Presdient & CEO Employment Agreement - David Crane

EXHIBIT 10.1


EXECUTION COPY


EMPLOYMENT AGREEMENT


Between
NRG Energy, Inc.
and
David W. Crane


THIS AGREEMENT is made as of November 10, 2003, between NRG Energy, Inc. (the "Company"), and David W. Crane ("Executive").


In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


1. Employment. The Company shall employ Executive, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the later of (i) December 1, 2003, or (ii) the date the bankruptcy court approves this Agreement (the "Commencement Date") and ending as provided in Section 5 or 6 hereof (the "Employment Period"). The Company shall use its best efforts to promptly obtain bankruptcy court approval of this Agreement. This Agreement shall be void ab initio and of no force and effect if the Commencement Date does not occur on or before January 1, 2004.


2. Position and Duties.


(a) During the Employment Period, Executive shall serve as the President and Chief Executive Officer ("CEO") of the Company and shall have the normal duties, responsibilities, functions and authorities customarily exercised by the President and CEO of a company of similar size and nature as the Company. During the Employment Period, Executive shall render such administrative, financial and other executive and managerial services to the Company and its affiliates which are consistent with Executive's position as the Board of Directors of the Company (the "Board") may from time to time direct.


(b) During the Employment Period, Executive shall report to the Board and shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company. Executive shall perform his duties, responsibilities and functions to the Company hereunder to the best of his abilities in a diligent, trustworthy, professional and efficient manner and shall comply with the Company's policies and procedures in all material respects. In performing his duties and exercising his authority under this Agreement, Executive shall support and implement the business and strategic plans approved from time to time by the Board and shall support and cooperate with the Company's efforts to expand its businesses and operate profitably and in conformity with the business and strategic plans approved by the Board. During


the Employment Period, Executive shall not serve as an officer or director of, or otherwise perform services for compensation for, any other entity without the prior written consent of the Board. Executive may serve as an officer or director of or otherwise participate in purely educational, welfare, social, religious and civic organizations so long as such activities do not interfere with Executive's employment. Nothing contained herein shall preclude Executive from (i) engaging in charitable and community activities; (ii) participating in industry and trade organization activities; (iii) managing his and his family's personal investments and affairs; and (iv) delivering lectures, fulfilling speaking engagements or teaching at educational institutions; provided, that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.


3. Compensation and Benefits.


(a) During the period beginning on the Commencement Date and ending on December 31, 2004, Executive's annual base salary shall be $875,000. For the portion of the Employment Period beginning on January 1, 2005 and for periods thereafter, the Executive's annual base salary shall be reviewed and determined by the Board (such initial annual base salary and the annual base salary as determined and adjusted from time to time by the Board are referred to herein as, the "Base Salary"). The Base Salary shall be payable by the Company in regular installments in accordance with the Company's general payroll practices (in effect from time to time) but in any event no less frequently than monthly. During the period beginning on the Commencement Date and ending December 31, 2003, the Base Salary shall be pro rated on an annualized basis. For purposes of this Agreement, the Base Salary shall not include any other type of compensation or benefit paid or payable to the Executive. Notwithstanding anything in this Agreement to the contrary, any decrease in Executive's then Base Salary shall be deemed Good Reason.


(b) Bonuses and Incentive Compensation.


(i) Signing Bonus. In addition to the Base
Salary, on the Commencement Date the Company shall pay Executive a
one-time signing bonus of $1.75 million dollars (the "Signing Bonus")
payable in a single lump-sum cash payment; provided, however, that
except as set forth under Section 5 below, Executive agrees to
reimburse the Company, on a pro-rata basis (based on the ratio of (x)
the number of days in the period beginning on the date of Executive's
termination of employment and ending on the first anniversary of the
Commencement Date to (y) 365), if prior to one year from Executive's
Commencement Date he (A) terminates his employment with the Company
other than for "Good Reason" or following a "Change of Control" (as
defined herein), or (B) is terminated by the Board for "Cause" (as
defined herein).


(ii) Annual Bonus. Beginning for fiscal year 2004
and for each fiscal year thereafter during the Employment Period, based
on achievement of criteria determined by the Board as soon as
administratively practicable following the beginning of each such
fiscal year with input from Executive, Executive will be entitled to an
annual bonus with a target amount equal to 100% of the Executive's then
Base Salary (the "Annual Bonus"). For the Company's fiscal year 2004
only, Executive shall receive an


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Annual Bonus of not less than 75% of his Base Salary. The Company shall
pay the Annual Bonus in a single cash lump-sum after the end of the
Company's fiscal year in accordance with procedures established by the
Board, but in no event later than April 15 of the subsequent fiscal
year.


(iii) Stretch Bonus. Beginning for fiscal year
2004 and for each fiscal year thereafter during the Employment Period,
based on achievement of criteria determined by the Board as soon as
administratively practicable following the beginning of each such
fiscal year with input from Executive, Executive shall be eligible to
receive a "stretch bonus" in an amount up to, but not exceeding, 50% of
Executive's then Base Salary (the "Stretch Bonus"). The Company shall
pay the Stretch Bonus in a single cash lump-sum following the end of
the Company's fiscal year in accordance with procedures established by
the Board, but in no event later than April 15 of the subsequent fiscal
year.


(iv) Long Term Incentive. The Company shall
provide Executive with a combination of restricted stock or units
("restricted stock") and stock options (the "Executive LTIP") to be
issued to Executive upon the Company's emergence from bankruptcy
protection under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code"). The aggregate value of the grant under the
Executive LTIP shall be $12.5 million, which is currently approximately
0.5% of the equity to be distributed pursuant to the Company's Plan of
Reorganization under Chapter 11 of the Bankruptcy Code (the "Plan").
One-third of the grant under the Executive LTIP will be issued in
restricted stock and the balance shall be issued in stock options.


It is currently contemplated that the Executive shall
receive 166,667 shares of restricted stock valued at $25 per share and
602,555 stock options valued at $13.83 per share. The exact number of
restricted stock and stock options awarded will be determined based on
the equity value reflected in the final Disclosure Statement to the
Plan of Reorganization; provided, however, that regardless of the
actual number of restricted stock or stock options granted to the
Executive, the aggregate value of such restricted stock and stock
options shall be $12.5 million. The stock options shall have a ten-year
term (subject to early termination, upon termination for Cause or
resignation without Good Reason prior to the third anniversary of the
Commencement Date) and an exercise price equal to the per share equity
value reflected in such final Disclosure Statement (currently $25 per
share). The Company shall reserve a sufficient number of shares of
common stock for issuance upon exercise of the stock options to be
granted hereunder, and any such stock options granted as part of the
Executive LTIP shall be duly and validly authorized by a subset of the
Company's board of directors compromised solely of two or more "outside
directors" (as such term is defined in Treasury Regulations Section
1.162-27(e) and ratified by the Company's full board of directors.


The restricted stock granted under the Executive LTIP
shall be entitled to participate currently in dividends and shall vest
100% on the third anniversary of the Executive's Commencement Date. The
stock options shall vest in three equal installments on each of first
three anniversaries of the Executive's Commencement Date.


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Notwithstanding anything above to the contrary, all grants made under
the Executive LTIP will become 100% vested upon a "Change of Control"
(as defined herein).


The specific terms of the restricted stock and the
stock options granted under the LTIP (including, without limitation,
customary anti-dilution and other provisions) will be reflected in
separate stock option and restricted stock agreements that will be
negotiated by Executive and the Company in good faith prior to the
Commencement Date. Such agreements shall provide that, if the Company's
common stock becomes registered under the Securities Exchange Act of
1934, as amended, the Company shall take such steps as are reasonably
required so that any shares awarded to the Executive under the
Executive LTIP shall, as soon as practicable after the award or awards
of such shares, be covered by a registration statement on Form S-8 or a
successor form and any other appropriate forms determined by the
parties. In the event that the Executive and Company cannot mutually
agree to the terms of both the stock option agreement and the
restricted stock agreement as of the Commencement Date, either the
Company or the Executive shall have the right to declare that this
Agreement shall be void and shall not take effect.


(c) During the Employment Period, the Company shall promptly reimburse Executive for all reasonable business expenses incurred by him in the course of performing his duties and responsibilities under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. The Company will promptly reimburse Executive for reasonable expenses incurred for tax return preparation, tax advice, financial planning and legal expenses incurred in connection with negotiating this Agreement and the other agreements referred to herein.


(d) In addition to the Base Salary and any bonuses and incentives payable to Executive pursuant to this Section 3, Executive shall also be entitled to the following benefits during the Employment Period, unless otherwise modified by the Board:


(i) participation in the Company's retirement
plans, health and welfare plans and disability insurance plans, under
the terms of such plans and to the same extent and under the same
conditions such participation and coverages are provided to other
senior management of the Company;


(ii) term life insurance with a death benefit of
$7.75 million through the continuation of the term life insurance
provided to Executive by his former employer (other than adjustable
rate life insurance) immediately prior to the Executive's employment
with the Company;


(iii) prompt reimbursement of the costs, not to
exceed $10,000 per year, Executive incurs in obtaining additional
disability insurance coverage with a monthly disability benefit of up
to $30,000;


(iv) five weeks paid vacation each calendar year;


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(v) coverage under the Company's director and
officer liability insurance policy; and


(vi) reasonable moving and relocation expenses.


Notwithstanding anything in this Agreement to the contrary, if the benefits provided to Executive under Section 3(d)(i), (iv) (v) or (vi) are materially reduced or benefits provided to Executive under Section 3(d)(ii) or (iii) are reduced at all, such reduction shall be deemed "Good Reason."


(e) During the period commencing on the Executive's Commencement Date and ending June 30, 2004, the Company shall reimburse Executive (and gross-up Executive for any income taxes incurred by Executive as a result of such reimbursement) for all reasonable expenses incurred by him in connection with commuting to Minneapolis, Minnesota from his permanent residence in Lawrenceville, New Jersey up to one round-trip each week (but not in excess of the amount of a full fare economy class round-trip ticket), (ii) leasing an apartment in Minneapolis, Minnesota, and (iii) reasonable transportation expenses while in Minneapolis Minnesota. .


4. Board Membership. With respect to all regular elections of directors during the Employment Period, the Company shall nominate, and use its reasonable efforts to cause the election of, Executive to serve as a member of the Board. Effective upon the termination or expiration of the Employment Period, Executive shall resign as a director of the Company and its affiliates, as the case may be.


5. Certain Early Terminations of Agreement. Notwithstanding anything in this Agreement to the contrary, in the event that on or prior to June 30, 2004, the effective date of the Company's Plan of Reorganization under Chapter 11 of the United States Bankruptcy Code (the "Effective Date") has not occurred, the Executive may elect to unilaterally terminate the Agreement, and the Company agrees to pay Executive $3.5 million (in a prompt lump-sum cash payment), provided that Executive (a) notifies the Board by July 31, 2004, in writing, of Executive's decision to terminate the Agreement pursuant to this Section 5 and (b) executes and delivers the Release substantially in the form attached hereto as Exhibit A. However, in the event that Executive elects to terminate this Agreement pursuant to this Section 5, Executive shall remain entitled to the payments and benefits set forth in Section 7(d) and shall not have any obligation to repay any portion of the Signing Bonus set forth in Section 3(b)(1). Executive shall also be entitled to elect to receive all of the benefits specified in this Section 5 and in Section 7(d) if the Company shall terminate his employment without Cause or he shall terminate such employment for Good Reason prior to July 31, 2004, and prior to the Effective Date. For avoidance of doubt, Executive acknowledges that by electing to receive benefits under this Section 5 Executive shall relinquish all benefits payable to him under this Agreement (other than benefits set forth under Section 7(d)), including, without limitation, any rights or benefit associated with any non-vested restricted stock and stock options under the Executive LTIP.


6. Termination. The Employment Period shall end on the third anniversary of the Commencement Date, provided, however, that the Employment Period shall be automatically renewed for successive one-year terms thereafter on the same terms and conditions set forth


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herein unless either party provides the other party with notice that it has elected not to renew the Employment Period at least 90 days prior to the end of the initial Employment Period or any subsequent extension thereof. Notwithstanding the foregoing, (i) the Employment Period shall terminate immediately upon Executive's resignation (with or without Good Reason, as defined herein), death or Disability (as defined herein) and (ii) the Employment Period may be terminated by the Company at any time prior to such date for Cause (as defined herein) or without Cause. Except as otherwise provided herein, any termination of the Employment Period by the Company shall be effective as specified in a written notice from the Company to Executive, but in no event more than 30 days from the date of such notice.


7. Severance.


(a) Termination Without Cause or for Good Reason. In the event of Executive's termination of employment with the Company (i) by the Company without "Cause" (as defined herein), (ii) by Executive for "Good Reason" (as defined herein) or (iii) if the Company notifies Executive pursuant to Section 6 that it has elected not to renew this Agreement after the initial three-year term or any subsequent one-year term, Executive shall be entitled to the benefits set forth below in this Section 7(a). As a condition to the payment of any severance benefits or any other benefits to which Executive is not absolutely entitled as a matter of law, the Executive shall execute and deliver the "Release" in the form attached hereto as Exhibit A, in consideration for which the Company agrees to the following:


(A) The Company shall pay Executive in a prompt
lump-sum cash payment an amount equal to two
times the Executive's annual Base Salary (as
in effect at the date of Executive's
termination determined without regard to any
reduction in such Base Salary constituting
Good Reason).


(B) The Company shall pay Executive in a prompt
lump-sum payment 50% of target Annual Bonus
(75% of his target Annual Bonus for fiscal
year 2004 only) then in effect (excluding
the Stretch Bonus but determined without
regard to any reduction in such target
Annual Bonus constituting Good Reason)
pro-rated for the number of days during such
year that Executive was employed by the
Company.


(C) All restricted stock, stock options and
other equity awards granted under the
Executive LTIP, shall vest in full on the
date of such termination of employment, and
all stock options shall continue to be
exercisable for the remainder of their
stated terms.


(D) For six (6) months from the date of
termination, the Company shall arrange to
provide Executive and his dependents, at the
Company's cost, medical and dental coverage
providing substantially similar benefits to
those which Executive and his dependents
were receiving immediately prior to such
date, and


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additionally, the Company shall pay
Executive, in a prompt lump-sum payment, an
amount equal to the Company's monthly COBRA
rate for family coverage then in effect
times eighteen (18).


(E) The Company shall pay Executive the amounts
described in Section 7(d).


(b) Termination for Cause or Voluntary Resignation. In the event Executive's employment with the Company is terminated (i) by the Board for Cause (as defined herein), or (ii) by Executive's resignation from the Company for any reason other than Good Reason or Disability (as defined herein) the Company agrees to the following:


(A) The Company shall pay Executive the amounts
described in Section 7(d).


(B) The Company shall treat all restricted
stock, stock options and other equity awards
outstanding under the Executive LTIP or any
other Company equity plans in accordance
with the terms of the plans or agreements
under which such awards were created or
maintained. If Executive resigns from the
Company for any reason on or after the third
anniversary of the Commencement Date, all
stock options granted under the Executive
LTIP will remain exercisable for the
remainder of their stated terms.


(c) Death or Disability. In the event that Executive's employment with the Company is terminated as a result of Executive's death or Disability, the Company agrees to the following:


(A) The Company shall pay Executive in a prompt
lump-sum payment 50% of target Annual Bonus
(75% of his target Annual Bonus for fiscal
year 2004 only) then in effect (excluding
the Stretch Bonus but determined without
regard to any reduction in such target
Annual Bonus constituting Good Reason)
pro-rated for the number of days during such
year that Executive was employed by the
Company. Any stock options granted under the
Executive LTIP that have vested will remain
exercisable for the remainder of their
stated terms.


(B) If the Executive is terminated as a result
of his Death or Disability prior to the
third anniversary of his Commencement Date,
his "restricted stock" (as defined above)
shall vest on a pro-rata basis (based on the
ratio of (x) the number of complete months
beginning on the Commencement Date and
ending on the date of Executive's
termination of employment to (y) thirty-six
(36)).


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(C) The Company shall treat all stock options
under the Executive LTIP or other equity
under any other Company plans in accordance
with the terms of the plans or agreements
under which such awards were created or
maintained.


(D) The Company shall pay Executive the amounts
described in Section 7(d).


(d) In the case of any termination of Executive's employment with the Company, Executive or his estate or legal representative shall be entitled to receive from the Company (i) Executive's Base Salary through the date of termination to the extent not theretofore paid, (ii) to the extent not theretofore paid, the amount of any bonus, incentive compensation, deferred compensation and other compensation earned or accrued by Executive as of the date of termination under any compensation and benefit plans, programs or arrangements maintained in force by the Company (for this purpose, Executive's Annual Bonus, if any, for any fiscal year shall be deemed to have accrued on the last day of such fiscal year), (iii) any vacation pay, expense reimbursements and other cash entitlements accrued by Executive, in accordance with Company policy, as of the date of termination to the extent not theretofore paid, and (iv) all benefits accrued by Executive under all benefit plans and qualified and nonqualified retirement, pension, 401k and similar plans and arrangements of the Company, in such manner and at such time as are provided under the terms of such plans and arrangements.


(e) No Other Payments. Except as provided in (a), (b) (c) or (d) above, all of Executive's rights to salary, bonuses, employee benefits and other compensation hereunder which would have accrued or become payable after the termination or expiration of the Employment Period shall cease upon such termination or expiration, other than those expressly required under applicable law (such as COBRA).


(f) No Mitigation, No Offset. In the event of Executive's termination of employment for whatever reason, Executive shall be under no obligation to seek other employment, and there shal ...