UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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GENON ENERGY, INC.

 

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Proxy Statement
and
Notice of 2011 Annual Meeting of Stockholders

 

March 21, 2011

 

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

 

Dear Stockholder:

 

You are invited to attend the 2011 Annual Meeting of Stockholders of GenOn Energy, Inc. on Tuesday, May 3, 2011, beginning at 8:00 a.m., Central Time, at our corporate headquarters at 1000 Main Street, Houston, Texas.

 

At the meeting, stockholders will be asked to:

 

 

This year we are furnishing proxy materials to our stockholders over the Internet. You may read, print and download our proxy statement and annual report at https://www.proxyvote.now/gen. On or about March 21, 2011, we mailed our stockholders a notice containing instructions on how to access our proxy materials and vote online. The notice also provides instructions on how you can request proxy materials to be sent to you by mail or email and how you can enroll to receive proxy materials by mail or email for future meetings.

 

Stockholders of record at the close of business on March 7, 2011 are entitled to vote. Each share entitles the holder to one vote. You may vote over the Internet by following the instructions provided on the notice or proxy card mailed to you or by telephone by following the instructions found on the Internet site provided on the notice or proxy card. You may also vote in person at the meeting or, if you request to receive proxy materials by mail or email, by completing and returning a proxy card. For specific voting information, see “General Information” beginning on page 1 of the enclosed proxy statement. Please vote in advance of the meeting even if you plan to attend.

 

Attendance is limited to stockholders of GenOn Energy, Inc., their proxy holders and our guests. Check-in will begin at 7:15 a.m. Stockholders holding stock in brokerage accounts must bring a brokerage statement or other evidence of share ownership as of March 7, 2011 in order to be admitted to the meeting.

 

Sincerely,

 

Michael L. Jines

Executive Vice President,

General Counsel and Corporate Secretary and

Chief Compliance Officer

TABLE OF CONTENTS

 

GENON ENERGY, INC.
1000 Main Street
Houston, Texas 77002
(832) 357-3000

 

PROXY STATEMENT

 

 

 

 

We are providing these proxy materials to you in connection with the solicitation of proxies by the Board of Directors of GenOn Energy, Inc. for the 2011 Annual Meeting of Stockholders (the “Meeting”) and for any adjournment or postponement of the Meeting. In this proxy statement, “we,” “us,” “our” and the “Company” refer to GenOn Energy, Inc. (formerly known as RRI Energy, Inc.). On December 3, 2010, RRI Energy Holdings, Inc., a wholly owned subsidiary of the Company, completed its merger (the “Merger”) with and into Mirant Corporation (“Mirant”), as a result of which Mirant (renamed GenOn Energy Holdings, Inc. on the closing date of the Merger) is now our wholly owned subsidiary. The Merger was effected pursuant to the Agreement and Plan of Merger by and among the Company, Mirant and RRI Energy Holdings, Inc. dated as of April 11, 2010.

 

We are making these proxy materials available to you on the Internet. On or about March 21, 2011, we mailed a notice to our stockholders containing instructions on how to access the proxy materials at https://www.proxyvote.now/gen and vote online. In addition, stockholders may request proxy materials to be sent to them by mail or email.

 

At the Meeting, stockholders will be asked to:

 

 

Only stockholders of record at the close of business on March 7, 2011, the record date for the Meeting, are entitled to receive notice of and participate in the Meeting. If you were a stockholder of record on that date, you are entitled to vote all of the shares you held on that date at the Meeting, or any postponements or adjournments of the Meeting.

 

If your shares are registered directly in your name, you are the holder of record of these shares and the notice was sent directly to you. If you hold your shares in a brokerage account or through a bank or other holder of record, you hold the shares in “street name,” and your broker, bank or other holder of record sent the voting instructions to you.

 

If you hold your shares indirectly in the GenOn Energy Savings Plan (formerly the RRI Energy, Inc. Savings Plan) or the GenOn Energy Union Savings Plan (formerly the RRI Energy, Inc. Union Savings Plan, and, together with the GenOn Energy Savings Plan, collectively, the “GenOn Benefit Plans”), you have the right to direct the trustees of the GenOn Benefit Plans (the “Trustee”) how to vote your shares as described in the voting materials sent to you by the Trustee.

 

You have one vote for each share of our common stock you owned as of the record date for the Meeting.

 

You may vote over the Internet by following the instructions provided on the notice or proxy card mailed to you or by telephone by following the instructions found on the Internet site provided on the notice or proxy card. You may also vote in person at the Meeting or, if you request (or have previously requested) proxy materials by mail or email, by completing and returning a proxy card.

 

If you hold your shares in street name, you have the right to direct your broker, bank or other holder of record how to vote by following the instructions sent to you by the holder of record. If you desire to vote in person at the Meeting, as a holder in street name, you must provide a legal proxy from your bank, broker or other holder of record.

 

If you hold your shares indirectly through the GenOn Benefit Plans, you have the right to direct the Trustee of the GenOn Benefit Plans how to vote your shares as described in the voting materials sent to you by the Trustee.

 

Yes, you may change your vote at any time prior to the vote tabulation at the Meeting by (a) voting in person at the Meeting, (b) casting a vote over the Internet or by telephone at a later date or (c) if your shares are registered in your name, sending a written notice of revocation to our Corporate Secretary by mail to GenOn Energy, Inc., P.O. Box 3795, Houston, Texas 77253 or by facsimile at (832) 357-0140. If you request proxy materials by mail or email, you may also change your vote by mailing a proxy card with a later date. If you recast your vote, only your later dated proxy (whether cast by Internet, telephone, mail or in person) will be counted.

 

The Board recommends a vote FOR proposals 1—5, for having an advisory vote on say on pay ONCE EVERY YEAR (proposal 6), and AGAINST the Stockholder Proposal (proposal 7). If any other matter properly comes before the Meeting, Edward R. Muller and Mark M. Jacobs (the “Proxy Holders”) will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

 

We will have a quorum, and will be able to conduct the business of the Meeting, if the holders of a majority of shares of common stock outstanding and entitled to vote are represented in person or by proxy at the Meeting. As of the record date, [#] shares of common stock, representing the same number of votes, were outstanding. The presence of the holders of at least [#] shares of common stock will be required to establish a quorum. Proxies received but marked as abstentions or broker non-votes will be included in the calculation of the quorum. For more information regarding broker non-votes, see “— How are abstentions and broker non-votes treated?”

 

Directors are elected if the votes cast for that nominee’s election exceed the votes cast against that nominee’s election. The affirmative vote of a majority of the shares of common stock represented at the Meeting and entitled to vote is required for: a) ratification of KPMG LLP’s appointment, b) approval of the Stockholder Rights Plan, c) approval of the Say on Pay Proposal, and d) approval of the Stockholder Proposal. The adoption of the Protective Charter Amendment requires the affirmative vote of a majority of our outstanding shares of common stock. With respect to the Say on Frequency Proposal, the frequency (every one, two or three years) that receives the highest number of votes cast by stockholders on a plurality basis will be approved (i.e., the frequency with the most votes cast will be approved even if that frequency does not receive a majority of votes cast).

 

If you “ABSTAIN” on voting for any nominee for director, your vote will not be counted as a vote cast and will have no effect on whether such nominee is elected. If you “ABSTAIN” on voting for a) ratification of KPMG LLP’s appointment; b) adoption of the Protective Charter Amendment; c) approval of the Stockholder Rights Plan; d) advisory approval of the Say on Pay Proposal; or e) approval of the Stockholder Proposal, that will have the effect of a vote against each of those matters. If you “ABSTAIN” on voting for the Say on Frequency Proposal, your vote will not be counted as a vote cast and will have no effect on the proposal.

 

A broker non-vote occurs when the broker holding shares in street name is unable to vote on a proposal because the New York Stock Exchange (“NYSE”) rules prohibit a broker from voting on the matter without owner instructions. Relevant NYSE rules provide that a broker holding shares for an owner in street name may not vote for a non-routine proposal or a stockholder proposal that is opposed by management, without voting instructions, whereas a broker may vote on routine matters without owner instructions. The election of directors, the Protective Charter Amendment proposal, the Stockholder Rights Plan proposal, the Say on Pay Proposal, the Say on Frequency Proposal and the Stockholder Proposal are non-routine items. Except in the case of the Protective Charter Amendment, broker non-votes, if any, will not be counted as having been entitled to vote or as a vote cast and will have no effect on the outcome of the vote on these proposals. Broker non-votes will have the effect as a vote against the Protective Charter Amendment proposal. The ratification of the appointment of KPMG is a routine item.

 

If you return a signed proxy card without indicating your vote, your shares will be voted FOR proposals 1—5, for having an advisory vote on say on pay ONCE EVERY YEAR and AGAINST proposal 7 (the Stockholder Proposal).

 

You must provide voting instructions to the Trustee for the shares you hold indirectly in the GenOn Benefit Plans by 11:59 p.m., Eastern Time, on April 28, 2011. If you do not timely provide voting instructions, then the Trustee will vote your shares in the same proportion as the shares for which timely instructions were received, unless to do so would be prohibited by law.

 

We do not know of any matters that will be considered at the Meeting other than the proposals set forth in this proxy statement. If other matters are properly raised at the Meeting, your proxy authorizes the Proxy Holders to vote as they think best, unless authority to do so is withheld by you in your proxy.

 

If the Meeting is postponed or adjourned, your proxy will still be good and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted at the Meeting.

 

The following section summarizes information about our corporate governance practices, our Board and its committees and the director nomination process.

 

We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted Corporate Governance Guidelines, which, along with the charters of the Board committees, our Code of Ethics and Business Conduct (the “Code of Ethics”) and our ethics and compliance program, provide the framework for our corporate governance. Complete copies of our Corporate Governance Guidelines, charters of the Board committees and our Code of Ethics are available on our website at www.genon.com/company/company-governance-ethics.aspx or in print to any stockholder who requests them from our Investor Relations department at 832-357-7000. The Board and management regularly review corporate governance developments and the Board modifies the charters and guidelines and management modifies the Code of Ethics and program as appropriate.

 

Our Code of Ethics, which applies to our directors, executives and employees, satisfies the U.S. Securities and Exchange Commission’s (“SEC”) requirements for a “code of ethics.” The Code of Ethics prohibits our directors, executives and employees from having relationships or engaging in activities which might conflict with, or give the appearance of conflicting with, our interests or which might affect their independence or judgment.

 

Among other things, the Code of Ethics addresses conflicts of interest, gifts and entertainment, compliance with laws, rules and regulations (including insider trading, financial reporting and antitrust laws), safeguarding corporate resources, and maintaining appropriate government relations. The Code of Ethics also includes procedures to report possible violations of laws, regulations or the Code of Ethics. Reports may be made to an employee’s supervisor, our Chief Compliance Officer, any member of the Ethics and Compliance, Legal Services or Human Resources groups, a Risk Area Officer or any other senior company official. Reports may also be made anonymously to the Chief Compliance Officer through a toll-free compliance hotline, a web address, or a mailing address administered by an independent third party. All reported violations are investigated promptly and, to the extent possible, treated confidentially. It is our policy that no individual will face discharge, demotion, suspension, threat, discrimination or any other form of retaliation for reporting a potential violation of the Code of Ethics in good faith, furnishing information or assisting or participating in any manner in an investigation, compliance review or other activity related to the administration of the Code of Ethics.

 

Our executives and employees are required to annually certify their compliance with the Code of Ethics. The Code of Ethics requires any exception to or waiver of the Code of Ethics for a director or executive be made only by the Board or an independent Board committee and disclosed on our website. To date, we have not received any requests for or granted any waivers of the Code of Ethics for any of our executives or directors. Our Chief Compliance Officer monitors compliance with the Code of Ethics and confirms that our

business practices are consistent with the Code of Ethics. Under our ethics and compliance program, our employees regularly participate in a series of ethics and compliance training courses that define problematic relationships and activities and promote understanding of conflicts of interests and our values. The Audit Committee provides oversight of the ethics and compliance program.

 

To align our directors and executives with the interests of our stockholders, we have stock ownership guidelines for our directors and executives. In December 2010, the stock ownership levels in the guidelines were revised to be based on a multiple of annual base salary (in the case of executives) or annual cash retainer (in the case of non-management directors). All non-management directors have an ownership target level of ownership of Company common stock of three times such director’s annual cash retainer. The target level of ownership of Company common stock for the following executives is the aggregate of such person’s annual salary multiplied by the number in parenthesis following his or her position: Chief Executive Officer (5); President (4); Executive Vice Presidents (3); Senior Vice Presidents (2); and Vice Presidents (1). The target stock ownership levels are to be achieved by December 3, 2015 or within five years of first appointment to the Board or election as an executive, whichever is later.

 

Because speculation in our securities based on fluctuations in the market may cause conflicts of interests with our stockholders, our Insider Trading Policy prohibits trading in options, warrants, puts and calls or similar instruments or derivatives related to our securities and it also prohibits selling our securities short, pledging our securities or holding our securities in margin accounts.

 

On December 3, 2010, in connection with the Merger, the authorized size of our Board was increased from five members to ten members and Messrs. Dallas, Johnson, Muller, Murray and Thacker, each a former member of the Mirant board of directors, were elected to our Board. The members of our Board prior to the Merger, Ms. Perez and Messrs. Barnett, Jacobs, Miller and Silverstein, have continued as directors. On December 3, 2010, in connection with the Merger, Steven L. Miller resigned as Chairman of the Board and was appointed Lead Director and Edward R. Muller was appointed Chairman of the Board. All members of our Board are non-management directors, except Edward R. Muller, who serves as our Chairman and Chief Executive Officer, and Mark Jacobs, who serves as our President and Chief Operating Officer.

 

The Board periodically reviews its leadership structure and recognizes that the Company’s leadership requirements and Board composition may change over time. The Board thinks that the Company and its stockholders are well-served by the Board’s current leadership structure. Having one person serve as both Chairman of the Board and Chief Executive Officer of the Company provides clear leadership for the Company, helps ensure accountability for the successes and failures of the Company, facilitates information flow between management and the Board, and fosters effective decision-making and alignment on corporate strategy. At the same time, having an independent Lead Director vested with key duties and responsibilities and four independent Board committees chaired by independent directors provides a formal structure for strong independent oversight of the Chairman and the rest of the Company’s management team.

 

The Board oversees all areas of major risk exposure for the Company and is assisted in this role by the Risk and Finance Oversight Committee and the Audit Committee. The Risk and Finance Oversight Committee is provided with regular reports from management on our key business risks, and meets periodically with our Chief Risk Officer and management to discuss specific risks and assess the effectiveness of our risk management systems. The Audit Committee is regularly provided with accounting, auditing and other financial information and internal control and ethics and compliance reports and meets periodically with our internal auditor, independent auditor, Chief Compliance Officer and management to discuss such information. See “Summary of Committee Responsibilities.”

 

At least once a year, the Nominating and Governance Committee reviews all relationships each director has with us, including any charitable contributions we make to organizations where our directors serve as board members. The Nominating and Governance Committee reports the results of its review to the Board, which then determines which directors satisfy our independence standards. Rather than adopting categorical standards of independence, the Board assesses independence on a case-by-case basis, in each case consistent with the legal requirements described in our committee charters and the listing standards of the NYSE. These standards provide that a director cannot be independent unless the Board affirmatively determines that the director has no material relationship with us. In addition, a director is not independent if the director does not meet the objective tests described in the NYSE listing standards. Under the NYSE listing standards, Audit Committee members must also satisfy the SEC rule regarding independence.

 

The Board determined that Ms. Perez and Messrs. Barnett, Dallas, Johnson, Miller, Murray, Thacker and Silverstein are independent directors. Mr. Muller and Mr. Jacobs are not independent because of their employment with the Company. Each member of our Audit, Nominating and Governance and Compensation Committees is independent under the applicable rules and regulations of the SEC and the listing standards of the NYSE.

 

In making its determination with respect to Mr. Silverstein, the Board considered his membership on the advisory council of the Electric Power Research Institute (EPRI), a non-profit organization to which the Company provides funding for research projects. In determining that the relationship did not constitute a material relationship, the Board noted that Mr. Silverstein has no interest in the transactions between us and EPRI, he does not serve as an executive, director or employee of EPRI and he has no ownership interest in EPRI.

 

Under the terms of our Corporate Governance Guidelines, each of our independent directors is required to ensure that he or she does not have any relationships or engage in any activities that would result in the director not being independent. Prior to engaging in any material relationship or activity that could reasonably be expected to affect his or her independence, the director must consult with our General Counsel, who determines whether the relationship or activity is addressed and permitted by our independence standards. Our General Counsel refers the matter to the Board if the specific relationship or activity is not addressed by our independence standards. If our General Counsel or Board determines that the relationship or activity would jeopardize the director’s independence, the director is not permitted to engage in the activity or relationship.

 

We have adopted a written policy and procedures to assess relationships and transactions to which the Company and our directors and executives or their immediate family members are parties to determine if they have a direct or indirect material interest in the transaction. At the first scheduled Nominating and Governance Committee meeting each year, management identifies for the committee any related person transactions to be entered into for that calendar year, including the proposed aggregate value of such transactions. All related person transactions must be approved by the Nominating and Governance Committee and must be on terms comparable to those that could be obtained in arms-length dealings with an unrelated third party. There were no reportable transactions between the Company and related persons in 2010.

 

To facilitate candid discussion among our non-management directors, our non-management directors meet at least quarterly in executive session. The agenda for each regularly scheduled Board meeting includes an executive session of non-management directors. The Lead Director presides over meetings of non-management directors and assists in the preparation of the agenda for each meeting.

 

During 2010, the Board met 12 times and all directors attended 100% of the meetings which took place during their tenure on the Board. Although the Company has no formal policy regarding attendance by directors at the Company’s annual meetings, all directors on that date attended the 2010 annual meeting and we expect that all directors will attend the 2011 Meeting.

 

We regularly provide updates to the Board on topics relevant to their responsibilities as directors and significant issues, trends and changes in corporate governance. Each director is also encouraged to attend external seminars addressing corporate governance each year. Any new directors will participate in an orientation program on the Company’s capital structure and organization, business units, strategic plan, significant financial, accounting and risk management issues, governance policies, Code of Ethics and vision.

 

To ensure that each director is able to devote sufficient time to performing his or her duties, our Corporate Governance Guidelines prohibit our directors from serving on the boards of more than three other public companies. In addition, the Board and the Nominating and Governance Committee take into account service on other boards as a factor in evaluating director performance and committee assignments. The Audit Committee’s Charter prohibits committee members from serving on the audit committee of more than two other public companies.

 

The Nominating and Governance Committee evaluates material changes in the personal or professional status of a director that could be expected to diminish the director’s ability to effectively function as a member of the Board. In addition, as part of the annual director evaluation process, the Board considers changes in professional status and health, family, business or personal issues that may bear on effectiveness of Board service. Our Corporate Governance Guidelines require directors to submit a resignation letter if they have a substantial job change. The Board has discretion to accept or reject these resignation letters.

 

The Nominating and Governance Committee conducts an annual evaluation to determine whether the Board, its committees and its members are functioning effectively. The evaluation focuses on the Board’s (and each Board committee’s and member’s) contribution as a whole to us and on areas that the Board, any Board committee, any individual director and/or management think can be improved. The Board, at its next regularly scheduled meeting, reviews the conclusions of the evaluation and any recommendations for action.

 

Succession planning with respect to the position of Chief Executive Officer is reviewed and evaluated at the Board level. As part of this process, the non-management members of the Board generally evaluate at least annually potential successors to the Chief Executive Officer and executive management and review development plans for candidates, based upon reports and recommendations from the Chief Executive Officer. The Chief Executive Officer is responsible for development and succession of executive management, and the Chief Executive Officer and the non-management directors are responsible for assuring such succession and development plans are in the best interests of the Company. We have also adopted a policy regarding succession in the event of an emergency involving or the unexpected resignation, retirement or incapacity of our Chief Executive Officer and Chairman of the Board.

 

In connection with the Merger, Mr. Muller entered into an employment agreement with us, effective as of the completion of the Merger, to serve as the Chief Executive Officer of the Company for a period of up to three years. The Board envisions that Mr. Jacobs will be appointed Chief Executive Officer of the Company

on the third anniversary of the Merger and in any event not later than the tenth day following any earlier date as of which Mr. Muller ceases to serve as Chief Executive Officer.

 

Our bylaws provide that, to be elected, each nominee must receive more votes cast for his or her election than votes cast against his or her election. In contested elections where the number of nominees exceeds the number of directors to be elected, the vote standard will be a plurality of votes cast. These bylaw provisions cannot be changed without stockholder approval.

 

In addition, our Corporate Governance Guidelines include a director resignation policy, which is summarized as follows:

 

 

Each of our directors attended all of the meetings held by all Board committees on which they served in 2010, during the period in which they served on such Board committee. The members of the Committees of the Board were as follows:

 

 

All of our standing committees have charters, which are available at www.genon.com.

 

Audit Committee

 

The purposes of the Audit Committee are to assist Board oversight of:

 

 

The Board has determined that each of the current members of the Audit Committee is qualified as an audit committee financial expert under the SEC’s rules and regulations and are “independent” audit committee members under the NYSE listing standards. In addition, the Board has determined that each member of the Audit Committee has the requisite accounting and related financial management expertise under the NYSE listing standards.

 

Compensation Committee

 

The purposes of the Compensation Committee are to:

 

 

The Compensation Committee has discretion to establish and delegate some or all of its authority to subcommittees. During 2010, the Compensation Committee did not establish or utilize a subcommittee for considering or determining executive or director compensation, and it has no current plans to do so. For information regarding the Compensation Committee and its independent consultant’s role in setting compensation, see “Executive Compensation—Compensation Discussion and Analysis” and “Director Compensation.”

 

Nominating and Governance Committee

 

The purposes of the Nominating and Governance Committee are to:

 

 

In addition, the Nominating and Governance Committee reviews all relationships each director has with us and reports the results of its review to the Board.

Risk and Finance Oversight Committee

 

The purposes of the Risk and Finance Oversight Committee are to assist Board oversight of:

 

 

In addition, the Risk and Finance Oversight Committee reviews our environmental, health and safety policies and initiatives with management at least annually.

 

Ms. Laree E. Perez and Messrs. Steven L. Miller (Chairperson) and Evan J. Silverstein served on the Company’s Compensation Committee between January 1, 2010 and December 2, 2010. Between December 3, 2010 and December 31, 2010 Messrs. E. William Barnett, Thomas H. Johnson, Steven L. Miller and William L. Thacker (Chairperson) served on the Company’s Compensation Committee. During 2010, all members of the Compensation Committee were independent directors and no member is or was an employee. During 2010, none of our executives served on a compensation committee (or equivalent) or a board of directors of another entity that had an executive serving on our Compensation Committee or Board.

 

From time to time, the Nominating and Governance Committee considers prospective nominees for Board membership suggested by Board members, management or stockholders. The Committee may also retain a third-party executive search firm to assist it in identifying prospective nominees.

 

Once the Nominating and Governance Committee has identified a prospective nominee, it decides whether to conduct a full evaluation of the candidate. This decision is based on information provided to the Committee with the recommendation of the candidate, the Committee’s knowledge of the candidate and possible inquiries to the person making the recommendation or others. The Committee’s primary considerations are the need for additional Board members to fill vacancies or expand the size of the Board and the likelihood that the candidate can satisfy the evaluation factors described below. As stated in the Corporate Governance Guidelines, the Committee also considers the diversity of and the optimal mix of talent and experience on the Board. This may include professional experience and industry background, the need for expertise in particular areas, geographic location, the balance of management and independent directors, gender, race, age and other factors as the Committee deems relevant.

 

The Committee next evaluates the candidate’s standards and qualifications, including the candidate’s experience, independence, knowledge, commitment to our values, skills, expertise, independence of mind, integrity, service on the boards of other public companies, openness, ability to work as part of a team, willingness to commit the required time and familiarity with our business. Following an evaluation and interviews, the Committee makes a recommendation to the Board regarding the candidate. After considering the recommendation, the Board determines whether or not to extend an offer to the candidate for Board membership.

 

A stockholder who wishes to recommend an individual to serve on the Board should notify us at GenOn Energy, Inc., P.O. Box 3795, Houston, Texas 77253. The notice should be addressed to the attention of the Corporate Secretary or the Chairman of the Nominating and Governance Committee in care of the Corporate Secretary. The notice should include whatever supporting material the stockholder considers appropriate. The Nominating and Governance Committee will also consider whether to nominate any person nominated by a

stockholder pursuant to the provisions of our bylaws relating to stockholder nominations as described in “Dates for Submission of Stockholder Proposals & Nominations for 2012 Annual Meeting” below.

 

Stockholders and other parties interested in communicating directly with the Lead Director, the Chairman of the Board, the non-management directors as a group or the Board may do so by writing in care of the Corporate Secretary at P.O. Box 3795, Houston, Texas 77253. Instructions on how to communicate with the Board are also available on our website at www.genon.com.

 

Additionally, under the terms of our Code of Ethics, anyone desiring to raise a complaint or concern directly with the Audit Committee has the ability to do so by contacting EthicsPoint, Inc., a third-party vendor, at the following mailing address, web address or toll free number:

 

GenOn Energy, Inc.—Audit Committee

c/o EthicsPoint, Inc.

P.O. Box 230369

Portland, OR 97281-0369

Attention: Audit Committee

www.guideline.lrn.com

Toll Free Number: (866) 693-8442

 

Such complaints and concerns will be forwarded directly to the Chairman of the Audit Committee.

 

The Nominating and Governance Committee has approved a process for handling correspondence received by us and addressed to non-management members of the Board. Our Corporate Secretary reviews all correspondence that, in his opinion, deals with the functions of the Board or otherwise requires their attention. The Corporate Secretary has the discretion not to forward unsolicited marketing materials, mass mailings, unsolicited publications, surveys and questionnaires, resumes and other forms of job inquiries and requests for business contacts or referrals. In addition, the Corporate Secretary may, in his discretion, handle any director communication that is an ordinary course of business matter, including routine questions, complaints, comments and related communications that can appropriately be handled by management. However, directors may at any time request copies of all correspondence that is addressed to members of the Board. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our internal audit department or Chief Compliance Officer and handled in accordance with our Code of Ethics.

 

RECOMMENDATION: OUR BOARD RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES LISTED ABOVE

 

The first proposal to be voted on at the Meeting is the election of ten directors for a term of office expiring at our 2012 annual meeting. The Board, based on recommendations from the Nominating and Governance Committee, nominated and recommends each of the ten directors named below. Each of the directors named below has exhibited a commitment to our values, integrity, independence of mind, openness, the ability to work as part of a team, a willingness to commit their time and familiarity with our business. In addition, prior to the Merger, half of the directors served as directors of Mirant and half of the directors served as directors of RRI Energy. It is because of these qualifications, as well as the skills, expertise, professional experiences and industry background noted below that we think each of these directors should serve on our Board.

 

We have no reason to think that any of the nominees will be unavailable for election. If any nominee becomes unavailable for election, the Board can name a substitute nominee and proxies will be voted for the substitute nominee, unless discretionary authority has been withheld.

 

 

Mr. Barnett is a member of the Board of Directors of Enterprise Products GP, LLC, the general partner of Enterprise Products Partners L.P., and is a member of its Audit, Conflicts and Governance Committee. Mr. Barnett also serves on the Board of Directors of Westlake Chemical Corporation and is Chairman of its Nominating and Governance Committee and a member of its Audit Committee. Mr. Barnett retired from the law firm Baker Botts LLP in December 1997 where he served as its managing partner for 14 years. From 1996 to 2005, he served as Chairman of the Board of Trustees of Rice University. In 2005, Mr. Barnett was honored as Director of the Year by the National Association of Corporate Directors. Through his extensive managerial experience and experience with legal and corporate governance matters, we think Mr. Barnett has strong qualifications relevant to service on our Board.

 

 

Mr. Dallas served as a member of the Board of Directors of Mirant from 2006 until the completion of the Merger, when he joined the Company’s Board. Mr. Dallas was also the former Executive Vice President and Chief Financial Officer (2000-2005) of Unocal Corporation, an oil and gas exploration and production company prior to its merger with Chevron Corporation. Prior to that, Mr. Dallas held various executive finance positions in his 21-year career with Atlantic Richfield Corporation, an oil and gas company with major operations in the United States, Latin America, Asia, Europe and the Middle East. He is an audit committee financial expert. Mr. Dallas’ experience as Chief Financial Officer of a petroleum company provides the Board a perspective of someone with direct responsibility for financial and accounting issues as well as an understanding of issues involving fossil fuels.

 

 

Mr. Jacobs is the President and Chief Operating Officer of the Company. Prior to completion of the Merger, he served as our President and Chief Executive Officer from May 2007 until December 3, 2010. He served as our Executive Vice President and Chief Financial Officer from July 2002 to May 2007. Prior to joining the Company, Mr. Jacobs was a managing director with Goldman, Sachs and Co. and had a long-standing advisory relationship with us, serving in both the Mergers and Acquisitions and Energy and Power groups. He has played a major role in key initiatives during his tenure with the Company and with Goldman. Because of this experience and his role as our Chief Operating Officer, and his envisioned future appointment to the role of Chief Executive Officer (as discussed above in “Succession Planning”) we think Mr. Jacobs’ continued membership is important to our Board.

 

 

Mr. Johnson served as a member of the Board of Directors of Mirant from 2006 until the completion of the Merger, when he joined the Company’s Board. Mr. Johnson is the President and Managing Partner (2005—Present) of THJ Investments, LP, a private investment entity, and Chief Executive Officer (2009 — Present) of The Taffrail Group, LLC, a private strategic advisory firm. He was formerly the Chairman (2000-2005) and President and Chief Executive Officer (1997-2005) of Chesapeake Corporation, a specialty packaging manufacturer; and the President and Chief Executive Officer (1989-1997) of Riverwood International Corporation, an integrated forest products company. He is also a director of Coca-Cola Enterprises Inc, Universal Corporation and ModusLink Global Solutions, Inc. and was formerly a director of Superior Essex Inc. Mr. Johnson’s more than 15 years of experience as a chief executive of several large corporations and extensive service on the boards of leading multinational corporations provides the Board a valuable perspective on governance best practices and executive leadership. Mr. Johnson’s service on the boards of other large public companies, including such companies’ audit, nominating and governance, and compensation committees, provides our Board with financial, operational and strategic expertise.

 

 

Mr. Miller serves as our Lead Director. Prior to the Merger, Mr. Miller served as our Chairman of the Board. Mr. Miller has served as Chairman and President of SLM Discovery Ventures, Inc., a company pursuing commercial ventures in support of volunteerism, social outreach and higher education academic achievement, since September 2002. He retired as Chairman, President and Chief Executive Officer of Shell Oil Company in September 2002, following a long career at Shell beginning in 1967 that involved extensive experience in plant operations, trading and commodities, marketing and regulatory activities. Mr. Miller also served as a director of Applied Materials, Inc. from 1999 through 2005 and chaired their Compensation Committee from 2003 to 2005. Mr. Miller’s extensive industry experience and leadership skills lead us to think that he should serve as our director.

 

 

Mr. Muller is the Company’s Chairman and Chief Executive Officer. Prior to the Merger, Mr. Muller served as the Chairman, President and Chief Executive Officer of Mirant (2005-2010). He is the former President and Chief Executive Officer (1993-2000) of Edison Mission Energy, a California-based independent power producer. Mr. Muller is also a director of Transocean Ltd. and was previously a director of GlobalSantaFe Corporation prior to its merger with Transocean Ltd. Mr. Muller’s experience as a chief executive provides him with deep knowledge of the challenges and opportunities faced by a larger company. With over 19 years of energy industry experience, Mr. Muller is very qualified to lead our management team and provide essential insight and guidance to our Board.

 

 

Mr. Murray served as a member of the Board of Directors of Mirant from 2006 until the completion of the Merger, when he joined the Company’s Board. Mr. Murray is a retired executive who most recently served as the former Chairman (2002-2004) and Interim Chief Executive Officer (2002-2003) of Pantellos Corporation, an e-commerce procurement marketplace for the utility industry, and former Chief Financial Officer (1992-2001) of Public Service Enterprise Group, an energy and energy services company. Mr. Murray also served as a Managing Director of Morgan Stanley & Co., Inc (1987-1991). He is an audit committee financial expert. Mr. Murray’s extensive leadership and financial experience, as a chief financial officer and an investment banker in the energy and energy services industries, provides the Board with insight into the challenges facing energy companies.

 

 

Ms. Perez has served as an independent financial consultant with The Medallion Company, LLC, an investment advisory/consultation and professional money management company, since September 2002. Ms. Perez also serves on the Board of Directors of Martin Marietta Materials, Inc., a leading producer of construction aggregates, including those used for emission controls. She serves as Chair of its Finance

Committee and a member of its Audit Committee and its Ethics, Environment, Safety and Health Committee. She is an audit committee financial expert. These experiences lead us to think that Ms. Perez is well-qualified to serve on our Board.

 

 

Mr. Silverstein served as General Partner and Portfolio Manager of SILCAP LLC, a market-neutral hedge fund that principally invests in utilities and energy companies, from January 1993 until his retirement in December 2005. Previously, he served as portfolio manager specializing in utilities and energy companies and as senior equity utility analyst. Mr. Silverstein has given numerous speeches and has testified before Congress on a variety of energy-related issues. He is an audit committee financial expert. These experiences, Mr. Silverstein’s extensive industry knowledge and his success as the head of a major investment fund in the utility and merchant power sector lead us to think that he brings an important perspective to our Board.

 

 

Mr. Thacker served as a member of the Board of Directors of Mirant from 2006 until the completion of the Merger, when he joined the Company’s Board. Mr. Thacker is the former President, Chief Executive Officer, Chairman and Advisor to the President and Chief Executive Officer (1992-2002) of Texas Eastern Products Pipeline Company, LLC, owner and operator of petroleum product pipelines in the United States. He is also Chairman of the Board and a director of Copano Energy, LLC, a director of Kayne Anderson Energy Development Co. and The Kayne Anderson Midstream Energy Fund and was formerly a director of Pacific Energy Management, LLC. Mr. Thacker’s experience as a chief executive of a petroleum product pipeline company provides our Board with insight into the unique concerns of an energy company. His experience serving on the boards of other energy companies brings operational and corporate governance expertise to the Board.

 

 

RECOMMENDATION: THE BOARD AND THE AUDIT COMMITTEE RECOMMEND A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS

 

The Audit Committee annually reviews the qualifications, performance and independence of our independent auditors in accordance with regulatory requirements and guidelines and evaluates whether to change our independent auditors. Based on this review, the Audit Committee decided to appoint KPMG LLP as our independent auditors to conduct our audit for 2011.

 

Although stockholder ratification is not required for the appointment of KPMG LLP, the Board and the Audit Committee have determined that it is a good corporate governance practice. Ratification requires the affirmative vote of a majority of the shares entitled to vote on the matter and represented in person or by proxy at the Meeting. If our stockholders do not ratify the appointment, the Audit Committee may reconsider the appointment. However, even if the appointment is ratified, the Audit Committee, in its discretion, may select different independent auditors if it subsequently determines that such a change would be in the best interest of us and our stockholders.

 

Under the Internal Revenue Code of 1986, as amended (“IRC”), companies can, under certain circumstances, offset taxable income with net operating loss carry forwards and other tax attributes (“NOLs”) from losses that they incurred in previous years. Section 382 of the IRC, however, limits the amount of NOLs that can be used in any one year following an “ownership change,” as defined under Section 382. In general, an “ownership change” occurs when the amount of stock owned (or deemed to be owned under Section 382) by large stockholders increases by more than 50 percentage points over the amount of stock owned by such stockholders during the prior three year period or since the date of the most recent previous ownership change. Large stockholders are generally individuals or entities, or groups thereof, that own at least 5% of outstanding stock, as determined under Section 382. See “—Section 382 Ownership Calculations” below.

 

Historically, both RRI Energy and Mirant have had NOLs that, subject to the provisions of the IRC, could be used to offset taxable income. One of our key business objectives is to maximize the use of the NOLs. To the extent that we are able to avoid annual use limitations, the NOLs may be used in part or in full to offset our taxable income in any taxable year up to the date of their expiration. However, if we experience an “ownership change” with respect to this portion of the NOLs prior to their expiration, an annual use limitation will apply to any remaining unused part of this portion of the NOLs subsequent to such change. Such annual use limitation could materially restrict the amount of these NOLs that can be used to offset our taxable income and may result in our paying greater amounts of federal income tax than we would have if no such change had taken place. To the extent that we are unable to offset taxable income with NOLs, we would have less cash available for other corporate purposes.

 

Following completion of the Merger between Mirant and RRI Energy, the companies became members of the same consolidated federal income tax group. Pursuant to the limitation contained in Section 382, our ability to offset Mirant’s pre-Merger NOLs against the post-merger taxable income of the consolidated group will be substantially limited as a result of the ownership change of Mirant that occurred in connection with the Merger. In the case of RRI Energy’s pre-Merger NOLs, however, we have determined that, based on guidance received from the Internal Revenue Service (“IRS”), because of the overlapping stock ownership of Mirant and RRI Energy at the time of the Merger, RRI Energy did not experience an ownership change in connection with the Merger. Accordingly, RRI Energy’s pre-Merger NOLs may be available to GenOn Energy in the future. At December 31, 2010, these pre-Merger RRI Energy NOLs were approximately $1.3 billion.

 

Calculating whether an “ownership change” has occurred is subject to inherent uncertainty. This uncertainty results from the complexity and ambiguity of the Section 382 provisions, as well as the limited knowledge and timeliness of the information that a publicly traded company can have about the ownership of and transactions in its securities. We and our advisors have analyzed the information available, along with various scenarios of possible future changes of ownership. In light of this analysis, we concluded that we are subject to the risk that future transactions involving our stock could result in an “ownership change” that would subject those RRI Energy NOLs to significant limitations. See “—Section 382 Ownership Calculations” below.

 

Because the amount and timing of our future taxable income, if any, cannot be accurately predicted, we cannot estimate the exact amount of NOLs that we would ultimately be able to use to reduce our income tax liability. Nevertheless, we believe that our NOLs are a very valuable asset and our Board believes it is in our best interests to take measures to preserve them. Our Board believes that the most effective way to preserve the benefit of our NOLs is to adopt both the Protective Charter Amendment and the Stockholder Rights Plan. The Protective Charter Amendment, which is designed to block transfers of our common stock that could result in an ownership change, is described below under Proposal Three, and its full terms can be found in the accompanying Annex A. The Stockholder Rights Plan, which is designed to deter transfers of our common

stock that could result in an ownership change, is described below under Proposal Four, and its full terms can be found in the accompanying Annex B.

 

The Board unanimously approved both measures, but the Protective Charter Amendment requires stockholder adoption to be put into effect, and the Stockholder Rights Plan requires stockholder approval to remain effective after the Meeting. Before voting on the proposals, the Board urges stockholders to carefully read (i) each proposal, (ii) the full terms of both the Protective Charter Amendment and the Stockholder Rights Plan and (iii) the matters discussed below under the heading “—Certain Considerations Related to the Protective Charter Amendment and the Stockholder Rights Plan.”

 

Stockholders should be aware that neither measure offers a complete solution and an ownership change may occur even if the Protective Charter Amendment is adopted and the Stockholder Rights Plan is approved. There are potential limitations on the enforceability of the Protective Charter Amendment against stockholders who do not vote to adopt it that may allow an ownership change to occur, and the Stockholder Rights Plan may deter, but ultimately cannot block, transfers of our common stock that might result in an ownership change. See “—Certain Considerations Related to the Protective Charter Amendment and the Stockholder Rights Plan” below. The potential limitations of these measures are described in more detail below. Because of their individual limitations, the Board believes that both measures are needed and that they will serve as important tools to help prevent an ownership change that could substantially reduce or eliminate the significant long-term potential benefits of our NOLs. Accordingly, the Board strongly recommends that stockholders adopt the Protective Charter Amendment and approve the Stockholder Rights Plan.

 

As discussed above, an “ownership change” can occur through one or more acquisitions or dispositions (including normal market trading) if the result of such acquisitions is that the percentage of our outstanding stock held by stockholders or groups of stockholders owning at least 5% our stock, as determined under Section 382 of the IRC, is more than 50 percentage points higher than the lowest percentage of our outstanding stock owned by such stockholders or groups within the prior three-year period. The amount of the change in the percentage of stock ownership (measured as a percentage of the value of our outstanding shares rather than voting power) of each stockholder is computed separately, and each such increase is then added together with any other such increases to determine whether an “ownership change” has occurred.

 

For example, if a single investor acquired 50.1% of our stock in a three-year period, an “ownership change” would be deemed to occur. Similarly, if ten unrelated persons, none of whom owned our stock, each acquired slightly over 5% of our stock within a three-year period (so that such persons owned, in the aggregate, more than 50%), an “ownership change” would be deemed to occur.

 

In determining whether an “ownership change” has occurred, the rules of Section 382 of the IRC are very complex, and are beyond the scope of this summary discussion. Some of the factors that must be considered in making a Section 382 “ownership change” calculation include the following:

 

 

 

RECOMMENDATION: OUR BOARD RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE PROTECTIVE CHARTER AMENDMENT

 

For the reasons discussed above under “—Background,” the Board recommends that stockholders adopt the Protective Charter Amendment. The Protective Charter Amendment is designed to prevent certain transfers of our common stock that could result in an ownership change under Section 382 of the IRC and, therefore, significantly inhibit our ability to use our NOLs to reduce our future income tax liability. The Board believes it is in our and our stockholders’ best interests to adopt the Protective Charter Amendment to help avoid this result.

 

The purpose of the Protective Charter Amendment is to assist us in protecting long-term value to the Company of its accumulated NOLs by limiting direct or indirect transfers of our common stock that could affect the percentage of stock that is treated as being owned by a holder of 4.99% of our stock. In addition, the Protective Charter Amendment includes a mechanism to block the impact of such transfers while allowing purchasers to receive their money back from prohibited purchases. In order to implement these transfer restrictions, the Protective Charter Amendment must be adopted. The Board has adopted resolutions approving and declaring the advisability of amending the Third Restated Certificate of Incorporation as described below and as provided in the accompanying Annex A, subject to stockholder adoption.

 

The following description of the Protective Charter Amendment is qualified in its entirety by reference to the full text of the Protective Charter Amendment, which is contained in a proposed new Article Twelve of our Third Restated Certificate of Incorporation and can be found in the accompanying Annex A. Please read the Protective Charter Amendment in its entirety as the discussion below is only a summary.

 

Restricted Transfers.  The Protective Charter Amendment generally will restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to:

 

 

“Person” means any individual, firm, corporation or other legal entity, including persons treated as an entity pursuant to Treasury Regulation § 1.382-3(a)(1)(i), and includes any successor (by merger or otherwise) of such entity.

 

Restricted transfers include sales to Persons whose resulting percentage ownership (direct or indirect) of our common stock would exceed the 4.99% thresholds discussed above, or to Persons whose direct or indirect ownership of our common stock would by attribution cause another Person to exceed such threshold. Complicated common stock ownership rules prescribed by the IRC (and regulations promulgated thereunder) will apply in determining whether a Person is a 4.99% stockholder under the Protective Charter Amendment. A transfer from one member of a “public group” (as determined under Section 382) to another member of the same public group does not increase the percentage of our common stock owned directly or indirectly by the

public group and, therefore, such transfers are not restricted. For purposes of determining the existence and identity of, and the amount of our common stock owned by, any stockholder, we will be entitled to rely on the existence or absence of certain public securities filings as of any date, subject to our actual knowledge of the ownership of our common stock. The Protective Charter Amendment includes the right to require a proposed transferee, as a condition to registration of a transfer of our common stock, to provide all information reasonably requested regarding such person’s direct and indirect ownership of our common stock.

 

These transfer restrictions may result in the delay or refusal of certain requested transfers of our common stock, or prohibit ownership (thus requiring dispositions of any prohibited acquisitions) of our common stock because of a change in the relationship between two or more persons or entities or to a transfer of an interest in an entity other than us that, directly or indirectly, owns our common stock. The transfer restrictions will also apply to proscribe the creation or transfer of certain “options” (which are broadly defined by Section 382 of the IRC) with respect to our common stock to the extent that, in certain circumstances, the creation, transfer or exercise of the option would result in a proscribed level of ownership.

 

Consequences of Restricted Transfers.  Upon adoption of the Protective Charter Amendment, any direct or indirect transfer attempted in violation of the Protective Charter Amendment would be void as of the date of the restricted transfer as to the purported transferee (or, in the case of an indirect transfer, the ownership of the direct owner of our common stock would terminate simultaneously with the transfer), and the purported transferee (or in the case of any indirect transfer, the direct owner) would not be recognized as the owner of the shares owned in violation of the Protective Charter Amendment for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of such common stock, or in the case of options, receiving our common stock in respect of their exercise. In this proxy statement, our common stock purportedly acquired in violation of the Protective Charter Amendment is referred to as “excess stock.”

 

In addition to a restricted transfer being void as of the date it is attempted, upon demand, the purported transferee must transfer the excess stock to our agent along with any dividends or other distributions paid with respect to such excess stock. Our agent is required to sell such excess stock in an arm’s-length transaction (or series of transactions) that would not constitute a violation under the Protective Charter Amendment. The net proceeds of the sale, together with any other distributions with respect to such excess stock received by our agent, after deduction of all costs incurred by the agent, will be distributed first to the purported transferee in an amount, if any, up to the cost (or in the case of gift, inheritance or similar transfer, the fair market value of the excess stock on the date of the restricted transfer) incurred by the purported transferee to acquire such excess stock, and the balance of the proceeds, if any, will be distributed to a charitable beneficiary. If the excess stock is sold by the purported transferee, such person will be treated as having sold the excess stock on behalf of the agent, and will be required to remit all proceeds to our agent, except to the extent we grant written permission to the purported transferee to retain an amount not to exceed the amount such person otherwise would have been entitled to retain had our agent sold such shares.

 

To the extent permitted by law, any stockholder who knowingly violates the Protective Charter Amendment will be liable for any and all damages we suffer as a result of such violation, including damages resulting from any limitation in our ability to use our NOLs and any professional fees incurred in connection with addressing such violation.

 

With respect to any restricted transfer that does not involve a transfer of our “securities” within the meaning of the Delaware General Corporation Law but that does involve a transfer for purposes of Section 382 of the IRC, such as an indirect transfer of our securities, the following procedure will apply in lieu of those described above: In such case, such stockholder and/or any person whose ownership of our securities is attributed to such stockholder will be deemed to have disposed of (and will be required to dispose of) sufficient securities, simultaneously with the transfer, to cause such holder not to be in violation of the Protective Charter Amendment, and such securities will be treated as excess stock to be disposed of through the agent under the provisions summarized above, with the maximum amount payable to such stockholder or such other person that was the direct holder of such excess stock from the proceeds of sale by the agent being the fair market value of such excess stock at the time of the restricted transfer.

Public Groups.  In order to facilitate sales by stockholders into the market, the Protective Charter Amendment permits otherwise restricted transfers of our common stock where the transferee is a public group. These permitted transfers include transfers to new public groups that would be created by the transfer and would be treated as a 4.99% stockholder.

 

Waiver.  In addition, the Board will have the discretion to approve a transfer of our common stock that would otherwise violate the transfer restrictions if it determines that the transfer is in our and our stockholders’ best interests. If the Board decides to permit such a transfer, that transfer or later transfers may result in an ownership change that could limit our use of our NOLs. The Board may request relevant information from the acquirer and/or selling party in order to determine compliance with the Protective Charter Amendment or the status of our federal income tax benefits, including an opinion of counsel selected by the Board (the cost of which will be borne by the transferor and/or the transferee) that the transfer will not result in a limitation on the use of the NOLs under Section 382 of the IRC. If the Board decides to grant a waiver, it may impose conditions on the acquirer or selling party.

 

If our stockholders adopt the Protective Charter Amendment, we intend to promptly file the Protective Charter Amendment with the Secretary of State of the State of Delaware, whereupon the Protective Charter Amendment will become effective. We intend to immediately thereafter enforce the restrictions in the Protective Charter Amendment to preserve our NOLs. We also intend to disclose such restrictions to persons holding our common stock in uncertificated form, and will include a legend reflecting the transfer restrictions included in the Protective Charter Amendment on any newly issued or transferred certificated shares. We also intend to disclose such restrictions to the public generally.

 

The Protective Charter Amendment would expire on the earliest of (i) the close of business on May 3, 2014, (ii) the date on which the Board determines that the Protective Charter Amendment is no longer necessary or desirable for the preservation of our NOLs or other tax benefits because of the repeal of Section 382 of the IRC or any successor statute, (iii) the date on which the Board determines that none of our NOLs or other tax benefits may be carried forward, and (iv) such date as the Board otherwise determines that the Protective Charter Amendment is no longer necessary or desirable.

 

RECOMMENDATION: OUR BOARD RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE STOCKHOLDER RIGHTS PLAN

 

On November 23, 2010, the Company entered into an amendment to the Rights Agreement, dated as of January 15, 2001, among RRI Energy and JPMorgan Chase Bank, N.A., successor to The Chase Manhattan Bank and resigning as rights agent pursuant to the amendment, and Computershare Trust Company, N.A., as successor rights agent (as amended, the “Stockholder Rights Plan”). The amendment to the Stockholder Rights Plan was approved in an effort to preserve certain of our NOLs from the substantial limitations contained in Section 382 of the IRC. Subject to certain limited exceptions, the Stockholder Rights Plan is designed to deter any person from buying our common stock (or any interest in our common stock) if the acquisition would result in a stockholder or several stockholders acting in concert owning 4.99% or more of our then-outstanding common stock. If not approved by our stockholders, the rights issued under the Stockholder Rights Plan will expire on the Meeting date.

 

The Stockholder Rights Plan is intended to protect stockholder value by attempting to preserve our ability to use our NOLs to offset our future income tax liability. Because of the limitations of the Protective Charter Amendment in preventing transfers of our common stock that may result in an ownership change, as further described above under Proposal Three, the Board believes that continuation of the Stockholder Rights Plan is in our and our stockholders’ best interests.

 

The following description of the Stockholder Rights Plan is qualified in its entirety by reference to the text of the Stockholder Rights Plan, which is attached to this proxy statement as Annex B. All capitalized terms not otherwise defined herein have a definition set forth in the Stockholders Rights Plan. We urge you to read carefully the Stockholder Rights Plan in its entirety as the following discussion is only a summary of its material terms.

 

The Rights; Exercisability.  Since January 15, 2001, each then outstanding share of common stock of the Company and each subsequently issued share of common stock of the Company, has entitled the holder of such common stock to the right, at any time after a “Distribution Date,” to purchase, for an exercise price of $150, one one-thousandth of a share of Series A Preferred Stock of the Company upon the terms and subject to the conditions set forth in the Stockholder Rights Plan.

 

A “Distribution Date” will occur, subject to certain exceptions, on the earlier of: (i) ten days following a public announcement that a Person or group of Affiliated or Associated persons, who we refer to collectively as an “Acquiring Person,” has acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of the outstanding shares of our common stock; or (ii) ten business days following the start of a tender offer or exchange offer that would result in a Person becoming an Acquiring Person.

 

If a Distribution Date occurs, the Rights Agent will mail certificates representing the rights to holders of record of common stock as of the close of business on the Distribution Date, which shall reflect the exercise price relevant to the rights. From that date on, only separate rights certificates will represent the rights.

 

Definition of “Acquiring Person” and “Beneficial Owner.” Under the Stockholder Rights Plan, an “Acquiring Person” means any Person who or which is the Beneficial Owner of 4.99% or more of the common stock of the Company then outstanding, subject to certain exceptions. “Beneficial Ownership” under the Stockholder Rights Plan is determined by the definition of that term under Section 382 of the IRC, which differs from the definition of that term under the federal securities laws. As used in the Rights Agreement, certain institutional holders, such as mutual fund companies that hold common stock of the Company on behalf of several individual mutual funds where no single fund owns 4.99% or more of our common stock, are not covered by the definition of “Beneficial Owners.”

 

Inadvertent acquisitions of our common stock will not result in a Person becoming an Acquiring Person, provided that the acquisition does not result in the loss or impairment of Tax Benefits and the Person promptly divests itself of sufficient common stock. Further, a Person will not be an Acquiring Person as a result of a transaction for which it obtained the prior written approval of the Company, or if the Board determines, in light of the intent and purposes of the Stockholder Rights Plan or other circumstances facing the Company, that such Person should not be deemed to be an Acquiring Person.

 

Triggering Events.

 

Flip-In Event; Exchange of Rights.  A “flip-in event” will occur when a person becomes an Acquiring Person other than pursuant to a Permitted Offer. A “Permitted Offer” is a tender or exchange offer for all outstanding shares of our common stock at a price and on terms that a majority of the independent directors of our Board determines to be fair to and otherwise in our best interests and the best interest of our stockholders. If a flip-in event occurs, each right, other than any right beneficially owned by an Acquiring Person, will become exercisable. On exercise of the right, in lieu of shares of Class A Preferred Stock, the holder of each exercised right will receive the number of shares of our common stock arrived at by dividing the exercise price by 50% of the Current Market Price per share of common stock.

 

As an alternative, at any time after the occurrence of a flip-in event and prior to a person’s becoming the Beneficial Owner of 50% or more of our outstanding common stock or the occurrence of a flip-over event, the Board may, at its option, exchange all or part of the then outstanding rights, other than any right beneficially owned by an Acquiring Person, in whole or in part, at an exchange ratio of one share of our common stock, and/or other equity securities deemed to have the same value as one share of our common stock, per right, subject to adjustment from time to time as provided in the Stockholder Rights Plan. If a person becomes an

Acquiring Person, such person may experience substantial dilution to its holdings through the exercise of rights by the holders of rights or the exchange, if elected by the Board, of rights for common stock.

 

Flip-Over Event.  A “flip-over event” will occur when, at any time from and after the time a person becomes an Acquiring Person: (i) we are acquired or we acquire another person in a merger or other business combination transaction, other than specified mergers that follow a Permitted Offer; or (ii) 50% or more of our assets, cash flow or earning power is sold, leased or transferred. If a flip-over event that is not in connection with a Permitted Offer occurs, each holder of a right, other than any right beneficially owned by an Acquiring Person, will thereafter have the right to receive on exercise of the right, in lieu of shares of Series A Preferred Stock or common stock of the Company, a number of shares of common stock of the acquiring company arrived at by dividing the exercise price by 50% of the Current Market Price per share of common stock of the acquiring party.

 

When a flip-in event or a flip-over event occurs, all rights that then are, or, under the circumstances the Stockholder Rights Plan specifies previously were, beneficially owned by an Acquiring Person will become null and void in the circumstances the Stockholder Rights Plan specifies.

 

Anti-Dilution Provisions.  The number of rights associated with a share of outstanding common stock, the number of fractional shares of Series A preferred stock issuable upon exercise of a right and the exercise price of the right are subject to adjustment in the event of a stock dividend on, or a subdivision, combination or reclassification of, our common stock occurring prior to the Distribution Date. The exercise price of the rights and the number of fractional shares of Series A preferred stock or other securities or property issuable on exercise of the rights are subject to adjustment from time to time to prevent dilution in the event of certain specified transactions affecting the Series A preferred stock. With some exceptions, we will not be required to adjust the exercise price of the rights until cumulative adjustments amount to at least 1% of the exercise price.

 

Redemption of Rights.  At any time prior to the time a person becomes an Acquiring Person, we may redeem the rights in whole, but not in part, at the Redemption Price (which is currently $.005 per right and subject to adjustment), payable, at our option, in cash, shares of common stock or such other consideration as our Board may determine. Upon such redemption, the rights will terminate and the only right of the holders of rights will be to receive the Redemption Price.

 

Substitution.  If we have an insufficient number of authorized but unissued shares of common stock available to permit an exercise or exchange of rights upon the occurrence of a flip-in event, we may substitute other specified types of property for common stock so long as the total value received by the holder of the rights is equivalent to the value of the common stock that the stockholder would otherwise have received. We may substitute cash, property, equity securities or debt, reduce the exercise price of the rights or use any combination of the foregoing.

 

No Rights as a Stockholder; Taxes.  Until a right is exercised, a holder of rights will have no rights to vote or receive dividends or any other rights as a stockholder of our common stock. Stockholders may, depending upon the circumstances, recognize taxable income in the event that the rights become exercisable for our common stock, or other consideration, or for the common stock of an acquiring company or are exchanged as described above.

 

Amendment of Terms of Rights.  Our Board may amend any of the provisions of the Stockholder Rights Plan, other than certain specified provisions relating to the principal economic terms of the rights and the expiration date of the rights, at any time prior to the time a person becomes an Acquiring Person. Thereafter, our Board may only amend the Stockholder Rights Plan in order to cure any ambiguity, defect or inconsistency or to make changes that do not materially and adversely affect the interests of holders of the rights, excluding the interests of any Acquiring Person.

 

Expiration of the Rights.  The rights will expire on the earliest of: (i) the close of business on November 23, 2013, (ii) the adjournment of the Meeting, if the stockholders have not approved the Stockholder Rights Plan, (iii) the repeal of Section 382 of the IRC or any successor statute if the Board determines that the Stockholder Rights Plan is no longer necessary for the preservation of NOLs or other tax benefits, (iv) the date on which the Board determines that no NOLs or other tax benefits may be carried

forward, and (v) the time at which the rights are redeemed or exchanged by the Company, or expire following certain transactions with persons who have acquired our common stock pursuant to a Permitted Offer.

 

The Board believes that attempting to protect the tax benefits of our NOLs as described above under “Background to Proposals Three and Four” is in our and our stockholders’ best interests; however, we cannot eliminate the possibility that an ownership change will occur even if the Protective Charter Amendment is adopted and the Stockholder Rights Plan is approved. Please consider the items discussed below in voting on Proposals Three and Four.

 

The IRS could challenge the amount of our NOLs or claim we have already experienced an ownership change, which could reduce the amount of our NOLs that we can use or eliminate our ability to use them altogether.

 

The IRS has not audited or otherwise validated the amount of our NOLs. The IRS could challenge the amount of our NOLs, which could limit our ability to use our NOLs to offset our future income tax liability. In addition, the complexity of Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine whether an ownership change has occurred. Therefore, we cannot assure you that the IRS will not claim that we have already experienced an ownership change and attempt to reduce or eliminate the benefit of our NOLs even if the Protective Charter Amendment and the Stockholder Rights Plan are in place.

 

Although the Protective Charter Amendment and the Stockholder Rights Plan are intended to reduce the likelihood of an ownership change, we cannot assure you that they would prevent all transfers of our common stock that could result in such an ownership change. In particular, absent a court determination, we cannot assure you that the Protective Charter Amendment’s restrictions on acquisition of our common stock will be enforceable against all our stockholders, and they may be subject to challenge on equitable grounds.

 

In addition, neither the Protective Charter Amendment nor the Stockholder Rights Plan would protect our NOLs from an “ownership change” that may have occurred prior to their respective dates of implementation and which we are not aware.

 

The Protective Charter Amendment will restrict a stockholder’s ability to acquire, directly or indirectly, additional shares of our common stock in excess of the specified limitations for up to three years from the date of adoption of the Protective Charter Amendment. Furthermore, a stockholder’s ability to dispose of our common stock may be limited by reducing the class of potential acquirers for such common stock. In addition, a stockholder’s ownership of our common stock may become subject to the restrictions of the Protective Charter Amendment upon actions taken by persons related to, or affiliated with, them. Stockholders are advised to carefully monitor their ownership of our stock and consult their own legal advisors and/or us to determine whether their ownership of our stock approaches the restricted levels.

 

If the Protective Charter Amendment is adopted, the Board intends to disclose such restrictions to persons holding our common stock in uncertificated form and to include a legend reflecting the transfer restrictions on certificates representing newly issued or transferred shares. We also intend to disclose such restrictions to the public generally. Because certain buyers, including persons who wish to acquire more than 4.99% of our common stock and certain institutional holders who may not be comfortable holding our common stock with restrictive legends, may not be able to purchase our common stock, the Protective Charter Amendment could

depress the value of our common stock. The Stockholder Rights Plan could have a similar effect if investors object to holding our common stock subject to the terms of the Stockholder Rights Plan.

 

The reason the Board adopted the Protective Charter Amendment and the Stockholder Rights Plan is to preserve the long-term value of our NOLs. Each of these measures, however, could be perceived to have an anti-takeover effect because, among other things, they will affect the ability of a person, entity or group to accumulate more than 4.99% of our common stock without the approval of the Board. Accordingly, if Proposals 3 and/or 4 are approved, the overall effect may be to render more difficult, or discourage, a merger, tender offer, proxy contest or assumption of control by a substantial holder of our securities. The Protective Charter Amendment and the Stockholder Rights Plan proposals are not part of a plan by us to adopt a series of anti-takeover measures, and we are not presently aware of any potential takeover transaction.

 

If you already own more than 4.99% of our common stock, you would be able to transfer shares of our common stock only if the transfer does not increase the percentage of stock ownership of another holder of 4.99% or more of our common stock or create a new holder of 4.99% or more of our common stock. You will also be able to transfer your shares of our common stock through open-market sales to a public group, including a new public group. Shares acquired in any such transaction will be subject to the Protective Charter Amendment’s transfer restrictions.

 

If you own less than 4.99% of our common stock you can transfer your shares to a purchaser who, after the sale, also would own less than 4.99% of our common stock.

 

Delaware law provides that transfer restrictions of the Protective Charter Amendment will be effective as to (i) shares issued prior to the adoption of the restrictions if holders of the shares voted in favor of the restriction and (ii) shares held by purported transferees of such shares if (A) the transfer restrictions are conspicuously noted on the certificate(s) representing such shares or (B) the transferee had actual knowledge of the transfer restrictions (even absent such conspicuous notation). We intend to cause shares of our common stock issued after the effectiveness of the Protective Charter Amendment to be issued with the relevant transfer restrictions conspicuously noted on the certificate(s) representing such shares, and therefore under Delaware law such newly issued shares will be subject to the transfer restrictions in the Protective Charter Amendment. We also intend to disclose such restrictions to persons holding our common stock in uncertificated form. For the purpose of determining whether a stockholder is subject to the Protective Charter Amendment, we intend to take the position that all shares issued prior to the effectiveness of the Protective Charter Amendment that are proposed to be transferred were voted in favor of the Protective Charter Amendment, unless the contrary is established. We may also assert that a stockholder has waived the right to challenge or otherwise cannot challenge the enforceability of the Protective Charter Amendment, unless such stockholder establishes that it did not vote in favor of the Protective Charter Amendment. Nonetheless, a court could find that the Protective Charter Amendment is unenforceable, either in general or as applied to a particular stockholder or fact situation.

 

RECOMMENDATION: THE BOARD RECOMMENDS A VOTE FOR
THE SAY ON PAY PROPOSAL

 

The SEC recently adopted rules to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in July 2010 (the “Dodd-Frank Act”), and entitles the stockholders of the Company to an advisory vote on the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis section and accompanying compensation tables contained in this proxy statement. Our executive compensation program is designed to prudently use our resources while meeting the following objectives:

 

 

The Compensation Committee regularly reviews the compensation program for our named executive officers and believes that the program is well tailored to achieve these objectives. Recent examples of actions taken by the Compensation Committee related to executive compensation include:

 

Securing Talent:

 

 

Alignment:

 

 

Pay for Performance:

 

 

Please read the “Executive Compensation—Compensation Discussion and Analysis” section of this proxy statement and the accompanying Summary Compensation Table and related footnotes for additional details about our executive compensation program, including information about the 2010 compensation of our named executive officers and anticipated changes to the 2011 compensation of our named executive officers.

 

We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the Meeting:

 

“RESOLVED, that the stockholders of GenOn Energy, Inc. approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s proxy statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2010 Summary Compensation Table and the other related tables and disclosures.”

 

This vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board. The vote will not be construed to create or imply any change to the fiduciary duties of Board, or to create or imply any additional fiduciary duties for the Board. However, our Board and our Compensation Committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions.

 

RECOMMENDATION: THE BOARD RECOMMENDS A VOTE FOR
HAVING AN ADVISORY VOTE ON SAY ON PAY ONCE EVERY YEAR

 

The new proxy disclosure rules adopted by the SEC to implement the Dodd-Frank Act enables our stockholders to indicate how frequently we should seek an advisory vote on the compensation of our named executive officers. By voting on this Proposal Six, stockholders may indicate whether they would prefer an advisory vote on named executive officer compensation once every year, two years, or three years.

Our Board has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for GenOn, and therefore our Board recommends that you vote for a one-year interval for the advisory vote on executive compensation.

 

In formulating its recommendation, our Board considered that an annual advisory vote on executive compensation will allow our stockholders to provide us with their direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year.

 

You may cast your vote on your preferred voting frequency by choosing the option of one year, two years or three years or you may abstain from voting when you vote in response to the resolution set forth below.

 

“RESOLVED, that the stockholders of GenOn Energy, Inc. determine, on an advisory basis, that the frequency with which the stockholders of the Company shall have an advisory vote on the compensation of the Company’s named executive officers set forth in the Company’s proxy statement is:

 

Choice 1—every year;
Choice 2—every two years;
Choice 3—every three years; or
Choice 4—abstain from voting.”

 

The option of one year, two years or three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been selected by stockholders. However, because this vote is advisory and not binding on the Board or the Company, the Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.

 

RECOMMENDATION: THE BOARD RECOMMENDS THAT YOU VOTE AGAINST THE STOCKHOLDER PROPOSAL FOR THE REASONS STATED BELOW UNDER THE BOARD’S STATEMENT IN OPPOSITION OF THE PROPOSAL

 

We expect the following proposal to be presented by the Office of the Comptroller of New York City at the Meeting. Following SEC rules, we are reprinting the proposal and supporting statement as they were submitted to us. We take no responsibility for them. On written request to the Corporate Secretary at the address listed under the “Dates for Submission of Stockholder Proposals & Nominations for 2012 Annual Meeting” section of this proxy statement or oral request to the Corporate Secretary, we will provide the New York City Comptroller’s address and number of shares it beneficially owns.

 

GHG GOALS

 

WHEREAS:

 

In October 2006, a report authored by former chief economist of the World Bank, Sir Nicolas Stern, estimated that climate change will cost between 5% and 20% of global domestic product if greenhouse gas (GHG) emissions are not reduced, and that GHG’s can be reduced at a cost of approximately 1% of global GDP per year.

 

In October 2009, a National Academy of Sciences report stated that the burning of coal to generate electricity in the U.S. causes about $62 billion a year in “hidden costs” for environmental damage, not including the costs for damage associated with GHG emissions. According to the U.S. EPA, monetized costs and benefits of complying with the Clean Air Act and its amendments total over $700 billion and $23 trillion, respectively.

The electric generating industry accounts for more carbon dioxide emissions than any other sector, including the transportation and industrial sectors. U.S. fossil fueled power plants account for nearly 40% of domestic and 10% of global carbon dioxide emissions.

 

In spring 2010 the Environmental Protection Agency took steps to implement Clean Air Act requirements for large new or modified stationary sources, including power plants, to obtain permits that include greenhouse-gas emission limitations. These requirements are scheduled to take effect in the first half of 2011.

 

In July 2010, the EPA issued its draft Transport Rule and is expected to issue its Air Toxics Rule in March of 2011. These rules will set significantly more stringent limits on emissions of sulfur dioxide, nitrogen oxide, mercury and acid gases from power plants. Bernstein Research estimates that by 2015, when both rules take effect, 15% of coal fired power plants will be unable to meet these regulations and will be retired, and numerous others will require substantial investments to achieve compliance.

 

Many utilities, including Xcel Energy, Calpine Corporation, and Progress Energy are planning to replace some of their coal-fired power plants, having determined that alternative such as natural gas, efficiency and renewable energy are more cost-effective than retrofitting the coal plants to comply with anticipated standards.

 

The Tennessee Valley Authority (TVA) has announced plans to, over the next five years, idle 1000 MW of coal generating capacity and add 1000 MW of gas and 1140 MW of nuclear generating capacity along with 1900 MW of energy efficiency and distributed renewable resources.

 

Some of RRI Energy, Inc.’s electric industry peers that have set absolute GHG emissions reduction targets include American Electric Power, Entergy, Duke Energy, Exelon, National Grid and Consolidated Edison. Others have set GHG intensity targets, including CMS Energy, PSEG, NiSource and Pinnacle West.

 

RESOLVED:

 

Shareholders request that the Company adopt quantitative goals for the reduction of greenhouse gas and other air emissions in anticipation of emerging EPA regulations; and that the Company report to shareholders by September 30, 2011, on its plans to achieve this goal, including plans to retrofit or retire its existing coal plants. Such a report may omit proprietary information and be prepared at reasonable cost.

 

The Board recommends a vote AGAINST this Proposal Seven. The stockholders are correct that we are in the midst of regulatory and legislative developments with respect to the emerging area of climate change and various air emissions. The substantial uncertainties as to what the Congress, the U.S. Environmental Protection Agency (“EPA”), the state and local jurisdictions and the courts will require is why we need to maintain flexibility with respect to our strategies. Until we know what the substantive and procedural requirements are, when these requirements will take effect, and how the market will react to the requirements, it would be premature and unwise to adopt quantitative goals for the reduction of greenhouse gas or carbon dioxide (“GHG”) or other air emissions. Any commitments made by the Company regarding such goals would likely result in the Company making imprudent decisions that would be unnecessary or wasteful should EPA adopt requirements that are either more or less stringent than anticipated. We refer to our most recently filed Annual Report on Form 10-K and our other SEC filings for a discussion of existing and proposed environmental regulation of our business and our efforts to reduce the environmental impact of our operations.

 

Pending Regulations.  There are several regulatory efforts at different stages in the regulatory and judicial processes that, if finalized, would impose additional regulation on our air emissions, water use and discharge and ash handling. With respect to GHG, and as noted in the stockholder’s proposal, current EPA regulations require industry participants to consider, on a case-by-case basis, “best achievable control technology” for GHG emissions in connection with the construction of new power generating facilities or significant modifications of existing facilities. It should be noted that these regulations, which are subject to pending legal challenge in the U.S. federal court of appeals, do not impose any requirements on existing facilities that are not significantly modified. In addition, the EPA has recently announced that it intends to propose “new source performance standards” (for new and existing electrical generating units) with respect to

GHG emissions in 2011 and to finalize such regulations by 2012. The ultimate implementation, and timing, of these regulations will be determined by the ability of the EPA to maintain its announced schedule for publishing these regulations, the impact of any superseding legislative activity and the impact of any judicial challenges to the regulation.

 

The cumulative effect on our business of these unresolved regulatory efforts is uncertain. The content and timing of any final regulations will have important impacts on wholesale power prices and emission allowance prices, as well as the cost of controls. As an operator of capital intensive infrastructure in competitive markets, it would be imprudent to assume particular regulatory outcomes. With greater regulatory clarity, we may choose to retire certain of our units rather than install additional controls. Implementation of a GHG cap-and-trade program in addition to other emission control requirements could increase the likelihood of coal-fired generating facility retirements.

 

Environmental Responsibility.  One of our principal responsibilities is to provide reliable and competitive electricity. In doing so, we recognize the importance of minimizing environmental impact. For example, we:

 

 

Although there is no existing, cost-effective technology to reduce emissions of GHG from generation facilities fueled by coal, oil or gas,we are exploring ways to mitigate emissions by, among other things, maintaining the efficiency of our plants, recycling operational byproducts like gypsum and ash and seeking offsets. We think that we have taken a reasonable and practical approach to manage GHG and other air emissions and have estimated and disclosed our existing and future GHG emissions and described our emissions reduction efforts in our SEC filings. We think our approach adequately prepares us to react to any legislative or regulatory reduction targets. As stated above, we think that the request that we adopt quantitative goals for reducing GHG and other air emissions in advance of such mandates would unnecessarily and imprudently limit our current and future operations.

 

The following table shows the number of shares of our common stock beneficially owned as of February 22, 2011 by each director, the executives and the former executives named in the “Summary Compensation Table” and all directors, executives and former executives named in the “Summary Compensation Table” as a group. Each person listed below has sole voting and dispositive rights (or shares such rights with his or her spouse). None of these shares are pledged as security.

 

 

 

The following table sets forth information about persons whom we know to be the beneficial owners of more than 5% of our issued and outstanding common stock based solely on our review of the Schedule 13G or Schedule 13D Statement of Beneficial Ownership filed by these persons with the SEC as of the date of such filing:

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors, executives and persons who own more than 10% of our outstanding common stock to file initial reports of ownership and reports of changes in ownership of our common stock with the SEC. Based on our review of the reports submitted to us and representations from reporting persons that they have complied with the applicable filing requirements, we believe that during 2010, all of our directors, executives and greater than 10% stockholders complied with the reporting requirements of Section 16(a) of the Exchange Act.

 

Our executives are elected by the Board annually to hold office until their successors are elected and qualified. The following sets forth the names, ages, titles and business experience of our current executives. Additional biographical information is available on our website at www.genon.com.

 

 

 

This Compensation Discussion and Analysis relates primarily to compensation decisions affecting the 2010 compensation of our named executive officers. We have provided some discussion of compensation decisions taken in 2011.

 

For purposes of this Compensation Discussion and Analysis, our named executive officers are anyone who served in 2010 as our Chief Executive Officer or Chief Financial Officer, the three other most highly compensated executives who were serving at the end of 2010, and two additional former executives who would have been among our most highly compensated executives in 2010 had they been with the Company at the end of 2010. For this purpose, compensation from Mirant before the closing of the Merger is not taken into account and is not a subject of this Compensation Discussion and Analysis. While Messrs. Muller and Holden are named executive officers (because they served as our Chief Executive Officer and Chief Financial Officer, respectively, for the period in 2010 after the Merger), no other legacy Mirant employees are named executive officers. The compensation of Messrs. Muller and Holden after the Merger was determined pursuant to the terms of their employment agreements, which are described below under “What are the terms of the employment agreements with Messrs. Muller and Holden?” Messrs. Muller and Holden are otherwise generally not a subject of this Compensation Discussion and Analysis. The subjects of this Compensation Discussion and Analysis are Mr. Jacobs (who served as our Chief Executive Officer before the Merger and our President and Chief Operating Officer thereafter), Mr. Dobson (who served as our Chief Financial Officer before the Merger), three GenOn executives who were our most highly compensated executives serving at the end of 2010 (Messrs. Jines, Freysinger and Livengood, each a legacy RRI Energy executive), and two former RRI Energy executives (Messrs. Herndon and Brast) who would otherwise have been among our most highly compensated executives in 2010 had they been with the Company at the end of 2010.

 

Equity Awards.

 

One of the effects of the Merger was that all of the equity compensation awards held by our employees (both legacy RRI Energy and legacy Mirant employees) before the Merger vested. Upon completion of the Merger, the restricted stock units settled in stock or cash and the stock options became exercisable, subject to the same terms and conditions as otherwise applied prior to the Merger. Nevertheless, these equity compensation awards no longer had any incentive or retentive effect upon closing of the Merger. Upon execution of the merger agreement, we entered into agreements with Messrs. Muller and Jacobs (in the case of Mr. Muller, as part of his employment agreement that is described more fully below) pursuant to which they were granted new equity compensation incentive awards upon completion of the Merger.

 

Mr. Muller.  To induce Mr. Muller to relocate his employment to Houston, to not resign for “good reason” under his prior employment agreement, and to relinquish the “golden parachute” excise tax gross-up provision included in his prior employment agreement, Mr. Muller was granted restricted stock units with a value equal to two times the sum of his annual base salary and annual target bonus. These 1,220,432 shares will vest in two equal installments on the first and second anniversaries of completion of the Merger, subject to Mr. Muller’s continued employment through the vesting date. Upon Mr. Muller’s retirement (defined as any termination on or after December 3, 2013 or such earlier date as the Board may determine) or earlier termination of his employment by us without “cause” or by him for “good reason,” all of his outstanding equity compensation will vest in full, become immediately exercisable and remain exercisable for the remaining term of the award.

 

Mr. Jacobs.  As an inducement for Mr. Jacobs to continue his employment with us after the Merger as our President and Chief Operating Officer and to not assert “good reason” for termination under his change in control agreement, Mr. Jacobs was granted restricted stock units with a value equal to two times his annual

base salary and annual target bonus as in effect immediately before completion of the Merger. These 1,022,100 shares will vest in equal amounts on the first and second anniversaries of the Merger, provided that if his employment is terminated prior to the award becoming fully vested under circumstances entitling him to severance benefits under his change in control agreement, the award will vest pro rata for each month he was employed following completion of the Merger. Mr. Jacobs’ compensation was not otherwise adjusted when he became the President and Chief Operating Officer upon completion of the Merger because of the importance of his ongoing role at the Company. Mr. Jacobs’ change in control agreement is described more fully in “Potential Payments upon Termination or Change in Control.”

 

Cash Incentive Awards.

 

In addition to its effect on equity compensation, the Merger also affected the legacy RRI Energy annual incentive program (which is described more fully below). In May 2010, the Compensation Committee (the “Committee”) revised the 2010 performance metrics for executive officers under the program to include a metric related to completion of the Merger. The metric was to be considered 100% achieved if the Merger was completed during the fourth quarter of 2010 (as actually occurred) and 150% achieved if the Merger was completed during the third quarter of 2010. Achievement of this metric was given 20% weighting relative to the other performance metrics.

 

Upon execution of our merger agreement with Mirant, Messrs. Muller and Holden entered into employment agreements with us, effective as of the completion of the Merger, as described below:

 

Mr. Muller

 

Our employment agreement with Mr. Muller provides for compensation and benefits during the three-year term of the agreement, which began upon completion of the Merger. Under the terms of the agreement, Mr. Muller’s initial base salary is $1.135 million and his target annual incentive level is 100% of his base salary with a maximum of 200% of his base salary. The agreement provides for an initial equity grant as described above and for additional annual equity grants beginning in 2011 in the Board’s discretion. The agreement also provides that Mr. Muller be provided relocation benefits in accordance with Mirant’s relocation policy for senior executives as in effect at completion of the Merger or such more favorable expense reimbursement policies as may be adopted by us from time to time. The severance benefits provided under the agreement are described in “Potential Payments upon Termination or Change in Control” below.

 

Mr. Holden

 

Under the terms of Mr. Holden’s agreement, he is entitled to a base salary of $540,000 with annual target bonus and long term incentive opportunities of no less than 75% and 185% of his base salary, respectively, and his employee benefits are to be no less favorable than those provided to similarly situated executives generally. Mr. Holden is also entitled to reimbursement of commuting, living (including temporary housing costs) and relocation expenses in connection with the relocation of his employment from Atlanta, Georgia to Houston, Texas in connection with the Merger. Mr. Holden has agreed to waive his entitlement to benefits under Mirant’s Change in Control Severance Plan (which is described below in “Potential Payments upon Termination or Change in Control”), but as an inducement for him to relocate his employment and not to resign for “good reason” under that plan, on December 3, 2012, Mr. Holden will be paid, generally subject to his continued employment, a cash retention bonus in an amount equal to the amount of severance that he would have been paid under the Change in Control Severance Plan upon a qualifying employment termination, provided that if, prior to December 3, 2012, Mr. Holden dies, terminates as a result of “disability,” is terminated without “cause,” resigns following a material breach by us of his employment agreement or terminates for any reason following a termination of Mr. Muller’s employment as our Chief Executive Officer, Mr. Holden (or his beneficiaries) will be paid the retention bonus.

 

Our direct compensation program for executives consists of base salary, annual incentive awards and long-term incentive awards. Our executives may also be eligible for benefits under our severance plans and change-in control-agreements. See “—How were payment amounts and trigger events determined for termination and change in control?” and “Potential Payments upon Termination or Change in Control.” Using these elements, the Committee has approved a compensation program that is designed to prudently use our resources while meeting the following objectives:

 

 

In 2010, the Committee retained Towers Watson & Co.  (“Towers Watson”), a nationally recognized independent compensation consultant, to provide competitive market data for base salary, target annual incentive awards and expected value of target long-term incentive awards. In conducting the competitive analysis, Towers Watson gathered information from us, public filings and appropriate survey sources. Towers Watson reported the results of the competitive analysis to the Committee but did not make recommendations. The Committee considered these data for general market movement and trends and the positioning of our executives relative to the market. See “—How are executive compensation amounts determined” for additional information

 

In late 2010, the Committee’s primary advisor with Towers Watson and his supporting team joined Pay Governance, LLC, an executive compensation consulting firm that specializes in advising compensation committees and boards of directors. Pay Governance is fully independent from Towers Watson and all other firms to ensure it has no conflicts of interest. The Committee retained Pay Governance to maintain the continuity of service and experience of its primary advisor and his supporting team. Following the Committee’s retention of Pay Governance in 2010, Pay Governance advised on revised stock ownership guidelines for our directors and executives. See “Corporate Governance—Stock Ownership Guidelines and Mandatory Holding Periods.” Pay Governance has also advised on the 2011 compensation elements described below under “—Why do we choose to pay each element?”

 

In setting the Chief Executive Officer’s compensation, the Committee consults with the non-management directors for their views of the Chief Executive Officer’s performance and compensation. In setting the other executives’ compensation, our Chief Executive Officer has access to the internal and external compensation information described below, and conducts each of our other executive’s annual performance review. Our Senior Vice President, Human Resources and Administration provides input and makes recommendations to our Chief Executive Officer regarding compensation philosophy and structure, the structure and design of annual incentive awards and long-term incentive awards, and our executive severance plan and change-in-control agreements. Other members of our management team may also give input or make recommendations to our Chief Executive Officer regarding these matters. Using all of that information, our Chief Executive Officer makes recommendations to the Committee regarding the compensation of our other executives. In each case, the Committee independently reviews the data, considers the Chief Executive Officer’s proposals, may request further proposals from the Chief Executive Officer, consults with its independent compensation consultant as needed, and makes its own determinations for our executives. For additional information regarding the compensation consultant’s role in the compensation process, see “—How are executive compensation amounts determined?”

 

In determining target compensation levels for each executive, the Committee considers market data, individual performance, corporate performance, compensation history, and internal equity. None of these factors are weighted, but are considered together.

 

Market Data

 

Market data is a key consideration for the Committee. The Committee reviewed and considered market data as prepared by Towers Watson for the following groups:

 

 

Towers Watson prepared the market data on a composite basis and the Committee did not review individual company data. The two broader groups were surveyed because we do not compete exclusively within our peer group for leadership talent and they represented a talent market for non-industry specific positions. The market data for these two groups was size-adjusted to our revenue size by Towers Watson to provide appropriate comparisons. All three reference groups where available were included in the consideration of each element of 2010 compensation for each legacy RRI Energy executive.

 

Market data for target total direct compensation (base salary, targeted annual incentive and expected value of target long-term incentive awards) was developed at both the 50th and 75th percentiles for each reference point in order to provide a broad market view; however, the Committee did not seek to target total direct compensation at any particular level. Each executive’s position relative to the market data is reflective of his experience (both with us and with other organizations) and the other factors described below. All of the executives for which comparable market data was available were below the 75th percentile for the peer group and three were also below the 50th percentile. Four of the five executives for which comparable market data was available were below the 75th percentile for the broader general industry companies. Two of the five executives for which comparable market data was available were below the 75th percentile for the energy industry companies.

 

Individual Performance

 

The Committee also considered individual performance, including achievement of individualized goals, current and potential impact on corporate performance, reputation, skills, experience, criticality and demonstration of our values as important factors. Our values include acting with integrity, focusing on safety, working collaboratively and treating others with respect and committing to operational excellence.

 

Corporate Performance

 

Significant portions of our annual incentive awards and long-term incentive awards are tied to corporate and operational results, which must be achieved in order for any payout to be earned. See “Why do we choose to pay each element?”

 

Compensation History

 

In determining an executive’s compensation, the Committee considered the base salary and the annual incentive target and payout history of each executive. The Committee also considered each executive’s equity holdings, including the date of any grants, the types of awards (restricted stock, restricted stock units, stock options or cash-based), the vesting provisions, the expiration dates, the exercise prices, if applicable, and the

number of units or shares granted. The Committee reviewed these historical awards to ensure an appropriate portion of executive compensation provides retention value, but no formula was used.

 

Internal Equity

 

Differences in levels of compensation among our executives exist because of differences in their roles and responsibilities and based on all of the factors discussed above. The Committee did not use formulas in determining compensation amounts, but was mindful of internal equity and the impact of perceived fairness related to its decisions.

 

To achieve our compensation program’s objectives, the Committee thinks that a significant portion of executive compensation should be composed of variable, at risk elements, with the majority of these elements being based on alignment with our stockholders and achievement of our long-term success. Base salaries attract and retain the talent we need to lead our business. The Committee strives for a balanced and effective mix of elements, which are not weighted in any particular manner.

 

The table below sets forth the allocation range of fixed and variable compensation for our executives based on the Committee’s determinations during 2010. See “Summary Compensation Table” and “2010 Grants of Plan-Based Awards.”

 

 

 

Base Salary

 

Base salary is paid in cash commensurate with the responsibilities of each individual’s position. The Committee annually reviews base salary and approves adjustments based on the factors discussed under “How are executive compensation amounts determined?” The Committee thinks the base salaries provide a competitive level of fixed compensation based on the individual’s experience and performance as well as the position’s market value. For 2010 base salaries, see “Summary Compensation Table.”

 

Annual Incentive Awards

 

We encourage pay for performance with annual incentive awards that are paid in cash and are tied to annual achievement of the performance metrics described below. The purpose of our annual incentive awards is to encourage superior performance on key corporate and employee metrics that we think are critical to our

business. Annual incentive awards are defined as a specified target percentage of base salary. These target percentages for executives are approved by the Committee based on the market data surveys prepared by Towers Watson and internal equity. The table below reflects the percentage of 2010 base salary that the executives were eligible to receive.

 

 

 

As a general rule, the Committee approves the structure of the annual incentive awards for the current year during the first quarter. In March 2010, the Committee approved metrics that emphasized profitability (30%), effectiveness (20%) and efficiency (20%), each of which is a factor that we think is important in driving our success and that we can control despite the cyclical nature of our business and the uncertain economy. In addition, in March 2010, the Committee approved a pilot program metric that would recognize the successful implementation of business model initiatives relating to improving profitability (30%). In May 2010, in light of the importance of the proposed Merger to the Company’s ongoing business, the Committee approved revised metrics that eliminated the pilot program metric and factored in the timely completion of the Merger. The Committee concluded that a 20% weighting for the Merger metric was appropriate and increased the weighting of the effectiveness and efficiency metrics (to 25% each). The table below reflects the initial and revised 2010 metrics.

 

 

The metric payout amounts and the determination of threshold, target and opportunity are based on a number of factors, including:

 

 

Generally, the target level is consistent with our annual operating plan, with threshold and opportunity levels that take into account the types of factors listed above. The weighting of the different performance metrics is recommended by management and approved by the Committee based on the assessment of the relative priorities of the specific performance metrics. In October 2010, in light of the pending Merger, which

closed on December 3, 2010, the Compensation Committee determined to calculate annual incentive award results based on actual results through November 30, 2010 and adjusted the performance targets accordingly.

 

 

 

See non-equity incentive plan compensation in the “Summary Compensation Table” for valuation disclosure related to 2010 annual incentive awards for each executive.

 

In February 2011, the Committee approved a new short-term incentive structure and goals for 2011. Two-thirds of the payout factor will be based on achieving an adjusted EBITDA target amount, as follows: $[xxx] million (threshold/50%); $[xxx] million (target/100%), and $[xxx] million (maximum/200%). For 2011, adjusted EBITDA will represent earnings before interest, taxes, depreciation and amortization, eliminating the effects of unrealized gains/losses on derivative financial instruments, items related to the Merger, as well as net lower of cost or market adjustments to our commodity inventories and certain other items. The level of adjusted EBITDA necessary to earn 50%, 100% and 200% of the target payout was set in February 2011, taking into consideration our projected adjusted EBITDA under our 2010 operating plan. The remaining one-third of the payout factor will be based on achieving the following seven operational and strategic goals and metrics:

 

 

The payout amounts for the strategic and operational goals are as follows: 50% of target equals achievement of three goals (threshold); 100% of target equals achievement of four goals; 150% of target equals achievement of five goals; and 200% of target equals achievement of six goals (maximum).

Long-Term Incentive Awards

 

In March 2010, the Committee granted the legacy RRI Energy executives long-term incentive awards structured as follows:

 

 

The Committee approved the awards following its review of management’s proposals, which considered market data prepared by Towers Watson, individual performance, long-term potential, retention risk, difficulty of replacement, long-term impact of position and internal equity. These factors were not weighted but were considered in the aggregate.

 

See “—How does each element and our decisions regarding that element fit into our compensation program’s objectives and affect other elements?” above for each executive’s targeted allocation of long-term incentive compensation, and see “Summary Compensation Table” and “2010 Grants of Plan-Based Awards” for valuation disclosure related to 2010 long-term incentive awards for each executive. All of these awards vested pursuant to their terms upon completion of the Merger.

 

In February 2011, the Committee granted our executives long-term incentive awards structured with one-third of the economic value of the grants delivered from each of the following:

 

 

Executive Perquisites

 

With the exception of executive relocation in connection with the Merger, we do not provide substantial personal benefits or perquisites. In 2010, we allowed up to $5,000 per year for each executive in reimbursement for specified financial planning services and a one-time allowance of $5,000 for estate planning and financial planning services. Effective January 1, 2011 except for expenses previously incurred, the Board eliminated the financial planning and estate planning reimbursement program.

 

We provide for payments and benefits if an executive is terminated without cause or resigns for good reason in connection with a change in control. In addition, under our executive severance plan and severance pay plan, we provide for payments and other benefits if an executive’s employment is involuntarily terminated other than by reason of death, disability, cause or a change in control. Furthermore, Messrs. Muller and Holden are entitled to certain severance protections pursuant to their employment agreements with us.

The Committee periodically reviews the payment multiples and the triggering events for receipt of these payments and benefits with our compensation consultant to ensure consistency with market practice. The change in control triggering events were selected so that our executives can evaluate potential change in control triggering events impartially and without self-interest and so that our executives would be encouraged to continue their attention and dedication to us without regard to the security of their employment following a change in our control. We choose to provide severance benefits for termination in these circumstances to provide financial assistance and resolve any possible related claims against us that may arise. The potential payments under these arrangements do not affect the other elements of the executives’ compensation.

 

As introduced above and in more detail below, Messrs. Muller and Holden are entitled to special severance protections under their employment agreements with us, including in connection with the Merger, and the legacy RRI Energy executives likewise are entitled to severance protection in connection with the Merger, all as more fully described below in “Potential Payments upon Termination or Change in Control.”

 

We encourage stock ownership by executives through the use of equity awards and mandatory holding periods. In addition, the Board has adopted stock ownership guidelines for our directors and executives. In December 2010, the stock ownership levels in the guidelines were revised to be based on a multiple of each executive’s annual base salary. See “Corporate Governance—Stock Ownership Guidelines and Mandatory Holding Periods.”

 

As a general rule, the Committee approves our executives’ base salaries, payout of annual incentive awards for the prior year, and annual and long-term incentive awards for the current year at its first regular quarterly meeting (generally in February or March). In light of the Merger, which was completed in the fourth quarter of 2010, the Committee approved revised annual incentive metrics in May 2010.

 

Any awards for newly hired executives are typically granted as of the first business day of the month immediately following the executive’s appointment date. Offers to executive candidates are reviewed with the Committee prior to being made. Any equity awards included in an offer are subject to the Committee’s approval.

 

As described above, upon execution of the merger agreement, Messrs. Muller and Jacobs each negotiated and entered into agreements pursuant to which they were granted equity incentive compensation awards upon completion of the Merger. Otherwise, our executives do not have any role in establishing the timing of grants or vesting of equity or equity-based awards. We do not have any program, plan or practice to time grants of equity or equity-based awards in coordination with the release of material non-public information and we do not set grant dates for new executives in coordination with the release of such information. We have not timed, and do not intend to time, our release of material non-public information for the purpose of affecting the value of executive compensation. See “2010 Grants of Plan-Based Awards.”

 

The Committee considers tax, tax deductibility and accounting treatment of various compensation alternatives. However, these are not typically driving factors. The Committee may approve non-deductible compensation arrangements if it thinks they are in the best interests of the Company and its stockholders taking into account several factors, including our ability to utilize the deduction based on projected taxable income.

 

The Compensation Committee oversees the compensation plans, policies and programs of GenOn Energy, Inc. on behalf of the Board. In performing its oversight function, the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis. Based on these reviews and discussions, the Compensation Committee recommended to the Board, and the Board approved, that the Compensation Discussion and Analysis be included in the Company’s proxy statement and Annual Report on Form 10-K.

 

The undersigned members of the Compensation Committee have submitted this Report to the Board of Directors.

 

Compensation Committee,

 

William L. Thacker (Chairperson)

E. William Barnett

Thomas H. Johnson

Steven L. Miller

 

The following table sets forth the compensation of our named executive officers. Except for Messrs. Muller, Jacobs and Holden, none of our named executive officers has an employment agreement or arrangement, other than certain severance protections described below in “Potential Payments upon Termination or Change-in-Control.” The information set forth in the Summary Compensation Table below and in the additional tables that follow it relate, in the case of Messrs. Muller and Holden, only to compensation earned from us after the Merger and not to any compensation earned from Mirant before the Merger. For further discussion of executive compensation, see “Compensation Discussion and Analysis.”

 

 

 

 

 

 

 

Other than the grants to Mr. Muller on December 6, 2010 and to Mr. Jacobs on December 3, 2010, all awards were granted under the GenOn Energy, Inc. 2002 Long-Term Incentive Plan, which was terminated in connection with the Merger. Messrs. Muller and Jacobs’ awards were granted under the GenOn Energy, Inc. 2010 Omnibus Incentive Plan.