-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BJwVM/fcd4O1+s63nuqawlBu4e4afIJW1L4PgaFx+Ykk0wNPMz+B4pA0gQU3r2Vr vwqI4YrbwRlamC16o4vZuw== 0000795185-97-000008.txt : 19971115 0000795185-97-000008.hdr.sgml : 19971115 ACCESSION NUMBER: 0000795185-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NRG GENERATING U S INC CENTRAL INDEX KEY: 0000795185 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 592076187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09208 FILM NUMBER: 97717543 BUSINESS ADDRESS: STREET 1: 1221 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55403 BUSINESS PHONE: 6123735300 MAIL ADDRESS: STREET 1: 1221 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55403 FORMER COMPANY: FORMER CONFORMED NAME: O BRIEN ENVIRONMENTAL ENERGY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OBRIEN ENERGY SYSTEMS INC DATE OF NAME CHANGE: 19910804 10-Q 1 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. 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 PART 1 FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS NRG GENERATING (U.S.) INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
ASSETS September 30, December 31, 1997 1996 (Unaudited) 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
LIABILITIES AND STOCKHOLDERS' EQUITY 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
The accompanying notes are an integral part of these consolidated financial statements. 2 NRG GENERATING (U.S.) INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 1997 1996 1997 1996 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
The accompanying notes are an integral part of these consolidated financial statements. 3 NRG GENERATING (U.S.) INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine Months Ended September 30, September 30, 1997 1996 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
Supplemental disclosure of cash flow information: Interest paid during the period.............................. $ 12,500 $ 12,921
The accompanying notes are an integral part of these consolidated financial statements. 4 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-3.2 2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF THE COMPANY. 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. 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 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 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 (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 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 (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 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 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 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 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 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 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 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 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 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 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 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 EX-10.2 3 EXHIBIT 10.2 EMPLOYMENT AGREEMENT DATED MARCH 28, 1997 BETWEEN THE COMPANY AND ROBERT T. SHERMAN, JR. [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. 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 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 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 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 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 Mr. Robert T. Sherman, Jr. Page 7 March 28, 1997 Accepted: /s/ Robert T. Sherman, Jr. Date: 3/31/97 EX-11 4 EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11.0 NRG Generating (U. S.) INC. Computation of Earnings Per Common Share (Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 1997 1996 1997 1996 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) (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.
EX-27 5 ARTICLE 5 - FINANCIAL DATA SCHEDULE FOR THIRD QUARTER OF FISCAL YEAR 1997 OF NRG GENERATING (U.S.) INC.
5 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
9-MOS Dec-31-1997 Sep-30-1997 11,510 0 12,056 0 3,102 27,806 128,335 0 172,511 21,143 0 64 0 0 (23,338) 172,511 48,401 48,401 23,922 23,922 5,380 0 11,001 8,098 747 0 0 0 0 7,351 1.10 1.10
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