425
Filed by NRG Energy, Inc. pursuant to
Rule 425 of the Securities Act of 1933 and
deemed filed pursuant to Rule 14a-12 of the
Securities Exchange Act of 1934
Subject Company: NRG Energy, Inc.
Commission File No.: 001-15891
On April 2, 2009, NRG Energy, Inc. (NRG) issued the following letter to all NRG stockholders.
[NRG ENERGY, INC. LETTERHEAD]
NRG Energy, Inc. Sends Letter to NRG Stockholders
PRINCETON, NJ; April 2, 2009NRG Energy, Inc. (NYSE: NRG) today filed its preliminary proxy
statement and sent the following letter to NRG stockholders regarding Exelon Corporations (NYSE:
EXC) attempt to expand NRGs Board of Directors from its current 13 directors to 19 directors and
elect a slate of its nine directors to NRGs Board of Directors, all to impose on NRGs
stockholders its wholly inadequate, highly conditional and risky unsolicited proposal to acquire
NRG by means of its offer to exchange 0.485 of its shares for each share of NRG stock.
April 2, 2009
Dear NRG Stockholders:
Exelons preliminary proxy filing proposes to expand NRGs Board of Directors from its current 13
to 19 directors and nominates a slate of nine Exelon directorsfour of whom will contest the four
Board positions up for election and the other five who Exelon expects to fill the new
directorships.
It is your Board of Directors and managements strong belief that Exelons proposal is not in
NRGs stockholders best interests. Our view is that Exelons actions are not intended to improve
or augment the strategic direction of NRG or to otherwise maximize the value of your stake in NRG.
Rather, we believe it is an attempt to elect to the NRG Board a slate of Exelon-paid directors,
none of whom have significant experience in the power industry, so that Exelon can seek to compel
your Company to accept its current, severely inadequate bid.
Whether or not you plan to attend the NRG annual meeting, you and other holders of NRG shares, will
have the opportunity to tell Exelon, in no uncertain terms, that it cannot deprive you of the true
value of your investment by voting the WHITE proxy card.
DONT SIGN ANY BLUE EXELON CARDS YOU MAY RECEIVE
Exelons offer today is even more inadequate than when it was first made in
October 2008, because of Exelons worse than expected performance, diminished
prospects and weakened stock price
The NRG Board and management team have said repeatedly that NRG is a willing market participant and
would be a buyer or a seller at a fair price. We believe, however, that given Exelons many public
statements on the topic and the substantial decline in Exelons share price since its initial offer
for your company, Exelon has NOT and does not intend ever to offer you a fair price for your NRG.
Because Exelons offer to NRG stockholders is a fixed exchange ratio of Exelons stock, the
increasing weakness in Exelons performance directly and negatively impacts the value that you,
NRGs stockholders, could receive if Exelon succeeds in completing its hostile exchange offer.
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Exelon Stock Price on |
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Exelon |
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Initial Offer Date |
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Current Stock Price |
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(October 17, 2008) |
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(April 1, 2009) |
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Percent Decline |
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$ |
54.50 |
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$ |
45.28 |
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17 |
% |
As you can see, since its initial offer in October, Exelons stock price has decreased 17%, thereby
lowering the proposed value of the transaction from $26.43 per share when the offer was first made
to $21.96 per share, implying a meaningful drop in premium by 63%.
What is perhaps even more troubling is that, under the terms of the Exelon offer, NRG stockholders
would remain fully exposed to further weakness in Exelons share price performance for the many
months that it would take before a transaction between the two companies could even be completed.
We cannot emphasize enough this very basic fact: Exelons current offer provides no price
certainty, not now, not ever, since the value you receive will fluctuate with Exelons stock price.
This is particularly important in light of Exelons recent announcement regarding a decrease in its
earnings outlook. At its investor conference in March 2009, Exelon reduced its 2011 EPS guidance
range by $1, or almost 20%, as results will be impacted more by changes in future commodities and
forward power prices than originally anticipated or understood by the market.
Exelons suggested business model for the combined company appears to be
designed solely to placate the rating agencies rather than to maximize stockholder
value
Exelon has indicated that its primary post-transaction priority would be to preserve its investment
grade ratingnot increase stockholder value. In the current economic environment, particularly in
Exelons hard hit markets in the industrial Midwest, we are concerned about Exelons credit
standing and balance sheet strength on a stand-alone basis, even before contemplating the credit
impact of an NRG acquisition. Other American utilities similarly situated to Exelon have, in the
past few days, and are anticipated to launch
substantial equity issuances, even in situations where
they are not contemplating a hostile bid for a sub-investment grade target.
In the context of Exelons proposed offer for NRG, Exelons ambiguity over the need for and size of
additional equity offerings is quite disturbing. As John Rowe, Exelons CEO, recently explained at
Exelons recent 2009 investor conference:
But as we look at the NRG transaction...we are assessing it against different costs for
maintaining our investment grade status. And those costs depend on how many assets we can
sell, we may have to sell a somewhat larger part, or whether we have to issue either common
equity or some sort of convertible preferred.1
We believe that Exelonafter properly assessing its worsened outlook and the depressed value of the
assets that Exelon has said it intends to sell in order to maintain its investment grade
ratingwill need to issue substantially more common stock in connection with its bid to acquire
NRG. However, as outlined in the table above, the value of Exelons offer for NRG is inexorably
linked to the value of Exelons stock. We believe that, given the current market environment,
Exelons plan is quite simply a risky proposition that would lead to value destruction for NRG
stockholders, not to mention Exelons own stockholders. An open-ended strategy to issue new stock,
in an extremely difficult equity market environment, by a company facing worsening economic
conditions in its core markets, is a risk that NRG stockholders should not bear. Unfortunately,
under the terms of the Exelon offer, you, the stockholders of NRG, are not only sharing in some of
that risk, you are bearing all of it (since Exelons offer continues to remain highly conditional).
Exelon has failed to deliver its promised financing plan or to compensate NRG
stockholders for the considerable transaction risk
In October 2008, when the proposed transaction was originally announced, Exelon stated that it
would have committed financing in place over the next few days.2 Now, six months
later, Exelon has yet to demonstrate that it has any financing whatsoever.
NRG carries approximately $8 billion of debt on its balance sheet, which NRG services with the
revenue from its 24,000 megawatts (MW) generated by its power plants. The majority of NRGs senior
notes, which have an average interest rate of 7.34%, dont come due until 2014 or later. In
addition, NRGs term loan has limited amortization between now and 2013, with an interest rate
currently tied to LIBOR +150 basis points. NRGs senior notes and term loan both are attractively
priced. Accordingly, we believe that refinancing all or a major part of NRGs debt now, whether
done by NRG or Exelon, in the current capital market environment is a risky proposition which
would, at best, be prohibitively expensive and, at worst, impossible to achieve. We believe that is
why Exelon has failed to come forward with committed financing and that makes us even more
concerned about Exelons offer.
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1 |
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March 12, 2009Form 425 SEC filing. Remarks made by John Rowe, Exelon CEO, on March 10, 2009, at 2009 Exelon Investor Conference |
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2 |
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October 20, 2008Exelon Conference Call |
\
Furthermore, with regard to Exelons proposal to expand the size of NRGs Board, if it is
approvedand all of Exelons nominees are elected to the Boardunder the current circumstances,
Exelons nominees would constitute 50% of the directors on the expanded NRG Board. Under the terms
of NRGs debt facilities, such an outcome could trigger an acceleration of that $8 billion in debt,
which would have serious negative consequences for NRG and all of its stockholders. To help reduce
this risk, the Board has already acted once to expand the Board by adding a highly qualified,
independent director, Pastor Kirbyjon Caldwell. Because Exelon has rejected our request that it
stand down from its board-packing proposal, to further reduce the risk of debt acceleration, the
NRG Board will consider adding an additional independent director soon, in order to bring the Board
to 14 members. However, you should be aware that this prudent action will not eliminate such risk
because even if there are 10 continuing directors on a 19-person Board, the change of control
provisions in the debt may nonetheless be triggered by future events, such as the departure of one
or more continuing directors from the Board, for whatever reason.
Value creation: NRG and Exelon are heading in different directions
We recognize that these are difficult and uncertain times. NRG is not immune to the general state
of the American economy either, but it is important that stockholders understand our firm belief
that Exelon opportunistically seized on market anxiety and the free fall of stock values to launch
its lowball offer, which does not value NRGs strong financial position and immense opportunities.
Below are a few critical facts about our business and how well positioned NRG is.
NRG owns power plants and sells electricity in bulk. Electricity, we are sure you will agree, is a
fundamental mainstay of American life and is not, in practical terms, a discretionary spending item
for the great majority of Americans. Before the recent drop in commodity prices, NRG effectively
sold the great majority of its electricity production for the next few years at healthy prices,
which are significantly higher than current levels. The gross margin from these contracted sales
will help pay down NRGs corporate debt while still supporting NRGs growth prospects. In addition,
NRG entered into the downturn with substantial liquidity on its balance sheet and has added to it
over the past several months to the point where, as of February 27, 2009, NRG had $3.4 billion in
total liquidity, of which $1.5 billion was cash.
Furthermore, at the exchange ratio contemplated in Exelons offer, the transaction subjects NRG
stockholders to significant dilution in terms of free cash flow per share, and essentially
transfers value from NRG stockholders to Exelon stockholders. If the two companies were to combine
on the terms of the offer, NRG stockholders would own 17% of the combined companyand, based on
current projections, 30% of the recurring free cash flow of the combined company for 2009.
But rather than just focus on NRGs considerable strength and achievements, we want to emphasize to
you that the current economic dislocation has created compelling opportunities for NRG that we have
the means, the expertise and the nimbleness to capture for your benefit. It is important that you
consider this in making your voting decision because these are the opportunities for value creation
at NRG that may be lost if Exelons
nominees are elected to NRGs Board and certainly will be lost
if NRG, and its entrepreneurial spirit, are subsumed within a giant utility like Exelon.
Big is only helpful if you harness it. Otherwise it is just big.
The new CEO of GM, Frederick Henderson, commenting on the challenges ahead for his company
(The New York Times, 4/1/09)
The twin societal dynamics of sustainability and climate change, layered on top of the
across-the-board decline in commodity prices and the Wall Street meltdown, have created a period of
significant challenges for the American power industry, but also a period of even more significant
opportunityindeed, a period of opportunity that is virtually unprecedented in the history of our
industry. While Exelon is big, and bigger has the potential to be better in the power industry, it
is unclear what, if any, affirmative steps Exelon has taken to harness the benefit of its size to
capture these industry opportunities. NRG, on the other hand, anticipated these dynamics and has
been moving forcefully and effectively over the past few years to position the Company to capture
the benefits for NRG stockholders. As described below, our leading position in advanced nuclear
development, our recent acquisition of solar development opportunities and our new wind farms in
west Texas provide demonstrable proof of what we have accomplished and what we can accomplish going
forward.
Compare and contrast what NRG has achieved since the financial crisis heated up against what Exelon
has accomplished:
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NRG Actions |
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Exelon Actions |
Share Repurchases
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ü
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NRG completed its
2008 share
repurchase program
by buying $270
million in shares
and, in February
2009, announced a
new, $330 million
2009 share
repurchase.
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In October 2008,
seven weeks after
announcing its $1.5
billion share
repurchase program,
Exelon delayed
indefinitely its
share repurchase
program. |
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Actual Financial
Performance
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NRG achieved record
full year EBITDA
and Free Cash Flow
for 2008 of $2.291
billion and $1.197
billion,
respectively.
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Exelon ended 2008
with operating
earnings of $2,781
million, or $4.20
per diluted share,
at the low end of
its guidance range. |
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Future Financial
Performance
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NRG increased its
free cash flow
guidance for 2009
due to a more
positive assessment
of the Companys
future tax
position, making
Exelons offer even
more dilutive to
NRG stockholders on
a cash basis.
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At its March 2009
investor
conference, Exelon
surprised the
market with new
disclosures that it
had much lower
levels of 2011
forward contracting
than the market had
previously
believed. This
caused several
equity analysts to
lower earnings
estimates and price
targets for Exelon
shares. |
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Credit Rating
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ü
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NRG maintained
stable credit
ratings and outlook
from all rating
agencies prior to
Exelons hostile
offer.
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Exelon has had its
corporate credit
rating downgraded
by S&P and Moodys. |
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NRG Actions |
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Exelon Actions |
Divestitures
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ü
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In February 2009,
NRG announced plans
to sell its lignite
mining operation in
Germany for $259
million, a highly
accretive
transaction to
stockholders.
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Exelon has not
announced any
recent transactions
to optimize its
portfolio. |
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Acquisitions
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ü
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In March 2009, NRG
announced an
agreement to
acquire Reliants
market-leading
Texas retail
business for $287.5
million. The
acquisition will
generate $150-200
million
EBITDA/year.
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Exelon has not been
successful in any
corporate
acquisitionsor in
the last three
major acquisitions
it has attempted. |
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Low Carbon
Initiatives
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ü
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In 2008, NRG
constructed two
wind farms in west
Texas on time and
under budget.
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Exelon has no wind
projects under
construction. |
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ü
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In February 2009,
NRG announced plans
to acquire 500MW of
advanced
development
projects using
eSolars technology
putting NRG in a
position to achieve
first mover
advantage in large
scale solar power.
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Exelon continues to
work on its
3 MW solar
demonstration
project in Fairless
Hills, PA. |
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Nuclear Development
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ü
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NRGs nuclear
program, STP 3&4,
was chosen as a
finalist under the
DOE loan guaranty
program putting NRG
in a strong
position to be a
leader in the
nuclear renaissance
in the United
States.
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Exelons nuclear
development project
was not chosen as a
DOE finalist
apparently causing
Exelon to abandon
its technology
choice. Since then,
Exelon has followed
NRG and chosen ABWR
technology. |
Dont let Exelon transfer to Exelons stockholders the value that is rightfully yours
We believe Exelon is trying to pack NRGs Board of Directors with its paid nominees in order to
steer an NRG Board decision in favor of accepting Exelons inadequate offer. In fact, Exelon has
said it would be satisfied with winning four, five or six seats, as long as it can influence the
board to endorse a deal.3 While your Board is committed to acting in the best interest
of all NRG stockholders, we view Exelons comments to mean that its ultimate goal with its
nominations is that, if elected to NRGs Board, Exelons nominees would drive an NRG/Exelon
transaction at the current, inadequate price and unequal terms.
Further, Exelon has repeatedly said it will not increase its offer and, most recently, Exelon
stated that if it doesnt win the director seats, it will withdraw its offer: Either we get in, in
the proxy, when the proxy adjusts the board, do the due diligence (and we know that in the early
summer) or were done.4
If Exelon wants to put an offer on the table that reflects the fair value and exciting prospects of
your Company, NRGs Board of Directors is well-suited to give such an offer appropriate
consideration as opposed to Exelons nominees. If Exelon, on the other hand, remains
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3 |
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February 27, 2009, Chicago Tribune, Exelon gains ground in bid to take over NRG-Majority of shares tendered; fight now is for board seats. |
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4 |
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March 12, 2009, Form 425 SEC filing. Remarks made by Christopher Crane, Exelon COO, on March 10, 2009, at 2009 Exelon Investor Conference |
interested only in taking advantage of the current economic climate to take your company at a
lowball, inadequate price, then NRGs Board will continue to strongly recommend that you not tender
your stock as part of the Exelon exchange offer or vote in favor of the expansion of the NRG Board
of Directors and Exelons nominees.
As we have so recently demonstrated, NRGs substantial liquidity, ample cash balances, and
extensively hedged baseload positionwhich drives strong free cash flowsenable us to capitalize
on opportunities in the marketplace. We look forward to continuing to accomplish more, much more,
on your behalf in the years to come.
Whether or not you plan to attend the Annual Meeting, NRG stockholders have the opportunity to tell
Exelon that its offer is unacceptable and does not provide NRG with the value represented today or
the potential value of NRG in the future by voting the WHITE proxy card.
What you can do to protect your investment in NRG
SIGN, DATE AND RETURN THE WHITE PROXY CARD.
DO NOT RETURN THE BLUE PROXY CARD.
The best thing you can do to preserve the value of your investment in NRGand to ensure that you
secure the full and fair benefit of NRGs accomplishmentsis to send Exelon the message that its
current offer is inadequate and unacceptable, and that the NRG directors who are up for re-election
at the Annual Meeting are better able to act in the best interests of NRGs stockholders than
Exelons paid nominees.
You will soon receive NRGs proxy statement with the WHITE proxy card attached. Please support your
Board and management by signing, dating and returning the enclosed WHITE proxy card promptly after
you receive it. You may also vote by phone or Internet by following the instructions on the proxy
card.
Your vote is important, no matter how many or how few shares you own. If you have any questions or
need any assistance voting your shares, please contact Mackenzie Partners, Inc., which is assisting
NRG in this matter, at 800.322.2885.
On behalf of NRGs Board of Directors, we thank you for your continued support.
Sincerely,
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/s/ David Crane
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/s/ Howard Cosgrove |
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David Crane
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Howard Cosgrove |
President and Chief Executive Officer
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Chairman of the Board |
About NRG
NRG Energy, Inc., a Fortune 500 company, owns and operates one of the countrys largest and most
diverse power generation portfolios. NRGs 48 plants provide approximately
24,000 megawatts of generation capacityenough to power nearly 20 million homes. In November 2007,
NRG won two of the industrys highest honorsPlatts Industry Leadership and Energy Company of the
Year awards. Headquartered in Princeton, NJ, NRG is a member of the U.S. Climate Action Partnership
(USCAP), a group of business and environmental organizations calling for mandatory legislation to
reduce greenhouse gas emissions. More information is available at www.nrgenergy.com.
Important Information
This communication does not constitute an offer to sell or the solicitation of an offer to buy any
securities or a solicitation of proxy of any stockholder of NRG Energy, Inc. (NRG). NRG filed a
preliminary proxy statement on Schedule 14A with the Securities and Exchange Commission (the SEC)
on April 2, 2009 in connection with its 2009 Annual Meeting of Stockholders (the 2009 Annual
Meeting). Prior to the 2009 Annual Meeting, NRG will furnish a definitive proxy statement to its
stockholders, together with a WHITE proxy card. INVESTORS AND STOCKHOLDERS OF NRG ARE URGED TO READ
THE PROXY STATEMENT FOR THE 2009 ANNUAL MEETING IN ITS ENTIRETY BECAUSE IT CONTAINS IMPORTANT
INFORMATION.
In response to the exchange offer proposed by Exelon Corporation referred to in this news release,
NRG has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9. STOCKHOLDERS
OF NRG ARE ADVISED TO READ NRGS SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 IN ITS
ENTIRETY BECAUSE IT CONTAINS IMPORTANT INFORMATION.
Investors and stockholders will be able to obtain free copies of NRGs preliminary proxy statement,
the Solicitation/Recommendation Statement on Schedule 14D-9, any amendments or supplements to the
proxy statement and/or the Schedule 14D-9, any other documents filed by NRG in connection with the
2009 Annual Meeting and/or the exchange offer by Exelon Corporation, and other documents filed with
the SEC by NRG at the SECs website at www.sec.gov. Free copies of the definitive proxy statement,
the Solicitation/Recommendation Statement on Schedule 14D-9, and any amendments and supplements to
these documents can also be obtained by directing a request to Investor Relations Department, NRG
Energy, Inc., 211 Carnegie Center, Princeton, New Jersey 08540.
NRG and its directors and executive officers will be deemed to be participants in the solicitation
of proxies in connection with its 2009 Annual Meeting. Detailed information regarding the names,
affiliations and interests of NRGs directors and executive officers is available in the
preliminary proxy statement for the 2009 Annual Meeting, which was filed with the SEC on April 2,
2008.
Forward-Looking Statements
This communication contains forward-looking statements that may state NRGs or its managements
intentions, hopes, beliefs, expectations or predictions for the future. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions, and typically can be
identified by the use of words such as will, expect, estimate, anticipate, forecast,
plan, believe and similar terms. Although NRG believes that its expectations are reasonable, it
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, risks and uncertainties related to the capital markets
generally.
The foregoing review of factors that could cause NRGs actual results to differ materially from
those contemplated in the forward-looking statements included herein should be considered in
connection with information regarding risks and uncertainties that may affect NRGs future results
included in NRGs filings with the SEC at www.sec.gov. Statements made in connection with the
exchange offer
are not subject to the safe harbor protections provided to forward-looking statements under the
Private Securities Litigation Reform Act of 1995.
# # #
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Contacts: |
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Media: |
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Investors: |
Meredith Moore |
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Nahla Azmy |
609.524.4522 |
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609.524.4526 |
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Lori Neuman |
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Dave Klein |
609.524.4525 |
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609.524.4527 |
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Dave Knox |
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Erin Gilli |
713.795.6106 (Texas and Louisiana) |
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609.524.4528 |