer may appoint
a secretary.
1.7. Voting; Proxies.
(a) Each stockholder shall be entitled to vote in accordance
with the number of shares and voting powers of the voting shares held
of record by him. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by
proxy, but such proxy, whether revocable or irrevocable, shall comply
with the requirements of Delaware law. All elections and questions
shall, unless otherwise provided by law or by the certificate of
incorporation or these by-laws, be decided by the vote of the holders
of a majority of the voting power of the shares of stock entitled to
vote thereon present in person or by proxy at the meeting.
(b) Any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding shares of stock having no
less than the greater of: (i) 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 and (ii) 75% of
2
<PAGE>
the voting power of the shares of stock entitled to vote thereon.
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.
1.8 Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders
entitled: (a) to notice of or to vote at any meeting of stockholders or
any adjournment thereof; (b) to express consent to corporate action in
writing without a meeting; (c) to receive payment of any dividend or
other distribution or allotment of any rights; or (d) 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. The 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: (a) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall not be more than sixty nor less than ten
days before the date of such meeting; (b) 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 (c) in the case of any other action, shall not
be more than sixty days prior to such other action. A determination of
stockholders 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.
1.9. Adjournments.
Any meeting of stockholders, annual or special, may adjourn
from time to time to reconvene at the same or 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 meeting shall be given to each stockholder of record entitled
to vote at the meeting.
1.10. Judges.
All votes by ballot at any meeting of stockholders shall be
conducted by two judges appointed for the purpose, either by the
directors or by the chairman of the meeting. The judges
3
<PAGE>
shall decide upon the qualifications of voters, count the votes and
declare the result.
1.11. Notice of Stockholder Nomination and Stockholder Business.
(a) At a meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting.
(b) A notice of the intent of a stockholder to make a
nomination or to bring any other matter before the meeting shall be
made in writing and received by the secretary of the corporation not
more than 180 days and not less than 120 days in advance of the annual
meeting or, in the event of a special meeting of stockholders, such
notice shall be received by the secretary of the corporation not later
than the close of the fifteenth day following the day on which notice
of the meeting is first mailed to stockholders.
(c) Every such notice by a stockholder shall set forth:
(i) the name and residence address of the stockholder
of the corporation who intends to make a nomination or bring up
any other matter;
(ii) a representation that the stockholder is a holder
of the corporation'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 description of all arrangements or understandings
among the stockholder and each nominee and any other person or
persons (naming such person or person) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) with respect to notice of an intent to make a
nomination, 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 of the corporation; and
(v) 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.
(d) Notice of intent to make a nomination shall be accompanied
by the written consent of each nominee to serve as director of the
corporation if so elected.
4
<PAGE>
(e) At the meeting of stockholders, the chairman shall declare
out of order and disregard any nomination or any other matter not
presented in accordance with this section.
ARTICLE II
BOARD OF DIRECTORS
2.1. Responsibility and Number.
(a) The business and affairs of the corporation shall be
managed by or under the direction of a board of directors.
(b) The number of directors shall be eight(1); provided that
such number of directors may be increased to eight if necessary or
required by the terms of any series of preferred stock that may be
issued from time to time pursuant to a resolution of the board of
directors in accordance with Article FOURTH of the corporation's
certificate of incorporation.
2.2. Election; Resignation; Vacancies.
(a) At each annual meeting of stockholders, the stockholders
shall elect directors, each of whom shall hold office for a term
commencing on the date of the annual meeting of stockholders, or such
later date as shall be determined by the board of directors, and ending
on the next annual meeting of stockholders, or until his or her
successor is elected and qualified. Any director may resign at any
time upon written notice to the chairman of the board or to the
secretary.
(b) Except as otherwise provided in these by-laws with respect
to Independent Directors (as defined in Section 2.10(c)), the nominees
of the board of directors for the election of whom the board will
solicit proxies from the stockholders for use at the corporation's
annual meeting shall be determined by resolution of the board of
directors.
(c) Except as otherwise provided in these by-laws with respect
to Independent Directors, any vacancy occurring in the board of
directors for any reason may be filled by a majority of the remaining
members of the board of directors, although such majority is less than
a quorum. Each director so elected shall hold office concurrent with
the term of other directors or until his successor is elected and
qualified.
(1) The number was increased from seven to eight on March 27, 1997.
5
<PAGE>
2.3 Regular Meetings.
Unless otherwise determined by resolution of the board of
directors, a meeting of the board of directors for the election of
officers and the transaction of such other business as may come before
it shall be held at such time and places as the board shall from time
to time determine.
2.4 Special Meetings.
Special meetings of the board of directors may be called by the
chairman of the board of directors, the chief executive officer, the
president or a vice chairman, or at the request in writing of a
majority of the directors then in office or of a majority of the
members of the Independent Directors Committee, and shall be called by
the secretary. Notice of a special meeting of the board of directors
shall be given at least twenty-four hours before the special meeting.
2.5 Quorum; Vote Required for Action.
(a) At all meetings of the board of directors, a majority of
the whole board shall constitute a quorum for the transaction of
business. Except in cases in which applicable law, 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.
(b) Except as otherwise specifically provided in the
certificate of incorporation or these by-laws; the affirmative vote of
a majority of the entire Board of Directors shall be required to: (i)
amend the certificate of incorporation or these by-laws; (ii) adopt a
plan of liquidation or dissolution of the corporation; (iii) approve
any merger, consolidation or other business combination of the
corporation or any of its subsidiaries with any person (other than a
wholly-owned subsidiary of the corporation); and (iv) appoint members
of board committees in accordance with Section 3.1(b) of these by-laws.
2.6. Organization.
(a) At its last meeting before, or first meeting after, the
annual meeting of stockholders, the board of directors shall elect one
of its members to be chairman of the board. The chairman of the board
may, but need not be, an officer of or employed in an executive or any
other capacity by the corporation.
(b) The chairman of the board of directors shall preside at
meetings of the board of directors and lead the board in fulfilling its
responsibilities as defined in section 2.1 and, in particular, its
responsibilities to oversee the performance of the corporation and of
the executive management of the corporation.
6
<PAGE>
(c) The chairman of the board of directors, or in his absence,
the chief executive officer, the president or a vice chairman (in the
order stated), or in their absence a member of the board selected by
the members present, shall preside at meetings of the board. The
secretary of the corporation shall act as secretary, but in his absence
the presiding officer may appoint a secretary.
2.7. Transactions with Corporation.
(a) No contract or transaction between the corporation and one
or more of its directors, 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 for this reason,
or solely because the director or officer is present at or participates
in the meeting of the board or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are
counted for such purpose: (1) if the material facts as to his
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 or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a
quorum; or (2) if the material facts as to his 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 stockholders; or
(3) if 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.
(b) 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.
(c) Any material transaction between the corporation or any of
its subsidiaries on the one hand and NRG Energy, Inc., Northern States
Power Company (Minnesota) (or any wholly owned subsidiary of either) on
the other hand shall require approval by a majority of the Independent
Directors of the corporation, as hereinafter defined.
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
7
<PAGE>
committee thereof, may be taken without a meeting if all members of the
board 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 or committee.
2.9. Telephonic Meetings Permitted.
Members of the board of directors, or any committee designated
by the board, may participate in a meeting of such board or committee
by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
2.10. Independent Directors.
(a) No fewer than two of the individuals to constitute the
nominees of the board of directors for the election of whom the board
will solicit proxies from the stockholders for use at the corporation's
annual meeting shall consist of individuals who, on the date of their
selection as nominees of the board of directors, would be Independent
Directors.
(b) In the event the board of directors elects directors
between annual meetings of stockholders, the number of such directors
who qualify as Independent Directors on the date of their nomination
shall be such that no less than two of all directors holding office
immediately thereafter shall have been Independent Directors on the
date of the first of their nomination or selection as nominees of the
board of directors.
(c) For purposes of this by-law, the term "Independent
Director" shall mean a director who: (i) is not and has not been
employed by the corporation or its subsidiaries in an executive
capacity within the five years immediately prior to the annual meeting
at which the nominees of the board of directors will be voted upon;
(ii) is not (and is not affiliated with a company or a firm that is) a
significant advisor or consultant to the corporation or its
subsidiaries; (iii) is not affiliated with a significant customer or
supplier of the corporation or its subsidiaries; (iv) does not have
significant personal services contract(s) with the corporation or its
subsidiaries; (v) is not affiliated with a tax-exempt entity that
receives significant contributions from the corporation or its
subsidiaries; (vi) is not an affiliate (as defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934), of any beneficial owner directly or indirectly, of 5% or more of
the voting power of the outstanding voting stock of the corporation;
and (vii) is not a spouse, parent, sibling or child of any person
described by (i) through (vi).
8
<PAGE>
ARTICLE III
COMMITTEES
3.1. Committees of the Board of Directors.
(a) The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees,
consisting of one or more of the directors of the corporation, to be
committees of the board of directors ("committees of the board"). All
committees of the board may authorize the seal of the corporation to be
affixed to any papers which may require it. To the extent provided in
any resolution of the board of directors or these by-laws, and to the
extent permissible under the laws of the State of Delaware and the
certificate of incorporation, any such committee shall 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.
(b) The board shall have three standing committees: an Audit
Committee, a Compensation Committee and an Independent Directors
Committee. Subject to the provisions of Sections 3.2 through 3.4
below, each standing committee shall have such number of members as
determined by resolution of the directors and each of such members
shall be appointed by a majority of the whole board.
3.2. Independent Directors Committee.
(a) The Independent Directors Committee shall have three
members, two of whom shall be Independent Directors. The Independent
Directors Committee shall review the qualifications of individuals for
consideration as one of the three members of the Independent Directors
Committee. Prior to the annual meeting of the shareholders each year,
the Independent Directors Committee shall nominate those individuals to
serve on the board and constitute the three members of the Independent
Directors Committee for the election of whom the board will solicit
proxies. The Independent Directors Committee shall also designate 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
shall have sole authority and responsibility to make all decisions and
take all actions on behalf of the corporation under both the Co-
Investment Agreement dated as of April 30, 1996 between NRG Energy,
Inc., a Delaware corporation ("NRG") and the corporation and the
Management Services Agreement dated as of April 30, 1996 between NRG
and the corporation, including without limitation decisions regarding
the amendment or modification of such agreements. The Independent
Directors Committee shall have and may exercise such other powers,
authority and responsibilities as provided in these by-
9
<PAGE>
laws or as may be determined by the board of directors.
(b) Independent Directors Committee members shall have the
right to request and receive such information, reports and/or backup
data from employees of the corporation or the corporation's auditors,
as the case may be, as they deem necessary to assist them in the
conduct of their duties, and such committee shall have the right,
without limitation, to retain such advisors and consultants, including
attorneys, accountants, engineers or other experts, as it deems
necessary or appropriate to assist the members in carrying out the
committee's responsibilities.
3.3. Audit Committee.
The board of directors shall select the members of the Audit
Committee, the majority of whom shall be Independent Directors, and
shall designate the chairman of the committee. No officer of the
corporation shall be a member of the Audit Committee. The members of
the Audit Committee shall not be eligible to participate in any
incentive compensation plan for employees of the corporation or any of
its subsidiaries. The selection by the committee of accountants for
the ensuing calendar year shall be made annually in advance of the
annual meeting of stockholders and shall be submitted to the
stockholders for ratification or rejection at such meeting. The Audit
Committee shall have and may exercise such powers, authority and
responsibilities as are normally incident to the functions of an Audit
Committee or as may be determined by the board of directors.
3.4. Compensation Committee.
(a) The board of directors shall select the members of the
executive Compensation Committee and shall designate the chairman of
the committee. No officer of the corporation shall be a member of the
committee. No member of the committee shall be eligible to participate
in any plan falling within the jurisdiction of the committee. The
committee shall have and may exercise the powers and authority granted
to it by any incentive compensation plan for employees of the
corporation or any of its subsidiaries, and such other powers,
authority and responsibilities as may be determined by the board of
directors.
(b) The committee shall determine the compensation of:
(a) employees of the corporation who are directors of the corporation;
and (b) after receiving and considering the recommendation of the chief
executive officer and the president of the corporation, all other
employees of the corporation who are officers of the corporation or who
occupy such other positions as may be designated by the committee.
10
<PAGE>
ARTICLE IV
OFFICERS
4.1. Elected officers.
The officers of the corporation shall be elected by the board
of directors. There shall be a chief executive officer, a president,
one or more vice presidents, a secretary, a treasurer and a
comptroller. The chief executive officer and the president shall have
the powers, authority and responsibilities provided by these by-laws.
The officers, other than the chief executive officer and the president,
shall each have, in addition to the powers, authority and
responsibilities of those officers otherwise provided by the by-laws,
such powers, authority and responsibilities as the board of directors
or the chief executive officer may determine. The board of directors
may also elect persons to hold such other offices as the board of
directors shall determine, including one or more vice chairmen of the
board. A person may hold any number of offices. Elected officers
shall hold their offices at the pleasure of the board of directors, or
until their earlier resignation.
4.2 Chief Executive Officer.
(a) The chief executive officer shall have the general
executive responsibility for the conduct of the business and affairs of
the corporation. If the chairman so designates or is absent, the chief
executive officer shall preside at meetings of the stockholders. He
shall exercise such other powers, authority and responsibilities as the
board of directors may determine.
(b) In the absence of or during the physical disability of the
chief executive officer, the board of directors shall designate an
officer who shall have and exercise the powers, authority and
responsibilities of the chief executive officer.
4.3 President.
The president shall have and exercise such powers, authority
and responsibilities as the board of directors may determine.
4.4. Treasurer.
The treasurer shall have custody of all funds and securities of
the corporation and shall perform all acts incident to the position of
treasurer. He shall render such accounts and reports as may be
required by the board of directors. The records, books and accounts of
the office of the treasurer shall, during the usual hours for business
at the office of the treasurer, be open to the examination of any
director.
11
<PAGE>
4.5 Secretary.
The secretary shall keep the minutes of all meetings of
stockholders and directors and of such committees of the board of
directors as to which he may be so directed. He shall give all
required notices and shall have charge of such books and papers as the
board of directors may require. He shall submit such reports to the
board of directors or to any of the committees of the board or
committees of the corporation as the board of directors or any such
committee may require. Any action or duty required to be performed by
the secretary may be performed by an assistant secretary.
4.6. Comptroller.
The comptroller shall be in charge of the accounts of the
corporation and shall perform all acts incident to the position of
comptroller. He shall submit such reports and records to the board of
directors or to any of the committees of the board or committees of the
corporation as the board of directors or any such committee may
require.
4.7. Subordinate officers.
(a) The board of directors may from time to time appoint one
or more assistant secretaries, assistant treasurers, assistant
comptrollers, and such other subordinate officers as the board of
directors may deem advisable. Such subordinate officers shall have
such powers, authority and responsibilities as the board of directors
may from time to time determine. The board of directors may grant to
any committee of the board or the chief executive officer the power and
authority to appoint subordinate officers and to prescribe their
respective terms of office, powers, authority and responsibilities.
Each subordinate officer shall hold his position at the pleasure of the
board of directors, the committee of the board appointing him, the
chief executive officer and any other officer to whom such subordinate
officer reports.
(b) In the interval between annual organizational meetings of
the board of directors, the chief executive officer shall have the
power and authority to appoint such subordinate officers. Such
subordinate officers shall serve until the first meeting of the board
of directors immediately following the annual meeting of stockholders.
4.8. Resignation, Removal, Suspension and Vacancies.
(a) Any officer may resign at any time by giving written
notice to the chief executive officer, the president or the secretary.
Unless stated in the notice of resignation, the
12
<PAGE>
acceptance thereof shall not be necessary to make it effective. It
shall take effect at the time specified therein or, in the absence of
such specification, it shall take effect upon the receipt thereof.
(b) Any officer elected by the board of directors may be
suspended or removed at any time by the affirmative vote of a majority
of the whole board. Any subordinate officer of the corporation
appointed by the board of directors or a committee of the board, or the
chief executive officer, may be suspended or removed at any time by a
majority vote of a quorum of the board of directors or committee
appointing such subordinate officer, or by the chief executive officer
or any other officer to whom such subordinate officer reports.
(c) The chief executive officer may suspend the powers,
authority, responsibilities and compensation of any elected officer or
appointed subordinate officer for a period of time sufficient to permit
the board or the appropriate committee of the board a reasonable
opportunity to consider and act upon a resolution relating to the
reinstatement, further suspension or removal of such person.
(d) As appropriate, the board of directors, a committee of the
board, and/or the chief executive officer may fill any vacancy created
by the resignation of any officer.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1. Execution of Contracts.
The board, except as in these by-laws otherwise provided, may
authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
5.2. Checks, Drafts, Etc.
All checks, drafts or other orders for payment of money, notes
or other evidence of indebtedness, issued in the name of or payable to
the corporation, shall be signed or endorsed by such person or persons
and in such manner as, from time to time, shall be determined by
resolution of the board. Each such officer, assistant, agent or
attorney shall give such bond, if any, as the board may require.
13
<PAGE>
5.3. Deposits.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board may select,
or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the
corporation to whom such power shall have been delegated by the board.
For the purpose of deposit and for the purpose of collection for the
account of the corporation, the President, any Vice President or the
Treasurer (or any other officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the corporation who shall
from time to time be determined by the board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which
are payable to the order of the corporation.
5.4. General and Special Bank Accounts.
The board may from time to time authorize the opening and
keeping of general and special bank accounts with such banks, trust
companies or other depositories as the board may select or as may be
selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the corporation to whom such power
shall have been delegated by the board. The board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these by-laws, as it may deem
expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
6.1. Certificates for Stock.
Except as otherwise provided in the corporation's certificate
of incorporation or by-laws, every owner of stock of the corporation
shall be entitled to have a certificate or certificates, to be in such
form as the board shall prescribe, certifying the number and class of
shares of the stock of the corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in
which they shall be issued and shall be signed in the name of the
corporation by the President or a Vice President, and by the Secretary
or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any of or all of the signatures on the certificates may be
a facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon, any such
certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may
nevertheless be issued by the corporation with the same effect as
though the person who signed
14
<PAGE>
such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date
of issue. A record shall be kept of the respective names of the
persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such
certificates, respectively, and the respective dates thereof, and in
case of cancellation, the respective dates of cancellation. Every
certificate surrendered to the corporation for exchange or transfer
shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing
certificate shall have been so canceled, except in cases provided for
in Section 6.4.
6.2. Transfers of Stock.
Transfers of shares of stock of the corporation shall be made
only on the books of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.3, and upon surrender
of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. Except as otherwise provided in
the corporation's certificate of incorporation or these by-laws, the
person in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof for all purposes as
regards the corporation. Whenever any transfer of shares shall be made
for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or
certificates shall be presented to the corporation for transfer, both
the transferor and the transferee request the corporation to do so.
6.3. Regulations.
The board may make such rules and regulations as it may deem
expedient, not inconsistent with these by-laws, concerning the issue,
transfer and registration of certificates for shares of the stock of
the corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock
to bear the signature or signatures of any of them.
6.4. Lost, Stolen, Destroyed, and Mutilated Certificates.
In any case of loss, theft, destruction, or mutilation of any
certificate of stock, another may be issued in its place upon proof of
such loss, theft, destruction, or mutilation and upon the giving of a
bond of indemnity to the corporation in such form and in such sum as
the Board may direct; provided, however,
15
<PAGE>
that a new certificate may be issued without requiring any bond when,
in the judgment of the board, it is proper so to do.
ARTICLE VII
MISCELLANEOUS
7.1. Fiscal Year.
The fiscal year of the Corporation shall be determined by
resolution of the board.
7.2. Waiver of Notices.
Whenever notice is required to be given by these by-laws or the
certificate of incorporation, the person entitled to said notice may
waive such notice in writing, either before or after the time stated
therein, and such waiver shall be deemed equivalent to notice.
ARTICLE VIII
INDEMNIFICATION (2)
8.1. Directors and Officers.
(a) Any person who was or is a party or is threatened to be
made a party to or was or is involved (as a witness or otherwise) in
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than
any action or suit by or in the right of the Corporation to procure a
judgment in its favor (a "derivative action")) by reason of the fact
that he or she is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, shall be indemnified by the Corporation, to the
extent authorized by the laws of the State of Delaware as the same
exist or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such laws
permitted prior to such amendment), against all expenses (including,
but not limited to, attorneys' fees) judgments, fines, penalties and
amounts paid in settlement actually and reasonably incurred by him or
her in connection with the defense or settlement of such action, suit
or proceeding. In the event of any derivative action, such persons
shall be indemnified by the Corporation under the same conditions and
to the same extent as specified above, except that no
(2) This Article was added on October 28, 1997.
16
<PAGE>
indemnification is permitted in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper. The indemnification expressly
provided by statute in a specific case shall not be deemed exclusive of
any other rights to which any person indemnified may be entitled under
any lawful agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators
of such a person.
(b) The right to indemnification conferred in this Article
VIII is and shall be a contract right. The right to indemnification
conferred in this Article VIII shall include the right to be paid by
the Corporation the expenses (including attorneys' fees and retainers
therefor) reasonably incurred in connection with any such proceeding in
advance of its final disposition, such advances to be paid by the
Corporation within thirty (30) days after the receipt by the
Corporation of a statement or statements from a director or officer of
the Corporation requesting such advance or advances from time to time;
provided, however, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer in advance
of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled
to be indemnified under this Article VIII or otherwise.
(c) To obtain indemnification under this Article VIII, an
indemnitee shall submit to the Corporation a written request, including
therein or therewith such documentation and information as is
reasonably available to such person and is reasonably necessary to
determine whether and to what extent the indemnitee is entitled to
indemnification.
(d) The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or any director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
including service with respect to employee benefit plans, against any
expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or
loss under the General
17
<PAGE>
Corporation Law of the State of Delaware. To the extent that the
Corporation maintains any policy or policies providing such insurance,
each director and officer, and each employee and agent to whom rights
of indemnification have been granted as provided in paragraph (e) of
this Article VIII, shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the
coverage thereunder for any such director, officer, employee or agent.
(e) The Corporation may, to the extent authorized from time
to time by the Board of Directors, grant rights to indemnification, and
rights to be paid by the Corporation the expenses incurred in
connection with any proceeding in advance of its final disposition, to
any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VIII with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation."
IN WITNESS WHEROF, the undersigned has hereunto set her hand on the
28th day of October, 1997.
/s/ Karen A. Brennan
By: Karen A. Brennan
Title: Secretary
18
<PAGE>
[NRG Generating (U.S.) Inc. letterhead]
March 28, 1997
Mr. Robert T. Sherman, Jr.
4511 Verone Street
Bellaire, Texas 77401
Dear Bob:
Subject: Employment Offer/Agreement
I am pleased to provide an offer of employment to you for the position
of President & CEO of NRG Generating (U.S.) Inc. ("NRGG"). The
elements of the employment offer for your consideration are summarized
below:
1. Employment will commence upon a mutually agreed start date of no
later than May 1, 1997 (the "Start Date").
2. Base salary will be $210,000 per year ("Base Salary").
3. A signing bonus of $40,000 will be paid within seven (7) business
days of the Start Date.
4. The "1997 Short-Term Incentive Plan Specifications" is attached as
Exhibit "A". While the goals outlined in that plan will help guide
expectations during 1997, the Company is agreeing that your 1997
incentive will be calculated at the maximum level of 60 percent of
Base Salary assuming you arc employed from the Start Date through
December 31, 1997.
5. You will be granted an option for 105,000 shares ("Base Option")
of NRGG stock pursuant to a new stock option plan. The new option
plan will be identical to the existing 1996 Stock Option Plan of
NRGG except that the definition of Change of Control will include
either an acquisition by NRG Energy, Inc. of more than 51% of the
capital stock of NRGG or a merger of NRGG into NRG Energy, Inc.
The Date of Grant will be the Start Date. Pursuant to the plan,
the option price will be equal to the average of the 20-trading
days closing price prior to the Start Date. Your option grant
agreements (Base and Performance) will be drafted to provide that
these options are Incentive Stock Options (ISO) to the greatest
extent allowed by law and the Internal Revenue Service's
regulations. One-third of the Base Option grant will vest and be
exercisable on each of the first three anniversaries of the Date
of Grant. The Base Option grant will have a term of ten years.
<PAGE>
Mr. Robert T. Sherman, Jr.
Page 2
March 28, 1997
It is understood that this Base Option grant is subject to
ratification of the new stock option plan and of these options by
the Shareholders of NRGG, and that the option contract itself will
not be entered into, delivered or binding until after such
ratification.
6. Within the new stock option plan as described above (item #5) you
will also be granted a performance based stock option for 100,000
shares ("Performance Option") of NRGG stock on the Start Date The
option price will be equal to the average of the 20-trading days
closing price prior to the Start Date. It is understood that this
Performance Option grant is subject to ratification of the new
stock option plan and these options by the Shareholders of NRGG
and that the option contract itself will not be entered into,
delivered or binding until after such ratification. These shares
would vest as follows:
a) 50,000 shares (the "First Block") when the NRGG common stock
price is greater than or equal to $25 per share for 20
consecutive days. The right to achieve the vesting of the
First Block will be valid through December 31, 1999. If the
First Block becomes vested, it will be exercisable until the
tenth anniversary of the Grant Date.
b) 50,000 shares (the "Second Block") when the NRGG common stock
price is greater than or equal to $35 per share for 20
consecutive days. The right to achieve the vesting of the
Second Block will be valid through December 31, 2001. If the
Second Block becomes vested, it will be exercisable until the
tenth anniversary of the Grant Date.
7. NRGG will provide employee health and welfare benefits under
NRGG's existing plans as included as exhibits "B" and "C":
a) Major medical benefits pursuant to NRGG's Blue Cross plan;
b) Dental coverage per NRGG's plan;
c) Other comprehensive coverage and life insurance per NRGG's
plan.
The cost to the employee of NRGG's health and we1fare plans (a, b
& c) for 1997 is $5.00 per month.
8. You will be provided with the benefits of the NRGG relocation
program (a plan purchased by NRGG from NRG/NSP as outlined
earlier). See exhibit "D".
9. You will be provided a leased automobile pursuant to the NRGG
Officer level program (same program as NRG/NSP officer program)
administered by GECC. Since you would like to transfer your
existing vehicle to the program, arrangement will be made for GECC
<PAGE>
Mr. Robert T. Sherman, Jr.
Page 3
March 28, 1997
to purchase your vehicle at current market value from you (any
associated loan payoffs will be your responsibility). Normally,
any purchase price above the program maximum (currently $27,000)
must be paid by the employee. On this occasion only, NRGG will
reimburse the program for any amount over the program purchase
price maximum of $27,000.
10. Underground parking at 1221 Nicolett Mall will be paid by NRGG.
11. Business club dues at a club of your choice (subject to prior
approval by the Chairman) will be paid by NRGG.
12. You will be entitled to vacation eligibility of 4 weeks per year.
13. Your work location will be 1221 Nicollet Mall, Suite 610,
Minneapolis, MN.
14. NRGG shall consider you to be an employee at will and accordingly
may terminate your employment with NRGG at any time, for any
reason, with or without cause. Notwithstanding the previous
sentence, NRGG will provide you with the following severance
payment arrangement during the three-year period commencing on the
Start Date and ending on the third anniversary of the Start Date
(the "Severance Payment Period"). During the Severance Payment
Period, if your employment with NRGG terminates, then NRGG will
make severance payments to you if, and only if, a) you are
terminated without Cause, or b) NRGG has materially breached a
material obligation of NRGG under this agreement and you have
therefore elected to terminate your employment with NRGG within 30
days of such breach, or c) there has been a Change of Control or
Corporate Transactions (as such terms are defined in NRGG's 1996
Stock Option plan, as modified pursuant to the second sentence of
item number 5 above) and you have therefore elected to terminate
your employment with NRGG within 30 days of such Change of Control
or Corporate Transaction. The amount of any such severance
payment will be that portion of your Base Salary remaining from
the termination date to the third anniversary of the Start Date.
For purposes of this item 14, "Cause" shall mean either of:
(i) the commission of a felony or gross negligence in the conduct
of your duties at NRGG: or
(ii) your engaging in conduct that is either outside of the
ordinary scope of your duties at NRGG or a material breach of
your obligations under this letter agreement and that has a
material adverse effect on the business or financial
condition of NRGG.
If NRGG determines that it has the right to terminate your employment
with NRGG for Cause add elects to exercise that right, then NRGG will
give you notice thereof. Such notice shall
<PAGE>
Mr. Robert T. Sherman, Jr.
Page 4
March 28, 1997
describe in reasonable detail the conduct or circumstances that
constitute Cause. If such notice is delivered under item ii, then you
will have a period of 30 days from the date of such notice within which
to cure the conduct or circumstances constituting Cause and to cause to
be repaired the adverse effect on the business or financial condition
of NRGG. Termination of your employment with NRGG shall become
effective on the date of the notice if the notice is given under item i
or on the 30th day following the date of such notice if the notice is
given under item ii and the above referenced cure and repair has not
been completed to the reasonable satisfaction of NRGG within such 30
day period.
15. In order to protect the Company's interest in the development and
maintenance of business opportunities, you and we agree as
follows:
a) You will at all times faithfully, industriously and to the
best of your ability, experience, and talents, perform and
discharge the duties of your position and that otherwise may
be required of and from you by the Board of Directors of NRGG
so as to promote the profit, benefit and business of NRGG and
so as to represent NRGG in the most professional manner
possible. In the performance of your duties hereunder, you
covenant that you will diligently and in a business-like
manner, and to the best of your abilities, and consistent
with your overall duties to the stockholders of NRGG: (a)
keep, observe and perform all lawful rules, regulations and
duties that may be adopted or prescribed by the Board of
Directors of NRGG; and (b) perform such other functions as
are appropriate to further the best interests of NRGG.
b) You shall devote your full business time, attention,
knowledge, effort and skills solely to the business and
interests of NRGG. You shall not devote significant business
time to activities that would inhibit or otherwise interfere
with the proper performance of your duties and shall not be
directly or indirectly concerned or interested in any other
occupation or business; provided, however, that you shall be
entitled to maintain investments and interests in
corporations or business ventures provided that such
investments or interests do not interfere with your ability
to devote your full business time to NRGG and to perform your
duties hereunder; provided, further however, that any
investment that you have, make or acquire in a Competitor
must be limited to a passive investment in less than 5% of
the publicly traded securities of such Competitor. You
acknowledge and agree that all business opportunities
presented to you in the scope of your employment relating to
the business of NRGG shall belong to NRGG. NRGG shall be
entitled to all benefits, profits or other issues arising
from or incident to all work, services and advice of you
relating to the business of NRGG. For purposes of this item
number 15, "Competitor" shall refer to any person or entity
engaged, wholly or partly, in the business of developing,
financing, owning, operating or maintaining cogeneration or
other electric power generation facilities or projects in the
United
<PAGE>
Mr. Robert T. Sherman, Jr.
Page 5
March 28, 1997
States of America.
c) To the greatest extent possible, any and all Work Product
shall be deemed to be "work made for hire" (as defined in the
Copyright Act, 17 U.S.C.A. 101 et seq., as amended) and
owned exclusively by NRGG. You hereby unconditionally and
irrevocably transfer and assign to NRGG all right, title and
interest you may have or acquire, by operation of law or
otherwise; in or to any and all Work Product including,
without limitation, all patents, copyrights, trademarks,
service marks and other intellectual property rights. You
agree to execute and deliver to NRGG any transfers,
assignments, documents or other instruments which NRGG may
deem necessary or appropriate to vest complete title and
ownership of any and all Work Product, and all rights
therein, exclusively in NRGG. "Work Product" shall mean all
work product, property, data, documentation, "know how",
concepts, plans, inventions, improvements, techniques,
processes or information of any kind, prepared, conceived,
discovered, developed or created by you in connection with
the performance of your services hereunder.
d) You hereby covenant and agree that, if and when your
employment with NRGG terminates, then during the one-year
period following the date of such termination (the
"Termination Date"), you will not, either directly or
indirectly, alone or in conjunction with any other party,
divert or appropriate, or attempt to divert or appropriate,
any NRGG Project Opportunity. An "NRGG Project Opportunity"
means any and all of, but only, the following: (i) a project
or opportunity to develop a project on which NRGG was
actively working as of the Termination Date; (ii) a project
or opportunity to develop a project on which NRG Energy, Inc.
("NRGE") was actively working as of the Termination Date with
the intention of offering the same to NRGG at the appropriate
time under the Co-Investment Agreement between NRGG and NRGE;
and (iii) a project or project opportunity on which NRGE was
actively working as of the Termination Date, which is not
covered by item (ii) but as to which you have material
knowledge. NRGG will provide you with a list of projects
meeting the above criteria promptly following the Termination
Date. You will have 30 days after your receipt of such list
to notify NRGG of any projects or project opportunities
included on the list that you do not believe meet the above
criteria for NRGG Project Opportunity. NRGG will consider
your objections in good faith and then reissue the list of
NRGG Project Opportunities, omitting any projects or project
opportunities that NRGG agrees do not meet the above
criteria. The reissued list (or in the case of no objections
within the above 30 day disagreement period, the original
list) will be the final list of NRGG Project Opportunities.
e) You agree that damages at law for your violation of any of
the covenants in this Section 15 would not be an adequate or
proper remedy and that, should you
<PAGE>
Mr. Robert T. Sherman, Jr.
Page 6
March 28, 1997
violate or threaten to violate any of the provisions of such
covenants, NRGG or its successors or assigns shall be
entitled to obtain a temporary or permanent injunction
against you in any court having jurisdiction prohibiting any
further violation of any such covenants, in addition to any
award or damages (compensatory, exemplary or otherwise) for
such violation.
f) NRGG has attempted to limit your rights under item 15d only
to the extent necessary to protect NRGG from unfair
competition. You, however, agree that, if the scope of
enforceability of any of these restrictive covenants is in
any way disputed at any time, a court or other trier of fact
may modify and enforce such covenant to the extent that it
believes to be reasonable under the circumstances existing at
the time.
16. This employment offer is contingent upon your successful
completion of"
a) NRGG's pre-employment physical.
b) Drug screening and security background investigation. (The
security questionnaire previously transmitted to you needs to
be conipteted and returned as soon as possible.)
c) Reference confirmations.
17. If the Shareholders of NRGG reject the stock option plan
contemplated in item numbers 5 and 6, then NRGG will issue to you
stock options out of the existing 1996 Stock Option Plan that
match as nearly as possible those contemplated in said items 5 and
6; provided, however, that you understand that the total shares
available for issuance under the 1996 Stock Option Plan is 176,000
shares and that the 1996 Stock Option Plan's definition of Change
of Control does not include an acquisition by NRG Energy, Inc. of
stock of NRGG or a merger of NRGG into NRG Energy, Inc.
Your acceptance of this offer shall be subject to the conditions
specified in item 16. The physical and drug screening will be
scheduled as soon as possible following your acceptance. When the
conditions have been satisfied, the provisions of this letter will
function as the terms and conditions of a binding agreement between you
and NRGG. NRGG will promptly notify you when the conditions specified
in item 16 have been fulfilled.
I am very pleased to be able to make this offer to you. I am very
excited about the future of NRGG and I know that you share this
excitement as well. Please call if you have any questions regarding
this employment offer.
Sincerely,
/s/ Leonard Bluhm
<PAGE>
Mr. Robert T. Sherman, Jr.
Page 7
March 28, 1997
Accepted:
/s/ Robert T. Sherman, Jr.
Date: 3/31/97
<PAGE>
EXHIBIT 11.0
NRG Generating (U. S.) INC.
Computation of Earnings Per Common Share
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
<S>
<C> <C> <C> <C>
Net income (loss) applicable to
common shares:
Net income (loss) $ 2,793 $ 4,806 $ 7,351 $ (11,832)
Primary:
Shares for common and common share
equivalent earnings (loss) per share (1):
Weighted average number of
common shares outstanding 6,440,514 6,422,014 6,440,514 5,217,411
Dilutive effect of outstanding
stock options and warrants 252,703 0 220,953 0
6,693,217 6,422,014 6,661,467 5,217,411
Net income (loss) per common share
and common share equivalents $ 0.42 $ 0.75 $ 1.10 $ (2.27)
Fully Diluted:
Shares for common and common share
equivalent earnings (loss) per share (2):
Weighted average number of
common shares outstanding 6,440,514 6,422,014 6,440,514 5,217,411
Dilutive effect of outstanding
stock options and warrants 288,125 0 270,331 0
6,728,639 6,422,014 6,710,845 5,217,411
Net income (loss) per common share
and common share equivalents $ 0.42 $ 0.75 $ 1.10 $ (2.27)
<FN>
(1) Outstanding stock options, warrants, and shares issuable under
employee stock purchase plans are converted to common share
equivalents by the treasury stock method using the average market
price of the Company's shares during each period.
(2) Outstanding stock options, warrants, and shares issuable under
employee stock purchase plans are converted to common share
equivalents by the treasury stock method using the greater of the
average market price or the period-end market price of the
Company's shares during each period.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS THIRD QUARTER
YEAR-TO-DATE OF FISCAL YEAR 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<CAPTION>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 11,510
<SECURITIES> 0
<RECEIVABLES> 12,056
<ALLOWANCES> 0
<INVENTORY> 3,102
<CURRENT-ASSETS> 27,806
<PP&E> 128,335
<DEPRECIATION> 0
<TOTAL-ASSETS> 172,511
<CURRENT-LIABILITIES> 21,143
<BONDS> 0
<COMMON> 64
0
0
<OTHER-SE> (23,338)
<TOTAL-LIABILITY-AND-EQUITY> 172,511
<SALES> 48,401
<TOTAL-REVENUES> 48,401
<CGS> 23,922
<TOTAL-COSTS> 23,922
<OTHER-EXPENSES> 5,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,001
<INCOME-PRETAX> 8,098
<INCOME-TAX> 747
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,351
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
