424B3
The
information in this prospectus supplement and the prospectus is
not complete and may be changed. This prospectus supplement and
the prospectus are not an offer to sell these securities nor a
solicitation of an offer to buy these securities in any state
where the offer and sale is not permitted.
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Subject to Completion
Preliminary Prospectus Supplement
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 21, 2005)
$1,100,000,000
NRG Energy, Inc.
% Senior Notes Due
2017
We will pay interest on the notes
on
and
of each year,
beginning , 2007.
The notes will mature
on , 2017.
We may redeem some or all of the notes at any time on or
after
at redemption prices described in this prospectus supplement.
The notes will be unsecured obligations and rank equally with
our existing and future unsecured senior indebtedness. The notes
will be issued only in registered form in denominations of
$5,000.
Investing in the notes involves risks that are described in
the Risk Factors section beginning on page S-11 of
this prospectus supplement.
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Per Note
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Total
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Public offering price
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%
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$
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Underwriting discount
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%
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$
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Proceeds, before expenses, to NRG
Energy, Inc.
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%
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$
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The notes are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and
reject any orders in whole or in part. The notes will be ready
for delivery in book-entry form only through The Depository
Trust Company on or about November , 2006.
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Merrill
Lynch & Co. |
Morgan
Stanley |
The date of this prospectus supplement
is ,
2006.
TABLE OF
CONTENTS
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Prospectus Supplement
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ii
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ii
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ii
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iii
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iv
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S-1
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S-11
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S-14
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S-17
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S-18
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S-19
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S-65
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S-72
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S-77
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S-79
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Prospectus
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Where You Can Find More Information
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ii
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Incorporation of Certain Documents
by Reference
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ii
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Disclosure Regarding
Forward-Looking Statements
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iii
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NRG Energy, Inc.
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1
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Description of Securities We May
Offer
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2
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Debt Securities and Guarantees
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2
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Preferred Stock
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4
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Common Stock
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6
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Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed Charges and Preference
Dividends
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7
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Use of Proceeds
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8
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Validity of the Securities
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8
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Experts
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8
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospectus may have changed since those dates.
i
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE NOTES, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH NOTES. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE UNDERWRITING.
About
This Prospectus Supplement
This document consists of two parts. The first part is this
prospectus supplement, which describes the specific terms of
this offering. The second part is the accompanying prospectus,
which describes more general information, some of which may not
apply to this offering. You should read both this prospectus
supplement and the accompanying prospectus, together with
additional information described below under the headings
Where You Can Find More Information and
Incorporation of Certain Documents by Reference.
If the description of the offering varies between this
prospectus supplement and the accompanying prospectus, you
should rely on the information in this prospectus supplement.
Any statement made in this prospectus supplement or in a
document incorporated or deemed to be incorporated by reference
in this prospectus supplement will be deemed to be modified or
superseded for purposes of this prospectus supplement to the
extent that a statement contained in this prospectus supplement
or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference in this
prospectus supplement modifies or supersedes that statement. Any
statement so modified or superseded will not be deemed, except
as so modified or superseded, to constitute a part of this
prospectus supplement. See Incorporation of Certain
Documents By Reference.
Where You
Can Find More Information
NRG files annual, quarterly and special reports, proxy
statements and other information with the Securities and
Exchange Commission, or the SEC. You can inspect and copy these
reports, proxy statements and other information at the Public
Reference Room of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. NRGs SEC filings will also be available to you on
the SECs website at http://www.sec.gov and through the New
York Stock Exchange, 20 Broad Street, New York, NY 10005,
on which NRGs common stock is listed.
This prospectus supplement and the accompanying prospectus,
which forms a part of the registration statement, do not contain
all the information that is included in the registration
statement. You will find additional information about us in the
registration statement. Any statements made in this prospectus
supplement or the accompanying prospectus concerning the
provisions of legal documents are not necessarily complete and
you should read the documents that are filed as exhibits to the
registration statement or otherwise filed with the SEC for a
more complete understanding of the document or matter.
Incorporation
of Certain Documents by Reference
The SEC allows the incorporation by reference of the
information filed by NRG with the SEC into this prospectus
supplement, which means that important information can be
disclosed to you by referring you to those documents and those
documents will be considered part of this prospectus supplement.
Information that NRG files later with the SEC will automatically
update and supersede the previously filed information. The
documents listed below and any future filings NRG makes with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, after the date of this prospectus supplement but before the
end of the offerings that may be made under this prospectus
supplement, are incorporated by reference herein:
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NRGs annual report on
Form 10-K
for the year ended December 31, 2005 (filed on
March 7, 2006) as amended by the
Form 10-K/A
filed on March 27, 2006.
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ii
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NRGs quarterly reports on
Form 10-Q
for the quarters ended March 31, 2006 (filed on May 9,
2006), June 30, 2006 (filed on August 4,
2006) and September 30, 2006 (filed on November 6,
2006).
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NRGs Definitive Proxy Statement on Schedule 14A filed
on March 24, 2006.
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NRGs current reports on
Form 8-K
filed on January 4, 2006,
Form 8-K
filed on January 5, 2006,
Form 8-K/A
filed on January 5, 2006,
Form 8-K
filed on January 13, 2006,
Form 8-K
filed on January 23, 2006,
Form 8-K/A
filed on January 23, 2006,
Form 8-K/A
filed on January 26, 2006,
Form 8-K
filed on January 27, 2006,
Form 8-K
filed on February 6, 2006,
Form 8-K
filed on February 8, 2006,
Form 8-K
filed on March 10, 2006,
Form 8-K
filed on March 16, 2006,
Form 8-K
filed on April 6, 2006,
Form 8-K
filed on May 3, 2006,
Form 8-K
filed on May 4, 2006,
Form 8-K
filed on May 31, 2006,
Form 8-K
filed on August 1, 2006 (only with respect to the
information deemed filed under Item 8.01),
Form 8-K
filed on August 10, 2006,
Form 8-K
filed on August 11, 2006,
Form 8-K
filed on August 21, 2006 and
Form 8-K
filed on August 25, 2006.
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If you make a request for such information in writing or by
telephone, NRG will provide you, without charge, a copy of any
or all of the information incorporated by reference in this
prospectus. Any such request should be directed to:
NRG Energy,
Inc.
211 Carnegie Center
Princeton, New Jersey 08540
(609) 524-4500
Attention: General Counsel
You should rely only on the information contained in this
prospectus supplement, the attached prospectus, the documents
incorporated by reference and any written communication from us
or the Underwriters specifying the final terms of the offering.
NRG has not, and the underwriters have not, authorized any other
person to provide you with different information. If anyone
provides you with different or inconsistent information, you
should not rely on it. NRG is not, and the underwriters are not,
making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement is
accurate as of the date on the front cover of this prospectus
supplement only. NRGs business, financial condition,
results of operations and prospects may have changed since that
date.
Disclosure
Regarding Forward-Looking Statements
This prospectus supplement contains, and the documents
incorporated by reference herein may contain, forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act.
Such forward-looking statements are subject to certain risks,
uncertainties and assumptions that include, but are not limited
to, expected earnings and cash flows, and future growth and
financial performance. These statements typically can be
identified by the use of words such as will,
expect, estimate,
anticipate, forecast, plan,
believe and similar terms. Although we believe that
our expectations are reasonable, we can give no assurance that
these expectations will prove to have been correct, and actual
results may vary materially. Factors that could cause actual
results to differ materially from those contemplated above
include, among others:
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Risks and uncertainties related to the capital markets
generally, including increases in interest rates;
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General economic conditions, changes in the wholesale power
markets and fluctuations in the cost of fuel;
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iii
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Hazards customary to the power production industry and power
generation operations such as fuel and electricity price
volatility, unusual weather conditions, catastrophic
weather-related or other damage to facilities, unscheduled
generation outages, maintenance or repairs, unanticipated
changes to fossil fuel supply costs or availability due to
higher demand, shortages, transportation problems or other
developments, environmental incidents, or electric transmission
or gas pipeline system constraints and the possibility that we
may not have adequate insurance to cover losses as a result of
such hazards;
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NRGs potential inability to enter into contracts to sell
power or procure fuel on terms and prices acceptable to it;
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The liquidity and competitiveness of wholesale markets for
energy commodities;
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Government regulation, including compliance with regulatory
requirements and changes in market rules, rates, tariffs and
environmental laws;
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Price mitigation strategies and other market structures employed
by independent system operators, or ISOs, or regional
transmission organizations, or RTOs, that result in a failure to
adequately compensate our generation units for all of their
costs;
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NRGs ability to realize its significant deferred tax
assets, including loss carry forwards;
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The effectiveness of NRGs risk management policies and
procedures, and the ability of NRGs counterparties to
satisfy their financial commitments;
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Counterparties collateral demands and other factors
affecting NRGs liquidity position and financial condition;
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NRGs ability to implement its recently-announced strategy
of developing and building new power generation facilities,
including new nuclear units and IGCC units, in a way that
benefits investors in its debt and equity securities;
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NRGs ability to operate its businesses efficiently, manage
capital expenditures and costs tightly (including general and
administrative expenses), and generate earnings and cash flow
from its asset-based businesses in relation to its debt and
other obligations; and
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Significant operating and financial restrictions which may be
placed on NRG as a result of the financing transactions
described elsewhere in this prospectus supplement and
instruments governing its existing indebtedness.
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Market
and Industry Data
Certain market and industry data included or incorporated by
reference in this prospectus supplement and in the accompanying
prospectus has been obtained from third party sources that we
believe to be reliable. We have not independently verified such
third party information and cannot assure you of its accuracy or
completeness. While we are not aware of any misstatements
regarding any market, industry or similar data presented herein,
such data involves risks and uncertainties and is subject to
change based on various factors, including those discussed under
the headings Disclosure Regarding Forward-Looking
Statements and Risk Factors in this prospectus
supplement.
iv
SUMMARY
This summary may not contain all the information that may be
important to you. You should read this entire prospectus
supplement, the accompanying prospectus and those documents
incorporated by reference into this prospectus supplement and
the accompanying prospectus, including the risk factors and the
financial data and related notes, before making an investment
decision.
In this prospectus supplement, unless otherwise indicated
herein or the context otherwise indicates:
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the term NRG refers to NRG Energy, Inc., together
with its consolidated subsidiaries;
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the term notes refers to
NRGs % Senior Notes due 2017 offered
pursuant to this prospectus supplement;
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the term indenture refers to the base indenture
dated February 2, 2006, as supplemented by the supplemental
indenture to be dated on or about November ,
2006 among NRG, the Guarantors and Law Debenture Trust Company,
as trustee;
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the term Transactions refers to the transactions
described under the heading The Transactions;
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the terms we, our, us and
the Company refer to NRG together with its
consolidated subsidiaries, after giving pro forma effect to the
completion of the Transactions;
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the terms MW and MWh refer to
megawatts and
megawatt-hours.
The megawatt figures provided represent nominal summer net
megawatt capacity of power generated as adjusted for our
ownership position excluding capacity from inactive/mothballed
units as of September 30, 2006. NRG has previously shown
gross MWs when presenting its operations. Capacity is tested
following standard industry practices. Our numbers denote
saleable MWs net of internal/parasitic load; and
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the term expected annual baseload generation
refers to the net baseload capacity limited by economic factors
(relationship between cost of generation and market price) and
reliability factors (scheduled and unplanned outages).
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Our
Business
NRG is a wholesale power generation company, primarily engaged
in the ownership, development, construction and operation of
power generation facilities, the transacting in and trading of
fuel and transportation services and the marketing and trading
of energy, capacity and related products in the United States
and internationally. We have a diverse portfolio of electric
generation facilities in terms of geography, fuel type and
dispatch levels. Our principal domestic generation assets
consist of a diversified mix of natural gas-, coal-, oil-fired
and nuclear facilities, representing approximately 45%, 34%, 16%
and 5% of our total domestic generation capacity, respectively.
In addition, 15% of our domestic generating facilities have dual
or multiple fuel capacity, which allows plants to dispatch with
the lowest cost fuel option.
Our
Strategy
Our strategy is to optimize the value of our generation assets
while using that asset base as a platform for growth and
enhanced financial performance which can be sustained and
expanded upon in years to come. We plan to maintain and enhance
our position as a leading wholesale power generation company in
the United States in a cost-effective and risk-mitigating manner
in order to serve the bulk power requirements of our customer
base and other entities that offer load, or otherwise consume
wholesale electricity products and services in bulk. Our
strategy includes the following elements:
Increase value from our existing assets. We
have a highly diversified portfolio of power generation assets
in terms of region, fuel type and dispatch levels. We will
continue to focus on extracting value from our portfolio by
improving plant performance, reducing costs and harnessing our
advantages of scale in the
S-1
procurement of fuels and other commodities, parts and services,
and in so doing to improve our return on invested capital, or
ROIC: a strategy that we have branded FORNRG,
or Focus on ROIC at NRG.
Pursue intrinsic growth opportunities at existing sites in
our core regions. We are favorably positioned to
pursue growth opportunities through expansion of our existing
generating capacity. We intend to invest in our existing assets
through plant improvements, repowerings, brownfield development
and site expansions to meet anticipated requirements for new
capacity in our core markets. In furtherance of this goal, we
have initiated a company-wide program, known as Repowering NRG,
to develop, finance, construct and operate new and enhanced
power generation facilities, with an emphasis on new baseload
capacity that is supported by long-term power sales agreements
and financed with limited or non-recourse project financing. We
expect that these efforts will provide one or more of the
following benefits: improved heat rates; lower delivered costs;
expanded electricity production capability; an improved ability
to dispatch economically across the merit order; increased
technological and fuel diversity; and reduced environmental
impacts, including facilities that either have zero greenhouse
gas emissions or can be equipped to capture and, eventually, to
sequester greenhouse gas emissions.
Maintain financial strength and
flexibility. We remain focused on increasing cash
flow and maintaining appropriate levels of liquidity, debt and
equity in order to ensure continued access to capital for
investment, to enhance risk-adjusted returns, and to provide
flexibility in executing our business strategy. We will continue
our focus on maintaining operational and financial controls
designed to ensure that our financial position remains strong.
At the same time, we expect to continue with our practice of
returning excess capital to our debt and equity investors on a
regular basis.
Reduce the volatility of our cash flows through asset-based
commodity hedging activities. We will continue to
execute asset-based risk management, hedging, marketing and
trading strategies within well-defined risk and liquidity
guidelines in order to manage the value of our physical and
contractual assets. Our marketing and hedging philosophy is
centered on generating stable returns from our baseload power
generation assets while preserving the ability to capitalize on
strong spot market conditions and to capture the extrinsic value
of our intermediate and peaking facilities and portions of our
baseload fleet. We believe that we can successfully execute this
strategy by taking advantage of our expertise in marketing power
and ancillary services, our knowledge of markets, our balanced
financial structure and our diverse portfolio of power
generation assets.
Participate in continued industry
consolidation. We will continue to pursue
selective acquisitions, joint ventures and divestitures to
enhance our asset mix and competitive position in our core
regions in order to meet the fuel and dispatch requirements in
these regions. We intend to concentrate on opportunities that we
believe will present attractive risk-adjusted returns. We will
also opportunistically pursue other strategic transactions,
including mergers, acquisitions or divestitures during the
consolidation of the power generation industry in the United
States.
Our
Competitive Strengths
Scale and diversity of assets. We have one of
the largest and most diversified power generation portfolios in
the United States with approximately 22,800 MW of
generation capacity in 180 generating units at 45 plants as of
September 30, 2006. Our power generation assets are
diversified by fuel type, dispatch level and region, which help
mitigate the risks associated with fuel price volatility and
market demand cycles. Our U.S. baseload facilities, which
consist of approximately 8,600 MW of generation capacity
measured as of September 30, 2006, provide us with a
significant source of stable cash flow, while our intermediate
and peaking facilities, with approximately 14,200 MW of
generation capacity as of September 30, 2006, provide us
with opportunities to capture the significant upside potential
that can arise from time to time during periods of high demand.
In addition, approximately 15% of our domestic generation
facilities have dual or multiple fuel capability, which allows
most of these plants to dispatch with the lowest cost fuel
option.
Reliability of future cash flows. As discussed
in greater detail below under The Transactions, we
have sold forward or otherwise hedged a significant amount of
our expected baseload generation capacity
S-2
through 2011. The Company has the capacity and intent to enter
into hedges in later years when market conditions are favorable.
In addition, as of September 30, 2006, we have purchased
forward under fixed price contracts (with contractually-
specified price escalators) to provide fuel for approximately
79% of our expected baseload coal generation output from 2006 to
2012. These forward positions provide a stable and reliable
source of future cash flow for our investors, while preserving a
portion of our generation portfolio for opportunistic sales to
take advantage of market dynamics.
Favorable market dynamics for baseload solid fuel power
plants. In 2006, approximately 71% of the United
States generation will be fueled by coal or nuclear fuel.
In many of the competitive markets where we operate, the price
of power is typically set by the marginal costs of natural
gas-fired and oil-fired power plants that currently have
substantially higher variable costs than our solid fuel baseload
power plants. For example, ERCOTs October 1, 2005
Report on Existing and Potential Electric System
Constraints and Needs found that natural gas-fired power
plants set the market price of power more than 90% of the time
in ERCOT. As a result of our lower marginal cost for baseload
coal and nuclear generation assets, we expect these ERCOT assets
to generate power nearly 100% of the time they are available.
Locational advantages. Many of our generation
assets are located within densely populated areas that are
characterized by significant constraints on the transmission of
power from generators outside the region. Consequently, these
assets are able to benefit from the higher prices that prevail
for energy in these markets during periods of transmission
constraints. We have generation assets located within New York
City, southwestern Connecticut, Houston and the Los Angeles and
San Diego load basins, all areas with constraints on the
transmission of electricity. This gives us the opportunity to
capture additional revenues through offering capacity to retail
electric providers and others, selling power at prevailing
market prices during periods of peak demand and providing
ancillary services in support of system reliability. These
facilities are often ideally situated for repowering or the
addition of new capacity, as well, because their location and
existing infrastructure give them significant advantages over
greenfield sites in their regions.
The
Transactions
We are offering these notes as part of a series of coordinated
transactions that includes (i) the execution of new
long-term hedges of our baseload power generation portfolio for
the years 2010 and 2011, (ii) the resetting of existing
out-of-the-money
hedges for years 2006 through 2010, (iii) the issuance of
$1,100.0 million of notes offered hereby, and (iv) the
amendment of our senior secured credit facilities to permit the
incurrence of new unsecured indebtedness, to increase the
synthetic letter of credit facility by $500.0 million and
otherwise to improve our financial flexibility. Together, we
refer to these as the Transactions. We expect the
Transactions to be closed by November 21, 2006. For a more
detailed discussion of the Transactions, see The
Transactions.
Recent
Developments
During the third quarter 2006, NRG initiated a Capital
Allocation Program to repurchase approximately $750 million
of its common stock in two phases. Phase I was a
$500 million stock repurchase program, which was completed
on October 13, 2006. Phase II, as originally
announced, was to be an additional $250 million common
stock buyback anticipated to commence during the first quarter
2007. In conjunction with the Hedge Reset and the amendment to
the senior secured credit facility described herein, NRG has
upsized Phase II to $500 million and has accelerated
the start to the fourth quarter 2006 and intends to complete it
by the end of the second quarter 2007.
NRG Energy, Inc. reported net income before discontinued
operations for the three and nine months ended
September 30, 2006 of $373 million and
$588 million, respectively, as compared to a net loss of
$37 million and $4 million for the same periods last
year. The quarter and
year-to-date
improvements primarily resulted from the February 2, 2006
acquisition of Texas Genco LLC (now known as NRG Texas) and
mark-to-market
(MtM) gains in 2006 versus MtM losses in 2005. Net income for
the nine months ended 2006 was impacted by $105 million in
after tax refinancing expenses incurred as part of the NRG Texas
acquisition, partially offset by $54 million in after-tax
one-time gains related to the resolution of disputes and
litigation.
S-3
Cash flow from operations for the quarter was $444 million,
including a $77 million benefit from returned cash
collateral versus cash used by operations of $205 million
during the same period last year. Third quarter 2005 results
included a cash collateral outflow of $419 million. Cash
flow from operations year to date was $1 billion for 2006,
an increase of $1.1 billion over 2005. The 2005 results
included a cash collateral outflow of $598 million. In
addition to returned collateral, 2006 cash from operations
reflect the contributions from NRG Texas.
Summary
of Risk Factors
We are subject to a variety of risks related to our competitive
position and business strategies. Some of the more significant
challenges and risks include those associated with the operation
of our power generation plants, volatility in power prices and
fuel costs, our leveraged capital structure and extensive
governmental regulation. See the Risk Factors
section of our Annual Report on
Form 10-K
for the year ended December 31, 2005 (which is expressly
incorporated by reference into this prospectus supplement) and
Risk Factors beginning on
page S-11,
in each case, for a discussion of the factors you should
consider before investing in the notes.
Sources
and Uses of Funds
As described under The Transactions, we
will use the net proceeds from this offering to fund payments to
counterparties under certain of our existing long-term hedging
agreements pursuant to agreements to revise those hedges so as
to bring the prices paid to us into line with current market
prices. In addition, we will use net proceeds from this offering
to pay related fees and expenses related to this offering and
the other financing arrangements described under
The Transactions. For more information,
see Use of Proceeds.
Corporate
Structure and Material Components of Consolidated Debt
The following simplified diagram represents our corporate
structure and material components of our indebtedness at
September 30, 2006 while including the increase to our
indebtedness from the Transactions:
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(1) |
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Our corporate structure also includes $247.0 million of our
3.625% Convertible Preferred Stock, which are reflected in the
mezzanine section of NRGs balance sheet as of
September 30, 2006. |
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(2) |
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The outstanding notes exclude a decrease of $20.9 million
related to a favorable
mark-to-market
on an interest rate swap. |
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(3) |
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Includes subsidiaries with $554.9 million of outstanding
debt as of September 30, 2006. Although the Excluded
Domestic Subsidiaries do not guarantee the notes, their results
of operations will be counted when measuring certain financial
ratios under the terms of the notes. See Description of
the Notes. |
footnotes continued on following page
S-4
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(4) |
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Includes subsidiaries with $253.2 million of outstanding
debt as of September 30, 2006. Although the Excluded
Foreign Subsidiaries do not guarantee the notes, their results
of operations will be counted when measuring certain financial
ratios under the terms of the notes. See Description of
the Notes. |
We were incorporated as a Delaware corporation on May 29,
1992. Our common stock is listed on the New York Stock Exchange
under the symbol NRG. Our headquarters and principal
executive offices are located at 211 Carnegie Center, Princeton,
New Jersey 08540. Our telephone number is
(609) 524-4500.
Our website is located at www.nrgenergy.com. The information on,
or linked to, our website is not a part of this prospectus
supplement.
You can get more information regarding our business by reading
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, and the other
reports we file with the SEC. See Where You Can Find More
Information and Incorporation of Documents by
Reference.
S-5
The
Offering
|
|
|
Issuer |
|
NRG Energy, Inc. |
|
Notes offered |
|
$ in aggregate principal amount
of % Senior Notes due 2017. |
|
Maturity |
|
The notes will mature
on ,
2017. |
|
Interest rates |
|
The notes will accrue interest at a rate per year equal
to %. |
|
Interest payment dates |
|
and
beginning ,
2007. |
|
Guarantees |
|
The notes will be guaranteed jointly and severally by each of
our current and future restricted subsidiaries, excluding
certain foreign, project and immaterial subsidiaries.
Significant guarantors will include the subsidiaries owning
NRGs assets in Texas which were acquired from Texas Genco
LLC on February 2, 2006, NRG Power Marketing, Inc., NRG
South Central Generating LLC and certain of its subsidiaries,
and the subsidiaries owning NRGs assets in the MidAtlantic
region and in the Northeast region. Each guarantee will rank
pari passu with all existing and future senior
indebtedness of that guarantor and will be senior in right of
payment to all existing and future subordinated indebtedness of
that guarantor. |
|
Ranking |
|
The notes will be general unsecured obligations and will rank: |
|
|
|
equally with all existing
and future unsecured senior indebtedness of NRG; and |
|
|
|
senior to any future
subordinated indebtedness of NRG.
|
|
|
|
Because the notes will be guaranteed by only certain of our
subsidiaries, they will be structurally subordinated to all
indebtedness and other liabilities, including trade payables, of
those subsidiaries that do not guarantee the notes. As of
September 30, 2006, (i) our guarantor subsidiaries
accounted for approximately 94% of our revenues from
wholly-owned operations for the nine months ended
September 30, 2006 and held approximately 94% of our
consolidated assets, (ii) our non-guarantor subsidiaries
had approximately $808.1 million in aggregate principal
amount of external funded indebtedness, and (iii) our
outstanding consolidated trade payables were
$278.0 million. Approximately 87% of these trade payables
constituted obligations of NRG and its guarantor subsidiaries.
See Risk Factors Risks Related to the
Offering We may not have access to the cash flow and
other assets of our subsidiaries that may be needed to make
payment on the notes. |
|
Optional redemption |
|
We may redeem some or all of the notes at any time prior
to
at a price equal to 100% of the principal amount of the notes
redeemed plus a make-whole premium and accrued and
unpaid interest. On or
after ,
we may redeem some or all of the notes at the redemption prices
listed in the Description of the Notes
Optional Redemption section of this prospectus supplement,
plus accrued and unpaid interest. |
|
|
|
Prior
to ,
we may redeem up to 35% of the notes issued under the indenture
with the net cash proceeds of certain equity offerings, provided
at least 65% of the aggregate principal amount |
S-6
|
|
|
|
|
of the notes issued in this offering remains outstanding after
the redemption. |
|
Change of control |
|
When a change of control event occurs, each holder of notes may
require us, subject to certain conditions, to repurchase all or
a portion of its notes at a price equal to 101% of the principal
amount of the notes, plus accrued and unpaid interest to the
date of repurchase. See Description of the
Notes Repurchase at the Option of
Holders Change of Control. |
|
Certain covenants |
|
The indenture governing the notes will contain certain covenants
that will, among other things, limit our ability and the ability
of our restricted subsidiaries to: |
|
|
|
incur additional debt; |
|
|
|
declare or pay dividends,
redeem stock or make other distributions to stockholders; |
|
|
|
create liens; |
|
|
|
make certain restricted
investments; |
|
|
|
enter into transactions with
affiliates; |
|
|
|
sell or transfer
assets; and |
|
|
|
consolidate or merge. |
|
|
|
These covenants are subject to a number of important
qualifications and limitations. See Description of the
Notes Certain Covenants. |
|
Use of proceeds |
|
We estimate that the net proceeds of this offering, after giving
effect to underwriting discounts and commissions, will be
approximately $1,084 million. As described under
The Transactions, we will use the net
proceeds from this offering to fund payments to counterparties
under certain of our existing long-term hedging agreements
pursuant to agreements to reset the hedge price levels into line
with current market prices. In addition, we will use net
proceeds from this offering to pay related fees and expenses
related to this offering and the other financing arrangements
described under The Transactions. For more
information, see Use of Proceeds. |
S-7
Summary
Financial Information
The summary historical consolidated financial information of NRG
as of and for the years ended December 31, 2004 and
December 31, 2005 were derived from the audited
consolidated financial information contained in the audited
consolidated financial statements of NRG incorporated by
reference in this prospectus supplement. The summary unaudited
historical consolidated financial information for NRG as of and
for the nine months ended September 30, 2005 and
September 30, 2006 (i) were derived from NRGs
unaudited consolidated financial statements which are
incorporated by reference into this prospectus supplement,
(ii) have been prepared on a similar basis to that used in
the preparation of the audited financial statements of NRG and
(iii) in the opinion of NRGs management, include all
adjustments necessary for a fair statement of the results for
the unaudited interim period. The results for periods for less
than a full year are not necessarily indicative of the results
to be expected for any interim period.
The financial information set forth below should be read in
conjunction with Capitalization, the consolidated
financial statements of NRG, the related notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in NRGs
Annual Report on
Form 10-K
for the year ended December 31, 2005 and its Quarterly
Report on
Form 10-Q
for the nine months ended September 30, 2006, each as
incorporated in this prospectus supplement by reference.
The following table presents summary consolidated financial
information of NRG as of and for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2004(1)
|
|
|
2005(1)
|
|
|
2005(1)
|
|
|
2006(1)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
($ in millions, except per share data)
|
|
|
Income Statement
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
2,348
|
|
|
$
|
2,708
|
|
|
$
|
1,723
|
|
|
$
|
4,479
|
|
Total operating costs and expenses
|
|
|
1,955
|
|
|
|
2,470
|
|
|
|
1,647
|
|
|
|
3,141
|
|
Income/(loss) from continuing
operations
|
|
|
161
|
|
|
|
77
|
|
|
|
(4
|
)
|
|
|
588
|
|
Income on discontinued operations,
net of income taxes
|
|
|
25
|
|
|
|
7
|
|
|
|
24
|
|
|
|
63
|
|
Net income
|
|
|
186
|
|
|
|
84
|
|
|
|
20
|
|
|
|
651
|
|
Earnings per share-Basic
|
|
$
|
1.86
|
|
|
|
0.76
|
|
|
$
|
0.07
|
|
|
|
4.70
|
|
Earnings per share-Diluted
|
|
$
|
1.85
|
|
|
|
0.75
|
|
|
$
|
0.07
|
|
|
|
4.26
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
(119
|
)
|
|
|
(106
|
)
|
|
$
|
(46
|
)
|
|
|
(159
|
)
|
Cash flows from operating
activities
|
|
|
645
|
|
|
|
68
|
|
|
|
(114
|
)
|
|
|
1,048
|
|
Unaudited:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
|
|
|
1.83
|
x
|
|
|
1.56
|
x
|
|
|
1.15
|
x
|
|
|
3.06
|
x
|
EBITDA(2)
|
|
|
966
|
|
|
|
592
|
|
|
|
376
|
|
|
|
1,614
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data (at period
end):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,388
|
|
Restricted cash
|
|
|
74
|
|
Total assets
|
|
|
19,721
|
|
Total long-term debt including
current maturities
|
|
|
7,949
|
|
Stockholders equity
|
|
|
6,005
|
|
|
|
|
(1) |
|
NRGs results include the following (income)/expenses that
have had a significant impact on operations during the periods
indicated below: |
footnotes continued on following page
S-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
($ in millions)
|
|
|
Income on discontinued operations,
net of income taxes
|
|
$
|
(25
|
)
|
|
$
|
(7
|
)
|
|
$
|
(24
|
)
|
|
$
|
(63
|
)
|
Corporate relocation charges
|
|
|
16
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
Reorganization items
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment
charges
|
|
|
45
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
Write downs, gains and losses on
sales of equity method investments
|
|
|
(16
|
)
|
|
|
(31
|
)
|
|
|
16
|
|
|
|
8
|
|
FERC authorized settlement
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Write down of Note Receivable
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bourbonnais legal settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
EBITDA represents net income before interest, taxes,
depreciation and amortization. We present EBITDA because we
consider it an important supplemental measure of our
profitability and our ability to service our debt and believe it
is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies
profitability in our industry. EBITDA has limitations as an
analytical tool, and you should not consider it in isolation, or
as a substitute for analysis of NRGs operating results as
reported under accounting principles generally accepted in the
United States, or GAAP. Some of these limitations are: |
|
|
|
|
|
EBITDA does not reflect our cash expenditures, or future
requirements for capital expenditures, or contractual
commitments;
|
|
|
|
EBITDA does not reflect changes in, or cash requirements for,
our working capital needs;
|
|
|
|
EBITDA does not reflect the significant interest expense, or the
cash requirements necessary to service interest or principal
payments, on our debts;
|
|
|
|
Although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and our EBITDA does not reflect any cash
requirements for such replacements; and
|
|
|
|
Other companies may calculate EBITDA differently than we do,
limiting its usefulness as a comparative measure.
|
Because of these limitations, EBITDA should not be considered as
a measure of discretionary cash available to use to invest in
the growth of our business. We compensate for these limitations
by relying primarily on our GAAP results and using EBITDA only
supplementally.
S-9
The following table summarizes the calculation of NRGs
EBITDA and provides a reconciliation to NRGs net income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
For the
|
|
|
For the
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
($ in millions)
|
|
|
Net income
|
|
$
|
186
|
|
|
$
|
84
|
|
|
$
|
20
|
|
|
$
|
651
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
65
|
|
|
|
43
|
|
|
|
24
|
|
|
|
324
|
|
Interest and refinancing expense
|
|
|
338
|
|
|
|
253
|
|
|
|
195
|
|
|
|
598
|
|
Depreciation and amortization
expense
|
|
|
208
|
|
|
|
194
|
|
|
|
121
|
|
|
|
443
|
|
WCP CDWR Contract amortization
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of power contracts
and other intangibles
|
|
|
35
|
|
|
|
5
|
|
|
|
6
|
|
|
|
(436
|
)
|
Amortization of emission credits
|
|
|
18
|
|
|
|
13
|
|
|
|
10
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (Unaudited)
|
|
$
|
966
|
|
|
$
|
592
|
|
|
$
|
376
|
|
|
$
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-10
RISK
FACTORS
Investing in the notes involves certain risks. The risks
below are not the only risks that we face. Additional risks and
uncertainties not currently known to us or that we currently
deem to be immaterial may also materially adversely affect our
business operations. The following risks could affect our
business, financial condition or results of operations. In such
a case, you may lose all or part of your original investment.
You should carefully consider the risks described below as well
as other information and data set forth in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference herein and therein before making an
investment decision with respect to the notes. This section
should be read along with the section titled Risk
Factors in Item 1A of our Annual Report on
Form 10-K
for the year ended December 31, 2005, which is incorporated
by reference herein.
Risks
Related to the Offering
Despite
current indebtedness levels, we and our subsidiaries may still
be able to incur substantially more debt. This could increase
the risks associated with our already substantial
leverage.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the
indenture and other indentures relating to outstanding
indebtedness do not fully prohibit us or our subsidiaries from
doing so. If new debt is added to our and our subsidiaries
current debt levels, the related risks that we and they now face
could increase. See Description of Certain Other
Indebtedness and Preferred Stock.
To
service our indebtedness, we will require a significant amount
of cash. Our ability to generate cash depends on many factors
beyond our control.
Our ability to make payments on and to refinance our
indebtedness, including these notes, and to fund planned capital
expenditures will depend on our ability to generate cash in the
future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.
Based on our current level of operations and anticipated cost
savings and operating improvements, we believe our cash flow
from operations, available cash and available borrowings under
our senior credit facility, will be adequate to meet our future
liquidity needs for at least the next 12 months.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated
cost savings and operating improvements will be realized on
schedule or that future borrowings will be available to us under
our senior credit facility in an amount sufficient to enable us
to pay our indebtedness, including these notes, or to fund our
other liquidity needs. We may need to refinance all or a portion
of our indebtedness, including these notes on or before
maturity. We cannot assure you that we will be able to refinance
any of our indebtedness on commercially reasonable terms or at
all.
In the
event of a bankruptcy or insolvency, holders of our secured
indebtedness and other secured obligations will have a prior
secured claim to any collateral securing such indebtedness or
other obligations.
Holders of our secured indebtedness and the secured indebtedness
of the guarantors will have claims that are prior to your claims
as holders of the notes to the extent of the value of the assets
securing that other indebtedness. Our senior credit facility is
secured by first priority liens on substantially all of our
assets and the assets of the guarantors. We have granted second
priority liens on substantially all of our assets to secure our
obligations under certain long-term power and gas hedges. In the
event of any distribution or payment of our assets in any
foreclosure, dissolution, winding-up, liquidation,
reorganization, or other bankruptcy proceeding, holders of
secured indebtedness will have prior claim to those of our
assets that constitute their collateral. Holders of the notes
will participate ratably with all holders of our unsecured
indebtedness that is deemed to be of the same class as the
notes, and potentially with all our other general creditors,
based upon the respective amounts owed to each holder or
creditor, in our remaining assets. In any of the foregoing
S-11
events, we cannot assure you that there will be sufficient
assets to pay amounts due on the notes. As a result, holders of
notes may receive less, ratably, than holders of secured
indebtedness.
Your
right to receive payments on these notes could be adversely
affected if any of our non-guarantor subsidiaries declare
bankruptcy, liquidate or reorganize.
Some but not all of our subsidiaries will guarantee the notes.
In the event of a bankruptcy, liquidation or reorganization of
any of our non-guarantor subsidiaries, holders of their
indebtedness and their trade creditors will generally be
entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for
distribution to us. In addition, the indenture governing the
notes will permit us, subject to certain covenant limitations,
to provide credit support for the obligations of the
non-guarantor subsidiaries and such credit support may be
effectively senior to our obligations under the notes. Further,
the indenture governing the notes will allow us to transfer
assets, including certain specified facilities, to the
non-guarantor subsidiaries.
We may
not have access to the cash flow and other assets of our
subsidiaries that may be needed to make payment on the
notes.
Much of our business is conducted through our subsidiaries.
Although certain of our subsidiaries will guarantee the notes,
some of our subsidiaries will not become guarantors and thus
will not be obligated to make funds available to us for payment
on the notes. Our ability to make payments on the notes will be
dependent on the earnings and the distribution of funds from
subsidiaries, some of which are non-guarantors. Our subsidiaries
will be permitted under the terms of the indenture to incur
additional indebtedness that may restrict or prohibit the making
of distributions, the payment of dividends or the making of
loans by such subsidiaries to us. We cannot assure you that the
agreements governing the current and future indebtedness of our
subsidiaries will permit our subsidiaries to provide us with
sufficient dividends, distributions or loans to fund payments on
the notes when due. Furthermore, certain of our subsidiaries and
affiliates are already subject to project financing. Such
entities will not guarantee our obligations on the notes. The
debt agreements of these subsidiaries and project affiliates
generally restrict their ability to pay dividends, make
distributions or otherwise transfer funds to us.
We may
not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture.
Upon the occurrence of certain specific kinds of change of
control events, we will be required to offer to repurchase all
outstanding notes at 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase.
However, it is possible that we will not have sufficient funds
at the time of a change of control to make the required
repurchase of notes or that restrictions in our senior credit
facility will not allow such repurchases. In addition, certain
important corporate events, such as leveraged recapitalizations
that would increase the level of our indebtedness, would not
constitute a Change of Control under the indenture.
See Description of the Notes Repurchase at the
Option of Holders.
Federal
and state statutes allow courts, under specific circumstances,
to void guarantees and require note holders to return payments
received from guarantors.
Under the federal bankruptcy law and comparable provisions of
state fraudulent transfer laws, a guarantee could be voided, or
claims in respect of a guarantee could be subordinated to all
other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by
its guarantee:
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received less than reasonably equivalent value or fair
consideration for the incurrence of such guarantee; and
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was insolvent or rendered insolvent by reason of such
incurrence; or
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S-12
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was engaged in a business or transaction for which the
guarantors remaining assets constituted unreasonably small
capital; or
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature.
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In addition, any payment by that guarantor pursuant to its
guarantee could be voided and required to be returned to the
guarantor, or to a fund for the benefit of the creditors of the
guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered
insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its
assets; or
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if the present fair saleable value of its assets was less than
the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they
become absolute and mature; or
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it could not pay its debts as they become due.
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On the basis of historical financial information, recent
operating history and other factors, we believe that each
guarantor, after giving effect to its guarantee of these notes,
will not be insolvent, will not have unreasonably small capital
for the business in which it is engaged and will not have
incurred debts beyond its ability to pay such debts as they
mature. We cannot assure you, however, as to what standard a
court would apply in making these determinations or that a court
would agree with our conclusions in this regard.
S-13
THE
TRANSACTIONS
On November 3, 2006, NRG announced its intention to enter
into a series of transactions that includes (i) the reset
of existing
out-of-the-money
hedges for years 2006 through 2010 to market,
(ii) substantial new baseload hedges for the years 2010 and
2011 and, possibly, later years, (iii) the issuance of
$1,100.0 million of notes offered hereby and
(iv) amendments to NRGs existing senior credit
facilities, including the increase of the synthetic letter of
credit facility by $500 million. Except as otherwise noted,
all of these transactions are expected to close by
November 21, 2006.
Resetting
of Existing Hedges, or Hedge Reset
NRG has entered into amendments of certain existing hedge
agreements for the years 2006 through 2010. These hedges were
entered into by Texas Genco LLC at a time when power and natural
gas prices were lower than they are today, and as a result, the
hedges obligate NRG to sell power or natural gas at prices
significantly below current market prices. Under the amended
agreements, NRG has reset the pricing of these hedges to reflect
current market prices, and has agreed to pay cash to the hedge
counterparties in amounts that reflect a negotiated present
value of the difference between the original prices in the
hedges and the amended prices. The total amount to be paid to
the counterparties is approximately $1.35 billion.
The Hedge Reset will provide the flexibility through NRGs
second lien structure to expand its hedges on baseload
generation for an extended period, and will improve the
Companys cash flows and credit profile which will
contribute to the Companys ability to amend its existing
senior credit facility.
The following table summarizes the Texas regions
percentage of hedged baseload capacity and the corresponding
revenues (excluding revenues from contract amortization)
resulting from baseload hedge agreements that were contracted by
Texas Genco LLC and assumed by NRG as of February 2, 2006,
compared to the revenues (excluding revenues from contract
amortization) expected from those hedges following the Hedge
Reset:
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December
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(In million unless otherwise stated)
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2006
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2007
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2008
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2009
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2010
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Texas Region Net Baseload Capacity
(MW)
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5,294
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5,340
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5,340
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5,340
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5,340
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Texas Region Baseload Sales (MW)(a)
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4,575
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4,267
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4,157
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3,449
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1,395
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Percentage Baseload Capacity Sold
Forward(b)
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86
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%
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|
80
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%
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|
78
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%
|
|
|
65
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%
|
|
|
26
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%
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|
|
|
|
|
|
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|
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As of Acquisition:
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|
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|
|
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Weighted Average Forward Price
($/MWh)(c)
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$
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43
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$
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39
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$
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41
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$
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47
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|
|
$
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51
|
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Total Forward Hedged Revenues(c)
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|
146
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|
1,443
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1,505
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1,434
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621
|
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After Reset:
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|
|
|
|
|
|
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Weighted Average Forward Price
($/MWh)(c)
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51
|
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|
|
56
|
|
|
|
54
|
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|
|
57
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|
|
55
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Total Forward Hedged Revenues(c)
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173
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|
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|
2,103
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|
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1,963
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1,707
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723
|
|
|
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|
|
|
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|
|
|
|
|
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|
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Increase in Forward Hedged
Revenues due to Hedge Reset
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$
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27
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$
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660
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$
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458
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|
$
|
273
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|
$
|
102
|
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|
|
|
|
|
|
|
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|
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(a)
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Includes amounts under fixed price
power sales contracts and amounts financially hedged under
natural gas swap contracts. The forward natural gas swap
quantities are reflected in equivalent MWh and are derived by
first dividing the quantity of MMBtu of natural gas hedged by
the forward market heat rate as of December 30, 2005 to
arrive at the equivalent MWh hedged which is then divided by
8,760 (total hours in a year) to arrive at MW hedged.
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(b)
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Percentage hedged is based on total
MWh sold as power and gas converted using the method as
described in (a) above divided by the net capacity. The net
capacity excludes loss in generation from expected forced
outages and in generation from forecasted market uncertainties.
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(c)
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Includes amounts under fixed price
power sales contracts and amounts financially hedged under
natural gas swap contracts.
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S-14
Based on the table above, due to the Hedge Reset of the Texas
regions hedges that were outstanding as of
February 2, 2006, revenues (excluding revenues from
contract amortization) during the period December
2006-2011
will increase by approximately $1.5 billion.
New
Hedges
NRG has entered into, and will continue to enter into, new
forward natural gas sales contracts for the years 2010 and 2011
in order to hedge future power prices with respect to NRGs
baseload power generation facilities in those years. As
appropriate market opportunities arise, NRG will extend the
hedging program to later years. As a result of these
transactions, NRG will be significantly more hedged with respect
to its baseload power generation through 2011. NRGs
obligations under the New Hedges and Hedge Reset are or will be
secured by second liens on substantially all of the assets of
NRG and its subsidiaries, pursuant to NRGs existing second
lien structure.
The following table summarizes NRGs total baseload
capacity and revenues and the corresponding revenues (excluding
revenues from contract amortization) resulting from baseload
hedge agreements extending beyond December 2006 through 2011:
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Annual
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December
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Average for
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(In million unless otherwise stated)
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2006
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2007
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2008
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2009
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2010
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2011
|
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|
2007-2011
|
|
|
NRG Net Baseload Capacity (MW)
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8,660
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|
|
8,660
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|
|
|
8,660
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8,660
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|
8,660
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|
8,660
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|
8,660
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NRG Baseload Sales (MW)(a)
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6,270
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|
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6,691
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5,766
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|
|
5,002
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|
|
3,918
|
|
|
|
4,337
|
|
|
|
5,143
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Percentage Baseload Capacity Sold
Forward(b)
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72
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%
|
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|
77
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%
|
|
|
67
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%
|
|
|
58
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%
|
|
|
45
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%
|
|
|
50
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%
|
|
|
59
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%
|
Weighted Average Forward Price
($ per MWh)(c)
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|
$
|
49
|
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|
$
|
45
|
|
|
$
|
53
|
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
48
|
|
|
$
|
50
|
|
Total Forward Hedged Revenues(c)
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|
$
|
227
|
|
|
$
|
2,609
|
|
|
$
|
2,672
|
|
|
$
|
2,423
|
|
|
$
|
1,793
|
|
|
$
|
1,814
|
|
|
$
|
2,262
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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|
|
|
|
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|
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(a)
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Includes amounts under fixed price
power sales contracts and amounts financially hedged under
natural gas swap contracts. The forward natural gas swap
quantities are reflected in equivalent MWh and are derived by
first dividing the quantity of MMBtu of natural gas hedged by
the forward market heat rate as of October 31, 2006 to
arrive at the equivalent MWh hedged which is then divided by
8,760 (total hours in a year) to arrive at MW hedged.
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(b)
|
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Percentage hedged is based on total
MWh sold as power and gas converted using the method as
described in (a) above divided by the net capacity. The net
capacity excludes loss in generation from expected forced
outages and in generation from forecasted market uncertainties.
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(c)
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Includes amounts under fixed price
power sales contracts and amounts financially hedged under
natural gas swap contracts.
|
Issuance
of Notes Offered Hereby
Concurrently with the issuance of notes offered hereby, NRG
plans to finance the payments required for the Hedge Reset with
cash on hand and proceeds from the issuance of the notes offered
hereby.
Amendment
of Senior Credit Facility
NRG plans to amend its existing senior credit facility to
accomplish, among other things, the following objectives:
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|
|
|
to permit the incurrence of the new debt represented by the
notes offered hereby;
|
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|
to increase the amount of the synthetic letter of credit
facility by $500 million, from $1.0 billion to
$1.5 billion;
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|
to increase the Available Amount, and effect a corresponding
increase in our restricted payments capacity, by
$250 million; and
|
S-15
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|
to provide additional flexibility to NRG with respect to certain
covenants governing or restricting the use of excess cash flow,
new investments, new indebtedness and permitted liens.
|
The Hedge Reset, the issuance of the notes offered hereby, and
the amendment to the senior credit facility are expected to
close by November 21, 2006.
Impact
to Results of Operations and Financial Position
NRG will account for the Hedge Reset as a net settlement of its
current hedge positions and a subsequent reestablishment of new
hedge positions. The impact of the net settlement will be
recorded as a decrease to NRGs consolidated revenues with
an offsetting increase in revenues from a reduction in the
associated derivative liability and the associated
out-of-market
power contract balance established upon the acquisition of NRG
Texas.
As of October 31, 2006, NRG expects the impact to comprise
of the following:
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|
|
|
|
(In millions)
|
|
|
|
|
Settlement payment
|
|
$
|
(1,347
|
)
|
Reduction in derivative liability
|
|
|
146
|
|
Reduction in
out-of-market
contracts
|
|
|
1,073
|
|
Tax effect of the
above
|
|
|
52
|
|
|
|
|
|
|
Impact to 2006 net income
|
|
$
|
(76
|
)
|
|
|
|
|
|
S-16
USE OF
PROCEEDS
As described under The Transactions, we
will use the net proceeds from this offering and cash on hand to
fund payments to counterparties under certain of our existing
long-term hedging agreements pursuant to agreements to reset the
hedge price levels into line with current market prices. In
addition, we will use net proceeds from this offering to pay
related fees and expenses related to this offering and the other
financing arrangements described under The
Transactions.
S-17
CAPITALIZATION
The following table sets forth NRGs capitalization as of
September 30, 2006 on an actual historical basis. The table
below should be read in conjunction with The
Transactions, Use of Proceeds and the
consolidated financial statements and the related notes thereto
included in or incorporated by reference into this prospectus
supplement and the accompanying prospectus.
|
|
|
|
|
|
|
As of September 30, 2006
|
|
|
|
($ in millions)
|
|
|
Cash and cash equivalents
|
|
$
|
1,388
|
|
Restricted cash
|
|
|
74
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
Term loan facility
|
|
|
3,557
|
|
7.250% Notes(1)
|
|
|
1,179
|
|
7.375% Notes
|
|
|
2,400
|
|
Revolving credit facility(2)
|
|
|
|
|
Existing non-guarantor debt(3)
|
|
|
606
|
|
|
|
|
|
|
Total debt, before capital leases
|
|
|
7,742
|
|
Capital leases
|
|
|
205
|
|
|
|
|
|
|
Total debt and capital
leases
|
|
|
7,947
|
|
3.625% Convertible preferred
stock
|
|
|
247
|
|
5.75% Mandatory convertible
preferred stock
|
|
|
486
|
|
4% Convertible perpetual
preferred stock
|
|
|
406
|
|
Other stockholders equity
|
|
|
5,113
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
14,199
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a decrease of $20.9 million related to a favorable
mark-to-market
on an interest rate swap. |
|
(2) |
|
Total borrowing availability under the revolving credit facility
is $1,000 million, of which we have issued
$157 million letters of credit as of September 30,
2006. |
|
(3) |
|
As of September 30, 2006, existing non-guarantor debt has
been reduced by $47.7 million as a result of marking the
debt to a market rate in connection with our Fresh Start
reporting on December 5, 2003. For more information on the
various components of our debt, refer to note 18 to our
audited consolidated financial statements contained in our
Annual Report on
Form 10-K
for the year ended December 31, 2005, which is incorporated
herein by reference. |
Upon completion of the Transactions, NRGs capitalization
is expected to include: (a) an additional $1.1 billion
of long term debt as a result of the issuance of the notes
offered hereby; (b) a reduction in other stockholders
equity of $76 million due to the expected loss from the
Hedge Reset; and (c) a reduction to cash on hand of
$263 million to complete the settlement payment.
S-18
DESCRIPTION
OF THE NOTES
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. In this description, NRG refers
only to NRG Energy, Inc. and not to any of its subsidiaries, and
the % Senior Notes due 2017 are
referred to as the notes.
NRG will issue the notes under a supplemental indenture, which,
together with the related base indenture, we refer to as the
indenture. The terms of the notes include those
stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material
provisions of the notes and the indenture. It does not restate
those agreements in their entirety. We urge you to read those
agreements because they, and not this description, define your
rights as holders of the notes. We have filed a copy of the
indenture as an exhibit incorporated by reference in the
registration statement relating to this prospectus supplement.
Certain defined terms used in this description but not defined
below under Certain Definitions have the
meanings assigned to them in the indenture.
The registered holder of a note is treated as the owner of it
for all purposes. Only registered holders have rights under the
indenture.
Brief
Description of the Notes
The notes:
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|
|
|
will be general unsecured obligations of NRG;
|
|
|
|
will be pari passu in right of payment with all existing
and future unsecured senior Indebtedness of NRG;
|
|
|
|
will be pari passu in right of payment with the Existing
Senior Notes;
|
|
|
|
will be senior in right of payment to any future subordinated
Indebtedness of NRG; and
|
|
|
|
will be unconditionally guaranteed on a joint and several basis
by the Guarantors.
|
However, the notes will be effectively subordinated to all
borrowings under the Credit Agreement, which will be secured by
substantially all of the assets of NRG and the Guarantors, and
any other secured Indebtedness (including any Hedging
Obligations secured by junior liens on assets of NRG or its
Subsidiaries) we have. See Risk Factors Risks
Related to the Offering In the event of a bankruptcy
or insolvency, holders of our secured indebtedness and other
secured obligations will have a prior secured claim to any
collateral securing such indebtedness or other obligations.
The
Subsidiary Guarantees
The notes will be guaranteed by the
Guarantors. Each guarantee of the notes:
|
|
|
|
|
will be a general unsecured obligation of the Guarantor;
|
|
|
|
will be pari passu in right of payment with all unsecured
senior Indebtedness of that Guarantor; and
|
|
|
|
will be senior in right of payment to any future subordinated
Indebtedness of that Guarantor.
|
The operations of NRG are largely conducted through its
subsidiaries and, therefore, NRG depends on the cash flow of its
subsidiaries to meet its obligations, including its obligations
under the notes. Not all of NRGs subsidiaries will
guarantee the notes. The notes will be effectively subordinated
in right of payment to all Indebtedness and other liabilities
and commitments (including trade payables and lease obligations)
of these non-guarantor subsidiaries. Any right of NRG to receive
assets of any of its subsidiaries upon the subsidiarys
liquidation or reorganization (and the consequent right of the
holders of the notes to participate in those assets) will be
effectively subordinated to the claims of that subsidiarys
creditors, except to the extent that NRG is itself recognized as
a creditor of the subsidiary, in which case its claims would
still be subordinate
S-19
in right of payment to any security in the assets of the
subsidiary and any indebtedness of the subsidiary senior to that
held by NRG. As of September 30, 2006, the guarantor
subsidiaries would have accounted for approximately 94% of
NRGs revenues from wholly-owned operations for the
nine-month period ended September 30, 2006. Such guarantor
subsidiaries held approximately 94% of NRGs consolidated
assets as of September 30, 2006. As of September 30,
2006, NRGs non-guarantor subsidiaries had approximately
$808.1 million in aggregate principal amount of external
funded indebtedness and the outstanding trade payables of NRG
and its subsidiaries was $278.0 million. Approximately 87%
of these trade payables constituted obligations of NRG and the
Guarantors. See Risk Factors Risks Relating to
the Offering Your right to receive payments on these
notes could be adversely affected if any of our non-guarantor
subsidiaries declare bankruptcy, liquidate, or reorganize.
See note 33 to the consolidated financial statements of NRG
incorporated by reference into this prospectus supplement for
more detail about the historical division of NRG Energy,
Inc.s consolidated revenues and assets between the
Guarantor and non-Guarantor Subsidiaries.
Under the circumstances described below under the caption
Certain Covenants Designation of
Restricted, Unrestricted and Excluded Project
Subsidiaries, NRG will be permitted to designate certain
of its subsidiaries as Unrestricted Subsidiaries or
Excluded Project Subsidiaries. NRGs
Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the indenture. NRGs Unrestricted
Subsidiaries and Excluded Subsidiaries will not guarantee the
notes.
Principal,
Maturity and Interest
NRG will issue $ million in
aggregate principal amount of % Senior Notes due 2017
in this offering. NRG may issue additional notes under the
indenture from time to time after this offering. Any issuance of
additional notes is subject to all of the covenants in the
indenture, including the covenant described below under the
caption Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred
Stock. The notes and any additional notes subsequently
issued under the indenture will be treated as a single class for
all purposes under the indenture, including, without limitation,
waivers, amendments, redemptions and offers to purchase. NRG
will issue notes in denominations of $5,000 and integral
multiples of $5,000. The notes will mature
on ,
2017.
Interest will accrue at the rate of % per annum,
and will be payable semi-annually in arrears
on
and of
each year, commencing
on .
NRG will make each interest payment to the holders of record on
the immediately
preceding
and .
Interest on the notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it
was most recently paid. Interest will be computed on the basis
of a 360-day
year comprised of twelve
30-day
months.
Methods
of Receiving Payments on the Notes
If a holder of notes has given wire transfer instructions to
NRG, NRG will pay or cause to be paid all principal, interest
and premium on that holders notes in accordance with those
instructions. All other payments on notes will be made at the
office or agency of the paying agent and registrar within the
City and State of New York unless NRG elects to make interest
payments by check mailed to the noteholders at their address set
forth in the register of holders.
Paying
Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar.
NRG may change the paying agent or registrar without prior
notice to the holders of the notes, and NRG or any of its
Subsidiaries may act as paying agent or registrar.
S-20
Transfer
and Exchange
A holder may transfer or exchange notes in accordance with the
provisions of the indenture. The registrar and the trustee may
require a holder, among other things, to furnish appropriate
endorsements and transfer documents in connection with a
transfer of notes. Holders will be required to pay all taxes due
on transfer. NRG is not required to transfer or exchange any
note selected for redemption. Also, NRG is not required to
transfer or exchange any note for a period of 15 days
before a selection of notes to be redeemed.
Subsidiary
Guarantees
NRGs payment obligations under the notes will be
guaranteed on an unconditional basis by each of NRGs
current and future Restricted Subsidiaries, other than the
Excluded Subsidiaries for so long as they constitute Excluded
Subsidiaries. These Subsidiary Guarantees will be joint and
several obligations of the Guarantors. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting
a fraudulent conveyance under applicable law. See Risk
Factors Risks Related to the Offering
Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require note holders to
return payments received from guarantors.
A Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge
with or into (whether or not such Guarantor is the surviving
Person), another Person, other than NRG or another Guarantor,
unless:
(1) immediately after giving effect to that transaction, no
Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that
Guarantor under the indenture and its Subsidiary Guarantee
pursuant to supplemental agreements reasonably satisfactory to
the trustee under the indenture;
(b) the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the
indenture; or
(c) immediately after giving effect to that transaction,
such Person qualifies as an Excluded Subsidiary.
The Subsidiary Guarantee of a Guarantor of the notes will be
released automatically:
(1) in connection with any sale or other disposition of all
or substantially all of the assets of that Guarantor (including
by way of merger or consolidation) to a Person that is not
(either before or after giving effect to such transaction) NRG
or a Restricted Subsidiary of NRG, if the sale or other
disposition does not violate the Asset Sale
provisions of the indenture;
(2) in connection with any sale or other disposition of
Capital Stock of that Guarantor to a Person that is not (either
before or after giving effect to such transaction) NRG or a
Restricted Subsidiary of NRG, if (a) the sale or other
disposition does not violate the Asset Sale
provisions of the indenture and (b) following such sale or
other disposition, that Guarantor is not a direct or indirect
Subsidiary of NRG;
(3) if NRG designates any Restricted Subsidiary that is a
Guarantor to be an Unrestricted Subsidiary in accordance with
the applicable provisions of the indenture;
(4) the date that any Subsidiary that is not an Excluded
Subsidiary becomes an Excluded Subsidiary;
(5) upon defeasance or satisfaction and discharge of such
notes as provided below under the captions
Legal Defeasance and Covenant Defeasance
and Satisfaction and Discharge;
S-21
(6) upon a dissolution of a Guarantor that is permitted
under the indenture; or
(7) otherwise with respect to the Guarantee of any
Guarantor, upon:
(a) the prior consent of holders of at least a majority in
aggregate principal amount of notes then outstanding;
(b) the consent of requisite lenders under the Credit
Agreement (as amended, restated, modified, renewed, refunded,
replaced or refinanced from time to time) to the release of such
Guarantors Guarantee of all Obligations under the Credit
Agreement; or
(c) the contemporaneous release of such Guarantors
Guarantee of all Obligations under the Credit Agreement (as
amended, restated, modified, renewed, refunded, replaced or
refinanced from time to time).
See Repurchase at the Option of
Holders Asset Sales.
Optional
Redemption
At any time prior
to
2009, NRG may on any one or more occasions redeem up to 35% of
the aggregate principal amount of notes, upon not less than 30
nor more than 60 days notice, at a redemption price
of % of the principal amount, plus accrued and unpaid
interest to the redemption date, with the proceeds of one or
more Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes
issued in this offering (excluding notes held by NRG and its
Subsidiaries) remains outstanding immediately after the
occurrence of such redemption; and
(2) the redemption occurs within 90 days of the date
of the closing of such Equity Offering.
At any time prior
to ,
NRG may on any one or more occasions redeem all or a part of the
notes, upon not less than 30 nor more than 60 days
prior notice, at a redemption price equal to 100% of the
principal amount of notes redeemed plus the Applicable Premium
as of, and accrued and unpaid interest if any, to the redemption
date, subject to the rights of holders of notes on the relevant
record date to receive interest due on the relevant interest
payment date.
Except pursuant to the preceding two paragraphs, the notes will
not be redeemable at NRGs option prior
to .
NRG is not prohibited, however, from acquiring the notes in
market transactions by means other than a redemption, whether
pursuant to a tender offer or otherwise, assuming such action
does not otherwise violate the indenture.
On or
after ,
NRG may on any one or more occasions redeem all or a part of the
notes upon not less than 30 nor more than 60 days
notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid
interest on the notes redeemed, to the applicable redemption
date, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below, subject to the rights
of noteholders on the relevant record date to receive interest
on the relevant interest payment date:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2011
|
|
|
|
%
|
2012
|
|
|
|
%
|
2013
|
|
|
|
%
|
2014
|
|
|
|
%
|
and thereafter
|
|
|
100.000
|
%
|
Mandatory
Redemption
NRG is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
S-22
Repurchase
at the Option of Holders
Change
of Control
If a Change of Control occurs, each holder of notes will have
the right to require NRG to repurchase all or any part (equal to
$5,000 or an integral multiple of $5,000) of that holders
notes pursuant to a Change of Control Offer on the terms set
forth in the indenture. In the Change of Control Offer, NRG will
offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of notes repurchased plus accrued and
unpaid interest on the notes repurchased, to the date of
purchase, subject to the rights of noteholders on the relevant
record date to receive interest due on the relevant interest
payment date. Within 30 days following any Change of
Control, NRG will mail a notice to each holder describing the
transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the Change of
Control Payment Date specified in the notice, which date will be
no earlier than 30 days and no later than 60 days from
the date such notice is mailed, pursuant to the procedures
required by the indenture and described in such notice. NRG will
comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with the repurchase of the notes as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, NRG will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Change of Control provisions of the indenture by virtue of such
compliance.
On the Change of Control Payment Date, NRG will, to the extent
lawful:
(1) accept for payment all notes or portions of notes
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or portions of
notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the
notes properly accepted together with an officers
certificate stating the aggregate principal amount of notes or
portions of notes being purchased by NRG.
The paying agent will promptly mail to each holder of notes
properly tendered the Change of Control Payment for such notes,
and the trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each holder a new note equal in
principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be
in a principal amount of $5,000 or an integral multiple of
$5,000. NRG will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The provisions described above that require NRG to make a Change
of Control Offer following a Change of Control will be
applicable whether or not any other provisions of the indenture
are applicable.
Except as described above with respect to a Change of Control,
the indenture does not contain provisions that permit the
holders of the notes to require that NRG repurchase or redeem
the notes in the event of a takeover, recapitalization or
similar transaction.
NRG will not be required to make a Change of Control Offer upon
a Change of Control if (1) a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the indenture
applicable to a Change of Control Offer made by NRG and
purchases all notes properly tendered and not withdrawn under
the Change of Control Offer, or (2) notice of redemption
has been given pursuant to the indenture as described above
under the caption Optional Redemption,
unless and until there is a default in payment of the applicable
redemption price. A Change in Control Offer may be made in
advance of a Change of Control, with the obligation to pay and
the timing of payment conditioned upon the consummation of the
Change of Control, if a definitive agreement to effect a Change
of Control is in place at the time of the Offer.
S-23
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, lease, transfer, conveyance or
other disposition of all or substantially all of the
properties or assets of NRG and its Subsidiaries taken as a
whole. There is a limited body of case law interpreting the
phrase substantially all, and there is no precise
established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require NRG to
repurchase its notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets
of NRG and its Subsidiaries taken as a whole to another Person
or group may be uncertain.
Asset
Sales
NRG will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) NRG (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least
equal to the fair market value of the assets or Equity Interests
issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration received in the Asset
Sale by NRG or such Restricted Subsidiary is in the form of
cash. For purposes of this provision, each of the following will
be deemed to be cash:
(a) any liabilities, as shown on NRGs most recent
consolidated balance sheet, of NRG or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by
their terms subordinated to the notes or any Subsidiary
Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases NRG or
such Restricted Subsidiary from further liability;
(b) any securities, notes or other obligations received by
NRG or any such Restricted Subsidiary from such transferee that
are converted by NRG or such Restricted Subsidiary into cash
within 180 days of the receipt of such securities, notes or
other obligations, to the extent of the cash received in that
conversion;
(c) any stock or assets of the kind referred to in
clauses (4) or (6) of the next paragraph of this
covenant; and
(d) any Designated Noncash Consideration received by NRG or
any Restricted Subsidiary in such Asset Sale having an aggregate
fair market value, taken together with all other Designated
Noncash Consideration received pursuant to this clause (d)
and Section 4.10(a)(2)(D) of the First Supplemental
Indenture that is at the time outstanding, not to exceed the
greater of (x) $500.0 million or (y) 2.5% of
Total Assets at the time of the receipt of such Designated
Noncash Consideration, with the fair market value of each item
of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in
value.
Within 365 days after the receipt of any Net Proceeds from
an Asset Sale, other than Excluded Proceeds, NRG (or the
applicable Restricted Subsidiary, as the case may be) may apply
those Net Proceeds or, at its option, enter into a binding
commitment to apply such Net Proceeds within the
365-day
period following the date of such commitment (an
Acceptable Commitment):
(1) to repay Indebtedness and other Obligations under a
Credit Facility and, if such Indebtedness is revolving credit
Indebtedness, to correspondingly reduce commitments with respect
thereto;
(2) in the case of a sale of assets pledged to secure
Indebtedness (including Capital Lease Obligations), to repay the
Indebtedness secured by those assets;
(3) in the case of an Asset Sale by a Restricted Subsidiary
that is not a Guarantor, to repay Indebtedness of a Restricted
Subsidiary that is not a Guarantor (other than Indebtedness owed
to NRG or another Restricted Subsidiary of NRG);
S-24
(4) to acquire all or substantially all of the assets of,
or any Capital Stock of, another Person engaged primarily in a
Permitted Business, if, after giving effect to any such
acquisition of Capital Stock, such Person is or becomes a
Restricted Subsidiary of NRG and a Guarantor;
(5) to make a capital expenditure;
(6) to acquire other assets that are not classified as
current assets under GAAP and that are used or useful in a
Permitted Business; or
(7) any combination of the foregoing.
Pending the final application of any such Net Proceeds and
notwithstanding clause (1) above, NRG may temporarily
reduce revolving credit borrowings or otherwise use the Net
Proceeds in any manner that is not prohibited by the indenture.
Notwithstanding the preceding paragraph, in the event that
regulatory approval is necessary for an asset or investment, or
construction, repair or restoration on any asset or investment
has commenced, then NRG or any Restricted Subsidiary shall have
an additional 365 days to apply the Net Proceeds from such
Asset Sale in accordance with the preceding paragraph.
Any Acceptable Commitment that is later canceled or terminated
for any reason before such Net Proceeds are so applied shall be
treated as a permitted application of the Net Proceeds if NRG or
such Restricted Subsidiary enters into another Acceptable
Commitment within the later of (a) nine months of such
cancellation or termination or (b) the end of the initial
365-day
period.
Any Net Proceeds from Asset Sales (other than Excluded Proceeds)
that are not applied or invested as provided above will
constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $100.0 million, or at
such earlier date as may be selected by NRG, NRG will make an
Asset Sale Offer to all holders of notes and all holders of
other Indebtedness (including Indebtedness evidenced by the
Existing Senior Notes) that is pari passu with the notes
containing provisions similar to those set forth in the
indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets to purchase the maximum principal
amount of notes and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of the
principal amount plus accrued and unpaid interest to the date of
purchase and will be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, NRG may use
those Excess Proceeds for any purpose not otherwise prohibited
by the indenture. If the aggregate principal amount of notes and
other pari passu Indebtedness tendered into such Asset
Sale Offer exceeds the amount of Excess Proceeds, the trustee
will select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
NRG will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the indenture, NRG will comply with
the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Asset Sale
provisions of the indenture by virtue of such compliance.
The agreements governing NRGs other Indebtedness,
including the Credit Agreement, contain, and future agreements
may contain, prohibitions of certain events, including events
that would constitute a Change of Control or an Asset Sale and
including repurchases of or other prepayments in respect of the
notes. The exercise by the holders of notes of their right to
require NRG to repurchase the notes upon a Change of Control or
an Asset Sale could cause a default under these other
agreements, even if the Change of Control or Asset Sale itself
does not, due to the financial effect of such repurchases on
NRG. In the event a Change of Control or Asset Sale occurs at a
time when NRG is prohibited from purchasing notes, NRG could
seek the consent of its senior lenders to the purchase of notes
or could attempt to refinance the borrowings that contain such
prohibition. If NRG does not obtain a consent or repay those
borrowings, NRG will remain prohibited from purchasing notes. In
that case, NRGs failure to purchase tendered notes would
constitute an Event of
S-25
Default under the indenture which could, in turn, constitute a
default under the other indebtedness. Finally, NRGs
ability to pay cash to the holders of notes upon a repurchase
may be limited by NRGs then existing financial resources.
See Risk Factors Risks Related to the
Offering We may not have the ability to raise the
funds necessary to finance the change of control offer required
by the indenture.
Selection
and Notice
If less than all of the notes are to be redeemed at any time,
the trustee will select notes for redemption on a pro rata basis
unless otherwise required by law or applicable stock exchange
requirements.
No notes of $5,000 or less can be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each
holder of notes to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days
prior to a redemption date if the notice is issued in connection
with a defeasance of the notes or a satisfaction and discharge
of the indenture. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount of that note that is to be redeemed. A new
note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on notes or
portions of them called for redemption.
Certain
Covenants
Changes
in Covenants When Notes Rated Investment
Grade
If on any date following the date of the supplemental indenture
for the notes:
(1) the rating assigned to the notes by each of S&P and
Moodys is an Investment Grade Rating; and
(2) no Default or Event of Default shall have occurred and
be continuing, then, beginning on that day and subject to the
provisions of the following two paragraphs, the covenants in the
supplemental indenture specifically listed under the following
captions will be suspended as to the notes:
(a) Repurchase at the Option of
Holders Asset Sales;
(b) Certain Covenants
Restricted Payments;
(c) Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred Stock;
(d) Certain Covenants
Dividend and Other Payment Restrictions Affecting
Subsidiaries;
(e) Certain Covenants
Designation of Restricted, Unrestricted and Excluded Project
Subsidiaries;
(f) Transactions with
Affiliates; and
(g) clause (4) of the covenant described below under
the caption Merger, Consolidation or Sale of
Assets.
Clauses (a) through (g) above are collectively
referred to as the Suspended Covenants.
During any period that the foregoing covenants have been
suspended, NRGs Board of Directors may not designate any
of its Subsidiaries as Unrestricted Subsidiaries or Excluded
Project Subsidiaries pursuant to the covenant described below
under the caption Designation of Restricted,
Unrestricted and Excluded Project Subsidiaries, the second
paragraph of the definition of Unrestricted
Subsidiary, or the definition of Excluded Project
Subsidiary, unless it could do so if the foregoing
covenants were in effect.
S-26
If at any time the notes are downgraded from an Investment Grade
Rating by either S&P or Moodys, the Suspended
Covenants will thereafter be reinstated as if such covenants had
never been suspended and be applicable pursuant to the terms of
the supplemental indenture (including in connection with
performing any calculation or assessment to determine compliance
with the terms of the supplemental indenture), unless and until
the notes subsequently attain an Investment Grade Rating from
each of S&P and Moodys (in which event the Suspended
Covenants will again be suspended for such time that the notes
maintain an Investment Grade Rating from each of S&P and
Moodys); provided, however, that no Default,
Event of Default or breach of any kind will be deemed to exist
under the supplemental indenture, the notes or the related
Subsidiary Guarantees with respect to the Suspended Covenants
based on, and none of NRG or any of its Subsidiaries will bear
any liability for, any actions taken or events occurring after
the notes attain an Investment Grade Rating from each of S&P
and Moodys and before any reinstatement of the Suspended
Covenants as provided above, or any actions taken at any time
pursuant to any contractual obligation arising prior to the
reinstatement, regardless of whether those actions or events
would have been permitted if the applicable Suspended Covenant
had remained in effect during such period.
Restricted
Payments
NRG will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of NRGs or any of its
Restricted Subsidiaries Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving NRG or any of its Restricted
Subsidiaries) or to the direct or indirect holders of NRGs
or any of its Restricted Subsidiaries Equity Interests in
their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of
NRG or to NRG or a Restricted Subsidiary of NRG);
(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any
merger or consolidation involving NRG) any Equity Interests of
NRG or any direct or indirect parent of NRG (other than any such
Equity Interests owned by NRG or any Restricted Subsidiary of
NRG);
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any
Indebtedness of NRG or any Guarantor that is contractually
subordinated to the notes or any Subsidiary Guarantee of the
notes (excluding any intercompany Indebtedness between or among
NRG and any of its Restricted Subsidiaries), except (a) a
payment of interest or principal at the Stated Maturity thereof
or (b) a payment, purchase, redemption, defeasance,
acquisition or retirement of any subordinated Indebtedness in
anticipation of satisfying a sinking fund obligation, principal
installment or payment at final maturity, in each case due
within one year of the date of payment, purchase, redemption,
defeasance, acquisition or retirement; or
(4) make any Restricted Investment
(all such payments and other actions set forth in these
clauses (1) through (4) above being collectively
referred to as Restricted Payments), unless,
at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted
Payment; and
(2) NRG would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described below under the caption Incurrence
of Indebtedness and Issuance of Preferred Stock; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by NRG and its
Restricted Subsidiaries since January 1, 2006 (excluding
Restricted
S-27
Payments permitted by clauses (2), (3), (4), (6), (7), (8), (9),
(10), (11) and (12) of the next succeeding paragraph),
is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of NRG for the
period (taken as one accounting period) from January 1,
2006 to the end of NRGs most recently ended fiscal quarter
for which financial statements are publicly available at the
time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit),
plus
(b) 100% of the aggregate proceeds received by NRG since
February 2, 2006 as a contribution to its equity capital
(unless such contribution would constitute Disqualified Stock)
or from the issue or sale of Equity Interests of NRG (other than
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable
debt securities of NRG that have been converted into or
exchanged for such Equity Interests (other than Equity Interests
(or Disqualified Stock or debt securities) sold to a Subsidiary
of NRG), plus
(c) 100% of the aggregate proceeds received upon the sale
or other disposition of any Investment (other than a Permitted
Investment) made since February 2, 2006; plus the
net reduction in Investments (other than Permitted Investments)
in any Person resulting from dividends, repayments of loans or
advances or other transfers of assets subsequent to
February 2, 2006, in each case to NRG or any Restricted
Subsidiary from such Person; plus to the extent that the
ability to make Restricted Payments was reduced as the result of
the designation since February 2, 2006 of an Unrestricted
Subsidiary or Excluded Project Subsidiary, the portion
(proportionate to NRGs equity interest in such Subsidiary)
of the fair market value of the net assets of such Unrestricted
Subsidiary or Excluded Project Subsidiary at the time such
Unrestricted Subsidiary or Excluded Project Subsidiary is
redesignated, or liquidated or merged into, a Restricted
Subsidiary that is not an Excluded Subsidiary; provided,
in each case, that the foregoing may not exceed, in the
aggregate, the amount of all Investments which previously
reduced the ability to make Restricted Payments; and provided
further, that Concurrent Cash Distributions shall be
excluded from this clause (c).
The preceding provisions will not prohibit:
(1) the payment of any dividend within 90 days after
the date of declaration of the dividend, if at the date of
declaration the dividend payment would have complied with the
provisions of the indenture;
(2) so long as no Default has occurred and is continuing or
would be caused thereby, the making of any Restricted Payment in
exchange for, or out of the aggregate proceeds of the
substantially concurrent sale (other than to a Subsidiary of
NRG) of, Equity Interests of NRG (other than Disqualified Stock)
or from the contribution of equity capital (unless such
contribution would constitute Disqualified Stock) to NRG;
provided that the amount of any such proceeds that are
utilized for any such Restricted Payment will be excluded from
clause (3)(b) of the preceding paragraph;
(3) so long as no Default has occurred and is continuing or
would be caused thereby, the defeasance, redemption, repurchase
or other acquisition of Indebtedness of NRG or any Guarantor
that is contractually subordinated to the notes or to any
Subsidiary Guarantee with the proceeds from a substantially
concurrent incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend (or, in the case of any
partnership or limited liability company, any similar
distribution) by a Restricted Subsidiary of NRG to the holders
of its Equity Interests on a pro rata basis;
(5) so long as no Default has occurred and is continuing or
would be caused thereby, (a) the repurchase, redemption or
other acquisition or retirement for value of any Equity
Interests of NRG or
S-28
any Restricted Subsidiary of NRG held by any current or former
officer, director or employee of NRG or any of its Restricted
Subsidiaries pursuant to any equity subscription agreement,
stock option agreement, severance agreement, shareholders
agreement or similar agreement or employee benefit plan or
(b) the cancellation of Indebtedness owing to NRG or any of
its Restricted Subsidiaries from any current or former officer,
director or employee of NRG or any of its Restricted
Subsidiaries in connection with a repurchase of Equity Interests
of NRG or any of its Restricted Subsidiaries; provided
that the aggregate price paid for the actions in
clause (a) since February 2, 2006 may not exceed
$10.0 million in any twelve-month period (with unused
amounts in any period being carried over to succeeding periods)
and may not exceed $50.0 million in the aggregate since
February 2, 2006; provided, further that
(i) such amount in any calendar year may be increased by
the cash proceeds of key man life insurance policies
received by NRG and its Restricted Subsidiaries after
February 2, 2006 less any amount previously applied to the
making of Restricted Payments pursuant to this clause (5)
or Section 4.07(b)(5) of the First Supplemental Indenture
and (ii) cancellation of the Indebtedness owing to NRG from
employees, officers, directors and consultants of NRG or any of
its Restricted Subsidiaries in connection with a repurchase of
Equity Interests of NRG from such Persons shall be permitted
under this clause (5) as if it were a repurchase,
redemption, acquisition or retirement for value subject hereto;
(6) the repurchase of Equity Interests in connection with
the exercise of stock options to the extent such Equity
Interests represent a portion of the exercise price of those
stock options and the repurchases of Equity Interests in
connection with the withholding of a portion of the Equity
Interests granted or awarded to an employee to pay for the taxes
payable by such employee upon such grant or award;
(7) so long as no Default has occurred and is continuing or
would be caused thereby, the declaration and payment of
regularly scheduled or accrued dividends to holders of any class
or series of (a) preferred stock outstanding on
February 2, 2006, (b) Disqualified Stock of NRG or any
Restricted Subsidiary of NRG issued on or after February 2,
2006 in accordance with the terms of the indenture and the
Existing Senior Notes or (c) preferred stock issued on or
after February 2, 2006 in accordance with the terms of the
indenture and the Existing Senior Notes;
(8) payments to holders of NRGs Capital Stock in lieu
of the issuance of fractional shares of its Capital Stock;
(9) the purchase, redemption, acquisition, cancellation or
other retirement for a nominal value per right of any rights
granted to all the holders of Capital Stock of NRG pursuant to
any shareholders rights plan adopted for the purpose of
protecting shareholders from unfair takeover tactics;
provided that any such purchase, redemption, acquisition,
cancellation or other retirement of such rights is not for the
purpose of evading the limitations of this covenant (all as
determined in good faith by a senior financial officer of NRG);
(10) so long as no Default has occurred and is continuing
or would be caused thereby, upon the occurrence of a Change of
Control or Asset Sale and after the completion of the offer to
repurchase the notes as described above under the caption
Repurchase at the Option of
Holders Change of Control or
Repurchase at the Option of
Holders Asset Sales, as applicable (including
the purchase of all notes tendered), any purchase, defeasance,
retirement, redemption or other acquisition of Indebtedness that
is contractually subordinated to the notes or any subsidiary
guarantee required under the terms of such Indebtedness, with,
in the case of an Asset Sale, Net Proceeds, as a result of such
Change of Control or Asset Sale;
(11) the purchase, redemption, acquisition, cancellation or
other retirement of preferred stock of Itiquira to effectuate
the Itiquira Refinancing; and
(12) so long as no Default has occurred and is continuing
or would be caused thereby, other Restricted Payments in an
aggregate amount not to exceed $250.0 million since
February 2, 2006.
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The amount of all Restricted Payments (other than cash) will be
the fair market value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
by NRG or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. The fair market value of any
assets or securities that are required to be valued by this
covenant will be determined by a senior financial officer of NRG
whose certification with respect thereto will be delivered to
the trustee.
Incurrence
of Indebtedness and Issuance of Preferred Stock
NRG will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to
(collectively, incur) any Indebtedness
(including Acquired Debt), and NRG will not issue any
Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock;
provided, however, that NRG may incur Indebtedness
(including Acquired Debt) or issue Disqualified Stock, and the
Guarantors may incur Indebtedness (including Acquired Debt) or
issue preferred stock, if the Fixed Charge Coverage Ratio for
NRGs most recently ended four full fiscal quarters for
which financial statements are publicly available immediately
preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock or preferred stock is issued
would have been at least 2.0 to 1, determined on a pro
forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness
(including Acquired Debt) had been incurred or Disqualified
Stock or the preferred stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness
(collectively, Permitted Debt):
(1) the incurrence by NRG and PMI (and the guarantee
thereof by the Guarantors) of additional Indebtedness and
letters of credit under Credit Facilities in an aggregate
principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of NRG
and its Restricted Subsidiaries thereunder) not to exceed
$6.0 billion less the aggregate amount of all repayments,
optional or mandatory, of the principal of any term Indebtedness
under a Credit Facility that have been made by NRG or any of its
Restricted Subsidiaries since February 2, 2006 with the Net
Proceeds of Asset Sales (other than Excluded Proceeds) and less,
without duplication, the aggregate amount of all repayments or
commitment reductions with respect to any revolving credit
borrowings under a Credit Facility that have been made by NRG or
any of its Restricted Subsidiaries since February 2, 2006
as a result of the application of the Net Proceeds of Asset
Sales (other than Excluded Proceeds) in accordance with the
covenant described above under the caption
Repurchase at the Option of
Holders Asset Sales (excluding temporary
reductions in revolving credit borrowings as contemplated by
that covenant);
(2) the incurrence by NRG and its Restricted Subsidiaries
of the Existing Indebtedness;
(3) the incurrence by NRG and the Guarantors of
Indebtedness represented by the notes and the related Subsidiary
Guarantees to be issued on the date of the supplemental
indenture;
(4) the incurrence by NRG or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any
part of the purchase price or cost of design, construction,
installation or improvement or lease of property (real or
personal), plant or equipment used or useful in the business of
NRG or any of its Restricted Subsidiaries or incurred within
180 days thereafter, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred to
refund, refinance, replace, defease or discharge any
Indebtedness incurred pursuant to this clause (4), not to
exceed at any time outstanding 5.0% of Total Assets;
(5) the incurrence by NRG or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance,
replace, defease or discharge Indebtedness (other than
intercompany Indebtedness) that was permitted by the
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supplemental indenture to be incurred under the first paragraph
of this covenant or clauses (2), (3), (4), (5), (15), (16),
(17), (18) and (19) of this paragraph;
(6) the incurrence by NRG or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among NRG
and any of its Restricted Subsidiaries; provided,
however, that: (a) if NRG or any Guarantor is the
obligor on such Indebtedness and the payee is not NRG or a
Guarantor, such Indebtedness must be expressly subordinated to
the prior payment in full in cash of all Obligations then due
with respect to the notes, in the case of NRG, or the Subsidiary
Guarantee, in the case of a Guarantor; and (b) (i) any
subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than NRG
or a Restricted Subsidiary of NRG and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not
either NRG or a Restricted Subsidiary of NRG will be deemed, in
each case, to constitute an incurrence of such Indebtedness by
NRG or such Restricted Subsidiary, as the case may be, that was
not permitted by this clause (6);
(7) the issuance by any of NRGs Restricted
Subsidiaries to NRG or to any of its Restricted Subsidiaries of
shares of preferred stock; provided, however, that:
(a) any subsequent issuance or transfer of Equity Interests
that results in any such preferred stock being held by a Person
other than NRG or a Restricted Subsidiary of NRG; and
(b) any sale or other transfer of any such preferred stock
to a Person that is not either NRG or a Restricted Subsidiary of
NRG;
will be deemed, in each case, to constitute an issuance of such
preferred stock by such Restricted Subsidiary that was not
permitted by this clause (7);
(8) the incurrence by NRG or any of its Restricted
Subsidiaries of Hedging Obligations;
(9) the guarantee by (i) NRG or any of the Guarantors
of Indebtedness of NRG or a Guarantor that was permitted to be
incurred by another provision of this covenant; (ii) any of
the Excluded Project Subsidiaries of Indebtedness of any other
Excluded Project Subsidiary; and (iii) any of the Excluded
Foreign Subsidiaries of Indebtedness of any other Excluded
Foreign Subsidiary; provided that if the Indebtedness
being guaranteed is subordinated to or pari passu with
the notes, then the guarantee shall be subordinated to the same
extent as the Indebtedness guaranteed;
(10) the incurrence by NRG or any of its Restricted
Subsidiaries of Indebtedness arising from the honoring by a bank
or other financial institution of a check, draft or similar
instrument (except in the case of daylight overdrafts)
inadvertently drawn against insufficient funds in the ordinary
course of business, so long as such Indebtedness is covered
within five business days;
(11) the incurrence by NRG or any of its Restricted
Subsidiaries of Indebtedness in respect of
(i) workers compensation claims, self-insurance
obligations, bankers acceptance and (ii) performance
and surety bonds provided by NRG or a Restricted Subsidiary in
the ordinary course of business;
(12) (i) the incurrence of Non-Recourse Debt by any
Excluded Project Subsidiary, and (ii) the incurrence of
Indebtedness and guarantees pursuant to the Itiquira Refinancing;
(13) the incurrence of Indebtedness that may be deemed to
arise as a result of agreements of NRG or any Restricted
Subsidiary of NRG providing for indemnification, adjustment of
purchase price or any similar obligations, in each case,
incurred in connection with the disposition of any business,
assets or Equity Interests of any Subsidiary; provided
that the aggregate maximum liability associated with such
provisions may not exceed the gross proceeds (including non-cash
proceeds) of such disposition;
(14) the incurrence by NRG or any Restricted Subsidiary of
NRG of Indebtedness represented by letters of credit, guarantees
or other similar instruments supporting Hedging Obligations of
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NRG or any of its Restricted Subsidiaries (other than Excluded
Subsidiaries) permitted to be incurred by the indenture;
(15) Indebtedness, Disqualified Stock or preferred stock of
Persons or assets that are acquired by NRG or any Restricted
Subsidiary of NRG or merged into NRG or a Restricted Subsidiary
of NRG in accordance with the terms of the indenture;
provided that such Indebtedness, Disqualified Stock or
preferred stock is not incurred in contemplation of such
acquisition or merger; and provided further that after
giving effect to such acquisition or merger, either:
(a) NRG would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first sentence of this
covenant; or
(b) the Fixed Charge Coverage Ratio would be greater than
immediately prior to such acquisition or merger;
(16) Environmental CapEx Debt; provided, that prior
to the incurrence of any Environmental CapEx Debt, NRG shall
deliver to the trustee an officers certificate designating
such Indebtedness as Environmental CapEx Debt;
(17) Indebtedness incurred to finance Necessary Capital
Expenditures; provided, that prior to the incurrence of
any Indebtedness to finance Necessary Capital Expenditures, NRG
shall deliver to the trustee an officers certificate
designating such Indebtedness as Necessary CapEx Debt;
(18) Indebtedness of NRG or any Restricted Subsidiary
consisting of (i) the financing of insurance premiums or
(ii) take-or-pay
obligations contained in supply arrangements, in each case, in
the ordinary course of business; and
(19) the incurrence by NRG
and/or any
of its Restricted Subsidiaries of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at
any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance, replace, defease or
discharge any Indebtedness incurred pursuant to this
clause (19), not to exceed $500.0 million.
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Stock covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1)
through (19) above, or is entitled to be incurred pursuant
to the first paragraph of this covenant, NRG will be permitted
to classify such item of Indebtedness on the date of its
incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant.
Indebtedness under the Credit Agreement outstanding on the date
of the supplemental indenture will initially be deemed to have
been incurred on such date in reliance on the exception provided
by clause (1) of the definition of Permitted Debt. The
accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in
the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will
not be deemed to be an incurrence of Indebtedness or an issuance
of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is
included in Fixed Charges of NRG as accrued.
For purposes of determining compliance with any
U.S. dollar-denominated restriction on the incurrence of
Indebtedness, the U.S. dollar-equivalent principal amount
of Indebtedness denominated in a foreign currency will be
calculated based on the relevant currency exchange rate in
effect on the date such Indebtedness was incurred; provided
that if such Indebtedness is incurred to refinance other
Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable
U.S. dollar-dominated restriction to be exceeded if
calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such U.S. dollar-dominated
restriction shall be deemed not to have been exceeded so long as
the principal amount of such refinancing Indebtedness does not
exceed the principal amount of the Indebtedness being refinanced.
S-32
The amount of any Indebtedness outstanding as of any date will
be:
(1) the accreted value of the Indebtedness, in the case of
any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case
of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by
a Lien on the assets of the specified Person, the lesser of:
(a) the fair market value of such asset at the date of
determination, and
(b) the amount of the Indebtedness of the other Person;
provided that any changes in any of the above shall not
give rise to a default under this covenant.
Antilayering
NRG will not incur, and will not permit any Guarantor to incur,
any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other
Indebtedness of NRG or such Guarantor unless such Indebtedness
is also contractually subordinated in right of payment to the
notes and the applicable Guarantee on substantially identical
terms; provided, however, that no Indebtedness
will be deemed to be contractually subordinated in right of
payment to any other Indebtedness of NRG solely by virtue of
being unsecured or by virtue of being secured on a first or
junior Lien basis.
Liens
NRG will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind (other
than Permitted Liens) securing Indebtedness or Attributable Debt
upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the indenture and the
notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are
no longer secured by a Lien.
Sale
and Leaseback Transactions
NRG will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction;
provided that NRG or any Guarantor may enter into a sale
and leaseback transaction if:
(1) NRG or that Guarantor, as applicable, could have
(a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback
transaction under the covenant described above under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under
the caption Liens;
(2) the gross proceeds of that sale and leaseback
transaction are at least equal to the fair market value of the
property that is subject of that sale and leaseback transaction,
as determined in good faith by a senior financial officer of
NRG; and
(3) if such sale and leaseback transaction constitutes an
Asset Sale, the transfer of assets in that sale and leaseback
transaction is permitted by, and NRG applies the proceeds of
such transaction in compliance with, the covenant described
above under the caption Repurchase at the
Option of Holders Asset Sales.
S-33
Dividend
and Other Payment Restrictions Affecting
Subsidiaries
NRG will not, and will not permit any of its Restricted
Subsidiaries (other than Excluded Subsidiaries) to, directly or
indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any
Restricted Subsidiaries (other than Excluded Subsidiaries) to:
(1) pay dividends or make any other distributions on its
Capital Stock to NRG or any of its Restricted Subsidiaries
(other than Excluded Subsidiaries), or with respect to any other
interest or participation in, or measured by, its profits, or
pay any indebtedness owed to NRG or any of its Restricted
Subsidiaries (other than Excluded Subsidiaries);
(2) make loans or advances to NRG or any of its Restricted
Subsidiaries (other than Excluded Subsidiaries); or
(3) transfer any of its properties or assets to NRG or any
of its Restricted Subsidiaries (other than Excluded
Subsidiaries).
However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and the
Credit Agreement, on the date of the supplemental indenture;
(2) the indenture, the notes and the Subsidiary Guarantees
(including the exchange notes and related Subsidiary Guarantees);
(3) applicable law, rule, regulation or order;
(4) customary non-assignment provisions in contracts,
agreements, leases, permits and licenses;
(5) purchase money obligations for property acquired and
Capital Lease Obligations that impose restrictions on the
property purchased or leased of the nature described in
clause (3) of the preceding paragraph;
(6) any agreement for the sale or other disposition of the
stock or assets of a Restricted Subsidiary that restricts
distributions by that Restricted Subsidiary pending the sale or
other disposition;
(7) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are not materially more
restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(8) Liens permitted to be incurred under the provisions of
the covenant described above under the caption
Liens and associated agreements that
limit the right of the debtor to dispose of the assets subject
to such Liens;
(9) provisions limiting the disposition or distribution of
assets or property in joint venture, partnership, membership,
stockholder and limited liability company agreements, asset sale
agreements, sale-leaseback agreements, stock sale agreements and
other similar agreements, including owners, participation
or similar agreements governing projects owned through an
undivided interest, which limitation is applicable only to the
assets that are the subject of such agreements;
(10) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in connection
with a Permitted Business;
(11) restrictions or conditions contained in any trading,
netting, operating, construction, service, supply, purchase,
sale or similar agreement to which NRG or any Restricted
Subsidiary of NRG is a party entered into in connection with a
Permitted Business; provided that such agreement
prohibits the encumbrance of solely the property or assets of
NRG or such Restricted Subsidiary that
S-34
are the subject of that agreement, the payment rights arising
thereunder
and/or the
proceeds thereof and not to any other asset or property of NRG
or such Restricted Subsidiary or the assets or property of any
other Restricted Subsidiary;
(12) any instrument governing Indebtedness or Capital Stock
of a Person acquired by NRG or any of its Restricted
Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness or Capital Stock was
incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so
acquired; provided that, in the case of Indebtedness,
such Indebtedness was permitted by the terms of the indenture to
be incurred;
(13) Indebtedness of a Restricted Subsidiary of NRG
existing at the time it became a Restricted Subsidiary if such
restriction was not created in connection with or in
anticipation of the transaction or series of transactions
pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by NRG;
(14) with respect to clause (3) of the first paragraph
of this covenant only, restrictions encumbering property at the
time such property was acquired by NRG or any of its Restricted
Subsidiaries, so long as such restriction relates solely to the
property so acquired and was not created in connection with or
in anticipation of such acquisition;
(15) provisions limiting the disposition or distribution of
assets or property in agreements governing Non-Recourse Debt,
which limitation is applicable only to the assets that are the
subject of such agreements; and
(16) any encumbrance or restrictions of the type referred
to in clauses (1), (2) and (3) of the first
paragraph of this covenant imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (1)
through (15) above; provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith
judgment of a senior financial officer of NRG, no more
restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other
payment restrictions prior to such amendment, modification,
restatement, renewals, increase, supplement, refunding,
replacement or refinancing.
Merger,
Consolidation or Sale of Assets
NRG may not, directly or indirectly: (1) consolidate or
merge with or into another Person (whether or not NRG is the
surviving corporation); or (2) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the
properties or assets of NRG and its Restricted Subsidiaries
taken as a whole, in one or more related transactions, to
another Person; unless:
(1) either: (a) NRG is the surviving corporation; or
(b) the Person formed by or surviving any such
consolidation or merger (if other than NRG) or to which such
sale, assignment, transfer, conveyance or other disposition has
been made is a corporation, partnership or limited liability
company organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia; provided that if the Person is a partnership or
limited liability company, then a corporation wholly-owned by
such Person organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia that does not and will not have any material assets or
operations shall become a co-issuer of the notes pursuant to
supplemental indentures duly executed by the applicable trustee;
(2) the Person formed by or surviving any such
consolidation or merger (if other than NRG) or the Person to
which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of NRG
under the notes and the indenture pursuant to supplemental
indentures or other documents and agreements reasonably
satisfactory to the trustee;
S-35
(3) immediately after such transaction, no Default or Event
of Default exists; and
(4) (i) NRG or the Person formed by or surviving any
such consolidation or merger (if other than NRG), or to which
such sale, assignment, transfer, conveyance or other disposition
has been made will, on the date of such transaction after giving
pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described above under the caption Incurrence
of Indebtedness and Issuance of Preferred Stock or
(ii) NRGs Fixed Charge Coverage Ratio is greater
after giving pro forma effect to such consolidation or merger
and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period
than NRGs actual Fixed Charge Coverage Ratio for the
period.
In addition, NRG may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more
related transactions, to any other Person.
This Merger, Consolidation or Sale of Assets
covenant will not apply to:
(1) a merger of NRG with an Affiliate solely for the
purpose of reincorporating NRG in another jurisdiction or
forming a direct holding company of NRG; and
(2) any sale, transfer, assignment, conveyance, lease or
other disposition of assets between or among NRG and its
Restricted Subsidiaries, including by way of merger or
consolidation.
Transactions
with Affiliates
NRG will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate
of NRG (each, an Affiliate Transaction)
involving aggregate payments in excess of $10.0 million,
unless:
(1) the Affiliate Transaction is on terms that are no less
favorable to NRG (as reasonably determined by NRG) or the
relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by NRG or such Restricted
Subsidiary with an unrelated Person; and
(2) NRG delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $50.0 million, a resolution of the Board of
Directors set forth in an officers certificate certifying
that such Affiliate Transaction complies with this covenant and
that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $100.0 million, an opinion as to the fairness
to NRG or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
(1) any employment agreement or directors engagement
agreement, employee benefit plan, officer and director
indemnification agreement or any similar arrangement entered
into by NRG or any of its Restricted Subsidiaries or approved by
the Board of Directors of NRG in good faith;
(2) transactions between or among NRG
and/or its
Restricted Subsidiaries;
S-36
(3) transactions with a Person (other than an Unrestricted
Subsidiary of NRG) that is an Affiliate of NRG solely because
NRG owns, directly or through a Restricted Subsidiary, an Equity
Interest in, or controls, such Person;
(4) payment of directors fees;
(5) any issuance of Equity Interests (other than
Disqualified Stock) of NRG or its Restricted Subsidiaries;
(6) Restricted Payments that do not violate the provisions
of the indenture described above under the caption
Restricted Payments;
(7) any agreement in effect as of February 2, 2006 or
any amendment thereto or replacement thereof and any transaction
contemplated thereby or permitted thereunder, so long as any
such amendment or replacement agreement taken as a whole is not
more disadvantageous to the Holders than the original agreement
as in effect on February 2, 2006;
(8) payments or advances to employees or consultants that
are incurred in the ordinary course of business or that are
approved by the Board of Directors of NRG in good faith;
(9) the existence of, or the performance by NRG or any of
its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration
rights agreement or purchase agreement related thereto) to which
it is a party as of February 2, 2006 and any similar
agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by NRG
or any of its Restricted Subsidiaries of obligations under, any
future amendment to any such existing agreement or under any
similar agreement entered into after February 2, 2006 shall
only be permitted by this clause (9) to the extent that the
terms of any such amendment or new agreement are not otherwise
more disadvantageous to the holders of the notes in any material
respect;
(10) transactions permitted by, and complying with, the
provisions of the covenant described under
Merger, Consolidation or Sale of Assets;
(11) transactions with customers, clients, suppliers, joint
venture partners or purchasers or sellers of goods or services
(including pursuant to joint venture agreements) otherwise in
compliance with the terms of the indenture that are fair to NRG
and its Restricted Subsidiaries, in the reasonable determination
of a senior financial officer of NRG, or are on terms not
materially less favorable taken as a whole as might reasonably
have been obtained at such time from an unaffiliated party;
(12) any repurchase, redemption or other retirement of
Capital Stock of NRG held by employees of NRG or any of its
Subsidiaries;
(13) loans or advances to employees or consultants;
(14) any Permitted Investment in another Person involved in
a Permitted Business;
(15) transactions in which NRG or any Restricted Subsidiary
of NRG, as the case may be, delivers to the trustee a letter
from an Independent Financial Advisor stating that such
transaction is fair to NRG or such Restricted Subsidiary from a
financial point of view or meets the requirements of
clause (1) of the preceding paragraph;
(16) the guarantee of Permitted Itiquira
Indebtedness; and
(17) any agreement to do any of the foregoing.
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Additional
Subsidiary Guarantees
If,
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NRG or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary (other than an Excluded Subsidiary
or a Domestic Subsidiary that does not Guarantee any other
Indebtedness of NRG) after the date of the supplemental
indenture,
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any Excluded Subsidiary that is a Domestic Subsidiary ceases to
be an Excluded Subsidiary after the date of the supplemental
indenture, or
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any Domestic Subsidiary that does not Guarantee any other
Indebtedness of NRG subsequently Guarantees other Indebtedness
of NRG,
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then such newly acquired or created Subsidiary, former Excluded
Subsidiary, or Domestic Subsidiary, as the case may be, will
become a Guarantor and execute a supplemental indenture and
deliver an opinion of counsel satisfactory to the trustee within
30 business days of the date on which it was acquired or created
or ceased to be an Excluded Subsidiary or Guaranteed other
Indebtedness of NRG, as the case may be.
Designation
of Restricted, Unrestricted and Excluded Project
Subsidiaries
The Board of Directors may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if that designation would not
cause a Default. If a Restricted Subsidiary is designated as an
Unrestricted Subsidiary, the aggregate fair market value of all
outstanding Investments owned by NRG and its Restricted
Subsidiaries in the Subsidiary designated as Unrestricted will
be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted
Payments under the covenant described above under the caption
Restricted Payments or under one or more
clauses of the definition of Permitted Investments, as
determined by NRG. That designation will only be permitted if
the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if
that redesignation would not cause a Default.
The Board of Directors may designate any Restricted Subsidiary
to be an Excluded Project Subsidiary if that designation would
not cause a Default. If a Restricted Subsidiary that is not an
Excluded Project Subsidiary is designated as an Excluded Project
Subsidiary, the aggregate fair market value of all outstanding
Investments owned by NRG and its Restricted Subsidiaries in the
Subsidiary designated as an Excluded Project Subsidiary will be
deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted
Payments under the covenant described above under the caption
Restricted Payments or under one or more
clauses of the definition of Permitted Investments, as
determined by NRG. That designation will only be permitted if
the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an
Excluded Project Subsidiary. The Board of Directors may
redesignate any Excluded Project Subsidiary to be a Restricted
Subsidiary that is not an Excluded Project Subsidiary if that
redesignation would not cause a Default.
Payments
for Consent
NRG will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any holder of notes
for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the indenture or the notes
unless such consideration is offered to be paid and is paid to
all holders of notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating
to such consent, waiver or agreement.
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Reports
Whether or not required by the Commissions rules and
regulations, so long as any notes are outstanding, NRG will
furnish to the holders of notes or cause the trustee to furnish
to the holders of notes, within the time periods (including any
extensions thereof) specified in the Commissions rules and
regulations:
(1) all quarterly and annual reports that would be required
to be filed with the Commission on
Forms 10-Q
and 10-K if
NRG were required to file such reports; and
(2) all current reports that would be required to be filed
with the Commission on
Form 8-K
if NRG were required to file such reports.
All such reports will be prepared in all material respects in
accordance with all of the rules and regulations applicable to
such reports. Each annual report on
Form 10-K
will include a report on NRGs consolidated financial
statements by NRGs independent registered public
accounting firm. In addition, NRG will file a copy of each of
the reports referred to in clauses (1) and (2) above
with the Commission for public availability within the time
periods specified in the rules and regulations applicable to
such reports (unless the Commission will not accept such a
filing). To the extent such filings are made, the reports will
be deemed to be furnished to the trustee and holders of notes.
If NRG is no longer subject to the periodic reporting
requirements of the Exchange Act for any reason, NRG will
nevertheless continue filing the reports specified in the
preceding paragraph with the Commission within the time periods
specified above unless the Commission will not accept such a
filing. NRG agrees that it will not take any action for the
purpose of causing the Commission not to accept any such
filings. If, notwithstanding the foregoing, the Commission will
not accept NRGs filings for any reason, NRG will post the
reports referred to in the preceding paragraph on its website
within the time periods that would apply if NRG were required to
file those reports with the Commission.
In addition, NRG and the Guarantors agree that, for so long as
any notes remain outstanding, at any time they are not required
to file the reports required by the preceding paragraphs with
the Commission, they will furnish to the holders and to
securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
Events of
Default and Remedies
Each of the following is an Event of Default with respect to the
notes:
(1) default for 30 days in the payment when due of
interest on the notes;
(2) default in payment when due of the principal of, or
premium, if any, on the notes;
(3) failure by NRG or any of its Restricted Subsidiaries
for 30 days after written notice given by the trustees or
holders, to comply with any of the other agreements in the
indenture;
(4) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by NRG or any
of its Restricted Subsidiaries (or the payment of which is
guaranteed by NRG or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after
the date of the supplemental indenture, if that default:
(a) is caused by a failure to pay principal of, or interest
or premium, if any, on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date of
such default (a Payment Default); or
(b) results in the acceleration of such Indebtedness prior
to its express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$100.0 million or more; provided that this
clause (4) shall not apply to (i) secured Indebtedness
that becomes due as a result of the voluntary sale or transfer
of the
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property or assets securing such Indebtedness to a Person that
is not an Affiliate of NRG; (ii) Non-Recourse Debt of NRG
Peaker Finance Company LLC; and (iii) Non-Recourse Debt of
NRG or any of its Subsidiaries (except to the extent that NRG or
any of its Restricted Subsidiaries that are not parties to such
Non-Recourse Debt becomes directly or indirectly liable,
including pursuant to any contingent obligation, for any
Indebtedness thereunder and such liability, individually or in
the aggregate, exceeds $100.0 million);
(5) one or more judgments for the payment of money in an
aggregate amount in excess of $100.0 million (excluding
therefrom any amount reasonably expected to be covered by
insurance) shall be rendered against NRG any Restricted
Subsidiary or any combination thereof and the same shall not
have been paid, discharged or stayed for a period of
60 days after such judgment became final and non-appealable;
(6) except as permitted by the indenture, any Subsidiary
Guarantee shall be held in any final and non-appealable judicial
proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor (or any
group of Guarantors) that constitutes a Significant Subsidiary,
or any Person acting on behalf of any Guarantor (or any group of
Guarantors) that constitutes a Significant Subsidiary, shall
deny or disaffirm its or their obligations under its or their
Subsidiary Guarantee(s); and
(7) certain events of bankruptcy or insolvency described in
the indenture with respect to NRG or any of its Restricted
Subsidiaries (other than the Exempt Subsidiaries) that is a
Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
In the case of an Event of Default with respect to the notes
arising from certain events of bankruptcy or insolvency with
respect to NRG, any Restricted Subsidiary (other than the Exempt
Subsidiaries) that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all notes that are outstanding will
become due and payable immediately without further action or
notice. If any other Event of Default occurs and is continuing,
the trustee or the holders of at least 25% in principal amount
of the notes that are outstanding may declare all the notes to
be due and payable immediately.
Subject to certain limitations, holders of a majority in
principal amount of the notes that are then outstanding may
direct the trustee in its exercise of any trust or power. The
trustee may withhold from holders of notes notice of any
continuing Default or Event of Default if it determines that
withholding notice is in their interest, except a Default or
Event of Default relating to the payment of principal or
interest.
Subject to the provisions of the indenture relating to the
duties of the applicable trustee, in case an Event of Default
occurs and is continuing under the indenture, the trustee will
be under no obligation to exercise any of the rights or powers
under the indenture at the request or direction of any holders
of the notes unless such holders have offered to the trustee
reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder of a
note may pursue any remedy with respect to the indenture unless:
(1) such holder has previously given the trustee notice
that an Event of Default is continuing;
(2) holders of at least 25% in aggregate principal amount
of the notes that are then outstanding have requested the
trustee to pursue the remedy;
(3) such holders have offered the trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the trustee has not complied with such request within
60 days after the receipt thereof and the offer of security
or indemnity; and
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(5) holders of a majority in aggregate principal amount of
notes that are then outstanding have not given the trustee a
direction inconsistent with such request within such
60-day
period.
The holders of a majority in aggregate principal amount of the
notes then outstanding by notice to the trustee may, on behalf
of the holders of notes, rescind an acceleration or waive any
existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in
the payment of interest on, or the principal of, such notes.
NRG is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of
any Default or Event of Default, NRG is required to deliver to
the trustee a statement specifying such Default or Event of
Default.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of
NRG or any Guarantor, as such, will have any liability for any
obligations of NRG or the Guarantors under the notes, the
indenture or the Subsidiary Guarantees, or for any claim based
on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and
releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. The waiver may not
be effective to waive liabilities under the federal securities
laws.
Legal
Defeasance and Covenant Defeasance
NRG may, at its option and at any time, elect to have all of its
obligations discharged with respect to the notes that are
outstanding and all obligations of the Guarantors of such notes
discharged with respect to their Subsidiary Guarantees
(Legal Defeasance) except for:
(1) the rights of holders of notes that are then
outstanding to receive payments in respect of the principal of,
or interest or premium on the notes when such payments are due
from the trust referred to below;
(2) NRGs obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance
of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee for the notes, and NRGs and the
Guarantors obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture for
the notes.
In addition, NRG may, at its option and at any time, elect to
have the obligations of NRG and the Guarantors released with
respect to certain covenants (including its obligation to make
Change of Control Offers and Asset Sale Offers) that are
described in the indenture (Covenant
Defeasance) and thereafter any omission to comply with
those covenants will not constitute a Default or Event of
Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events)
described under Events of Default and
Remedies will no longer constitute an Event of Default
with respect to the notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) NRG must irrevocably deposit with the trustee, in
trust, for the benefit of the holders of the notes subject to
Legal Defeasance or Covenant Defeasance, cash in
U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized investment bank, appraisal
firm or firm of independent public accountants to pay the
principal of, or interest and premium on such notes that are
then outstanding on the Stated Maturity or on the applicable
redemption date, as the case may be, and NRG must specify
whether such notes are being defeased to maturity or to a
particular redemption date;
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(2) in the case of Legal Defeasance, NRG has delivered to
the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that (a) NRG has received from, or there
has been published by, the Internal Revenue Service a ruling or
(b) since the date of the supplemental indenture, there has
been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion
of counsel will confirm that, the holders of the notes that are
then outstanding will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, NRG has delivered
to the trustee an opinion of counsel reasonably acceptable to
the trustee confirming that the holders of notes that are then
outstanding will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default with respect to the
notes has occurred and is continuing on the date of such deposit
(other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the
indenture) to which NRG or any of its Subsidiaries is a party or
by which NRG or any of its Subsidiaries is bound;
(6) NRG must deliver to the trustee an officers
certificate stating that the deposit was not made by NRG with
the intent of preferring the holders of notes over the other
creditors of NRG with the intent of defeating, hindering,
delaying or defrauding creditors of NRG or others; and
(7) NRG must deliver to the trustee an officers
certificate and an opinion of counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Amendment,
Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
indenture or the notes outstanding thereunder may be amended or
supplemented with the consent of the holders of at least a
majority in principal amount of notes then outstanding
(including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, the
notes), and any existing default or compliance with any
provision of the indenture or the notes outstanding thereunder
may be waived with the consent of the holders of a majority in
principal amount of the notes that are then outstanding
(including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, the
notes).
Without the consent of each holder of notes affected, an
amendment or waiver may not (with respect to any such notes held
by a non-consenting holder):
(1) reduce the principal amount of such notes whose holders
must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of
any such note or alter the provisions with respect to the
redemption of such notes (other than provisions relating to the
covenants described above under the caption
Repurchase at the Option of Holders);
(3) reduce the rate of or change the time for payment of
interest on any such note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium on such notes (except a
rescission of acceleration of such notes by the holders of at
least a
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majority in aggregate principal amount of such notes and a
waiver of the payment default that resulted from such
acceleration);
(5) make any such note payable in currency other than that
stated in such notes;
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of holders of
such notes to receive payments of principal of, or interest or
premium on such notes;
(7) waive a redemption payment with respect to any such
note (other than a payment required by one of the covenants
described above under the caption Repurchase
at the Option of Holders); or
(8) make any change in the preceding amendment and waiver
provisions.
Notwithstanding the preceding, without the consent of any holder
of notes, NRG, the Guarantors and the trustee may amend or
supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or
in place of certificated notes;
(3) to provide for the assumption of NRGs obligations
to holders of notes in the case of a merger or consolidation or
sale of all or substantially all of NRGs assets;
(4) to make any change that would provide any additional
rights or benefits to the holders of notes or that does not
adversely affect the legal rights under any indenture of any
such holder;
(5) to comply with requirements of the Commission in order
to effect or maintain the qualification of any indenture under
the Trust Indenture Act;
(6) to conform the text of the indenture or the notes to
any provision of this Description of the Notes to
the extent that such provision in this Description of the
Notes was intended to be a verbatim recitation of a
provision of the indenture or the notes outstanding thereunder;
(7) to evidence and provide for the acceptance and
appointment under the indenture of a successor trustee pursuant
to the requirements thereof;
(8) to provide for the issuance of additional notes in
accordance with the limitations set forth in the indenture as of
the date hereof; or
(9) to allow any Guarantor to execute a supplemental
indenture
and/or a
Subsidiary Guarantee with respect to the notes.
Satisfaction
and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
(1) either:
(a) all such notes that have been authenticated, except
lost, stolen or destroyed notes that have been replaced or paid
and notes for whose payment money has been deposited in trust
and thereafter repaid to NRG, have been delivered to the trustee
for such notes for cancellation; or
(b) all such notes that have not been delivered to the
trustee for cancellation have become due and payable by reason
of the mailing of a notice of redemption or otherwise or will
become due and payable within one year and NRG or any Guarantor
has irrevocably deposited or caused to be deposited with the
trustee as trust funds in trust solely for the benefit of the
holders of notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in
amounts as
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will be sufficient, without consideration of any reinvestment of
interest, to pay and discharge the entire indebtedness on the
notes not delivered to the trustee for cancellation for
principal, premium and accrued interest to the date of maturity
or redemption;
(2) no Default or Event of Default under the indenture has
occurred and is continuing on the date of the deposit (other
than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) and the deposit will not
result in a breach or violation of, or constitute a default
under, any other instrument to which NRG or any Guarantor is a
party or by which NRG or any Guarantor is bound;
(3) NRG or any Guarantor has paid or caused to be paid all
sums payable by it under the indenture; and
(4) NRG has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward
the payment of the notes at maturity or the redemption date, as
the case may be.
In addition, NRG must deliver an officers certificate and
an opinion of counsel to the trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
Concerning
the Trustee
If the trustee becomes a creditor of NRG or any Guarantor, the
indenture limits its right to obtain payment of claims in
certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The trustee
will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the
Commission for permission to continue (if such indenture has
been qualified under the Trust Indenture Act) or resign.
The holders of a majority in principal amount of the notes that
are outstanding will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the trustee, subject to certain exceptions. The
indenture provides that in case an Event of Default occurs and
is continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the
trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any
holder of notes, unless such holder has offered to the trustee
security and indemnity satisfactory to it against any loss,
liability or expense.
Certain
Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein
for which no definition is provided.
Acquired Debt means, with respect to any
specified Person:
(1) Indebtedness of any other Person or asset existing at
the time such other Person or asset is merged with or into, is
acquired by, or became a Subsidiary of such specified Person, as
the case may be, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person
merging with or into, or becoming a Restricted Subsidiary of,
such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
Acquisition means the acquisition of all of
the outstanding Equity Interests of Texas Genco LLC by NRG
pursuant to the Acquisition Agreement, among Texas Genco LLC,
NRG, and the direct and indirect owners of Texas Genco LLC party
thereto, dated as of September 30, 2005.
Affiliate of any specified Person means any
other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, means the possession, directly
or indirectly, of the
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power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a
Person will be deemed to be control. For purposes of this
definition, the terms controlling, controlled
by and under common control with have
correlative meanings.
Applicable Law shall mean, as to any Person,
any ordinance, law, treaty, rule or regulation or determination
by an arbitrator or a court or other Governmental Authority,
including ERCOT, in each case, applicable to or binding on such
Person or any of its property or assets or to which such Person
or any of its property is subject.
Applicable Premium means, with respect to any
note on any redemption date, the greater of:
(1) 1.0% of the principal amount of such note; or
(2) the excess of:
(A) the present value at such redemption date of
(i) the redemption price of such note at (such redemption
price being set forth in the table appearing above under the
caption Optional Redemption) plus
(ii) all required interest payments due on the note
through (excluding
accrued but unpaid interest to the redemption date), computed
using a discount rate equal to the Treasury Rate as of such
redemption date plus 50 basis points; over
(B) the principal amount of the note, if greater.
Asset Sale means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of
NRG and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above
under the caption Repurchase at the Option of
Holders Change of Control
and/or the
provisions described above under the caption
Certain Covenants Merger,
Consolidation or Sale of Assets and not by the provisions
of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of NRGs
Restricted Subsidiaries or the sale of Equity Interests in any
of its Subsidiaries.
Notwithstanding the preceding, none of the following items will
be deemed to be an Asset Sale:
(1) any single transaction or series of related
transactions for which NRG or its Restricted Subsidiaries
receive aggregate consideration of less than $50.0 million;
(2) a transfer of assets or Equity Interests between or
among NRG and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted
Subsidiary of NRG to NRG or to a Restricted Subsidiary of NRG;
(4) the sale or lease of products or services and any sale
or other disposition of damaged, worn-out or obsolete assets;
(5) the sale or discount, in each case without recourse, of
accounts receivable, but only in connection with the compromise
or collection thereof;
(6) the licensing of intellectual property;
(7) the sale, lease, conveyance or other disposition for
value of energy, fuel or emission credits or contracts for any
of the foregoing;
(8) the sale or other disposition of cash or Cash
Equivalents;
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(9) a Restricted Payment that does not violate the covenant
described above under the caption Certain
Covenants Restricted Payments or a Permitted
Investment;
(10) to the extent allowable under Section 1031 of the
Internal Revenue Code of 1986, any exchange of like property
(excluding any boot thereon) for use in a Permitted
Business; and
(11) a disposition of assets in connection with a
foreclosure, transfer or deed in lieu of foreclosure or other
exercise of remedial action.
Asset Sale Offer has the meaning assigned to
that term in the indenture governing the notes.
Attributable Debt in respect of a sale and
leaseback transaction means, at the time of determination, the
present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which
such lease has been extended or may, at the option of the
lessor, be extended. Such present value shall be calculated
using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP;
provided, however, that if such sale and leaseback
transaction results in a Capital Lease Obligation, the amount of
Indebtedness represented thereby will be determined in
accordance with the definition of Capital Lease
Obligation.
Beneficial Owner has the meaning assigned to
such term in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act. The terms Beneficially Owns
and Beneficially Owned have a corresponding meaning.
Board of Directors means:
(1) with respect to a corporation, the board of directors
of the corporation or any committee thereof duly authorized to
act on behalf of such board;
(2) with respect to a partnership, the Board of Directors
of the general partner of the partnership;
(3) with respect to a limited liability company, the
managing member or members or any controlling committee of
managing members thereof; and
(4) with respect to any other Person, the board or
committee of such Person serving a similar function.
Capital Lease Obligation means, at the time
any determination is to be made, the amount of the liability in
respect of a capital lease that would at that time be required
to be capitalized on a balance sheet in accordance with GAAP,
and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior
to the first date upon which such lease may be prepaid by the
lessee without payment of a penalty.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability
company, partnership interests (whether general or limited) or
membership interests; and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person, but
excluding from all of the foregoing any debt securities
convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
Cash Equivalents means:
(1) United States dollars, Euros or, in the case of any
Foreign Subsidiary, any local currencies held by it from time to
time;
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(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality of the United States government (provided
that the full faith and credit of the United States is
pledged in support of those securities) having maturities of not
more than twelve months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits
with maturities of twelve months or less from the date of
acquisition, bankers acceptances with maturities not
exceeding 12 months and overnight bank deposits, in each
case, with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thomson Bank
Watch Rating of B or better;
(4) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (2) and (3) above entered into with any
financial institution meeting the qualifications specified in
clause (3) above;
(5) commercial paper having one of the two highest ratings
obtainable from Moodys or S&P and in each case
maturing within 12 months after the date of acquisition;
(6) readily marketable direct obligations issued by any
state of the United States or any political subdivision thereof,
in either case having one of the two highest rating categories
obtainable from either Moodys or S&P; and
(7) money market funds that invest primarily in securities
described in clauses (1) through (6) of this
definition.
Change of Control means the occurrence of any
of the following:
(1) the direct or indirect sale, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of NRG and
its Subsidiaries taken as a whole to any person (as
that term is used in Section 13(d) of the Exchange Act, but
excluding any employee benefit plan of NRG or any of its
Restricted Subsidiaries, and any person or entity acting in its
capacity as trustee, agent or other fiduciary or administrator
of such plan);
(2) the adoption of a plan relating to the liquidation or
dissolution of NRG;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person (as defined above) becomes the
Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of NRG, measured by voting power rather than
number of shares; or
(4) the first day on which a majority of the members of the
Board of Directors of NRG are not Continuing Directors.
Change of Control Offer has the meaning
assigned to it in the indenture governing the notes.
Concurrent Cash Distributions has the meaning
assigned to it in the definition of Investments.
Consolidated Cash Flow means, with respect to
any specified Person for any period, the Consolidated Net Income
of such Person for such period plus, without duplication:
(1) an amount equal to any extraordinary loss (including
any loss on the extinguishment or conversion of Indebtedness)
plus any net loss realized by such Person or any of its
Restricted Subsidiaries in connection with an Asset Sale
(without giving effect of the threshold provided in the
definition thereof), to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing
such Consolidated Net Income; plus
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(3) the Fixed Charges of such Person and its Restricted
Subsidiaries for such period, to the extent that such Fixed
Charges were deducted in computing such Consolidated Net Income;
plus
(4) any expenses or charges related to any equity offering,
Permitted Investment, acquisition, disposition, recapitalization
or Indebtedness permitted to be incurred by the indenture
including a refinancing thereof (whether or not successful),
including such fees, expenses or charges related to the offering
of the notes and the Credit Agreement, and deducted in computing
Consolidated Net Income; plus
(5) any professional and underwriting fees related to any
equity offering, Permitted Investment, acquisition,
recapitalization or Indebtedness permitted to be incurred under
the indenture and, in each case, deducted in such period in
computing Consolidated Net Income; plus
(6) the amount of any minority interest expense deducted in
calculating Consolidated Net Income (less the amount of any cash
dividends paid to the holders of such minority interests);
plus
(7) any non cash gain or loss attributable to Mark to
Market Adjustments in connection with Hedging Obligations;
plus
(8) without duplication, any writeoffs, writedowns or other
non-cash charges reducing Consolidated Net Income for such
period, excluding any such charge that represents an accrual or
reserve for a cash expenditure for a future period; plus
(9) all items classified as extraordinary, unusual or
nonrecurring non-cash losses or charges (including, without
limitation, severance, relocation and other restructuring
costs), and related tax effects according to GAAP to the extent
such non-cash charges or losses were deducted in computing such
Consolidated Net Income; plus
(10) depreciation, depletion, amortization (including
amortization of intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and
other non-cash charges and expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, depletion, amortization and
other non-cash expenses were deducted in computing such
Consolidated Net Income; minus
(11) non-cash items increasing such Consolidated Net Income
for such period, other than the accrual of revenue in the
ordinary course of business; in each case, on a consolidated
basis and determined in accordance with GAAP (including, without
limitation, any increase in amortization or depreciation or
other non-cash charges resulting from the application of
purchase accounting in relation to the Acquisition or any
acquisition that is consummated after February 2, 2006;
minus
(12) interest income for such period;
provided, however, that Consolidated Cash Flow of
NRG will exclude the Consolidated Cash Flow attributable to
Excluded Subsidiaries to the extent that the declaration or
payment of dividends or similar distributions by the Excluded
Subsidiary of that Consolidated Cash Flow is not, as a result of
an Excluded Subsidiary Debt Default, then permitted by operation
of the terms of the relevant Excluded Subsidiary Debt Agreement;
provided that the Consolidated Cash Flow of the Excluded
Subsidiary will only be so excluded for that portion of the
period during which the condition described in the preceding
proviso has occurred and is continuing.
Consolidated Net Income means, with respect
to any specified Person for any period, the aggregate of the Net
Income of such Person and its Restricted Subsidiaries for such
period, on a consolidated basis, determined in accordance with
GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting will be included only to the extent of the amount of
dividends or similar distributions (including pursuant to other
intercompany payments but excluding Concurrent Cash
Distributions) paid in cash to the specified Person or a
Restricted Subsidiary of the Person;
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(2) for purposes of the covenant described above under the
caption Restricted Payments only, the
Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income
is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly
or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders;
(3) the cumulative effect of a change in accounting
principles will be excluded;
(4) any net after-tax non-recurring or unusual gains,
losses (less all fees and expenses relating thereto) or other
charges or revenue or expenses (including, without limitation,
relating to severance, relocation, one-time compensation charges
and the Acquisition) shall be excluded;
(5) any non-cash compensation expense recorded from grants
of stock appreciation or similar rights, stock options,
restricted stock or other rights to officers, directors or
employees shall be excluded, whether under FASB 123R or
otherwise;
(6) any net after-tax income (loss) from disposed or
discontinued operations and any net after-tax gains or losses on
disposal of disposed or discontinued operations shall be
excluded;
(7) any gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions shall be
excluded;
(8) any impairment charge or asset write-off pursuant to
Financial Accounting Statement No. 142 and No. 144 or
any successor pronouncement shall be excluded; and
(9) any accruals or reserves or other charges related to
the Acquisition and the Related Financing Transactions incurred
on or before January 1, 2007, shall be excluded.
Continuing Director means, as of any date of
determination, any member of the Board of Directors of NRG who:
(1) was a member of such Board of Directors on the date of
the supplemental indenture; or
(2) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such
nomination or election.
Credit Agreement means the Credit and
Guaranty Agreement, dated February 2, 2006, among NRG, the
lenders party thereto, Morgan Stanley Senior Funding, Inc., as
administrative agent, Morgan Stanley Senior Funding, Inc. and
Citigroup Global Markets Inc., as joint lead Book Runners, Joint
Lead Arrangers and Co-Documentation Agents, Morgan
Stanley & Co. Incorporated, as Collateral Agent, and
Citigroup Global Markets Inc., as Syndication Agent, as amended
pursuant to the Amendment to the Credit Agreement,
dated ,
described in this prospectus supplement under the heading
Description of Certain Other Indebtedness and Preferred
Stock.
Credit Facilities means (i) one or more
debt facilities (including, without limitation, the Credit
Agreement) or commercial paper facilities, in each case with
banks or other institutional lenders providing for revolving
credit loans, term loans, credit-linked deposits (or similar
deposits) receivables financing (including through the sale of
receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or
letters of credit and (ii) debt securities sold to
institutional investors, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced (including
by means of sales of debt securities to institutional investors)
in whole or in part from time to time.
Default means any event that is, or with the
passage of time or the giving of notice or both would be, an
Event of Default.
Designated Noncash Consideration means the
fair market value of non-cash consideration received by NRG or a
Guarantor in connection with an Asset Sale that is so designated
as Designated Noncash
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Consideration pursuant to an officers certificate, setting
forth the basis of such valuation, executed by a senior
financial officer of NRG, less the amount of cash or Cash
Equivalents received in connection with a subsequent sale of
such Designated Noncash Consideration.
Disqualified Stock means any Capital Stock
that, by its terms (or by the terms of any security into which
it is convertible, or for which it is exchangeable, in each case
at the option of the holder of the Capital Stock), or upon the
happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder of the Capital Stock, in
whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital
Stock have the right to require NRG to repurchase such Capital
Stock upon the occurrence of a change of control or an asset
sale will not constitute Disqualified Stock if the terms of such
Capital Stock provide that NRG may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described
above under the caption Certain
Covenants Restricted Payments. The amount of
Disqualified Stock deemed to be outstanding at any time for
purposes of the indenture will be the maximum amount that NRG
and its Restricted Subsidiaries may become obligated to pay upon
the maturity of, or pursuant to any mandatory redemption
provisions of, such Disqualified Stock, exclusive of accrued
dividends.
Domestic Subsidiary means any Restricted
Subsidiary of NRG that was formed under the laws of the United
States or any state of the United States or the District of
Columbia or that guarantees or otherwise provides direct credit
support for any Indebtedness of NRG.
Environmental CapEx Debt shall mean
Indebtedness of NRG or its Restricted Subsidiaries incurred for
the purpose of financing Environmental Capital Expenditures.
Environmental Capital Expenditures shall mean
capital expenditures deemed necessary by NRG or its Restricted
Subsidiaries to comply with Environmental Laws.
Environmental Law shall mean any applicable
Federal, state, foreign or local statute, law, rule, regulation,
ordinance, code and rule of common law now or hereafter in
effect and in each case as amended, and any binding judicial or
administrative interpretation thereof, including any binding
judicial or administrative order, consent decree or judgment,
relating to the environment, human health or safety or Hazardous
Materials.
Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Equity Offering means a sale of Capital Stock
(other than Disqualified Stock) of NRG pursuant to (1) a
public offering or (2) a private placement to Persons who
are not Affiliates of NRG.
ERCOT means the Electric Reliability Council
of Texas.
Excluded Foreign Subsidiary means, at any
time, any Foreign Subsidiary that is (or is treated as) for
United States federal income tax purposes either (1) a
corporation or (2) a pass-through entity owned directly or
indirectly by another Foreign Subsidiary that is (or is treated
as) a corporation; provided that notwithstanding the
foregoing, the following entities will be deemed to be
Excluded Foreign Subsidiaries: Sterling Luxembourg
(No. 4) S.a.r.l., Tosli Acquisition BV, NRG Pacific
Corporate Services Pty Ltd., NRGenerating Holdings
(No. 21) B.V. and any subsidiary of Tosli Acquisition
BV incorporated or formed in connection with the Itiquira
Refinancing.
Excluded Proceeds means any Net Proceeds of
an Asset Sale involving the sale of up to $300,000,000 in the
aggregate received since February 2, 2006 from one or more
Asset Sales of Equity Interests in, or property or assets of,
any Foreign Subsidiaries or any Foreign Subsidiary Holding
Company.
Excluded Project Subsidiary shall mean, at
any time,
(a) each Subsidiary of NRG that is an obligor or otherwise
bound with respect to Non-Recourse Debt on the date of the
supplemental indenture,
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(b) any Person that becomes a Subsidiary of NRG after the
date of the supplemental indenture that is an obligor or
otherwise bound solely with respect to Non-Recourse
Debt, and
(c) any Subsidiary of NRG that is designated by NRGs
Board of Directors as an Excluded Project Subsidiary pursuant to
a Board Resolution,
in each case, in accordance with the other provisions of the
indenture and if and for so long as the provision of a full and
unconditional guarantee by such subsidiary of the notes will
constitute or result in a breach, termination or default under
the agreement or instrument governing the applicable
Non-Recourse Debt of such subsidiary; provided that such
subsidiary shall be an Excluded Project Subsidiary only to the
extent that and for so long as the requirements and consequences
above shall exist.
Excluded Subsidiaries means the Excluded
Project Subsidiaries, the Excluded Foreign Subsidiaries and the
Immaterial Subsidiaries.
Excluded Subsidiary Debt Agreement means the
agreement or documents governing the relevant Indebtedness
referred to in the definition of Excluded Subsidiary Debt
Default.
Excluded Subsidiary Debt Default means, with
respect to any Excluded Subsidiary, the failure of such Excluded
Subsidiary to pay any principal or interest or other amounts due
in respect of any Indebtedness, when and as the same shall
become due and payable, or the occurrence of any other event or
condition that results in any Indebtedness of such Excluded
Subsidiary becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, lapse
of time or both) the holder or holders of such Indebtedness or
any trustee or agent on its or their behalf to cause such
Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its
scheduled maturity.
Exempt Subsidiaries means, collectively, NRG
Ilion LP LLC, NRG Ilion Limited Partnership, Meriden Gas Turbine
LLC, LSP-Pike Energy LLC, LSP-Nelson Energy LLC, NRG Nelson
Turbines LLC, NRG Jackson Valley Energy I, Inc., NRG
McClain LLC, NRG Audrain Holding LLC, NRG Audrain Generating
LLC, NRG Peaker Finance Company LLC, Bayou Cove Peaking Power,
LLC, Big Cajun I Peaking Power LLC, NRG Rockford LLC, NRG
Rockford II LLC, NRG Rockford Equipment II LLC, NRG
Sterlington Power LLC and NRG Rockford Acquisition LLC.
Existing Indebtedness means Indebtedness of
NRG and its Subsidiaries (other than the Indebtedness under the
Credit Agreement) in existence on the date of the supplemental
indenture, until such amounts are repaid.
Existing Senior Notes means all notes issued
pursuant to the indentures governing NRGs outstanding
7.250% Senior Notes due 2014 and 7.375% Senior Notes due 2016.
Facility means a power or energy related
facility.
Facility Instruments has the meaning set
forth in the (i) Affirmation Agreement, dated as of
August 9, 1993, by and among Northern States Power Company,
NRG and Ramsey and Washington Counties and (ii) the
Agreement and Consent for Transfer to NRG, dated as of
August 20, 2001, between Northern States Power Company,
NRG, Anoka County, Hennepin County, Sherburne County and
Tri-County Solid Waste Management Commission, as in effect on
the date of the supplemental indenture.
fair market value means the value that would
be paid by a willing buyer to an unaffiliated willing seller in
a transaction not involving distress or necessity of either
party, determined in good faith by the Board of Directors of NRG
(unless otherwise provided in the indenture).
First Supplemental Indenture means the First
Supplemental Indenture, dated February 2, 2006, governing
NRGs 7.25% Senior Notes due 2014.
Fixed Charge Coverage Ratio means with
respect to any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person for such period to the
Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries
incurs, assumes, Guarantees, repays, repurchases, redeems,
defeases or otherwise discharges any Indebtedness (other than
ordinary working
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capital borrowings) or issues, repurchases or redeems preferred
stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated and on or prior
to the date on which the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the Calculation
Date), then the Fixed Charge Coverage Ratio will be
calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption,
defeasance or other discharge of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the
proceeds therefrom, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) Investments and acquisitions that have been made by the
specified Person or any of its Restricted Subsidiaries,
including through mergers or consolidations, or any Person or
any of its Restricted Subsidiaries acquired by the specified
Person or any of its Restricted Subsidiaries, and including any
related financing transactions and including increases in
ownership of Restricted Subsidiaries, during the four-quarter
reference period or subsequent to such reference period and on
or prior to the Calculation Date will be given pro forma effect
(in accordance with
Regulation S-X
under the Securities Act, but including all Pro Forma Cost
Savings) as if they had occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for
such reference period will be calculated on the same pro forma
basis;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date, will be excluded, but
only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the specified Person or
any of its Restricted Subsidiaries following the Calculation
Date;
(4) any Person that is a Restricted Subsidiary on the
Calculation Date will be deemed to have been a Restricted
Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the
Calculation Date will be deemed not to have been a Restricted
Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness that is being incurred on the
Calculation Date bears a floating rate of interest, the interest
expense on such Indebtedness will be calculated as if the rate
in effect on the Calculation Date had been the applicable rate
for the entire period (taking into account any Hedging
Obligation applicable to such Indebtedness).
If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with
or into NRG or any Restricted Subsidiary since the beginning of
such period) shall have made any Investment, acquisition,
disposition, merger, consolidation or disposed operation that
would have required adjustment pursuant to this definition, then
the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto (including any Pro Forma Cost Savings) for
such period as if such Investment, acquisition or disposition,
or classification of such operation as discontinued had occurred
at the beginning of the applicable four-quarter period.
Fixed Charges means, with respect to any
specified Person for any period, the sum, without duplication,
of:
(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries (other than interest expense of any
Excluded Subsidiary the Consolidated Cash Flow of which is
excluded from the Consolidated Cash Flow of such Person pursuant
to the definition of Consolidated Cash Flow) for
such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
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Obligations, imputed interest with respect to Attributable Debt,
and net of the effect of all payments made or received pursuant
to Hedging Obligations in respect of interest rates; plus
(2) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period;
plus
(3) any interest accruing on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or
accrued and whether or not in cash, on any series of preferred
stock of such Person or any of its Restricted Subsidiaries,
other than dividends on Equity Interests payable in Equity
Interests of NRG (other than Disqualified Stock) or to NRG or a
Restricted Subsidiary of NRG, times (b) a fraction, the
numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP;
minus
(5) interest income for such period.
Foreign Subsidiary means any Restricted
Subsidiary that is not a Domestic Subsidiary.
Foreign Subsidiary Holding Company means any
Domestic Subsidiary that is a direct parent of one or more
Foreign Subsidiaries and holds, directly or indirectly, no other
assets other than Equity Interests of Foreign Subsidiaries and
other de minimis assets related thereto.
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in
effect from time to time.
Guarantee means a guarantee other than by
endorsement of negotiable instruments for collection in the
ordinary course of business, direct or indirect, in any manner
including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness (whether arising
by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to
take or pay or to maintain financial statement conditions or
otherwise).
Guarantors means each of:
(1) NRGs Restricted Subsidiaries other than the
Excluded Foreign Subsidiaries, the Excluded Project
Subsidiaries, and the Immaterial Subsidiaries; and
(2) any other Restricted Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the
indenture;
and their respective successors and assigns.
Goldman Sachs Hedge Agreement means the
Master Power Purchase and Sale Agreement dated as of
July 21, 2004, between an affiliate of Goldman,
Sachs & Co. and Texas Genco, LP, as amended to the date
of the supplemental indenture, and any agreements related
thereto.
Governmental Authority shall mean any nation
or government, any state, province, territory or other political
subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of
or pertaining to government, or any non-governmental authority
regulating the generation
and/or
transmission of energy.
Government Securities means direct
obligations of, or obligations guaranteed by, the United States
of America (including any agency or instrumentality thereof) for
the payment of which obligations or
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guarantees the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at
the issuers option.
Hazardous Materials shall mean (a) any
petroleum or petroleum products, radioactive materials, friable
asbestos, urea formaldehyde foam insulation, transformers or
other equipment that contain dielectric fluid containing
regulated levels of polychlorinated biphenyls and radon gas;
(b) any chemicals, materials or substances defined as or
included in the definition of hazardous substances,
hazardous waste, hazardous materials,
extremely hazardous waste, restricted
hazardous waste, toxic substances, toxic
pollutants, contaminants, or
pollutants or words of similar import, under any
applicable Environmental Law; and (c) any other chemical,
material or substance, which is prohibited, limited or regulated
by any Environmental Law.
Hedging Obligations means, with respect to
any specified Person, the obligations of such Person under:
(1) currency exchange, interest rate or commodity swap
agreements, currency exchange, interest rate or commodity cap
agreements and currency exchange, interest rate or commodity
collar agreements, and
(2) (i) agreements or arrangements designed to protect
such Person against fluctuations in currency exchange, interest
rates, commodity prices or commodity transportation or
transmission pricing or availability, including but not limited
to the Merrill Lynch Hedge Agreement and the Goldman Sachs Hedge
Agreement; (ii) any netting arrangements, power purchase
and sale agreements, fuel purchase and sale agreements, swaps,
options and other agreements, in each case, that fluctuate in
value with fluctuations in energy, power or gas prices; and
(iii) agreements or arrangements for commercial or trading
activities with respect to the purchase, transmission,
distribution, sale, lease or hedge of any energy related
commodity or service.
Immaterial Subsidiary shall mean, at any
time, any Restricted Subsidiary of NRG that is designated by NRG
as an Immaterial Subsidiary if and for so long as
such Restricted Subsidiary, together with all other Immaterial
Subsidiaries, has (i) total assets at such time not
exceeding 5% of NRGs consolidated assets as of the most
recent fiscal quarter for which balance sheet information is
available and (ii) total revenues and operating income for
the most recent
12-month
period for which income statement information is available not
exceeding 5% of NRGs consolidated revenues and operating
income, respectively; provided that such Restricted
Subsidiary shall be an Immaterial Subsidiary only to the extent
that and for so long as all of the above requirements are
satisfied.
Indebtedness means, with respect to any
specified Person, any indebtedness of such Person (excluding
accrued expenses and trade payables, except as provided in
clause (5) below), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) in respect of bankers acceptances;
(4) representing Capital Lease Obligations or Attributable
Debt in respect of sale and leaseback transactions;
(5) representing the balance deferred and unpaid of the
purchase price of any property (including trade payables) or
services due more than six months after such property is
acquired or such services are completed; or
(6) representing the net amount owing under any Hedging
Obligations,
if and to the extent any of the preceding items (other than
letters of credit, Attributable Debt and Hedging Obligations)
would appear as a liability upon a balance sheet of the
specified Person prepared in accordance
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with GAAP. In addition, the term Indebtedness
includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by the specified Person of any
Indebtedness of any other Person; provided, that the
amount of such Indebtedness shall be deemed not to exceed the
lesser of the amount secured by such Lien and the value of the
Persons property securing such Lien.
Independent Financial Advisor means an
accounting, appraisal, investment banking firm or consultant to
Persons engaged in a Permitted Business of nationally recognized
standing that is, in the good faith judgment of NRG, qualified
to perform the task for which it has been engaged.
Investment Grade Rating means a rating equal
to or higher than BBB- (or the equivalent) by S&P and equal
to or higher than Baa3 (or the equivalent) by Moodys.
Investments means, with respect to any
Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the forms of loans
(including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances
to officers and employees), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be
classified as investments on a balance sheet prepared in
accordance with GAAP. If NRG or any Subsidiary of NRG sells or
otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of NRG such that, after giving effect to any
such sale or disposition, such Person is no longer a Subsidiary
of NRG, NRG will be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market
value of NRGs Investments in such Subsidiary that were not
sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the
caption Certain Covenants
Restricted Payments. The acquisition by NRG or any
Subsidiary of NRG of a Person that holds an Investment in a
third Person will be deemed to be an Investment by NRG or such
Subsidiary in such third Person in an amount equal to the fair
market value of the Investments held by the acquired Person in
such third Person in an amount determined as provided in the
final paragraph of the covenant described above under the
caption Certain Covenants
Restricted Payments. Except as otherwise provided in the
indenture, the amount of an Investment will be determined at the
time the Investment is made and without giving effect to
subsequent changes in value.
Notwithstanding anything to the contrary herein, in the case of
any Investment made by NRG or a Restricted Subsidiary of NRG in
a Person substantially concurrently with a cash distribution by
such Person to NRG or a Guarantor (a Concurrent Cash
Distribution), then:
(a) the Concurrent Cash Distribution shall be deemed to be
Net Proceeds received in connection with an Asset Sale and
applied as set forth above under the caption Asset
Sales; and
(b) the amount of such Investment shall be deemed to be the
fair market value of the Investment, less the amount of the
Concurrent Cash Distribution.
Itiquira shall mean Itiquira Energetica S.A.
Itiquira Acquisition Sub shall have the
meaning assigned to such term in the definition of Itiquira
Refinancing.
Itiquira Refinancing means the transaction or
series of related transactions pursuant to which (a) any or
all of the outstanding preferred stock of Itiquira directly or
indirectly held by Eletrobrás is acquired by Itiquira or a
subsidiary of Tosli Acquisition BV (Itiquira
Acquisition Sub) for an aggregate consideration not to
exceed to $70,000,000, and, following such acquisition, such
preferred stock is redeemed, repaid or otherwise retired or held
as treasury stock or otherwise treated in accordance with the
requirements of Brazilian law, and (b) pursuant to which
Itiquira or the Itiquira Acquisition Sub may incur up to
$70,000,000 in aggregate principal amount of Indebtedness
secured by Liens on the assets of Itiquira and the Itiquira
Acquisition Sub (Permitted Itiquira
Indebtedness), in each case on terms and conditions
(which may include terms and conditions other than those set
forth in this definition) reasonably satisfactory to the
Administrative Agent under the Credit Agreement.
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Lenders means, at any time, the parties to
the Credit Agreement then holding (or committed to provide)
loans, letters of credit, Credit-Linked Deposits or other
extensions of credit that constitute (or when provided will
constitute) Indebtedness outstanding under the Credit Agreement.
Lien means, with respect to any asset:
(1) any mortgage, deed of trust, deed to secure debt, lien
(statutory or otherwise), pledge, hypothecation, encumbrance,
restriction, collateral assignment, charge or security interest
in, on or of such asset;
(2) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such
asset; and
(3) in the case of Equity Interests or debt securities, any
purchase option, call or similar right of a third party with
respect to such Equity Interests or debt securities.
Mark-to-Market
Adjustments means:
(1) any non-cash loss attributable to the
mark-to-market
movement in the valuation of Hedging Obligations (to the extent
the cash impact resulting from such loss has not been realized)
or other derivative instruments pursuant to Financial Accounting
Standards Board Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities; plus
(a) any loss relating to amounts paid in cash prior to the
stated settlement date of any Hedging Obligation that has been
reflected in Consolidated Net Income in the current period;
plus
(b) any gain relating to Hedging Obligations associated
with transactions recorded in the current period that has been
reflected in Consolidated Net Income in prior periods and
excluded from Consolidated Cash Flow pursuant to
clauses (2)(a) and (2)(b) below; less,
(2) any non-cash gain attributable to the
mark-to-market
movement in the valuation of Hedging Obligations (to the extent
the cash impact resulting from such gain has not been realized)
or other derivative instruments pursuant to Financial Accounting
Standards Board Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities; less
(a) any gain relating to amounts received in cash prior to
the stated settlement date of any Hedging Obligation that has
been reflected in Consolidated Net Income in the current period;
less
(b) any loss relating to Hedging Obligations associated
with transactions recorded in the current period that has been
reflected in Consolidated Net Income in prior periods and
excluded from Consolidated Cash Flow pursuant to
clauses (1)(a) and (1)(b) above.
Material Adverse Effect shall mean a material
adverse change in or material adverse effect on the condition
(financial or otherwise), results of operations, assets,
liabilities or prospects of NRG and its Subsidiaries, taken as a
whole.
Merrill Lynch Hedge Agreement means the
Master Power Purchase and Sale Agreement dated as
of ,
between an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and NRG, as amended to the date of the
supplemental indenture, and any agreements related thereto.
Moodys means Moodys Investors
Service, Inc. or any successor entity.
Necessary CapEx Debt shall mean Indebtedness
of NRG or its Restricted Subsidiaries incurred for the purpose
of financing Necessary Capital Expenditures.
Necessary Capital Expenditures shall mean
capital expenditures that are required by Applicable Law (other
than Environmental Laws) or undertaken for health and safety
reasons. The term Necessary
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Capital Expenditures does not include any capital
expenditure undertaken primarily to increase the efficiency of,
expand or re-power any power generation facility.
Net Income means, with respect to any
specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends or accretion, excluding,
however:
(1) any gain or loss, together with any related provision
for taxes on such gain or loss, realized in connection with:
(a) any Asset Sale (without giving effect to the threshold
provided for in the definition thereof); or (b) the
disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted
Subsidiaries; and
(2) any extraordinary gain or loss, together with any
related provision for taxes on such extraordinary gain or loss.
Net Proceeds means the aggregate cash
proceeds received by NRG or any of its Restricted Subsidiaries
in respect of any Asset Sale (including, without limitation, any
cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses incurred as a
result of the Asset Sale, taxes paid or payable as a result of
the Asset Sale, in each case, after taking into account any
available tax deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness,
other than Indebtedness under a Credit Facility, secured by a
Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
Non-Recourse Debt means Indebtedness:
(1) as to which neither NRG nor any of its Restricted
Subsidiaries (other than an Excluded Project Subsidiary)
(a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness) other than pursuant to a Non-Recourse Guarantee or
any arrangement to provide or guarantee to provide goods and
services on an arms length basis, (b) is directly or
indirectly liable as a guarantor or otherwise, other than
pursuant to a Non-Recourse Guarantee, or (c) constitutes
the lender;
(2) no default with respect to which (including any rights
that the holders of the Indebtedness may have to take
enforcement action against an Unrestricted Subsidiary) would
permit upon notice, lapse of time or both any holder of any
other Indebtedness of NRG (other than the notes and the Credit
Agreement) or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment of such
other Indebtedness to be accelerated or payable prior to its
Stated Maturity; and
(3) in the case of Non-Recourse Debt incurred after the
date of the supplemental indenture, as to which the lenders have
been notified in writing that they will not have any recourse to
the stock or assets of NRG or any of its Restricted Subsidiaries
except as otherwise permitted by clauses (1) or
(2) above;
provided, however, that the following shall be
deemed to be Non-Recourse Debt: (i) Guarantees with respect
to debt service reserves established with respect to a
Subsidiary to the extent that such Guarantee shall result in the
immediate payment of funds, pursuant to dividends or otherwise,
in the amount of such Guarantee; (ii) contingent
obligations of NRG or any other Subsidiary to make capital
contributions to a Subsidiary; (iii) any credit support or
liability consisting of reimbursement obligations in respect of
Letters of Credit issued under and subject to the terms of, the
Credit Agreement to support obligations of a Subsidiary; and
(iv) any Investments in a Subsidiary, to the extent in the
case of (i) through (iv) otherwise permitted by the
indenture.
S-57
Non-Recourse Guarantee means any Guarantee by
NRG or a Guarantor of Non-Recourse Debt incurred by an Excluded
Project Subsidiary as to which the lenders of such Non-Recourse
Debt have acknowledged that they will not have any recourse to
the stock or assets of NRG or any Guarantor, except to the
limited extent set forth in such guarantee.
Obligations means any principal, interest,
penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any
Indebtedness.
Permitted Business means the business of
acquiring, constructing, managing, developing, improving,
maintaining, leasing, owning and operating Facilities, together
with any related assets or facilities, as well as any other
activities reasonably related to, ancillary to, or incidental
to, any of the foregoing activities (including acquiring and
holding reserves), including investing in Facilities.
Permitted Investments means:
(1) any Investment in NRG or in a Restricted Subsidiary of
NRG that is a Guarantor;
(2) any Investment in an Immaterial Subsidiary;
(3) any Investment in an Excluded Foreign Subsidiary for so
long as the Excluded Foreign Subsidiaries do not collectively
own more than 20% of the consolidated assets of NRG as of the
most recent fiscal quarter end for which financial statements
are publicly available;
(4) any issuance of letters of credit in an aggregate
amount not to exceed $250.0 million solely for working
capital requirements and general corporate purposes of any of
the Excluded Subsidiaries;
(5) any Investment in Cash Equivalents (and, in the case of
Excluded Subsidiaries only, Cash Equivalents or other liquid
investments permitted under any Credit Facility to which it is a
party);
(6) any Investment by NRG or any Restricted Subsidiary of
NRG in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of NRG and
a Guarantor or an Immaterial Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, NRG or a Restricted Subsidiary of NRG
that is a Guarantor;
(7) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales;
(8) Investments made as a result of the sale of Equity
Interests of any Person that is a Subsidiary of NRG such that,
after giving effect to any such sale, such Person is no longer a
Subsidiary of NRG, if the sale of such Equity Interests
constitutes an Asset Sale and the Net Proceeds received from
such Asset Sale are applied as set forth above under the caption
Repurchase at the Option of
Holders Asset Sales;
(9) Investments to the extent made in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
NRG;
(10) any Investments received in compromise or resolution
of (a) obligations of trade creditors or customers of NRG
or any of its Restricted Subsidiaries, including pursuant to any
plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer; or
(b) litigation, arbitration or other disputes with Persons
who are not Affiliates;
(11) Investments represented by Hedging Obligations;
(12) loans or advances to employees;
(13) repurchases of the notes or pari passu
Indebtedness;
S-58
(14) any Investment in securities of trade creditors, trade
counter-parties or customers received in compromise of
obligations of those Persons, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers;
(15) negotiable instruments held for deposit or collection;
(16) receivables owing to NRG or any Restricted Subsidiary
of NRG and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade
terms may include such concessionary trade terms as NRG of any
such Restricted Subsidiary of NRG deems reasonable under the
circumstances;
(17) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes;
(18) Investments resulting from the acquisition of a Person
that at the time of such acquisition held instruments
constituting Investments that were not acquired in contemplation
of the acquisition of such Person;
(19) any Investment in any Person engaged primarily in one
or more Permitted Businesses (including, without limitation,
Excluded Subsidiaries, Unrestricted Subsidiaries, and Persons
that are not Subsidiaries of NRG) made for cash since
February 2, 2006;
(20) the contribution of any one or more of the Specified
Facilities to a Restricted Subsidiary that is not a Guarantor;
(21) Investments made pursuant to a commitment that, when
entered into, would have complied with the provisions of the
indenture; and
(22) other Investments made since February 2, 2006 in
any Person having an aggregate fair market value (measured on
the date each such Investment was made and without giving effect
to subsequent changes in value), when taken together with all
other Investments made pursuant to this
clause (22) that are at the time outstanding not to
exceed the greater of (a) $500.0 million and
(b) 2.5% of Total Assets; provided, however,
that if any Investment pursuant to this clause (22) is
made in any Person that is not a Restricted Subsidiary of NRG
and a Guarantor at the date of the making of the Investment and
such Person becomes a Restricted Subsidiary and a Guarantor
after such date, such Investment shall thereafter be deemed to
have been made pursuant to clause (1) above, and shall
cease to have been made pursuant to this clause (22).
Permitted Itiquira Indebtedness shall have
the meaning assigned to such term in the definition of Itiquira
Refinancing.
Permitted Liens means:
(1) Liens on assets of NRG or any Guarantor securing
Indebtedness and other Obligations under Credit Facilities, in
an aggregate principal amount not exceeding, on the date of the
creation of such Liens, the greater of (a) 30.0% of Total
Assets or (b) $6.0 billion less the aggregate amount
of all repayments, optional or mandatory, of the principal of
any term Indebtedness under a Credit Facility that have been
made by NRG or any of its Restricted Subsidiaries since
February 2, 2006 with the Net Proceeds of Asset Sales
(other than Excluded Proceeds) and less, without duplication,
the aggregate amount of all repayments or commitment reductions
with respect to any revolving credit borrowings under a Credit
Facility that have been made by NRG or any of its Restricted
Subsidiaries since February 2, 2006 as a result of the
application of the Net Proceeds of Asset Sales (other than
Excluded Proceeds) in accordance with the covenant described
above under the caption Repurchase at the
Option of Holders Asset Sales (excluding
temporary reductions in revolving credit borrowings as
contemplated by that covenant);
(2) Liens to secure obligations with respect to
(i) contracts (other than for Indebtedness) for commercial
and trading activities for the purchase, transmission,
distribution, sale, lease or hedge of any energy related
commodity or service, and (ii) Hedging Obligations;
S-59
(3) Liens on assets of Excluded Subsidiaries securing
Indebtedness of Excluded Subsidiaries that was permitted by the
terms of the indenture to be incurred;
(4) Liens (a) in favor of NRG or any of the
Guarantors; (b) incurred by Excluded Project Subsidiaries
in favor of any other Excluded Project Subsidiary; or
(c) incurred by Excluded Foreign Subsidiaries in favor of
any other Excluded Foreign Subsidiary;
(5) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature;
(6) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) and (13) of the
second paragraph of the covenant entitled
Certain Covenants Incurrence of
Indebtedness and Issuance of Preferred Stock covering only
the assets acquired with or financed by such Indebtedness;
(7) Liens existing on February 2, 2006;
(8) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has
been made therefor;
(9) Liens imposed by law, such as carriers,
warehousemens, landlords and mechanics Liens;
(10) survey exceptions, easements or reservations of, or
rights of others for, licenses,
rights-of-way,
sewers, electric lines, telegraph and telephone lines, oil, gas
and other mineral interests and leases, and other similar
purposes, or zoning or other restrictions as to the use of real
property that were not incurred in connection with Indebtedness
and that do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the
operation of the business of such Person;
(11) Liens created for the benefit of (or to secure) the
notes (or the Subsidiary Guarantees);
(12) Liens to secure any Permitted Refinancing Indebtedness
permitted to be incurred under the indenture; provided,
however, that:
(a) the new Lien shall be limited to all or part of the
same property and assets that secured or, under the written
agreements pursuant to which the original Lien arose, could
secure the original Lien (plus improvements and accessions to,
such property or proceeds or distributions thereof); and
(b) the Indebtedness secured by the new Lien is not
increased to any amount greater than the sum of (x) the
outstanding principal amount or, if greater, committed amount,
of the Permitted Referencing Indebtedness and (y) an amount
necessary to pay any fees and expenses, including premiums,
related to such refinancings, refunding, extension, renewal or
replacement;
(13) Liens incurred or deposits made in connection with
workers compensation, unemployment insurance and other
types of social security;
(14) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of NRG or any of its Restricted Subsidiaries,
including rights of offset and set-off;
(15) leases or subleases granted to others that do not
materially interfere with the business of NRG and its Restricted
Subsidiaries;
(16) statutory Liens arising under ERISA;
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(17) Liens on property (including Capital Stock) existing
at the time of acquisition of the property by NRG or any
Subsidiary of NRG; provided that such Liens were in
existence prior to, such acquisition, and not incurred in
contemplation of, such acquisition;
(18) Liens arising from Uniform Commercial Code financing
statements filed on a precautionary basis in respect of
operating leases intended by the parties to be true leases
(other than any such leases entered into in violation of the
indenture);
(19) Liens on assets and Equity Interests of a Subsidiary
that is an Excluded Subsidiary;
(20) Liens granted in favor of Xcel Energy, Inc. pursuant
to the Xcel Indemnification Agreements as in effect on the date
of the supplemental indenture on NRGs interest in all
revenues received by NRG pursuant to the Facility Instruments;
(21) Liens to secure Indebtedness incurred to finance
Necessary Capital Expenditures that encumber only the assets
purchased, installed or otherwise acquired with the proceeds of
such Indebtedness;
(22) Liens to secure Environmental CapEx Debt that encumber
only the assets purchased, installed or otherwise acquired with
the proceeds of such Environmental CapEx Debt;
(23) Liens on assets or securities deemed to arise in
connection with the execution, delivery or performance of
contracts to sell such assets or stock otherwise permitted under
the indenture;
(24) Liens on assets of Itiquira incurred pursuant to the
Itiquira Refinancing;
(25) any restrictions on any Equity Interest or undivided
interests, as the case may be, of a Person providing for a
breach, termination or default under any joint venture,
stockholder, membership, limited liability company, partnership,
owners, participation or other similar agreement between
such Person and one or more other holders of Equity Interests or
undivided interests of such Person, as the case may be, if a
security interest or Lien is created on such Equity Interest or
undivided interest, as the case may be, as a result thereof;
(26) any customary provisions limiting the disposition or
distribution of assets or property (including without limitation
Equity Interests) or any related restrictions thereon in joint
venture, partnership, membership, stockholder and limited
liability company agreements, asset sale agreements,
sale-leaseback agreements, stock sale agreements and other
similar agreements, including owners, participation or
similar agreements governing projects owned through an undivided
interest; provided, however, that any such
limitation is applicable only to the assets that are the
subjects of such agreements;
(27) those Liens or other exceptions to title, in either
case on or in respect of any facility of NRG or any Subsidiary,
arising as a result of any shared facility agreement entered
into after the closing date with respect to such facility,
except to the extent that any such Liens or exceptions,
individually or in the aggregate, materially adversely affect
the value of the relevant property or materially impair the use
of the relevant property in the operation of the business of NRG
or such Subsidiary;
(28) Liens on cash deposits and other funds maintained with
a depositary institution, in each case arising in the ordinary
course of business by virtue of any statutory or common law
provision relating to bankers liens, including
Section 4-210
of the UCC;
(29) Liens on property and assets (other than certain
properties or assets defined as core collateral)
designated as Excluded Assets from time to time by NRG in
accordance with clause (xiii) of the related
definition under the Credit Agreement, which shall not have,
when taken together with all other property and assets that
constitute Excluded Assets at the relevant time of
determination, a fair market value in excess of
$250.0 million in the aggregate (and, to the extent that
such fair market value of such property and assets exceeds
$250.0 million in the aggregate, such property or assets
shall cease to be an Excluded Asset to the extent of such excess
fair market value); and
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(30) Liens incurred by NRG or any Subsidiary of NRG with
respect to obligations that do not exceed $100.0 million at
any one time outstanding.
Permitted Refinancing Indebtedness means any
Indebtedness of NRG or any of its Restricted Subsidiaries issued
in exchange for, or the net proceeds of which are used to
refund, refinance, replace, defease or discharge other
Indebtedness of NRG or any of its Restricted Subsidiaries (other
than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the
Indebtedness extended, refinanced, renewed, replaced, defeased
or refunded (plus all accrued interest on the Indebtedness and
the amount of all expenses and premiums incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a Weighted
Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right
of payment to the notes, such Permitted Refinancing Indebtedness
is subordinated in right of payment to, the notes on terms at
least as favorable to the holders of notes as those contained in
the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(4) such Indebtedness is incurred either by NRG (and may be
guaranteed by any Guarantor) or by the Restricted Subsidiary who
is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(5) (a) if the Stated Maturity of the Indebtedness
being refinanced is earlier than the Stated Maturity of the
notes, the Permitted Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness
being refinanced or (b) if the Stated Maturity of the
Indebtedness being refinanced is later than the Stated Maturity
of the notes, the Permitted Refinancing Indebtedness has a
Stated Maturity at least 91 days later than the Stated
Maturity of the notes.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
PMI means NRG Power Marketing Inc., a
Delaware corporation.
Pro Forma Cost Savings means, without
duplication, with respect to any period, reductions in costs and
related adjustments that have been actually realized or are
projected by NRGs Chief Financial Officer in good faith to
result from reasonably identifiable and factually supportable
actions or events, but only if such reductions in costs and
related adjustments are so projected by NRG to be realized
during the consecutive four-quarter period commencing after the
transaction giving rise to such calculation.
Related Financing Transactions means the
incurrence of Indebtedness and issuance of Capital Stock of NRG
described in the prospectus supplement, dated January 26,
2006, under the heading The Acquisition The
Financing Transactions.
Restricted Investment means an Investment
other than a Permitted Investment.
Restricted Payments has the meaning assigned
to such term under the caption Certain
Covenants Restricted Payments. For purposes of
determining compliance with the covenant described above under
the caption Certain Covenants
Restricted Payments, no Hedging Obligation shall be deemed
to be contractually subordinated to the notes or any Subsidiary
Guarantee.
Restricted Subsidiary of a Person means any
Subsidiary of the referent Person that is not an Unrestricted
Subsidiary.
Revolving Loans means the revolving loans and
commitments made by the Lenders under the Credit Agreement.
S-62
S&P means Standard & Poors
Ratings Group or any successor entity.
Significant Subsidiary means any Subsidiary
that would be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of the supplemental indenture.
Specified Facility means each of the
following Facilities: (a) the Facilities held on the date
of the indenture by Vienna Power LLC, Meriden Gas Turbine LLC,
Norwalk Power LLC, Connecticut Jet Power LLC (excluding the Cos
Cob assets), Devon Power LLC, Montville Power LLC (including the
Capital Stock of the entities owning such Facilities provided
that such entities do not hold material assets other than
the Facilities held on the date of the supplemental indenture);
(b) the following Facilities: P.H. Robinson, H.O. Clarke,
Webster, Unit 3 at Cedar Bayou, Unit 2 at T.H. Wharton; and
(c) the Capital Stock of the following Subsidiaries of NRG
if such Subsidiary holds no assets other than the Capital Stock
of a Foreign Subsidiary of NRG: NRG Latin America, Inc., NRG
International LLC, NRG Insurance Ltd. (Cayman Islands), NRG Asia
Pacific, Ltd., NRG International II Inc. and NRG
International III Inc.
Stated Maturity means, with respect to any
installment of interest or principal on any series of
Indebtedness, the date on which the payment of interest or
principal was scheduled to be paid in the documentation
governing such Indebtedness as of the date of the supplemental
indenture, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
Subsidiary means, with respect to any
specified Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency and after giving effect to any voting agreement or
stockholders agreement that effectively transfers voting
power) to vote in the election of directors, managers or
trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).
Subsidiary Guarantee means the Guarantee by
each Guarantor of NRGs obligations under the indenture and
on the notes, executed pursuant to the provisions of the
indenture.
Total Assets means the total consolidated
assets of NRG and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as shown on the most
recent balance sheet of NRG.
Treasury Rate means, as of any redemption
date, the yield to maturity as of such redemption date of United
States Treasury securities with a constant maturity (as compiled
and published in the most recent Federal Reserve Statistical
Release H.15 (519) that has become publicly available at
least two business days prior to the redemption date (or, if
such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to
the period from the redemption date
to ;
provided, however, that if the period from the
redemption date
to is
less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant
maturity of one year will be used.
UCC means the Uniform Commercial Code as in
effect in the State of New York or any other applicable
jurisdiction.
Unrestricted Subsidiary means any Subsidiary
of NRG that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only
to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
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(2) except as permitted by the covenant described above
under the caption Certain
Covenants Affiliate Transactions, is not party
to any agreement, contract, arrangement or understanding with
NRG or any Restricted Subsidiary of NRG unless the terms of any
such agreement, contract, arrangement or understanding are no
less favorable to NRG or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not
Affiliates of NRG;
(3) is a Person with respect to which neither NRG nor any
of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve such Persons financial
condition or to cause such Person to achieve any specified
levels of operating results except as otherwise permitted by the
Credit Agreement as in effect on the date of the supplemental
indenture; and
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of NRG or any of
its Restricted Subsidiaries except as otherwise permitted by the
Credit Agreement as in effect on the date of the supplemental
indenture.
Any designation of a Subsidiary of NRG as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the
trustee a certified copy of the Board Resolution giving effect
to such designation and an officers certificate certifying
that such designation complied with the conditions described
above under the caption Certain
Covenants Designation of Restricted, Unrestricted
and Excluded Project Subsidiaries and was permitted by the
covenant described above under the caption
Certain Covenants Restricted
Payments. If, at any time, any Unrestricted Subsidiary
fails to meet the requirements as an Unrestricted Subsidiary, it
will thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of NRG as of such date and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant
described under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock, NRG will be in default of such covenant.
The Board of Directors of NRG may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of NRG of
any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation will only be permitted if (1) such
Indebtedness is permitted under the covenant described under the
caption Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred
Stock, calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default
would be in existence following such designation.
Voting Stock of any Person as of any date
means the Capital Stock of such Person that is at the time
entitled to vote in the election of the Board of Directors of
such Person.
Weighted Average Life to Maturity means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such
Indebtedness.
Xcel means Xcel Energy Inc., a Minnesota
corporation.
Xcel Indemnification Agreements means:
(i) the Indemnification Agreement, dated as of
December 5, 2003, between Xcel Energy Inc., Northern States
Power Company and NRG; and (ii) the Indemnification
Agreement, dated as of December 5, 2003, between Xcel
Energy Inc., Northern States Power Company and NRG.
S-64
DESCRIPTION
OF CERTAIN OTHER INDEBTEDNESS AND PREFERRED STOCK
Senior
Secured Credit Facility
On February 2, 2006, NRG entered into a senior secured
credit facility, or the Senior Credit Facility, with a syndicate
of financial institutions, including Morgan Stanley Senior
Funding, Inc., as administrative agent, Morgan
Stanley & Co., Incorporated, as collateral agent, and
Morgan Stanley Senior Funding, Inc. and Citigroup Global Markets
Inc., as joint lead book-runners, joint lead arrangers and
co-documentation agents providing for up to an aggregate amount
of $5.575 billion. The Senior Credit Facility consisted of
a $3.575 billion senior first priority secured term loan
facility or the Term Loan Facility, a $1.0 billion
senior first priority secured revolving credit facility, or the
Revolving Credit Facility, and a $1.0 billion senior first
priority secured synthetic letter of credit facility, or the
Synthetic Letter of Credit Facility. The Senior Credit Facility
replaced NRGs then outstanding senior secured credit
facility. The Term Loan Facility will mature on
February 1, 2013 and amortizes over 27 consecutive equal
quarterly installments of 0.25% of the original principal amount
of the Term Loan Facility, beginning June 30, 2006,
with the balance payable upon maturity. The full amount of the
Revolving Credit Facility will mature on February 2, 2011.
The Letter of Credit Facility will mature on February 1,
2013 and no amortization will be required in respect thereof. As
of September 30, 2006, NRG had $3.557 billion
outstanding under the Companys Term Loan Facility. As
of September 30, 2006, NRG had issued $858 million
under the Companys Letter of Credit Facility and
$157 million in letters of credit under the Companys
Revolving Credit Facility.
In connection with the Transactions, NRG intends to amend the
Senior Credit Facility. See The Transactions. NRG
plans to amend the Senior Credit Facility to accomplish, among
other things, the following objectives:
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to permit the incurrence of the new debt represented by the new
high yield notes;
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to increase the amount of the synthetic letter of credit
facility by $500 million, from $1.0 billion to
$1.5 billion;
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to increase the Available Amount, and effect a corresponding
increase in our restricted payments basket, by
$250 million; and
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to provide additional flexibility to NRG with respect to certain
covenants governing or restricting the use of excess cash flow,
new investments, new indebtedness and permitted liens.
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We expect the Transactions to be closed by November 21,
2006. Pursuant to the terms and conditions of the Senior Credit
Facility, the amendments described above require the consent of
the lenders under the Senior Credit Facility holding at least a
majority of the sum of all loans outstanding thereunder.
The following is a summary description of the principal terms
and conditions of the Senior Credit Facility. This description
is not intended to be exhaustive and is qualified in its
entirety by reference to the provisions in the Senior Credit
Facility.
Guarantees
and Collateral
The Senior Credit Facility is guaranteed by substantially all of
NRGs existing and future direct and indirect subsidiaries,
with certain customary or agreed-upon exceptions for
unrestricted foreign subsidiaries, project subsidiaries and
certain other subsidiaries. The capital stock of substantially
all of NRGs subsidiaries, with certain exceptions for
unrestricted subsidiaries, foreign subsidiaries and project
subsidiaries, has been pledged for the benefit of the Senior
Credit Facility lenders.
The Senior Credit Facility is also secured by first-priority
perfected security interests in substantially all of the
property and assets owned or acquired by NRG and its
subsidiaries, other than certain exceptions. These exceptions
include assets such as the assets of certain unrestricted
subsidiaries, certain baskets of assets determined by NRG (not
to exceed agreed upon amounts) equity interests in certain of
the Companys project affiliates that have non-recourse
debt financing, and voting equity interests in excess of 66% of
the total outstanding voting equity interest of certain of
NRGs foreign subsidiaries.
S-65
Interest
At NRGs option, loans under the Senior Credit Facility are
available as Alternate Base Rate loans or
Eurodollar loans, as follows:
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Alternate Base Rate loans. Interest is at a
spread (the Applicable Margin) over the Alternate
Base Rate for term loans and for revolving loans and swing-line
loans, calculated on a
365-day or
366-day
basis, as the case may be, when the Alternate Base Rate is
determined by reference to the prime rate, and on a
360-day
basis at all other times. The Alternate Base Rate
means, for any day, a rate per annum equal to the greater of
(a) the prime rate publicly announced from time
to time by The Wall Street Journal as the base rate on
corporate loans posted by at least 75% of the nations 30
largest banks and (b) the federal funds effective
rate in effect on such day plus 1/2 of 1%.
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Eurodollar loans. Interest is determined for
periods to be selected by NRG, or interest periods,
of seven days, one, two, three or six months and, to the extent
available to all of the lenders, nine or twelve months, and is
expected be at a spread (the Applicable Margin) over
the Adjusted LIBO Rate for term loans and for revolving loans
and swing-line loans, calculated on a
360-day
basis. The Adjusted LIBO Rate means, with respect to
any Eurodollar loan for any interest period and as determined
from time to time, an interest rate per annum equal to the
product of (a) the rate per annum determined by the
Administrative Agent at approximately 11:00 a.m., London
time, on the date that is two business days prior to the
commencement of the relevant interest period by reference to the
British Bankers Association Interest Settlement Rates for
deposits in dollars (as set forth by the Bloomberg Information
Service or any successor thereto or any other service selected
by the Administrative Agent which has been nominated by the
British Bankers Association as an authorized information
vendor for the purpose of displaying such rates) for a period
equal to the relevant interest period and (b) certain
statutory reserves as agreed upon in the senior secured credit
facility.
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The Applicable Margin means, for any day, for each
type of loan, the rate per annum set forth under the relevant
column heading below based upon the consolidated senior leverage
ratio of NRG as of the relevant date of determination:
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ABR
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Revolving
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Eurodollar
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ABR
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Eurodollar
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Loans
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Term
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Term
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Revolving
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and Swingline
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Consolidated Senior Leverage Ratio
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Loans
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Loans
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Loans
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Loans
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Category 1
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Greater than 3.50 to 1.00
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2.00
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%
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1.00
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%
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2.00
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%
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1.00
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%
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Category 2
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Greater than 3.00 to 1.00 but less
than or equal to 3.50 to 1.00
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1.75
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%
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0.75
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%
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1.75
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%
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0.75
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%
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Category 3
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Less than or equal to 3.00 to 1.00
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1.75
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%
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0.75
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%
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1.50
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%
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0.50
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%
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Interest on the loans is payable (a) with respect to any
Alternate Base Rate Loan (other than a Swingline Loan), on the
last business day of each March, June, September and December
(beginning with March 31, 2006), (b) with respect to
any Eurodollar Loan, the last day of the interest period
applicable to such loan and, in the case of a Eurodollar Loan
with an interest period of more than three months
duration, each day that would have been an interest payment date
had successive interest periods of three months duration
been applicable to such loan, and (c) with respect to any
swingline loan, the day that such loan is required to be repaid.
The synthetic letter of credit issuing bank invests amounts in a
synthetic L/ C account in certain agreed upon
permitted investments. On the last business day of March, June,
September and December of each year: (i) the synthetic
letter of credit issuing bank will distribute to each lender
under the synthetic letter
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of credit facility its pro rata share of any interest accrued on
funds held in the synthetic L/ C Account and (ii) NRG will
pay to the synthetic letter of credit issuing bank for pro rata
remittance to each lender under the Synthetic Letter of Credit
Facility a fee based on such lenders pro rata interest in
the credit-linked deposits related to the Synthetic Letter of
Credit Facility (without regard to actual amount of letters of
credit outstanding) times the interest rate applicable to the
loans under the term facility (assuming LIBOR) as specified in
above (net of the amounts received by such lender pursuant to
clause (i) above). In addition, NRG pays the synthetic
letter of credit issuing bank a fronting fee and customary
issuance and administrative fees.
Default
Interest and Fees
If NRG defaults on the payment of the principal of or interest
on any loan or any other amount becoming due and payable
hereunder or under any other loan document related to the Senior
Credit Facility, then NRG must on demand from time to time pay
interest, to the extent permitted by law, on such defaulted
amount (a) in the case of overdue principal, at the rate
otherwise applicable to such loan plus 2.00% per annum and
(b) in all other cases, at a rate per annum equal to the
rate that would be applicable to an Alternate Base Rate term
loan plus 2.00%.
Commitment
and Letter of Credit Fees
Commitment fees equal to 0.5% per annum times the daily
average undrawn portion of the revolving facility are payable
quarterly in arrears.
A fee equal to (i) the Applicable Margin then in effect for
loans bearing interest at the Adjusted LIBO Rate made under the
revolving facility, times (ii) the average daily maximum
aggregate amount available to be drawn under all letters of
credit (with certain exclusions regarding unreimbursed
disbursements otherwise accruing interest), is be payable
quarterly in arrears to the lenders under the revolving facility.
Covenants
The Senior Credit Facility contains customary covenants, which
among other things require NRG to meet certain financial tests,
including minimum interest coverage ratio and a maximum leverage
ratio on a consolidated basis, and limit NRGs ability to:
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incur indebtedness and liens and enter into sale and lease-back
transactions;
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make investments, loans and advances;
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engage in mergers, acquisitions, consolidations and asset sales;
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pay dividends and other restricted payments;
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enter into transactions with affiliates;
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engage in business activities and hedging transactions;
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make capital expenditures;
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make debt payments; and
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make certain changes to the terms of material indebtedness.
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NRG however has the option to prepay the Senior Credit Facility
in whole or in part at any time.
Events
of Default
Events of default under the senior secured credit facility
include, but are not limited to:
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breaches of representations and warranties;
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payment defaults;
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noncompliance with covenants;
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S-67
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bankruptcy;
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judgments in excess of a specified amount;
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any confirmation order that is reversed, amended or modified in
any material respects, vacated or stayed;
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any event that could result in our liability under the Employee
Retirement Income Security Act of 1974 in excess of a specified
amount;
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failure of any guarantee or pledge agreement supporting the
senior secured credit facility to be in full force and effect;
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failure of any lien created in favor of the loan parties to be a
valid, perfected and first priority lien on any material
collateral securing the senior secured credit facility; and
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a change of control, as such term is defined in the senior
secured credit facility.
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Interest
Rate Swaps
In anticipation of the Senior Credit Facility, in January 2006,
NRG entered into a series of interest rate swaps. These interest
rate swaps became effective on February 15, 2006 and are
intended to hedge the risks associated with floating interest
rates. For each of the interest rate swaps, the Company pays its
counterparty the equivalent of a fixed interest payment on a
predetermined notional value, and NRG receives quarterly the
equivalent of a floating interest payment based on
3-month
LIBOR calculated on the same notional value. All interest rate
swap payments by NRG and its counterparties are made quarterly,
and LIBOR is determined in advance of each interest period.
While the notional value of each of the swaps does not vary over
time, the swaps are designed to mature sequentially. The total
notional amount of these swaps is $2.15 billion.
The notional amounts and maturities of each tranche of these
swaps are as follows:
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Period of swap
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Notional Value
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Maturity
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1-year
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$
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120 million
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March 31, 2007
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2-year
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$
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140 million
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March 31, 2008
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3-year
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$
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150 million
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March 31, 2009
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4-year
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$
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190 million
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March 31, 2010
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5-year
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$
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1.55 billion
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March 31, 2011
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Senior
Notes
On February 2, 2006, NRG completed the sale of
(i) $1.2 billion aggregate principal amount of
7.25% senior notes due 2014, or 7.25% Senior Notes,
and (ii) $2.4 billion aggregate principal amount of
7.375% senior notes due 2016, or 7.375% Senior Notes.
The 7.25% Senior Notes and 7.375% Senior Notes are
general unsecured obligations of NRG guaranteed jointly and
severally by each of NRGs current and future restricted
subsidiaries, excluding certain foreign, project and immaterial
subsidiaries.
The 7.25% Senior Notes and 7.375% Senior Notes rank
pari passu in right of payment with all existing and future
unsecured senior indebtedness of NRG, including the notes
offered hereby, and are senior in right of payment to any future
subordinated indebtedness of NRG. Because the 7.25% Senior
Notes and 7.375% Senior Notes are guaranteed by only
certain of NRGs subsidiaries, they are structurally
subordinated to all indebtedness and other liabilities,
including trade payables, of those subsidiaries that do not
guarantee the Senior Notes.
Interest on the 7.25% Senior Notes and 7.375% Senior
Notes is payable semi-annually in arrears. NRG may redeem some
or all of the 7.25% Senior Notes at any time prior to
February 1, 2010 at a price equal to 100% of the principal
amount of the notes redeemed plus a make-whole
premium and accrued and unpaid interest. NRG may redeem some or
all of the 7.375% Senior Notes at any time prior to
February 1,
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2011 at a price equal to 100% of the principal amount of the
notes redeemed plus a make-whole premium and accrued
and unpaid interest. Prior to February 1, 2009, NRG may
redeem up to 35% of the 7.25% Senior Notes issued under the
applicable indenture with the net cash proceeds of certain
equity offerings, provided at least 65% of the aggregate
principal amount of the 7.25% Senior Notes remain
outstanding after the redemption. Prior to February 1,
2009, NRG may redeem up to 35% of the 7.375% Senior Notes
issued under the applicable indenture with the net cash proceeds
of certain equity offerings, provided at least 65% of the
aggregate principal amount of the 7.375% Senior Notes
remain outstanding after the redemption. On or after
February 1, 2010, NRG can redeem some or all of the
7.25% Senior Notes at specified redemption prices plus
accrued interest. On or after February 1, 2011, NRG can
redeem some or all of the 7.375% Senior Notes at specified
redemption prices plus accrued interest. Upon the occurrence of
a change of control, holders of the 7.25% Senior Notes and
7.375% Senior Notes will have the right, subject to certain
conditions, to require NRG to repurchase their notes at a price
equal to 101% of their principal amount plus accrued and unpaid
interest to the date of repurchase.
The indentures governing the 7.25% Senior Notes and
7.375% Senior Notes contain covenants, which, among other
things, limit NRGs ability and the ability of NRGs
restricted subsidiaries to: (i) incur additional debt;
(ii) declare or pay dividends, redeem stock or make other
distributions to stockholders; (iii) create liens;
(iv) make certain restricted investments; (v) enter
into transactions with affiliates; (vi) sell or transfer
assets; and (vii) consolidate or merge.
Events of default under the indentures governing the
7.25% Senior Notes and 7.375% Senior Notes include,
among other things, non-payment of interest of principal,
bankruptcy, non-compliance with covenants, failure by NRG to
comply with any material term of the escrow agreement or
security agreement, failure of a subsidiary guarantee, escrow
agreement, security agreement or lien to be held enforceable in
a court of law or denial of obligations under a guarantee by a
significant subsidiary, cross defaults on other indebtedness in
the aggregate of $100 million or more and judgments for the
payment of money in the aggregate of more than $100 million
rendered against NRG, any restricted subsidiary or a combination
thereof.
Capital
Allocation Program
During the third quarter 2006, NRG initiated a plan to
repurchase approximately $750 million of its common stock
in two phases. Phase I was a $500 million common stock
repurchase program, which was completed on October 13, 2006.
To implement Phase I, NRG formed two wholly-owned
subsidiaries to repurchase NRGs common stock in the public
markets or in privately negotiated transactions. These
subsidiaries were funded with a combination of approximately
$166 million in cash from NRG, together with the proceeds
from the issuance of approximately $250 million of notes
and approximately $84 million of preferred stock to
affiliates of Credit Suisse, for a total of approximately
$500 million. The notes and the preferred interests will
mature in two tranches: $137.5 million in notes and
$53 million in preferred interests will mature in October
2008, and $112.5 million in notes and $31 million in
preferred interests will mature in October 2009.
On October 13, NRG completed Phase I with the
repurchase of 10,587,700 common shares at an average price of
$47.22 for approximately $500 million.
Phase II, as originally announced, was to be an additional
$250 million common stock buyback anticipated to commence
during the first quarter 2007. In conjunction with the hedge
reset and the amendments to the senior secured credit facility
described herein, NRG has upsized Phase II to
$500 million and has accelerated the start to the fourth
quarter 2006 and intends to complete it by the end of the second
quarter 2007.
4% Convertible
Perpetual Preferred Stock
On December 27, 2004, NRG completed the sale of
420,000 shares of Convertible Perpetual Preferred Stock
with a dividend coupon rate of 4%. The 4% Preferred Stock has a
liquidation preference of $1,000 per share. Holders of 4%
Preferred Stock are entitled to receive, when declared by
NRGs board of directors, cash
S-69
dividends at the rate of 4% per annum, payable quarterly in
arrears on March 15, June 15, September 15 and
December 15 of each year, commencing on March 15, 2005. The
4% Preferred Stock is convertible, at the option of the holder,
at any time into shares of NRG common stock. On or after
December 20, 2009, NRG may redeem, subject to certain
limitations, some or all of the 4% Preferred Stock with cash at
a redemption price equal to 100% of the liquidation preference,
plus accumulated but unpaid dividends, including liquidated
damages, if any, to the redemption date.
If NRG is subject to a fundamental change, as defined in the
Certificate of Designation of the 4% Preferred Stock, each
holder of shares of 4% Preferred Stock has the right, subject to
certain limitations, to require NRG to purchase any or all of
its shares of 4% Preferred Stock at a purchase price equal to
100% of the liquidation preference, plus accumulated and unpaid
dividends, including liquidated damages, if any, to the date of
purchase. Final determination of a fundamental change must be
approved by NRGs board of directors or the board of
directors must decide to take a neutral position with respect to
such fundamental change.
Each holder of 4% Preferred Stock has one vote for each share of
4% Preferred Stock held by the holder on all matters voted upon
by the holders of NRGs common stock, as well as voting
rights specifically provided for in NRGs amended and
restated certificate of incorporation or as otherwise from time
to time required by law. In addition, whenever
(1) dividends on the 4% Preferred Stock or any other class
or series of stock ranking on a parity with the 4% Preferred
Stock with respect to the payment of dividends are in arrears
for dividend periods, whether or not consecutive, containing in
the aggregate a number of days equivalent to six calendar
quarters, or (2) NRG fails to pay the redemption price on
the date shares of 4% Preferred Stock are called for redemption
or the purchase price on the purchase date for shares of 4%
Preferred Stock following a fundamental change, then, in each
case, the holders of 4% Preferred Stock (voting separately as a
class with all other series of preferred stock upon which like
voting rights have been conferred and are exercisable) are
entitled to vote for the election of two of the authorized
number of NRGs directors at the next annual meeting of
stockholders and at each subsequent meeting until all dividends
accumulated or the redemption price on the 4% Preferred Stock
have been fully paid or set apart for payment. The term of
office of all directors elected by holders of the 4% Preferred
Stock will terminate immediately upon the termination of the
rights of the holders of the 4% Preferred Stock to vote for
directors. Upon election of any additional directors, the number
of directors that comprise NRGs board of directors will be
increased by the number of such additional directors.
The 4% Preferred Stock is senior to all classes of common stock,
on a parity with the 3.625% Preferred Stock and the Mandatory
Convertible Preferred Stock (described below) and junior to all
of NRGs existing and future debt obligations and all of
NRGs subsidiaries existing and future liabilities
and capital stock held by persons other than NRG or its
subsidiaries. The proceeds of $406.4 million, net of
issuance costs of approximately $13.6 million, were used to
redeem $375.0 million of Second Priority Notes on
February 4, 2005.
3.625% Convertible
Perpetual Preferred Stock
On August 11, 2005, NRG issued 250,000 shares of its
3.625% Convertible Perpetual Preferred Stock, or 3.625%
Preferred Stock, to Credit Suisse First Boston Capital LLC, or
CSFB, in a private placement. The 3.625% Preferred Stock has a
liquidation preference of $1,000 per share. Holders of the
3.625% Preferred Stock are entitled to receive, out of funds
legally available, cash dividends at the rate of 3.625% per
annum, payable in cash quarterly in arrears commencing on
December 15, 2005. Each share of 3.625% Preferred Stock is
convertible during the
90-day
period beginning August 11, 2015 at the option of NRG or
the holder. Holders tendering the 3.625% Preferred Stock for
conversion shall be entitled to receive cash and common stock.
NRG may elect to make cash payment in lieu of delivering shares
of common stock in connection with such conversion, and NRG may
elect to receive cash in lieu of shares of common stock, if any,
from the holder in connection with such conversion.
If NRG is subject to a fundamental change, as defined in the
Certificate of Designation of the 3.625% Preferred Stock, each
holder of shares of 3.625% Preferred Stock has the right,
subject to certain limitations, to require NRG to purchase any
or all of its shares of 3.625% Preferred Stock at a purchase
price equal to
S-70
100% of the liquidation preference, plus accumulated and unpaid
dividends, including liquidated damages, if any, to the date of
purchase.
The 3.625% Preferred Stock is senior to all classes of common
stock, on a parity with the 4% Preferred Stock and the Mandatory
Convertible Preferred Stock and junior to all of NRGs
existing and future debt obligations and all of NRGs
subsidiaries existing and future liabilities and capital
stock held by persons other than NRG or its subsidiaries. Title
to the 3.625% Preferred Stock, may not be transferred to an
entity that is not an affiliate of CSFB without the consent of
NRG, such consent not to be unreasonably withheld. The proceeds
were used to redeem $228.8 million of Second Priority Notes
on September 12, 2005.
Mandatory
Convertible Preferred Stock
On February 2, 2006, NRG completed the issuance of
2,000,000 shares of 5.75% mandatory convertible preferred
stock, or the 5.75% Preferred Stock, at an offering price of
$250 per share for total net proceeds after deducting
offering expenses and underwriting discounts of approximately
$486 million. Dividends on the 5.75% Preferred Stock are
$14.375 per share per year, and are due and payable on a
quarterly basis beginning on March 15, 2006. The 5.75%
Preferred Stock will automatically convert into common stock on
March 16, 2009, or the Conversion Date, at a rate that is
dependent upon the applicable market value of NRGs common
stock. If the applicable market value of NRG common stock is
$60.45 a share or higher at the Conversion Date, then the 5.75%
Preferred Stock is convertible at a rate of 4.1356 shares
of NRG common stock for every share of 5.75% Preferred Stock
outstanding. If the applicable market value of NRG common stock
is less than or equal to $48.75 per share at the Conversion
Date, then the 5.75% Preferred Stock is convertible at a rate of
5.1282 shares of NRG common stock for every share of 5.75%
Preferred Stock outstanding. If the applicable market value of
NRG common stock is between $48.75 per share and
$60.45 per share at the Conversion Date, then the 5.75%
Preferred Stock is convertible into common stock at a rate that
is prorated between 4.1356 and 5.1282 shares of common
stock for every share of 5.75% Preferred Stock.
Credit
Support and Collateral Arrangement
In connection with our power generation business, we manage the
commodity price risk associated with our supply activities and
our electric generation facilities. This includes forward power
sales, fuel and energy purchases and emission credits. In order
to manage these risks, we enter into financial instruments to
hedge the variability in future cash flows from forecasted sales
of electricity and purchases of fuel and energy. We utilize a
variety of instruments including forward contracts, futures
contracts, swaps and options. Certain of these contracts allow
counterparties to require us to provide credit support. This
credit support consists of letters of credit, cash, guarantees
and second liens on our assets. As of September, 30, 2006,
balances of the credit support provided in support of these
contracts were $858 million for letters of credit,
$132 million for cash margin, $589 million for
parental guarantees and second liens supporting net discounted
exposure of counterparties aggregating approximately
$897 million.
The following table shows the breakdown of balances of the
credit support provided in support of the hedging contracts
described above:
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|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
December 31, 2005
|
|
|
|
($ in millions)
|
|
|
($ in millions)
|
|
|
Letters of Credit(1)
|
|
$
|
858
|
|
|
$
|
831
|
|
Cash Margin
|
|
|
132
|
|
|
|
438
|
|
Parental Guarantees(2)
|
|
|
589
|
|
|
|
167
|
|
Second Liens(3)
|
|
|
897
|
|
|
|
2,221
|
|
|
|
|
(1) |
|
Letters of Credit outstanding as of December 31, 2005,
includes a balance related to Texas Genco LLC of
$604 million. |
|
(2) |
|
Parental guarantees were provided by either NRG Energy, Inc. or
NRG Texas LLC on behalf of their subsidiaries. |
|
(3) |
|
As of December 31, 2005, the second liens were limited to
the ERCOT assets of Texas Genco LLC. As of September 30,
2006, substantially all of NRGs assets were subject to the
second liens. |
S-71
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income
tax considerations relating to the purchase, ownership and
disposition of the notes but does not purport to be a complete
analysis of all the potential tax considerations. This summary
is based on the provisions of the Internal Revenue Code (the
Code), the Treasury regulations promulgated or
proposed thereunder, judicial authority, published
administrative positions of the IRS and other applicable
authorities, all as in effect on the date of this document, and
all of which are subject to change, possibly on a retroactive
basis. We have not sought any ruling from the IRS with respect
to the statements made and the conclusions reached in the
following summary, and there can be no assurance that the IRS
will agree with our statements and conclusions. This summary
deals only with holders that purchase notes at their original
issuance at their issue price (the first price at which a
substantial amount of the notes is sold for money to the public,
not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement
agents or wholesalers) and that will hold the notes as
capital assets within the meaning of
Section 1221 of the Code (generally, property held for
investment). This summary does not purport to deal with all
aspects of U.S. federal income taxation that might be
relevant to particular holders in light of their personal
investment circumstances or status, nor does it address tax
considerations applicable to investors that may be subject to
special tax rules, such as certain financial institutions,
tax-exempt organizations, S corporations, partnerships or other
pass-through entities, insurance companies, broker-dealers,
dealers or traders in securities or currencies, certain former
citizens or residents of the U.S., and taxpayers subject to the
alternative minimum tax. This summary also does not discuss
notes held as part of a hedge, straddle, synthetic security or
conversion transaction, constructive sale, or other integrated
transaction, or situations in which the functional
currency of a U.S. holder (as defined below) is not
the U.S. dollar. Moreover, the effect of any applicable
estate, state, local or
non-U.S. tax
laws is not discussed.
THE FOLLOWING DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY
AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS
AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE ESTATE TAX
LAWS OR THE LAWS OF ANY STATE, LOCAL OR
NON-U.S. TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
The term U.S. holder means a beneficial owner
of a note that is, for U.S. federal income tax purposes:
(1) an individual citizen or resident of the U.S.,
including an alien individual who is a lawful permanent resident
of the U.S. or meets the substantial presence
test under Section 7701(b) of the Code;
(2) a corporation, or other entity taxable as a corporation
for U.S. federal income tax purposes, created or organized
under the laws of the U.S. or any state thereof (including
the District of Columbia);
(3) an estate, the income of which is subject to
U.S. federal income taxation regardless of its
source; or
(4) a trust, if (i) a court within the U.S. is
able to exercise primary jurisdiction over its administration
and one or more U.S. persons within the meaning
of the Code has the authority to control all of its substantial
decisions, or (ii) in the case of a trust that was treated
as a domestic trust under the law in effect before 1997, a valid
election is in place under applicable Treasury regulations to
treat such trust as a domestic trust.
The term
non-U.S. holder
means a beneficial owner of a note that is not a
U.S. holder.
If an entity treated as a partnership for U.S. federal
income tax purposes holds the notes, the tax treatment of a
partner generally will depend upon the status of the partner and
the activities of the partnership.
S-72
A holder that is a partner of a partnership purchasing the notes
should consult with its own tax advisor about the
U.S. federal income tax consequences of purchasing, holding
and disposing of the notes.
U.S. Holders
Interest. The stated interest on a note will
be included in the gross income of a U.S. holder as
ordinary income at the time such interest is accrued or received
in accordance with the holders regular method of
accounting for U.S. federal income tax purposes. The notes
will not be issued with original issue discount
within the meaning of Section 1273 of the Code.
Additional Interest. In certain circumstances
(see Description of the Notes Repurchase at
the Option of Holders Change of Control and
Description of the Notes Optional
Redemption), we may be obligated to pay amounts in excess
of stated interest or principal on the notes. It is possible
that the IRS could assert that the additional amounts which we
would be obliged to pay is a contingent payment. In
that case, the notes may be treated as contingent payment debt
instruments for U.S. federal income tax purposes, with the
result that the timing, amount of income included and the
character of income recognized may be different from the
consequences discussed herein. However, the Treasury regulations
regarding debt instruments that provide for one or more
contingent payments state that, for purposes of determining
whether a debt instrument is a contingent payment debt
instrument, contingencies which are remote or incidental as of
the issue date are ignored. We believe that as of the issue date
the likelihood of our paying additional amounts is remote and,
accordingly, we do not intend to treat the notes as contingent
payment debt instruments. In addition, we have the option to
redeem all or a portion of the notes at certain times prior to
the maturity date at a premium. Under applicable Treasury
regulations, we will be deemed to exercise any option to redeem
the notes if the exercise of such option would lower the yield
of the debt instrument. We believe, and intend to take the
position for purposes of determining yield and maturity (for
purposes of the original issue discount provisions of the Code),
that we will not be treated as having exercised any option to
redeem the notes under these rules. Such determination by us is
binding on all U.S. holders unless a U.S. holder
discloses its differing position in a statement attached to its
timely filed U.S. federal income tax return for the taxable
year during which a note was acquired. Our determination is not,
however, binding on the IRS, and if the IRS were to challenge
this determination, a U.S. holder might be required to
accrue income on its notes in excess of stated interest and to
treat as ordinary income rather than capital gain any income
realized on the taxable disposition of a note before the
resolution of the contingencies. Alternatively, the notes may be
treated as being subject to the original issue discount rules.
In the event a contingency occurs, it would affect the amount,
the character and timing of the income recognized by a
U.S. holder. This discussion assumes that the notes will
not be treated as contingent payment debt instruments or as
instruments subject to original issue discount rules for
U.S. federal income tax purposes.
Sale, Exchange, Redemption, Retirement or Other Taxable
Disposition of the Notes. Upon the sale,
exchange, redemption, retirement or other taxable disposition of
a note, a U.S. holder generally will recognize capital gain
or loss equal to the difference between (i) the amount
realized on the sale, exchange, redemption, retirement or other
taxable disposition (not including the amount allocable to
accrued and unpaid interest) and (ii) that holders
adjusted tax basis in the note. The amount realized will be
equal to the sum of the amount of cash and the fair market value
of any property received in exchange for the note. A
U.S. holders adjusted tax basis in a note generally
will equal that holders cost reduced by any principal
payments received. The capital gain or loss will be long-term
capital gain or loss if the U.S. holders holding
period in the note is more than one year at the time of sale,
exchange, redemption or other taxable disposition. Subject to
limited exceptions, capital losses cannot be used to offset
ordinary income. The deductibility of capital losses is subject
to limitation.
A U.S. holder that sells a note between interest payment
dates will be required to treat as ordinary interest income an
amount equal to interest that has accrued through the date of
sale and has not been previously included in income.
Information Reporting and Backup Withholding
Tax. In general, we must report certain
information to the IRS with respect to payments of principal,
premium, if any, and interest on a note (including the
S-73
payment of liquidated damages) and payments of the proceeds of
the sale or other disposition of a note to certain non-corporate
U.S. holders. The payor (which may be us or an intermediate
payor) will be required to withhold backup withholding tax at
the applicable statutory rate if (i) the payee fails to
furnish a taxpayer identification number (TIN) to
the payor or establish an exemption from backup withholding,
(ii) the IRS notifies the payor that the TIN furnished by
the payee is incorrect, (iii) there has been a notified
payee underreporting with respect to interest or dividends
described in Section 3406(c) of the Code or (iv) the
payee has not certified under penalties of perjury that it has
furnished a correct TIN and such U.S. holder is not subject
to backup withholding under the Code. Certain holders (including
among others, corporations and certain tax-exempt organizations)
are generally not subject to backup withholding.
U.S. holders should consult their personal tax advisor
regarding their qualification for an exemption from backup
withholding and the procedures for obtaining such exemption, if
applicable. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules from a
payment to a U.S. holder will be allowed as a credit
against that holders U.S. federal income tax
liability and may entitle the holder to a refund, provided that
the required information is furnished in a timely manner to the
IRS.
Non-U.S. Holders
Interest. Interest paid to a
non-U.S. holder
will not be subject to U.S. federal income or withholding
tax of 30% (or, if applicable, a lower rate under an applicable
income tax treaty) under the portfolio interest
exception of the Code provided that:
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|
such holder does not directly or indirectly, actually or
constructively, own 10% or more of the total combined voting
power of all of our classes of stock;
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|
such holder is not a controlled foreign corporation that is
related to us through sufficient stock ownership and is not a
bank that received such interest on an extension of credit made
pursuant to a loan agreement entered into in the ordinary course
of its trade or business;
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|
either (1) the
non-U.S. holder
certifies in a statement provided to us or our paying agent,
under penalties of perjury, that it is not a
U.S. person within the meaning of the Code and
provides its name and address (generally by completing IRS
Form W-8BEN),
(2) a securities clearing organization, bank or other
financial institution that holds customers securities in
the ordinary course of its trade or business and holds the notes
on behalf of the
non-U.S. holder
certifies to us or our paying agent under penalties of perjury
that it, or the financial institution between it and the
non-U.S. holder,
has received from the
non-U.S. holder
a statement, under penalties of perjury, that such holder is not
a U.S. person and provides us or our paying
agent with a copy of such statement or (3) the
non-U.S. holder
holds its notes directly through a qualified
intermediary and certain conditions are satisfied; and
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the interest is not effectively connected with such
holders conduct of a trade or business within the U.S.
|
Even if the above conditions are not met, a
non-U.S. holder
may be entitled to an exemption from U.S. federal
withholding tax if the interest is effectively connected to a
U.S. trade or business as described below or to a reduction
in or an exemption from U.S. federal income and withholding
tax on interest under an income tax treaty between the U.S. and
the
non-U.S. holders
country of residence. To claim a reduction or exemption under an
income tax treaty, a
non-U.S. holder
must generally complete an IRS
Form W-8BEN
and claim the reduction or exemption on the form. In some cases,
a
non-U.S. holder
may instead be permitted to provide documentary evidence of its
claim to the intermediary, or a qualified intermediary may
already have some or all of the necessary evidence in its files.
The certification requirements described above may in some
circumstances require a
non-U.S. holder
that claims the benefit of an income tax treaty to also provide
its U.S. taxpayer identification number on
IRS Form W-8BEN.
Additional Interest. We believe that the
possibility of additional interest is remote and, accordingly,
we do not intend to treat the notes as contingent payment debt
instruments for U.S. federal income tax
S-74
purposes. This discussion assumes that the notes will not be
treated as contingent payment debt instruments for
U.S. federal income tax purposes. See
U.S. Holders Additional
Interest.
Sale, Exchange, Redemption or other Taxable Disposition of
Notes. A
non-U.S. holder
of a note generally will not be subject to U.S. federal
income tax or withholding tax on any gain realized on a sale,
exchange, redemption or other taxable disposition of the note
(other than any amount representing accrued but unpaid interest
on the note, which is subject to the rules discussed above under
Non-U.S. Holders
Interest) unless (i) the gain is effectively
connected with a U.S. trade or business of the
non-U.S. holder
or (ii) in the case of a
non-U.S. holder
who is an individual, such holder is present in the
U.S. for a period or periods aggregating 183 days or
more during the taxable year of the disposition and certain
other requirements are met.
U.S. Trade or Business. If interest or
gain from a disposition of the notes is effectively connected
with a
non-U.S. holders
conduct of a U.S. trade or business and, if an income tax
treaty applies and the
non-U.S. holder
maintains a U.S. permanent establishment to
which the interest or gain is attributable, the
non-U.S. holder
may be subject to U.S. federal income tax on the interest
or gain on a net basis in the same manner as if it were a
U.S. holder. If interest income received with respect to
the notes is taxable on a net basis, the 30% withholding tax
described above will not apply (assuming an appropriate
certification is provided, generally IRS
Form W-8ECI).
A foreign corporation that is a holder of a note may also be
subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits for the taxable year, subject to
certain adjustments, unless it qualifies for a lower rate under
an applicable income tax treaty. For this purpose, interest on a
note or gain realized on the disposition of a note will be
included in earnings and profits if the interest or gain is
effectively connected with the conduct by the foreign
corporation of a trade or business in the U.S.
Information Reporting and Backup Withholding
Tax. U.S. backup withholding tax generally
will not apply to payments on a note to a
non-U.S. holder
if the
non-U.S. holder
is exempt from withholding tax on interest as described above in
Non-U.S. Holders
Interest. However, information reporting may still apply
with respect to interest payments.
Payment of proceeds made to a
non-U.S. holder
outside the U.S. from a disposition of notes effected
through a
non-U.S. office
of a
non-U.S. broker
generally will not be subject to backup withholding and
information reporting. However, payment of proceeds from a
disposition of notes by a
non-U.S. holder
effected through a
non-U.S. office
of a broker may be subject to information reporting (but
generally not backup withholding) if the broker is (i) a
U.S. person (within the meaning of the Code); (ii) a
controlled foreign corporation for Untied States federal income
tax purposes; (iii) a foreign person 50% or more of whose
gross income is effectively connected with a U.S. trade or
business for a specified three-year period; or (iv) a
foreign partnership, if at any time during its tax year, one or
more of its partners are U.S. persons, as defined in
Treasury regulations, who in the aggregate hold more than 50% of
the income or capital interest in the partnership or if, at any
time during its tax year, the foreign partnership is engaged in
a U.S. trade or business.
Payment of the proceeds from a disposition by a
non-U.S. holder
of a note made to or through the U.S. office of a broker is
generally subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as
to its taxpayer identification number or otherwise establishes
an exemption from information reporting and backup withholding.
Non-U.S. holders
should consult their own tax advisors regarding application of
withholding and backup withholding in their particular
circumstance and the availability of and procedure for obtaining
an exemption from withholding and backup withholding under
current Treasury regulations. In this regard, the current
Treasury regulations provide that a certification may not be
relied on if we or our agent (or other payor) knows or has
reason to know that the certification may be false. Backup
withholding is not an additional tax. Any amounts withheld under
the backup withholding rules from a payment to a
non-U.S. holder
will be allowed as a credit against the holders
U.S. federal income tax liability or may be refunded,
provided the required information is furnished in a timely
manner to the IRS.
S-75
UNDERWRITING
We intend to offer the notes through the underwriters. Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley & Co. Incorporated are acting as
representatives of the underwriters named below. Subject to the
terms and conditions contained in an underwriting agreement
between us and the underwriters, we have agreed to sell to the
underwriters and the underwriters severally have agreed to
purchase from us, the principal amount of the notes listed
opposite their names below:
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Principal
|
|
Underwriter
|
|
Amount
|
|
|
Merrill Lynch, Pierce, Fenner
& Smith
Incorporated
|
|
$
|
|
|
Morgan Stanley & Co.
Incorporated
|
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|
|
|
|
|
|
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Total
|
|
$
|
1,100,000,000
|
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|
The underwriters have agreed to purchase all of the notes sold
pursuant to the underwriting agreement if any of the notes are
purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the underwriting
agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, as amended, or to contribute to payments the underwriters
may be required to make in respect of those liabilities.
The underwriters are offering the notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the notes, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions
and Discounts
The underwriters have advised us that they propose initially to
offer the notes to the public at the public offering price
specified on the cover page of this prospectus supplement, and
to dealers at that price less a concession not in excess
of % of the principal amount of the
notes. The underwriters may allow, and the dealers may reallow,
a discount not in excess of % of
the principal amount of the notes to other dealers. After the
initial public offering, the public offering price, concession
and discount may be changed.
The expenses of the offering, not including the underwriting
discount, are estimated to be approximately $300,000 and are
payable by us.
New Issue
of Notes
The notes are a new issue of securities with no established
trading market. We do not intend to apply for listing of the
notes on any national securities exchange or for quotation of
the notes on any automated dealer quotation system. We have been
advised by the underwriters that they presently intend to make a
market in the notes after completion of the offering. However,
the underwriters are under no obligation to do so and may
discontinue any market-making activities at any time without
notice. We cannot assure that an active public market for the
notes will develop or that any trading market that does develop
for the notes will be liquid. If an active public trading market
for any series of the notes does not develop, the market price
and liquidity of the notes may be adversely affected.
Price
Stabilization and Short Positions
In connection with the offering, the underwriters are permitted
to engage in transactions that stabilize the market price of the
notes. Such transactions consist of bids or purchases to peg,
fix or maintain the price of the notes. If the underwriters
create a short position in connection with the offering, i.e.,
if they sell more
S-76
notes than are specified on the cover page of this prospectus
supplement, the underwriters may reduce that short position by
purchasing notes in the open market. Purchases of a security to
stabilize the price or to reduce a short position could cause
the price of the security to be higher than it might be in the
absence of such purchases.
Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
notes. In addition, neither we nor the underwriters make any
representation that the underwriters will engage in these
transactions or that these transactions, once commenced, will
not be discontinued without notice.
Other
Relationships
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley & Co. Incorporated and certain of their
affiliates are lenders under, and receive customary fees and
expenses in connection with, certain of our credit facilities,
including our senior secured credit facility, which is being
amended in connection with the Transactions, and our bridge loan
facility. See Description of Certain Other Indebtedness
and Preferred Stock. An affiliate of Morgan
Stanley & Co. Incorporated is a hedging counterparty of
ours, and such affiliate will receive a share of the amounts
that are paid to hedging counterparties in connection with the
resetting of certain of our hedges. See The
Transactions in this prospectus supplement. As a result,
this affiliate may receive more than 10% of the net proceeds of
this offering. Therefore, this offering will be made pursuant to
the requirements of Rule 2710(h) of the Conduct Rules of
the National Association of Securities Dealers, Inc. This rule
requires that the yield of a debt security be no lower than the
yield recommended by a qualified independent underwriter which
has participated in the preparation of the registration
statement and performed its usual standard of due diligence with
respect to that registration statement. Merrill Lynch, Pierce,
Fenner & Smith Incorporated has agreed to act as
qualified independent underwriter with respect to this offering.
The yield on the notes will be no lower than that recommended by
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Neither Merrill Lynch, Pierce, Fenner & Smith
Incorporated nor its affiliates is a hedging counterparty of
ours that will receive any net proceeds from this offering.
The underwriters and their affiliates have engaged in, and may
in the future engage in, investment banking and other commercial
dealings (including hedging transactions) in the ordinary course
of business with us. They have received customary fees and
commissions for these transactions.
We have entered into bridge agreements with Merrill
Lynch & Co. and Morgan Stanley & Co. Incorporated
and certain of their affiliates to assure that we have adequate
financing to fund amounts owing to the hedge counterparties in
connection with the resetting at certain of our hedges.
S-77
LEGAL
MATTERS
The validity of the notes offered hereby and certain other
matters will be passed upon for NRG by Kirkland & Ellis
LLP, Chicago, Illinois. The Underwriters have been represented
in connection with this offering by Latham & Watkins
LLP, New York, New York.
S-78
NRG Energy, Inc.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
NRG Energy, Inc., from time to time, may offer to sell senior or
subordinated debt securities, preferred stock and common stock.
The debt securities and preferred stock may be convertible into
or exercisable or exchangeable for our common stock, our
preferred stock, our other securities or the debt or equity
securities of one or more other entities. Our common stock is
listed on the New York Stock Exchange and trades under the
ticker symbol NRG.
We may offer and sell these securities to or through one or more
underwriters, dealers and agents, or directly to purchasers, on
a continuous or delayed basis.
This prospectus describes some of the general terms that may
apply to these securities. The specific terms of any securities
to be offered will be described in a supplement to this
prospectus.
Neither the Securities and Exchange Commission nor any other
state securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
Prospectus dated December 21, 2005
TABLE OF
CONTENTS
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WHERE
YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange
Commission, or the SEC. You can inspect and copy these reports,
proxy statements and other information at the Public Reference
Room of the SEC, 100 F Street, N.E., Washington, D.C.
20549. You can obtain copies of these materials from the Public
Reference Section of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. Please call
the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. NRGs SEC filings will also be available to you on
the SECs website at http://www.sec.gov and through the New
York Stock Exchange, 20 Broad Street, New York,
New York 10005, on which our common stock is listed.
We have filed with the SEC a registration statement on
Form S-3
relating to the securities covered by this prospectus. This
prospectus, which forms a part of the registration statement,
does not contain all the information that is included in the
registration statement. You will find additional information
about us in the registration statement. Any statements made in
this prospectus concerning the provisions of legal documents are
not necessarily complete and you should read the documents that
are filed as exhibits to the registration statement or otherwise
filed with the SEC for a more complete understanding of the
document or matter.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the incorporation by reference of the
information filed by us with the SEC into this prospectus, which
means that important information can be disclosed to you by
referring you to those documents and those documents will be
considered part of this prospectus. Information that we file
later with the SEC will automatically update and supersede the
previously filed information. The documents listed below and any
future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the Exchange Act) are incorporated by
reference herein:
1. Our annual report on
Form 10-K
for the year ended December 31, 2004 filed on
March 30, 2005.
2. Our Definitive Proxy Statement on Schedule 14A
filed on April 12, 2005.
3. Our quarterly reports on
Form 10-Q
for the quarters ended March 31, 2005 filed on May 10,
2005, June 30, 2005 filed on August 9, 2005 and
September 30, 2005 filed on November 7, 2005.
4. Our current reports on
Form 8-K
filed on February 24, 2005,
Form 8-K
filed on March 3, 2005, two
Forms 8-K
filed on March 30, 2005 (which do not include information
deemed furnished for purposes of
Regulation F-D),
Form 8-K
filed on May 24, 2005,
Form 8-K/A
filed on May 24, 2005,
Form 8-K/A
filed on May 25, 2005,
Form 8-K
filed on June 15, 2005,
Form 8-K/A
filed on June 15, 2005,
Form 8-K
filed on June 17, 2005,
Form 8-K
filed on July 18, 2005,
Form 8-K
filed on August 1, 2005,
Form 8-K
filed on August 3, 2005,
Form 8-K
filed on August 9, 2005 (which does not include information
deemed furnished for purposes of
Regulation F-D),
Form 8-K
filed on August 11, 2005,
Form 8-K
filed on September 1, 2005,
Form 8-K
filed on September 7, 2005 (which does not include
information deemed furnished for purposes of
Regulation F-D),
Form 8-K
filed on October 3, 2005,
Form 8-K
filed on October 12, 2005,
Form 8-K
filed on November 7, 2005 (which does not include
information deemed furnished for purposes of
Regulation F-D), Form 8-K filed on December 20,
2005 and
Form 8-K
filed on December 21, 2005.
5. The description of our common stock contained in the
Registration Statement on
Form 8-A
dated March 22, 2004 filed with the SEC to register such
securities under the Securities and Exchange Act of 1934, as
amended, including any amendment or report filed for the purpose
of updating such description.
ii
If you make a request for such information in writing or by
telephone, we will provide you, without charge, a copy of any or
all of the information incorporated by reference into this
prospectus. Any such request should be directed to:
NRG Energy,
Inc.
211 Carnegie Center
Princeton, NJ 08540
(609) 524-4500
Attention: General Counsel
You should rely only on the information contained in, or
incorporated by reference in, this prospectus. We have not
authorized anyone else to provide you with different or
additional information. This prospectus does not offer to sell
or solicit any offer to buy any notes in any jurisdiction where
the offer or sale is unlawful. You should not assume that the
information in this prospectus or in any document incorporated
by reference is accurate as of any date other than the date on
the front cover of the applicable document.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the
documents incorporated by reference herein and therein may
contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements are subject to certain risks,
uncertainties and assumptions that include, but are not limited
to, expected earnings and cash flows, future growth and
financial performance and the expected synergies and other
benefits of the acquisition of Texas Genco LLC described herein
(including the documents incorporated herein by reference), and
typically can be identified by the use of words such as
will, expect, estimate,
anticipate, forecast, plan,
believe and similar terms. Although we believe that
our expectations are reasonable, we can give no assurance that
these expectations will prove to have been correct, and actual
results may vary materially. Factors that could cause actual
results to differ materially from those contemplated above
include, among others:
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Risks and uncertainties related to the capital markets
generally, including increases in interest rates and the
availability of financing for the acquisition of Texas Genco LLC;
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NRGs indebtedness and the additional indebtedness that it
will incur in connection with the acquisition of Texas Genco LLC;
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NRGs ability to successfully complete the acquisition of
Texas Genco LLC, regulatory or other limitations that may be
imposed as a result of the acquisition of Texas Genco LLC, and
the success of the business following the acquisition of Texas
Genco LLC;
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General economic conditions, changes in the wholesale power
markets and fluctuations in the cost of fuel or other raw
materials;
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Hazards customary to the power production industry and power
generation operations such as fuel and electricity price
volatility, unusual weather conditions, catastrophic
weather-related or other damage to facilities, unscheduled
generation outages, maintenance or repairs, unanticipated
changes to fossil fuel supply costs or availability due to
higher demand, shortages, transportation problems or other
developments, environmental incidents, or electric transmission
or gas pipeline system constraints and the possibility that we
may not have adequate insurance to cover losses as a result of
such hazards;
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NRGs potential inability to enter into contracts to sell
power and procure fuel on terms and prices acceptable to it;
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The liquidity and competitiveness of wholesale markets for
energy commodities;
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Changes in government regulation, including possible changes of
market rules, market structures and design, rates, tariffs,
environmental laws and regulations and regulatory compliance
requirements;
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Price mitigation strategies and other market structures or
designs employed by independent system operators, or ISOs, or
regional transmission organizations, or RTOs, that result in a
failure to adequately compensate our generation units for all of
their costs;
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NRGs ability to realize its significant deferred tax
assets, including loss carry forwards;
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The effectiveness of NRGs risk management policies and
procedures and the ability of NRGs counterparties to
satisfy their financial commitments;
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Counterparties collateral demands and other factors
affecting NRGs liquidity position and financial condition;
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NRGs ability to operate its businesses efficiently, manage
capital expenditures and costs (including general and
administrative expenses) tightly and generate earnings and cash
flow from its asset-based businesses in relation to its debt and
other obligations; and
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Significant operating and financial restrictions placed on NRG
contained in the indenture governing its 8% second priority
senior secured notes due 2013, its amended and restated credit
facility as well as in debt and other agreements of certain of
NRGs subsidiaries and project affiliates generally.
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NRG
ENERGY, INC.
NRG Energy is a wholesale power generation company, primarily
engaged in the ownership and operation of power generation
facilities, the transacting in and trading of fuel and
transportation services and the marketing and trading of energy,
capacity and related products in the United States and
internationally. We have a diverse portfolio of electric
generation facilities in terms of geography, fuel type and
dispatch levels. Our principal domestic generation assets
(without giving effect to the acquisition of Texas Genco LLC)
consist of a diversified mix of natural gas-, coal- and
oil-fired facilities, representing approximately 40%, 30% and
30% of our total domestic generation capacity, respectively. In
addition (without giving effect to the acquisition of Texas
Genco LLC), approximately 15% of our domestic generating
facilities have dual- or multiple-fuel capacity, which render
the ability for plants to dispatch with the lowest cost fuel
option.
Our two principal operating objectives are to optimize
performance of our entire portfolio, and to protect and enhance
the market value of our physical and contractual assets through
the execution of risk management, marketing and trading
strategies within well-defined risk and liquidity guidelines. We
manage the assets in our core regions on a portfolio basis as
integrated businesses in order to maximize profits and minimize
risk. Our business involves the reinvestment of capital in our
existing assets for reasons of repowering, expansion, pollution
control, operating efficiency, reliability programs, greater
fuel optionality, greater merit order diversity, and enhanced
portfolio effect, among other reasons. Our business also may
involve acquisitions intended to complement the asset portfolios
in our core regions. From time to time we may also consider and
undertake other merger and acquisition transactions that are
consistent with our strategy, such as our pending acquisition of
Texas Genco LLC.
On September 30, 2005, we entered into an acquisition
agreement, or the Acquisition Agreement, with Texas Genco LLC
and each of the direct and indirect owners of equity interests
in Texas Genco LLC, or the Sellers. Pursuant to the Acquisition
Agreement, we agreed to purchase all of the outstanding equity
interests in Texas Genco LLC for a total purchase price of
approximately $5.825 billion and the assumption by us of
approximately $2.5 billion of indebtedness. The purchase
price is subject to adjustment, and includes an equity component
valued at $1.8 billion based on a price per share of $40.50
of NRGs common stock. As a result of the Acquisition,
Texas Genco LLC will become a wholly owned subsidiary of NRG and
will nearly double our U.S. generation portfolio from
approximately 12,005 Megawatts to 23,124 Megawatts.
We were incorporated as a Delaware corporation on May 29,
1992. Our common stock is listed on the New York Stock Exchange
under the symbol NRG. Our headquarters and principal
executive offices are located at 211 Carnegie Center, Princeton,
New Jersey 08540. Our telephone number is
(609) 524-4500.
You can get more information regarding our business by reading
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004, and the other
reports we file with the Securities and Exchange Commission. See
Where You Can Find More Information.
1
DESCRIPTION
OF SECURITIES WE MAY OFFER
We may offer secured or unsecured debt securities, which may be
convertible. Our debt securities and any related guarantees will
be issued under an indenture to be entered into between us and
Law Debenture Trust Company of New York. Holders of our
indebtedness will be structurally subordinated to holders of any
indebtedness (including trade payables) of any of our
subsidiaries that do not guarantee our payment obligations under
such indebtedness.
We have summarized certain general features of the debt
securities from the indenture. A form of indenture is attached
as an exhibit to the registration statement of which this
prospectus forms a part. The following description of the terms
of the debt securities and the guarantees sets forth certain
general terms and provisions. The particular terms of the debt
securities and guarantees offered by any prospectus supplement
and the extent, if any, to which such general provisions may
apply to the debt securities and guarantees will be described in
the related prospectus supplement. Accordingly, for a
description of the terms of a particular issue of debt
securities, reference must be made to both the related
prospectus supplement and to the following description.
General
The aggregate principal amount of debt securities that may be
issued under the indenture is unlimited. The debt securities may
be issued in one or more series as may be authorized from time
to time.
Reference is made to the applicable prospectus supplement for
the following terms of the debt securities (if applicable):
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title and aggregate principal amount;
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whether the securities will be senior or subordinated;
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applicable subordination provisions, if any;
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whether securities issued by us will be entitled to the benefits
of the guarantees or any other form of guarantee;
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conversion or exchange into other securities;
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whether securities issued by us will be secured or unsecured,
and if secured, what the collateral will consist of;
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percentage or percentages of principal amount at which such
securities will be issued;
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maturity date(s);
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interest rate(s) or the method for determining the interest
rate(s);
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dates on which interest will accrue or the method for
determining dates on which interest will accrue and dates on
which interest will be payable;
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redemption (including upon a change of control) or
early repayment provisions;
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authorized denominations;
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form;
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amount of discount or premium, if any, with which such
securities will be issued;
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whether such securities will be issued in whole or in part in
the form of one or more global securities;
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identity of the depositary for global securities;
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whether a temporary security is to be issued with respect to
such series and whether any interest payable prior to the
issuance of definitive securities of the series will be credited
to the account of the persons entitled thereto;
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the terms upon which beneficial interests in a temporary global
security may be exchanged in whole or in part for beneficial
interests in a definitive global security or for individual
definitive securities;
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conversion or exchange features;
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any covenants applicable to the particular debt securities being
issued;
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any defaults and events of default applicable to the particular
debt securities being issued;
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currency, currencies or currency units in which the purchase
price for, the principal of and any premium and any interest on,
such securities will be payable;
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time period within which, the manner in which and the terms and
conditions upon which the purchaser of the securities can select
the payment currency;
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securities exchange(s) on which the securities will be listed,
if any;
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whether any underwriter(s) will act as market maker(s) for the
securities;
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extent to which a secondary market for the securities is
expected to develop;
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additions to or changes in the events of default with respect to
the securities and any change in the right of the trustee or the
holders to declare the principal, premium and interest with
respect to such securities to be due and payable;
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provisions relating to covenant defeasance and legal defeasance;
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provisions relating to satisfaction and discharge of the
indenture;
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provisions relating to the modification of the indenture both
with and without the consent of holders of debt securities
issued under the indenture; and
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additional terms not inconsistent with the provisions of the
indenture.
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One or more series of debt securities may be sold at a
substantial discount below their stated principal amount,
bearing no interest or interest at a rate which at the time of
issuance is below market rates. One or more series of debt
securities may be variable rate debt securities that may be
exchanged for fixed rate debt securities.
United States federal income tax consequences and special
considerations, if any, applicable to any such series will be
described in the applicable prospectus supplement.
Debt securities may be issued where the amount of principal
and/or interest payable is determined by reference to one or
more currency exchange rates, commodity prices, equity indices
or other factors. Holders of such securities may receive a
principal amount or a payment of interest that is greater than
or less than the amount of principal or interest otherwise
payable on such dates, depending upon the value of the
applicable currencies, commodities, equity indices or other
factors. Information as to the methods for determining the
amount of principal or interest, if any, payable on any date,
the currencies, commodities, equity indices or other factors to
which the amount payable on such date is linked and certain
additional United States federal income tax considerations will
be set forth in the applicable prospectus supplement.
The term debt securities includes debt securities
denominated in U.S. dollars or, if specified in the
applicable prospectus supplement, in any other freely
transferable currency or units based on or relating to foreign
currencies.
We expect most debt securities to be issued in fully registered
form without coupons and in denominations of $1,000 or $5,000
and any integral multiples thereof. Subject to the limitations
provided in
3
the indenture and in the prospectus supplement, debt securities
that are issued in registered form may be transferred or
exchanged at the office of the trustee maintained in the Borough
of Manhattan, The City of New York or the principal corporate
trust office of the trustee, without the payment of any service
charge, other than any tax or other governmental charge payable
in connection therewith.
Guarantees
Any debt securities may be guaranteed by one or more of our
direct or indirect subsidiaries. Each prospectus supplement will
describe any guarantees for the benefit of the series of debt
securities to which it relates, including required financial
information of the subsidiary guarantors, as applicable.
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global securities that will be
deposited with, or on behalf of, a depositary (the
depositary) identified in the prospectus supplement.
Global securities will be issued in registered form and in
either temporary or definitive form. Unless and until it is
exchanged in whole or in part for the individual debt
securities, a global security may not be transferred except as a
whole by the depositary for such global security to a nominee of
such depositary or by a nominee of such depositary to such
depositary or another nominee of such depositary or by such
depositary or any such nominee to a successor of such depositary
or a nominee of such successor. The specific terms of the
depositary arrangement with respect to any debt securities of a
series and the rights of and limitations upon owners of
beneficial interests in a global security will be described in
the applicable prospectus supplement.
Governing
Law
The indenture, the debt securities and the guarantees shall be
construed in accordance with and governed by the laws of the
State of New York, without giving effect to the principles
thereof relating to conflicts of law.
PREFERRED
STOCK
The following briefly summarizes the material terms of our
preferred stock, other than pricing and related terms that will
be disclosed in an accompanying prospectus supplement. You
should read the particular terms of any series of preferred
stock offered by us, which will be described in more detail in
any prospectus supplement relating to such series, together with
the more detailed provisions of our amended and restated
certificate of incorporation and the certificate of designation
relating to each particular series of preferred stock for
provisions that may be important to you. The certificate of
incorporation, as amended and restated, is incorporated by
reference into the registration statement of which this
prospectus forms a part. The certificate of designation relating
to the particular series of preferred stock offered by an
accompanying prospectus supplement and this prospectus will be
filed as an exhibit to a document incorporated by reference in
the registration statement. The prospectus supplement will also
state whether any of the terms summarized below do not apply to
the series of preferred stock being offered.
As of the date of this prospectus, we are authorized to issue up
to 10,000,000 shares of preferred stock, par value
$0.01 per share. As of December 16, 2005,
420,000 shares of 4% Convertible Perpetual Preferred
Stock were outstanding and 250,000 shares of
3.625% Convertible Perpetual Preferred Stock were
outstanding. Under our amended and restated certificate of
incorporation, our board of directors is authorized to issue
shares of preferred stock in one or more series, and to
establish from time to time a series of preferred stock with the
following terms specified:
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the number of shares to be included in the series;
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the designation, powers, preferences and rights of the shares of
the series; and
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the qualifications, limitations or restrictions of such series.
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Prior to the issuance of any series of preferred stock, our
board of directors will adopt resolutions creating and
designating the series as a series of preferred stock and the
resolutions will be filed in a certificate of designation as an
amendment to the amended and restated certificate of
incorporation. The term board of directors includes
any duly authorized committee.
The rights of holders of the preferred stock offered may be
adversely affected by the rights of holders of any shares of
preferred stock that may be issued in the future. Our board of
directors may cause shares of preferred stock to be issued in
public or private transactions for any proper corporate purpose.
Examples of proper corporate purposes include issuances to
obtain additional financing in connection with acquisitions or
otherwise, and issuances to our or our subsidiaries
officers, directors and employees pursuant to benefit plans or
otherwise. Shares of preferred stock we issue may have the
effect of rendering more difficult or discouraging an
acquisition of us deemed undesirable by our board of directors.
The preferred stock will be, when issued, fully paid and
nonassessable. Holders of preferred stock will not have any
preemptive or subscription rights to acquire more of our stock.
The transfer agent, registrar, dividend disbursing agent and
redemption agent for shares of each series of preferred stock
will be named in the prospectus supplement relating to such
series.
Rank
Unless otherwise specified in the prospectus supplement relating
to the shares of a series of preferred stock, such shares will
rank on an equal basis with each other series of preferred stock
and prior to the common stock as to dividends and distributions
of assets.
Dividends
Holders of each series of preferred stock will be entitled to
receive cash dividends when, as and if declared by our board of
directors out of funds legally available for dividends. The
rates and dates of payment of dividends will be set forth in the
prospectus supplement relating to each series of preferred
stock. Dividends will be payable to holders of record of
preferred stock as they appear on our books or, if applicable,
the records of the depositary referred to below on the record
dates fixed by the board of directors. Dividends on a series of
preferred stock may be cumulative or noncumulative.
We may not declare, pay or set apart for payment dividends on
the preferred stock unless full dividends on other series of
preferred stock that rank on an equal or senior basis have been
paid or sufficient funds have been set apart for payment for
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all prior dividend periods of other series of preferred stock
that pay dividends on a cumulative basis; or
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the immediately preceding dividend period of other series of
preferred stock that pay dividends on a noncumulative basis.
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Partial dividends declared on shares of preferred stock and each
other series of preferred stock ranking on an equal basis as to
dividends will be declared pro rata. A pro rata declaration
means that the ratio of dividends declared per share to accrued
dividends per share will be the same for each series of
preferred stock.
Similarly, we may not declare, pay or set apart for payment
non-stock dividends or make other payments on the common stock
or any other of our stock ranking junior to the preferred stock
until full dividends on the preferred stock have been paid or
set apart for payment for
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all prior dividend periods if the preferred stock pays dividends
on a cumulative basis; or
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the immediately preceding dividend period if the preferred stock
pays dividends on a noncumulative basis.
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5
Conversion
and Exchange
The prospectus supplement for a series of preferred stock will
state the terms, if any, on which shares of that series are
convertible into or exchangeable for shares of our common stock,
our preferred stock, our other securities or the debt or equity
securities of one or more other entities.
Redemption
and Sinking Fund
If so specified in the applicable prospectus supplement, a
series of preferred stock may be redeemable at any time, in
whole or in part, at our option or the option of the holder
thereof and may be mandatorily redeemed. Any partial redemptions
of preferred stock will be made in a way that the board of
directors decides is equitable.
Unless we default in the payment of the redemption price,
dividends will cease to accrue after the redemption date on
shares of preferred stock called for redemption and all rights
of holders of such shares will terminate except for the right to
receive the redemption price.
No series of preferred stock will receive the benefit of a
sinking fund except as set forth in the applicable prospectus
supplement.
Liquidation
Preference
Upon any voluntary or involuntary liquidation, dissolution or
winding up, holders of each series of preferred stock will be
entitled to receive distributions upon liquidation in the amount
set forth in the prospectus supplement relating to such series
of preferred stock, plus an amount equal to any accrued and
unpaid dividends. Such distributions will be made before any
distribution is made on any securities ranking junior relating
to liquidation, including common stock.
If the liquidation amounts payable relating to the preferred
stock of any series and any other securities ranking on a parity
regarding liquidation rights are not paid in full, the holders
of the preferred stock of such series and such other securities
will share in any such distribution of our available assets on a
ratable basis in proportion to the full liquidation preferences.
Holders of such series of preferred stock will not be entitled
to any other amounts from us after they have received their full
liquidation preference.
Voting
Rights
The holders of shares of preferred stock will have no voting
rights, except:
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as otherwise stated in the prospectus supplement;
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as otherwise stated in the certificate of designation
establishing such series; and
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as required by applicable law.
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Holders of our 4% Convertible Perpetual Preferred Stock are
entitled to one vote for each share held by such holder on all
matters voted upon by our common stockholders.
COMMON
STOCK
The following description of our common stock is only a summary.
We encourage you to read our amended and restated certificate of
incorporation, which is incorporated by reference into the
registration statement of which this prospectus forms a part. As
of the date of this prospectus, we are authorized to issue up to
500,000,000 shares of common stock, $0.01 par value
per share. As of December 16, 2005, we had outstanding
80,701,888 shares of our common stock.
6
Liquidation
Rights
Upon voluntary or involuntary liquidation, dissolution or
winding up, the holders of our common stock share ratably in the
assets remaining after payments to creditors and provision for
the preference of any preferred stock.
Dividends
Except as otherwise provided by the Delaware General Corporation
Law or our amended and restated certificate of incorporation,
the holders of our common stock, subject to the rights of
holders of any series of preferred stock, shall share ratably in
all dividends as may from time to time be declared by our board
of directors in respect of our common stock out of funds legally
available for the payment thereof and payable in cash, stock or
otherwise, and in all other distributions (including, without
limitation, our dissolution, liquidation and winding up),
whether in respect of liquidation or dissolution (voluntary or
involuntary) or otherwise, after payment of liabilities and
liquidation preference on any outstanding preferred stock.
Voting
Rights
Except as otherwise provided by the Delaware General Corporation
Law or our certificate of incorporation and subject to the
rights of holders of any series of preferred stock, all the
voting power of our stockholders shall be vested in the holders
of our common stock, and each holder of our common stock shall
have one vote for each share held by such holder on all matters
voted upon by our stockholders.
Subject to the rights of holders of any outstanding shares of
preferred stock to act by written consent, our stockholders may
not take any action by written consent in lieu of a meeting and
must take any action at a duly called annual or special meeting
of stockholders.
The affirmative vote of holders of at least two-thirds of the
combined voting power of our outstanding shares eligible to vote
in the election of directors is required to alter, amend or
repeal provisions in the amended and restated certificate of
incorporation regarding indemnification, classification of
directors, action by written consent and changes to voting
requirements applicable to such provisions.
Conversion
and Exchange
Our common stock is not convertible into, or exchangeable for,
any other class or series of our capital stock.
Miscellaneous
Holders of our common stock have no preemptive or other rights
to subscribe for or purchase additional securities of ours. We
are subject to Section 203 of the DGCL. Shares of our
common stock are not subject to calls or assessments. No
personal liability will attach to holders of our common stock
under the laws of the State of Delaware (our state of
incorporation) or of the State of New Jersey (the state in which
our principal place of business is located). All of the
outstanding shares of our common stock are fully paid and
nonassessable. Our common stock is listed and traded on the New
York Stock Exchange under the symbol NRG.
RATIOS
OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERENCE DIVIDENDS
The ratios of earnings to fixed charges and earnings to combined
fixed charges and preference dividends for the periods indicated
are stated below. For this purpose, earnings include
pre-tax income (loss) before adjustments for minority interest
in our consolidated subsidiaries and income or loss from equity
investees, plus fixed charges and distributed income of equity
investees, reduced by interest capitalized. Fixed
charges include interest, whether expensed or capitalized,
amortization of debt expense and the portion of rental expense
that is representative of the interest factor in these rentals.
Preference dividends equals the
7
amount of pre-tax earnings that is required to pay the dividends
on outstanding preference securities. Predecessor
Company refers to NRGs operations prior to
December 6, 2003, before emergence from bankruptcy and
Reorganized NRG refers to NRGs operations from
December 6, 2003 onwards, after emergence from bankruptcy.
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Reorganized NRG
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Predecessor Company
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Nine
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December 6,
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January 1,
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Months
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Year
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2003
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2003
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Year
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Ended
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Ended
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through
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through
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Ended
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September 30,
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December 31,
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December 31,
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December 5,
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December 31,
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2005
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2004
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2003
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2003
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2002
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2001
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2000
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Ratio of Earnings to Fixed Charges
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1.19
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1.83
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1.68
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x
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9.82
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x(1)
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(2)
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1.26
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x
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1.81
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Ratio of Earnings to Combined Fixed
Charges and Preference Dividends
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1.04
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x
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1.82
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1.68
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x
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9.82
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x(1)
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(2)
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1.26
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x
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1.81
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(1)
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For the period January 1, 2003 through December 5,
2003, the earnings include a one time earning of $4,118,636,000
due to Fresh Start adjustments.
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(2)
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For the year ended December 31, 2002, the deficiency of
earnings to fixed charges was $3,023,467,000.
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USE
OF PROCEEDS
We intend to use the net proceeds from the sales of the
securities as set forth in the applicable prospectus supplement.
VALIDITY
OF THE SECURITIES
In connection with particular offerings of the securities in the
future, and if stated in the applicable prospectus supplements,
the validity of those securities may be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York, and for any underwriters or agents by
counsel named in the applicable prospectus supplement.
EXPERTS
The consolidated financial statements and schedule of NRG
Energy, Inc. (the Company) as of December 31, 2004, and for
the year then ended, and managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2004, included in the Companys
Form 10-K,
as amended on
Form 8-K
dated December 20, 2005, which is incorporated by reference
in this registration statement, have been incorporated by
reference herein in reliance upon the reports of KPMG LLP, an
independent registered accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements and schedule of NRG South
Central Generating LLC and subsidiaries and the financial
statements and schedule of Louisiana Generating LLC as of
December 31, 2004 and for the year then ended, the
consolidated financial statements of NRG Northeast Generating
LLC and subsidiaries, NRG Mid Atlantic Generating LLC and
subsidiaries, NRG International LLC and subsidiaries and the
financial statements of Indian River Power LLC and subsidiaries
as of December 31, 2004 and for the year then ended, the
financial statements of Oswego Harbor Power LLC as of
December 31, 2004 and 2003 and for the year ended
December 31, 2003 and the period from December 6, 2003
to December 31, 2003 and the statements of operations,
members equity and comprehensive income and cash flows of
Oswego Harbor Power LLC for the period from January 1, 2003
to December 5, 2003, have been incorporated by reference
herein in reliance on the reports of KPMG LLP, an
independent registered public accounting firm, incorporated by
reference herein, and upon authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of NRG Energy, Inc. as of
December 31, 2003 and for the period December 6, 2003
through December 31, 2003, the period January 1, 2003
through December 5, 2003
8
and the year ended December 31, 2002 incorporated in this
prospectus by reference to NRG Energy, Inc.s annual report
on Form 10-K for the year ended December 31, 2004, as
amended on Form 8-K dated December 20, 2005, which is
incorporated by reference in this registration statement, have
been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The consolidated financial statements of NRG Northeast
Generating LLC, NRG South Central Generating LLC, Louisiana
Generating LLC, NRG Mid Atlantic Generating LLC, Indian River
Power LLC, and NRG International LLC as of December 31,
2003 and for the period from December 6, 2003 through
December 31, 2003, the period from January 1, 2003
through December 5, 2003 and the year ended
December 31, 2002 incorporated in this prospectus by
reference to NRG Energy, Inc.s current report on
Form 8-K dated June 14, 2005, have been so
incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The consolidated financial statements of West Coast Power LLC
incorporated in this prospectus by reference to NRG Energy,
Inc.s annual report on Form 10-K for the year ended
December 31, 2004, as amended on Form 8-K dated
December 20, 2005, which is incorporated by reference in
this registration statement, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
The consolidated balance sheet of Texas Genco LLC and
subsidiaries as of December 31, 2004 and the related
consolidated statements of operations, cash flows, members
equity and comprehensive loss for the period from July 19,
2004 to December 31, 2004, all incorporated in this
prospectus by reference to NRG Energy, Inc.s current
report on
Form 8-K,
filed on December 21, 2005, have been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report, which is
incorporated herein by reference and has been so incorporated in
reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated balance sheet of Texas Genco Holdings, Inc. and
subsidiaries as of December 31, 2003 and 2004 and the
related statements of consolidated operations, cash flows, and
capitalization and shareholders equity for each of the
three years for the period ended December 31, 2004, and the
statement of consolidated comprehensive loss for each of the
three years for the period ended December 31, 2004, all
incorporated in this prospectus by reference to NRG Energy,
Inc.s current report on
Form 8-K,
filed on December 21, 2005, have been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report, which is
incorporated herein by reference and has been so incorporated in
reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
9
$1,100,000,000
NRG Energy, Inc.
% Senior Notes Due
2017
PROSPECTUS SUPPLEMENT
Merrill Lynch &
Co.
Morgan Stanley