AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 2003
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CENTERPOINT ENERGY, INC.
(Exact name of registrant as specified in its charter)
TEXAS 4911 74-0694415
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
RUFUS S. SCOTT
VICE PRESIDENT, DEPUTY GENERAL COUNSEL
1111 LOUISIANA AND ASSISTANT CORPORATE SECRETARY
HOUSTON, TEXAS 77002 1111 LOUISIANA
(713) 207-1111 HOUSTON, TEXAS 77002
(713) 207-1111
(Address, including zip code, and telephone number, including area code, (Name, address, including zip code, and telephone
of registrant's principal executive offices) number, including area code, of agent for service)
--------------------------
Copy to:
GERALD M. SPEDALE
BAKER BOTTS L.L.P.
910 LOUISIANA, ONE SHELL PLAZA
HOUSTON, TEXAS 77002
(713) 229-1234
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
======================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT TO BE PRICE PER OFFERING PRICE REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT (1) (1) FEE (1)
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$200,000,000 5.875% Senior Notes due 2008, Series B $200,000,000 100% $200,000,000 $ 16,180
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$200,000,000 6.850% Senior Notes due 2015, Series B $200,000,000 100% $200,000,000 $ 16,180
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$200,000,000 7.25% Senior Notes due 2010, Series B $200,000,000 100% $200,000,000 $ 16,180
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Total $600,000,000 $600,000,000 $ 48,540
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) of the Securities Act of 1933. For purposes
of this calculation, the offering price per 5.875% Series B Note, 6.850%
Series B Note and 7.25% Series B Note was assumed to be the stated
principal amount of each 5.875% Series B Note, 6.850% Series B Note and
7.25% Series B Note, respectively, that may be received by the Registrant
in the exchange transaction in which the 5.875% Series B Notes, 6.850%
Series B Notes and 7.25% Series B Notes, as the case may be, will be
offered.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 2003
PROSPECTUS
$600,000,000
CENTERPOINT ENERGY, INC.
OFFER TO EXCHANGE
5.875% Senior Notes due 2008, 6.850% Senior Notes due 2015, 7.25% Senior Notes due 2010,
Series B Series B Series B
for all outstanding for all outstanding for all outstanding
5.875% Senior Notes due 2008, 6.850% Senior Notes due 2015, 7.25% Senior Notes due 2010,
Series A Series A Series A
THE EXCHANGE OFFER FOR SERIES A NOTES (THE "OLD NOTES") OF EACH SERIES:
- will expire at 5:00 p.m., New York City time, , 2003, unless extended; and
- is not conditioned upon any minimum aggregate principal amount of old notes
of that series being tendered for exchange or upon consummation of the
exchange offer for old notes of any other series.
THE SERIES B NOTES (THE "NEW NOTES"):
- will be freely tradable;
- are substantially identical to the old notes for which they may be
exchanged; and
- will not be listed on any securities exchange or on any automated dealer
quotation system, but may be sold in the over-the-counter market, in
negotiated transactions or through a combination of those methods.
YOU SHOULD NOTE THAT:
- we will exchange all old notes of a series that are validly tendered and
not validly withdrawn for an equal principal amount of new notes of that
series that we have registered under the Securities Act of 1933;
- you may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer; and
- the exchange of old notes for new notes in the exchange offer will not be a
taxable event for U.S. federal income tax purposes.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 18 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2003.
TABLE OF CONTENTS
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS.
SEE "WHERE YOU CAN FIND MORE INFORMATION" BEGINNING ON PAGE 64 FOR A LISTING OF
DOCUMENTS WE INCORPORATE BY REFERENCE. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED TO CENTERPOINT ENERGY, INC., ATTN:
INVESTOR SERVICES, P.O. BOX 4567, HOUSTON, TEXAS 77210-4567, TELEPHONE: (713)
207-3060. TO ENSURE TIMELY DELIVERY OF ANY OF OUR FILINGS, AGREEMENTS OR OTHER
DOCUMENTS, YOU MUST MAKE YOUR REQUEST TO US NO LATER THAN , 2003, WHICH IS
FIVE DAYS BEFORE THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 2003.
Cautionary Statement Regarding Forward-Looking Information................................... ii
Prospectus Summary........................................................................... 1
Risk Factors................................................................................. 18
Private Placement............................................................................ 31
Use of Proceeds.............................................................................. 31
The Exchange Offer........................................................................... 32
Description of the Notes..................................................................... 41
Registration Rights.......................................................................... 53
Book-Entry Delivery and Settlement........................................................... 55
Certain U.S. Federal Income Tax Considerations............................................... 58
Plan of Distribution......................................................................... 62
Transfer Restrictions........................................................................ 63
Legal Matters................................................................................ 63
Experts...................................................................................... 63
Where You Can Find More Information.......................................................... 64
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. The letters of transmittal state that, by so
acknowledging and delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act of
1933. This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of new notes received
in exchange for old notes where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities. We have
agreed that, for a period of 180 days after the expiration date of the exchange
offer, we will make this prospectus available to any broker-dealer for use in
connection with the resale of new notes.
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements that are not historical facts. These
statements are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those expressed or implied by these statements. In some cases, you can
identify our forward-looking statements by the words "anticipate," "believe,"
"continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may,"
"objective," "plan," "potential," "predicts," "projection," "should," "will," or
other similar words.
We have based our forward-looking statements on our management's
beliefs and assumptions based on information available at the time the
statements are made. We caution you that assumptions, beliefs, expectations,
intentions and projections about future events may and often do vary materially
from actual results. Therefore, we cannot assure you that actual results will
not differ materially from those expressed or implied by our forward-looking
statements.
Some of the factors that could cause actual results to differ from
those expressed or implied by our forward-looking statements are described under
"Risk Factors" beginning on page 18 of this prospectus. Other such factors are
described in other documents we file with the SEC and incorporate by reference
into this prospectus.
You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement.
ii
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus or incorporated by reference herein. This summary is not complete and
does not contain all the information that you should consider before investing
in the new notes. You should read carefully the entire prospectus, including the
risk factors, financial data and financial statements included or incorporated
by reference herein and the other information and documents we have incorporated
by reference in this prospectus.
Unless the context requires otherwise, the terms "CenterPoint Energy,"
"our company," "we," "our," "ours" and "us" refer to CenterPoint Energy, Inc.;
the term "CenterPoint Houston" refers to CenterPoint Energy Houston Electric,
LLC, our electric utility subsidiary; the term "CERC" refers to CenterPoint
Energy Resources Corp., our gas distribution and pipelines and gathering
subsidiary; and the term "Reliant Energy" refers to Reliant Energy,
Incorporated. We refer to our 5.875% Senior Notes due 2008, Series A as the
"2008 old notes," our 6.850% Senior Notes due 2015, Series A as the "2015 old
notes," our 7.25% Senior Notes due 2010, Series A as the "2010 old notes," and
the 2008 old notes, 2015 old notes and 2010 old notes together as the "old
notes." We refer to our 5.875% Senior Notes due 2008, Series B offered by this
prospectus as the "2008 new notes," our 6.850% Senior Notes due 2015, Series B
offered by this prospectus as the "2015 new notes," our 7.25% Senior Notes due
2010, Series B offered by this prospectus as the "2010 new notes," and the 2008
new notes, 2015 new notes and 2010 new notes together as the "new notes." We
sometimes refer to the old notes and the new notes collectively as the "notes."
OUR COMPANY
GENERAL
We are a public utility holding company that became the parent of
Reliant Energy and its subsidiaries on August 31, 2002 as part of a corporate
restructuring of Reliant Energy. Our indirect wholly owned subsidiaries include
(i) CenterPoint Houston, which engages in Reliant Energy's former electric
transmission and distribution business in a 5,000-square mile area of the Texas
Gulf Coast that includes Houston, and (ii) CERC, which owns gas distribution
systems that together form one of the United States' largest natural gas
distribution operations in terms of the number of customers served. Through
wholly owned subsidiaries, CERC also owns two interstate natural gas pipelines
and gas gathering systems and provides various ancillary services. We also have
an approximately 81% ownership interest in Texas Genco Holdings, Inc. ("Texas
Genco"), which owns and operates the Texas generating plants that were formerly
part of the integrated electric utility that was part of Reliant Energy. We
distributed approximately 19% of the outstanding common stock of Texas Genco to
our shareholders on January 6, 2003.
Reliant Energy completed the separation of the generation, transmission
and distribution, and retail sales functions of Reliant Energy's Texas electric
operations (the "Restructuring") in August 2002. To effect the Restructuring,
Reliant Energy:
- conveyed its Texas electric generation assets to Texas Genco,
- became our indirect, wholly owned subsidiary,
- was converted into a Texas limited liability company and renamed
CenterPoint Energy Houston Electric, LLC, and
- distributed the capital stock of its operating subsidiaries to us.
As part of the Restructuring, each share of Reliant Energy common stock
was converted into one share of our common stock. Prior to the Restructuring,
Reliant Energy's subsidiary, Reliant Resources, Inc. ("Reliant Resources"),
conducted non-utility wholesale and retail energy operations. As a result of the
Restructuring, we became the owner of approximately 83% of the stock of Reliant
Resources. On September 30, 2002, we distributed this stock to our shareholders
on a pro rata basis.
We are a registered public utility holding company under the Public
Utility Holding Company Act of 1935 ("1935 Act"). The 1935 Act and related rules
and regulations impose a number of restrictions on our activities and those of
our subsidiaries. The 1935 Act, among other things, limits our ability and the
ability of our subsidiaries, other than Texas Genco, to issue debt and equity
securities without prior authorization, restricts the source of dividend
payments to current and retained earnings without prior authorization, regulates
sales and acquisitions of certain assets and businesses and governs affiliate
transactions.
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Our general corporate structure is described in the diagram below:
CENTERPOINT ENERGY CORPORATE STRUCTURE
[DIAGRAM OF CORPORATE STRUCTURE]
BUSINESS CONTRIBUTION
[GRAPHS DISPLAYING RESPECTIVE PERCENTAGE CONTRIBUTION OF EACH BUSINESS SEGMENT
TO TOTAL ASSETS AS OF JUNE 30, 2003 AND TOTAL OPERATING INCOME FOR THE TWELVE
MONTHS ENDED JUNE 30, 2003]
2
OUR BUSINESS
CENTERPOINT HOUSTON
Electric Transmission
CenterPoint Houston transports electricity from power plants to
substations and from one substation to another and to retail customers taking
power above 69 kilovolts ("kV") in locations throughout the control area managed
by the Electric Reliability Council of Texas, Inc. ("ERCOT"). ERCOT is an
intrastate network of retail customers, investor and municipally owned electric
utilities, rural electric co-operatives, river authorities, independent
generators, power marketers and retail electric providers, which serves as the
regional reliability coordinating council for member electric power systems in
Texas. The ERCOT market consists of the State of Texas, other than a portion of
the panhandle, a portion of the eastern part of the state bordering on Louisiana
and the area in and around El Paso. The ERCOT market represents approximately
85% of the demand for power in Texas and is one of the nation's largest power
markets. Transmission services are provided under tariffs approved by the Public
Utility Commission of Texas (the "Texas Utility Commission").
Electric Distribution
CenterPoint Houston distributes electricity for retail electric
providers in its certificated service area by carrying lower-voltage power from
the substation to the retail electric customer. Its distribution network
receives electricity from the transmission grid through power distribution
substations and distributes electricity to end users through distribution
feeders. Operations include construction and maintenance of facilities, metering
services, outage response services and other call center operations.
Distribution services are provided under tariffs approved by the Texas Utility
Commission. Texas Utility Commission rules and market protocols govern the
commercial retail operations of distribution companies and other market
participants.
Customers
CenterPoint Houston's customers consist of municipalities, electric
cooperatives, other distribution companies and approximately 31 retail electric
providers in its certificated service area. Each retail electric provider is
licensed by the Texas Utility Commission and must meet creditworthiness criteria
established by the Texas Utility Commission.
Stranded Costs, Regulatory Assets Recovery and Securitization
The Texas Electric Restructuring Law. In June 1999, the Texas
legislature adopted the Texas Electric Choice Plan (the "Texas electric
restructuring law"), which substantially amended the regulatory structure
governing electric utilities in order to allow and encourage retail competition.
The Texas electric restructuring law required the separation of the generation,
transmission and distribution and retail sales functions of electric utilities
into three different units. It also required each electric utility to file a
business separation plan with the Texas Utility Commission detailing its plan to
comply with the Texas electric restructuring law. Under the law, neither the
generation function nor the retail function is subject to traditional cost of
service regulation, and the retail function has been opened to competition. The
transmission and distribution function CenterPoint Houston performs remains
subject to traditional utility rate regulation.
Under the Texas electric restructuring law, transmission and
distribution utilities in Texas whose generation assets were "unbundled,"
including CenterPoint Houston, may recover, following a regulatory proceeding to
be held in 2004:
- "regulatory assets," which consist of the Texas jurisdictional
amount reported by the previously vertically integrated electric
utilities as regulatory assets and liabilities (offset and
adjusted by specified amounts) in their audited financial
statements for 1998,
- "stranded costs," which consist of the positive excess of the net
regulatory book value of generation assets over the market value
of the assets, taking specified factors into account, and
- the excess cost over market for state-mandated capacity auctions
by Texas Genco ("ECOM"), fuel over- or under-recovery and "price
to beat" clawback components.
3
The Texas electric restructuring law permits transmission and
distribution utilities to recover regulatory assets and stranded costs through
transition charges on retail electric customers' bills, to the extent that such
assets and costs are established in certain regulatory proceedings. These
transition charges are non-bypassable, meaning that they must be paid by
essentially all customers and cannot, except in limited circumstances, be
avoided by switching to self-generation.
Final True-Up. Beginning in January 2004, the Texas Utility Commission
will conduct true-up proceedings for each investor-owned utility. The purpose of
the true-up proceeding is to quantify and reconcile the amount of stranded
costs, other regulatory assets associated with the generation assets that were
not previously securitized, the difference in the price of power obtained
through the state mandated capacity auctions and the power costs used in the
Texas Utility Commission's ECOM model, any fuel costs over- or under-recovery
and the "price to beat" clawback. The true-up proceeding will result in either
additional charges being assessed on, or credits being issued to, retail
electric customers taking delivery from us. CenterPoint Houston will make the
filing to initiate its final true-up proceeding on March 31, 2004. The Texas
electric restructuring law requires a final order to be issued by the Texas
Utility Commission not more than 150 days after a proper filing is made by the
regulated utility.
Securitization. The Texas electric restructuring law provides for the
use of special purpose entities to issue transition bonds for the economic value
of generation-related regulatory assets and stranded costs. These transition
bonds will be amortized over a period not to exceed 15 years through
non-bypassable transition charges to customers taking delivery service from
CenterPoint Houston. Any stranded costs not recovered through the transition
bonds will be recovered through a non-bypassable competition transition charge
assessed to customers taking delivery service from CenterPoint Houston. In
October 2001, a special purpose subsidiary of CenterPoint Houston issued $749
million of transition bonds to securitize generation-related regulatory assets.
These transition bonds have a final maturity date of September 15, 2015 and are
non-recourse to us or our subsidiaries other than to the special purpose issuer.
We expect that upon completion of the 2004 true-up proceeding,
CenterPoint Houston will seek to securitize its stranded costs, any regulatory
assets not previously securitized by the October 2001 issuance of transition
bonds and, to the extent permitted by the Texas Utility Commission, the balance
of the other true-up components. Under the Texas electric restructuring law,
CenterPoint Houston is entitled to recover any portion of the true-up balance
not securitized by transition bonds through a non-bypassable competition
transition charge assessed to its customers.
CERC
Natural Gas Distribution
CERC's natural gas distribution business engages in intrastate natural
gas sales to, and natural gas transportation for, residential, commercial and
industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma
and Texas. Its operations also include non-rate regulated retail gas sales to
and transportation services for commercial and industrial customers in the six
states listed above as well as several other Midwestern states. CERC currently
conducts intrastate natural gas sales to, and natural gas transportation for,
residential, commercial and industrial customers through three unincorporated
divisions: CenterPoint Energy Arkla ("Arkla"), CenterPoint Energy Entex
("Entex") and CenterPoint Energy Minnegasco ("Minnegasco"). These operations are
regulated as natural gas utility operations in the jurisdictions served by these
divisions.
- Arkla provides natural gas distribution services in over 245
communities in Arkansas, Louisiana, Oklahoma and Texas. The
largest metropolitan areas served by Arkla are Little Rock,
Arkansas and Shreveport, Louisiana.
- Entex provides natural gas distribution services in over 500
communities in Louisiana, Mississippi and Texas. The largest
metropolitan area served by Entex is Houston.
- Minnegasco provides natural gas distribution services in over 240
communities in Minnesota. The largest metropolitan area served by
Minnegasco is Minneapolis. Additionally, Minnegasco provides
unregulated services consisting of
[MAP OF NATURAL GAS DISTRIBUTION SERVICE TERRITORY]
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heating, ventilating and air conditioning ("HVAC") equipment and
appliance sales and repair services, HVAC and hearth equipment
sales and home security monitoring.
Pipelines and Gathering
CERC's pipelines and gathering business operates two interstate natural
gas pipelines as well as gas gathering facilities and also provides pipeline
services.
CERC owns and operates gas transmission lines primarily located in
Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. CERC's pipeline
operations are primarily conducted by two wholly owned interstate pipeline
subsidiaries: CenterPoint Energy Gas Transmission Company ("CEGT") and
CenterPoint Energy -- Mississippi River Transmission Corporation ("MRT").
- CEGT is an interstate pipeline that provides natural gas
transportation, natural gas storage and pipeline services to
customers principally in Arkansas, Louisiana and Oklahoma.
- MRT is an interstate pipeline that provides natural gas
transportation, natural gas storage and pipeline services to
customers principally in Arkansas and Missouri.
[MAP OF PIPELINES AND GATHERING SERVICE TERRITORY]
CERC's gathering operations are conducted by a wholly owned gas
gathering subsidiary, CenterPoint Energy Field Services, Inc. ("CEFS"). CEFS is
a natural gas gathering and processing business serving natural gas fields in
the Midcontinent basin of the United States that interconnect with CEGT and MRT
as well as other interstate and intrastate pipelines. CEFS operates gathering
pipelines, which collect natural gas from more than 300 separate systems located
in major producing fields in Arkansas, Louisiana, Oklahoma and Texas.
TEXAS GENCO
Texas Genco is one of the largest wholesale electric power generating
companies in the United States. Texas Genco owns and operates 60 generating
units at 11 power generation facilities. Texas Genco also owns a 30.8% interest
in the South Texas Project Electric Generating Station ("South Texas Project"),
a nuclear generating station with two 1,250 MW nuclear generating units. As of
June 30, 2003, the aggregate net generating capacity of Texas Genco's combined
portfolio of generating assets was 14,175 MW. Texas Genco sells electric
generation capacity, energy and ancillary services in the ERCOT market.
Collectively, Texas Genco's facilities provide approximately 20% of the
aggregate net generating capacity serving the ERCOT market.
Since January 1, 2002, Texas Genco has sold power to wholesale
purchasers, including retail electric providers, at unregulated rates through
its capacity auctions. In addition to retail electric providers, Texas Genco's
customers in the ERCOT market include municipal utilities, electric
co-operatives, power trading organizations and other power generating companies.
Texas Genco is also a significant provider to the ancillary services market
operated by the ERCOT Independent System Operator. Texas Genco expects its mix
of customers and the mix of participants will change significantly as the ERCOT
market evolves from one dominated by vertically integrated electric utilities to
one with utility-affiliated retail electric providers, new-entrant retail
electric providers, greater participation by unregulated energy merchants, and
more generation capacity from independent generation companies. Subsidiaries of
Reliant Resources purchased entitlements to 63% of Texas Genco's available 2002
capacity and through July 2003 had purchased 71% of Texas Genco's available 2003
capacity.
Based on the results of capacity auctions held, Texas Genco will
continue to have approximately 926 MW temporarily removed from service, or
placed in "mothball" status, through November 2003. Texas Genco is evaluating
the July auction results and determining the need for additional generating
capacity to be placed in mothball status for the remaining months of 2003.
The ERCOT market is highly competitive. Texas Genco has approximately
80 competitors, which include generation companies affiliated with Texas-based
utilities, independent power producers, municipal or co-operative generators and
5
wholesale power marketers. These competitors will compete with Texas Genco and
each other by buying and selling wholesale power in the ERCOT market, entering
into bilateral contracts and/or selling to aggregated retail customers.
Monetization
Reliant Resources has an option that may be exercised between January
10, 2004 and January 24, 2004 to purchase all of the approximately 81% of the
outstanding shares of Texas Genco common stock that we currently own. Reliant
Resources has no obligation to exercise the option. The per share exercise price
under this option will be based on the average daily closing price of Texas
Genco common stock on The New York Stock Exchange over the 30 consecutive
trading days out of the last 120 trading days ending January 9, 2004 which
result in the highest average closing price. In addition, a control premium, up
to a maximum of 10%, will be added to the price to the extent a control premium
is included in the valuation determination made by the Texas Utility Commission
relating to the market value of Texas Genco. If Reliant Resources does not
exercise the option, we will pursue an alternative strategy to monetize Texas
Genco. We are currently evaluating alternatives for doing so. Please read "Risk
Factors --Other Risks --If Reliant Resources does not exercise its option to
purchase the common stock of Texas Genco that we own, we may not be able to
monetize Texas Genco on the same terms or on the same time schedule as provided
by the option."
MISCELLANEOUS
Our principal executive offices are located at 1111 Louisiana, Houston,
Texas 77002, and our telephone number is (713) 207-1111.
6
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On May 27, 2003 we completed the private offering of the 2008 old notes
and the 2015 old notes, and on September 9, 2003 we completed the private
offering of the 2010 old notes. We received proceeds, after deducting the
discount to the initial purchasers, of approximately $397 million and $198
million from the sales of the old notes in May and in September, respectively.
In connection with the offering of the old notes, we entered into
registration rights agreements with the initial purchasers of the old notes in
which we agreed to deliver to you this prospectus and to use our reasonable
commercial efforts to complete the exchange offer within 315 days after the
respective dates of issuance of the old notes. In the exchange offer, you are
entitled to exchange your old notes of a series for new notes of that series,
with substantially identical terms, that are registered with the SEC. You should
read the discussion under the headings "--Summary of the Terms of the New Notes"
beginning on page 12 and "Description of the Notes" beginning on page 41 for
further information about the new notes. After the exchange offer is complete,
you will no longer be entitled to any exchange or registration rights for your
old notes.
The exchange offer consists of separate, independent offers for each
series of old notes. We have summarized the terms of the exchange offer below.
You should read the discussion under the heading "The Exchange Offer" beginning
on page 32 for further information about the exchange offer and resale of the
new notes.
The Exchange Offer
We are offering to exchange:
- up to $200,000,000 aggregate principal amount of outstanding 5.875% Senior
Notes due 2008, Series A, for up to $200,000,000 aggregate principal amount
of 5.875% Senior Notes due 2008, Series B;
- up to $200,000,000 aggregate principal amount of outstanding 6.850% Senior
Notes due 2015, Series A, for up to $200,000,000 aggregate principal amount
of 6.850% Senior Notes due 2015, Series B; and
- up to $200,000,000 aggregate principal amount of outstanding 7.25% Senior
Notes due 2010, Series A, for up to $200,000,000 aggregate principal amount
of 7.25% Senior Notes due 2010, Series B.
Old notes may be exchanged only in integral multiples of $1,000.
The terms of each series of new notes are identical in all material respects to
those of the old notes for which they may be exchanged except the new notes will
not contain provisions with respect to transfer restrictions, registration
rights or additional interest for failure to fulfil certain obligations under
the applicable registration rights agreement. The new notes of a series will
vote together with outstanding old notes of that series not exchanged on all
matters on which holders of such series of old notes or new notes are entitled
to vote.
OLD NOTES THAT ARE NOT TENDERED FOR EXCHANGE WILL CONTINUE TO BE SUBJECT TO
TRANSFER RESTRICTIONS AND WILL NOT HAVE REGISTRATION RIGHTS. THEREFORE, THE
MARKET FOR SECONDARY RESALES OF OLD NOTES THAT ARE NOT TENDERED FOR EXCHANGE IS
LIKELY TO BE MINIMAL.
Resale
Based on interpretation of the Staff of the Division of Corporation Finance of
the SEC (the "Staff") in no-action letters issued to third parties, we believe
that the new notes issued pursuant to the exchange offer in exchange for old
notes may be offered for resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933 if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933;
7
- you acquire such new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of new notes.
Each participating broker-dealer that receives new notes for its own account
pursuant to the exchange offer in exchange for old notes that were acquired as a
result of market-making or other trading activity must acknowledge that it will
deliver a prospectus in connection with any resale of the new notes. Please read
"Plan of Distribution" beginning on page 62.
Expiration Date
The exchange offer for each series of old notes will expire at 5:00 p.m., New
York City time, on , 2003, or such later date and time to which we may extend it
at our discretion. We may extend the expiration date for each series of old
notes independently. Please read "The Exchange Offer--Extensions, Delay in
Acceptance, Termination or Amendment" beginning on page 33 for more information
about an extension of the expiration date.
Withdrawal of Tenders
You may withdraw your tender of old notes at any time prior to the expiration
date. We will return to you, without charge, promptly after the expiration or
termination of the exchange offer any old notes that you tendered but that were
not accepted for exchange.
Conditions to the Exchange Offer
We will not be required to accept old notes for exchange:
- if the exchange offer would be unlawful or would violate any interpretation
of the Staff; or
- if any legal action has been instituted or threatened that would impair our
ability to proceed with the exchange offer.
The exchange offer for old notes of each series is not conditioned upon any
minimum aggregate principal amount of old notes of such series being tendered
for exchange or upon consummation of the exchange offer for old notes of any
other series. The exchange offer is subject to customary conditions, which we
may waive in our sole discretion. Please read "The Exchange Offer--Conditions to
the Exchange Offer" beginning on page 34 for more information about the
conditions to the exchange offer.
Procedures for Tendering Old Notes
If you wish to participate in the exchange offer, you must complete, sign and
date the accompanying letter of transmittal or a facsimile of the letter of
transmittal and mail or deliver the letter of transmittal, together with your
old notes, to the exchange agent. If your old notes are held through The
Depository Trust Company ("DTC") you may effect delivery of the old notes by
book-entry transfer.
In the alternative, if your old notes are held through DTC and you wish to
participate in the exchange offer, you may do so through DTC's automated tender
offer program. If you tender under this program, you will agree to be bound by
the letter of transmittal that we are providing with this prospectus as though
you had signed the letter of transmittal. By signing or agreeing to be bound by
the letter of transmittal, you will represent to us that, among other things:
8
- any new notes that you receive are being acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act of 1933) of the
old notes or the new notes;
- you are not our "affiliate," as defined in Rule 405 under the Securities
Act of 1933, or, if you are our affiliate, you will comply with the
registration and prospectus delivery requirements of the Securities Act of
1933 to the extent applicable;
- if you are not a broker-dealer, you are not engaged in, and do not intend
to engage in, a distribution of the new notes;
- if you are a broker-dealer, you are not tendering old notes acquired
directly from us or one of our affiliates;
- if you are a broker-dealer, you will receive the new notes for your own
account in exchange for old notes that you acquired as a result of
market-making activities or other trading activities, and you will deliver
a prospectus in connection with any resale of such new notes; and
- you are not acting on behalf of any person who could not truthfully and
completely make the foregoing representations.
Special Procedures for Beneficial Owners
If you beneficially own old notes that are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and you wish to tender
the old notes in the exchange offer, please contact the registered holder as
soon as possible and instruct the registered holder to tender on your behalf.
If you wish to tender your old notes on your own behalf, you must either arrange
to have old notes registered in your name or obtain a properly completed bond
power from the registered holder before completing and executing the letter of
transmittal and delivering your old notes. The transfer of registered ownership
may take considerable time.
Guaranteed Delivery Procedures
You must tender your old notes according to the guaranteed delivery procedures
described in "The Exchange Offer--Guaranteed Delivery Procedures" beginning on
page 38 if any of the following apply:
- you wish to tender your old notes but they are not immediately available;
- you cannot deliver your old notes, the letter of transmittal or any other
required documents to the exchange agent prior to the expiration date; or
- you cannot comply with the applicable procedures under DTC's automated
tender offer program prior to the expiration date.
Consequences of Failure to Exchange Your Old Notes
If you do not exchange your old notes in the exchange offer, you will no longer
be entitled to registration rights. You will not be able to offer or sell the
old notes unless they are later registered, sold pursuant to an exemption from
registration or sold in a transaction not subject to the Securities Act of 1933
or state securities laws. Except as specified in the registration rights
agreements, we are not obligated to, nor do we currently anticipate that we will
register the
9
old notes under the Securities Act of 1933. Please read "The Exchange
Offer--Consequences of Failure to Exchange" beginning on page 40.
Certain U.S. Federal Income Tax
Considerations
The exchange of old notes for new notes in the exchange offer will not be a
taxable event for U.S. federal income tax purposes. Please read "Certain U.S.
Federal Income Tax Considerations" beginning on page 58.
Use of Proceeds
We will not receive any cash proceeds from the issuance of new notes in the
exchange offer.
10
THE EXCHANGE AGENT
We have appointed JPMorgan Chase Bank as exchange agent for the
exchange offer. Please direct questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent. If you are
not tendering under DTC's automated tender offer program, you should send the
letter of transmittal and any other required documents to the exchange agent as
follows:
JPMORGAN CHASE BANK
By Hand Or Overnight Courier:
JPMorgan Chase Bank
2001 Bryan Street, 9th Floor
Registered Bond Processing Dept.
Dallas, Texas 75201
By Mail (Registered Or Certified Mail Recommended):
JPMorgan Chase Bank
P.O. Box 2320
Attn: Registered Bond Processing Dept.
Dallas, Texas 75221-2320
By Facsimile Transmission (Eligible Institutions Only):
(214) 468-6494
Attention: Frank Ivins
Confirm By Telephone:
(800) 275-2048
11
SUMMARY OF THE TERMS OF THE NEW NOTES
Each series of the new notes will be freely tradable and otherwise
substantially identical to the old notes of that series. The new notes will not
have registration rights or provisions for additional interest. Each series of
the new notes will evidence the same debt as the old notes of that series, and
both new notes and old notes are governed by the same indenture. Each series of
new notes will vote together with the old notes of that series not exchanged on
all matters on which holders of each series of old notes and new notes are
entitled to vote.
Notes Offered
$200,000,000 aggregate principal amount of 5.875% Senior Notes due 2008, Series
B;
$200,000,000 aggregate principal amount of 6.850% Senior Notes due 2015, Series
B; and
$200,000,000 aggregate principal amount of 7.25% Senior Notes due 2010, Series
B.
Maturity Dates
June 1, 2008 for the 2008 new notes;
June 1, 2015 for the 2015 new notes; and
September 1, 2010 for the 2010 new notes.
Interest Payment Dates
June 1 and December 1, with the initial interest payment date following the
consummation of the exchange offer being , 200 for the 2008 new notes and the
2015 new notes, and March 1 and September 1, with the initial interest payment
date following the consummation of the exchange offer being , 200 for the 2010
new notes.
Ranking
The new notes will be unsecured and will rank equally in right of payment with
all of our other existing and future unsecured and unsubordinated indebtedness.
The new notes will not have the benefit of collateral granted to all our
existing secured debt and are effectively subordinated to existing and future
indebtedness and other liabilities of our subsidiaries. As discussed in
"Description of the Notes" beginning on page 41, we, on an unconsolidated basis,
had $2.7 billion aggregate principal amount of secured debt outstanding at
October 31, 2003, including $1.8 billion secured by the stock of Texas Genco and
$924 million secured by mortgage bonds of CenterPoint Houston.
Optional Redemption
We may redeem all or a part of the new notes at any time and from time to time
as specified in this prospectus under "Description of the Notes--Optional
Redemption" beginning on page 42.
Significant Covenants
We will issue the new notes under an indenture containing certain restrictive
covenants for your benefit. These covenants, which are described under
"Description of the Notes" beginning on page 41, restrict our ability, with
certain exceptions, to:
- incur certain debt secured by liens; and
- merge, consolidate or transfer substantially all of our assets.
Lack of Public Markets for the New Notes
There is no existing market for the new notes. We cannot provide any assurance
about:
- the liquidity of any markets that may develop for the new notes;
12
- your ability to sell the new notes; and
- the prices at which you will be able to sell the new notes.
Future trading prices of the new notes will depend on many factors, including:
- prevailing interest rates;
- our operating results;
- the ratings of the new notes; and
- the market for similar securities.
We do not intend to apply for listing of the new notes on any securities
exchange or for quotation of the new notes in any automated dealer quotation
system.
Risk Factors
You should consider carefully all of the information set forth in this
prospectus and, in particular, you should evaluate the specific factors set
forth under "Risk Factors" beginning on page 18 before deciding whether to
invest in the new notes.
Governing Law
The indenture and the new notes are governed by, and construed in accordance
with, the laws of the State of New York.
Further Issues
The 2008 new notes are initially limited to $200,000,000 in aggregate principal
amount. The 2015 new notes are initially limited to $200,000,000 in aggregate
principal amount. The 2010 new notes are initially limited to $200,000,000 in
aggregate principal amount. However, we may issue additional notes of each
series from time to time, without the consent of the holders.
13
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data
for the years ended December 31, 1998, 1999, 2000, 2001 and 2002 and for the
six-month periods ended June 30, 2002 and 2003. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations and Selected Financial Data," the consolidated
financial statements and the related notes and the report of our independent
auditors included in Exhibits 99.1 and 99.2 of our November 7, 2003 Form 8-K and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of CenterPoint Energy and Subsidiaries" and the consolidated
financial statements in our Second Quarter 2003 Form 10-Q.
The selected financial data presented below reflect certain
reclassifications necessary to present Reliant Resources as discontinued
operations as a result of the distribution of all of the shares of Reliant
Resources common stock owned by CenterPoint Energy to its common shareholders on
a pro rata basis, certain reclassifications necessary to present our Latin
America operations which remained at December 31, 2002 as discontinued
operations as a result of the sale of these operations subsequent to December
31, 2002 and certain reclassifications necessary to present CenterPoint Energy
Management Services, Inc. as discontinued operations as a result of the decision
to sell these operations in June 2003. Additionally, the selected financial data
below also reflect certain reclassifications necessary to present the
extraordinary loss on extinguishment of debt recorded in the fourth quarter of
2002 as interest expense in accordance with Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." The selected financial data
also gives effect to the Restructuring.
14
CONSOLIDATED INCOME STATEMENT DATA
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998(1) 1999(2) 2000(3) 2001(4) 2002
------- ------- ------- ------- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues ............................................. $ 7,537 $ 7,511 $ 10,283 $ 10,559 $ 7,898
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change .................................. (170) 1,631 245 499 369
Discontinued Operations:
Income from Reliant Resources, net of tax ......... 23 23 225 475 82
Income (loss) from Other Operations, net of tax ... 6 11 (23) (53) --
Loss on disposal of Reliant Resources ............. -- -- -- -- (4,371)
Loss on disposal of Other Operations, net of tax... -- -- -- -- --
Extraordinary item, net of tax ....................... -- (183) -- -- --
Cumulative effect of accounting change, net of tax ... -- -- -- 59 --
--------- --------- ---------- ---------- ---------
Net income (loss) attributable to common
shareholders ....................................... $ (141) $ 1,482 $ 447 $ 980 $ (3,920)
========= ========= ========== ========== =========
Basic earnings (loss) per common share:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change ................................. $ (0.60) $ 5.72 $ 0.86 $ 1.72 $ 1.24
Discontinued Operations:
Income from Reliant Resources, net of tax ......... 0.08 0.08 0.79 1.64 0.27
Income (loss) from Other Operations, net of tax ... 0.02 0.04 (0.08) (0.18) --
Loss on disposal of Reliant Resources ............. -- -- -- -- (14.67)
Loss on disposal of Other Operations, net of tax... -- -- -- -- --
Extraordinary item, net of tax ....................... -- (0.64) -- -- --
Cumulative effect of accounting change, net of tax ... -- -- -- 0.20 --
--------- --------- ---------- ---------- ---------
Basic earnings (loss) per common share ............... $ (0.50) $ 5.20 $ 1.57 $ 3.38 $ (13.16)
========= ========= ========== ========== =========
Diluted earnings (loss) per common share:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change ................................. $ (0.60) $ 5.70 $ 0.85 $ 1.71 $ 1.23
Discontinued Operations:
Income from Reliant Resources, net of tax ......... 0.08 0.08 0.79 1.62 0.27
Income (loss) from Other Operations, net of tax ... 0.02 0.04 (0.08) (0.18) --
Loss on disposal of Reliant Resources ............. -- -- -- -- (14.58)
Loss on disposal of Other Operations, net of tax... -- -- -- -- --
Extraordinary item, net of tax ....................... -- (0.64) -- -- --
Cumulative effect of accounting change, net of tax ... -- -- -- 0.20 --
--------- --------- ---------- ---------- ---------
Diluted earnings (loss) per common share ............. $ (0.50) $ 5.18 $ 1.56 $ 3.35 $ (13.08)
========= ========= ========== ========== =========
Cash dividends paid per common share ................. $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.07
Dividend payout ratio from continuing operations ..... -- 26% 176% 88% 87%
Return from continuing operations on average
common equity ..................................... (3.7)% 30.1% 4.6% 9.1% 9.0%
SIX MONTHS ENDED
JUNE 30,
---------------------
2002 2003
---- ----
Revenues ............................................ $ 3,876 $ 4,991
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change ................................. 231 165
Discontinued Operations:
Income from Reliant Resources, net of tax ........ 34 --
Income (loss) from Other Operations, net of tax .. 2 (1)
Loss on disposal of Reliant Resources ............ -- --
Loss on disposal of Other Operations, net of tax -- (12)
Extraordinary item, net of tax ...................... -- --
Cumulative effect of accounting change, net of tax .. -- 80
--------- ---------
Net income (loss) attributable to common
shareholders ...................................... $ 267 $ 232
========= =========
Basic earnings (loss) per common share:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change ................................ $ 0.78 $ 0.54
Discontinued Operations:
Income from Reliant Resources, net of tax ........ 0.11 --
Income (loss) from Other Operations, net of tax .. 0.01 --
Loss on disposal of Reliant Resources ............ -- --
Loss on disposal of Other Operations, net of tax.. -- (0.04)
Extraordinary item, net of tax ...................... -- --
Cumulative effect of accounting change, net of tax .. -- 0.27
--------- ---------
Basic earnings (loss) per common share .............. $ 0.90 $ 0.77
========= =========
Diluted earnings (loss) per common share:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change ................................ $ 0.78 $ 0.54
Discontinued Operations:
Income from Reliant Resources, net of tax ........ 0.11 --
Income (loss) from Other Operations, net of tax .. 0.01 --
Loss on disposal of Reliant Resources ............ -- --
Loss on disposal of Other Operations, net of tax -- (0.04)
Extraordinary item, net of tax ...................... -- --
Cumulative effect of accounting change, net of tax .. -- 0.26
--------- ---------
Diluted earnings (loss) per common share ............ $ 0.90 $ 0.76
========= =========
Cash dividends paid per common share ................ $ 0.75 $ 0.20
Dividend payout ratio from continuing operations .... 96% 37%
Return from continuing operations on average
common equity .................................... 3.4% 17.0%
(1) 1998 net income includes a non-cash, unrealized loss on our indexed debt
securities of $764 million (after-tax), or $2.69 loss per basic and
diluted share. For additional information on the indexed debt securities,
please read Note 7 to our consolidated financial statements in Exhibit
99.2 to our November 7, 2003 Form 8-K.
(2) 1999 net income includes an aggregate non-cash, unrealized gain on our
indexed debt securities and our Time Warner, Inc. (now AOL Time Warner
Inc.) investment, of $1.2 billion (after-tax), or $4.09 earnings per basic
share and $4.08 earnings per diluted share. For additional information on
the indexed debt securities and AOL Time Warner investment, please read
Note 7 to our consolidated financial statements in Exhibit 99.2 to our
November 7, 2003 Form 8-K. The extraordinary item in 1999 is a loss
related to an accounting impairment of certain generation related
regulatory assets of our Electric Generation business segment. For
additional information regarding the impairment, please read Note 4 to our
consolidated financial statements in Exhibit 99.2 to our November 7, 2003
Form 8-K.
(3) 2000 net income includes an aggregate non-cash loss on our indexed debt
securities and our AOL Time Warner investment of $67 million (after-tax),
or a $0.24 loss per basic share and a $0.23 loss per diluted share. 2000
net income also includes a
15
$200 million (after-tax) charge (net of a tax benefit of $108 million), or
a $0.69 loss per basic share and $0.68 loss per diluted share, to reflect
the loss on disposal of our Latin America equity investments. For
additional information on the indexed debt securities and AOL Time Warner
investment, please read Note 7 to our consolidated financial statements in
Exhibit 99.2 to our November 7, 2003 Form 8-K. For additional information
regarding our investments in Latin America, please read Note 2 to our
consolidated financial statements in Exhibit 99.2 to our November 7, 2003
Form 8-K.
(4) 2001 net income includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ($59 million after-tax gain, or $0.20
earnings per basic and diluted share). For additional information related
to the cumulative effect of accounting change, please read Note 5 to our
consolidated financial statements in Exhibit 99.2 to our November 7, 2003
Form 8-K.
SEGMENT DATA
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
2000 2001 2002 2002 2003
---- ---- ---- ---- ----
(IN MILLIONS)
ELECTRIC TRANSMISSION & DISTRIBUTION
Revenues ........................... $ 2,160 $ 2,100 $ 2,222 $ 1,096 $ 929
Operating Income ................... 934 863 1,097 528 440
ELECTRIC GENERATION
Revenues ........................... $ 3,334 $ 3,411 $ 1,493 $ 739 $ 937
Operating Income (Loss) ............ 330 265 (133) (81) 33
NATURAL GAS DISTRIBUTION
Revenues ........................... $ 4,504 $ 4,742 $ 3,960 $ 1,977 $ 3,015
Operating Income ................... 118 130 198 118 151
PIPELINES AND GATHERING
Revenues ........................... $ 384 $ 415 $ 374 $ 194 $ 231
Operating Income ................... 137 137 153 76 85
OTHER OPERATIONS
Revenues ........................... $ 6 $ 4 $ 8 $ 14 $ 18
Operating Income (Loss) ............ (72) (46) 19 -- (2)
ELIMINATIONS/OTHER
Revenues ........................... $ (105) $ (113) $ (159) $ (144) $ (139)
Operating Income (Loss) ............ (33) (25) (1) -- --
CONSOLIDATED
Revenues ........................... $ 10,283 $ 10,559 $ 7,898 $ 3,876 $ 4,991
Operating Income ................... 1,414 1,324 1,333 641 707
BALANCE SHEET AND OTHER FINANCIAL DATA
AS OF DECEMBER 31,
----------------------------------------------------------- AS OF
1998 1999 2000 2001 2002 JUNE 30, 2003
------- ------- ------- ------- ------- -------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Book value per common share ...................... $ 15.16 $ 18.70 $ 19.10 $ 22.77 $ 4.74 $ 4.76
Market price per common share .................... 32.06 22.88 43.31 26.52 8.01 8.15
Assets of discontinued operations ................ 1,819 6,095 14,323 12,392 63 28
Total assets ..................................... 19,959 28,658 35,225 31,266 19,634 19,889
Short-term borrowings ............................ 1,813 3,015 4,886 3,529 347 --
Long-term debt obligations, including current
maturities ..................................... 7,195 8,883 5,756 5,552 10,005 10,381
Trust preferred securities ....................... 342 705 705 706 706 706
Cumulative preferred stock ....................... 10 10 10 -- -- --
Capitalization:
Common stock equity ............................ 36% 36% 46% 52% 12% 11%
Trust preferred securities ..................... 3% 5% 6% 5% 6% 6%
Long-term debt, including current maturities ... 61% 59% 48% 43% 82% 83%
Capital expenditures, excluding discontinued
operations ..................................... $ 673 $ 865 $ 905 $ 1,211 $ 846 $ 297
16
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for
each of the periods indicated, calculated pursuant to SEC rules. Earnings from
continuing operations in 2002 and the six months ended June 30, 2002 and 2003
include $697 million, $311 million and $233 million, respectively, of non-cash
ECOM true-up.
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ------------------
1998 1999 2000 2001 2002 2002 2003
---- ---- ---- ---- ---- ---- ----
Ratio of earnings from continuing
operations to fixed charges... (1) 5.38 1.80 2.18 1.70 2.13 1.52
(1) In 1998, earnings were inadequate to cover fixed charges by approximately
$232 million. This deficiency results from the $1.2 billion non-cash,
unrealized loss recorded for our 7% Automatic Common Exchange Securities.
Excluding the effect of the non-cash, unrealized loss, the ratio of
earnings from continuing operations to fixed charges would have been 3.29.
17
RISK FACTORS
There are many risks that may affect your investment in the new notes.
Some of these risks, but not all of them, are listed below. You should carefully
consider these risks as well as the other information included or incorporated
by reference in this prospectus before exchanging your old notes.
RISK FACTORS RELATING TO THE EXCHANGE OFFER
IF YOU FAIL TO EXCHANGE YOUR OLD NOTES, THE EXISTING TRANSFER RESTRICTIONS
WILL REMAIN IN EFFECT AND THE MARKET VALUE OF YOUR OLD NOTES MAY BE
ADVERSELY AFFECTED BECAUSE THEY MAY BE MORE DIFFICULT TO SELL.
If you do not exchange your old notes for new notes under the exchange
offer, then you will continue to be subject to the existing transfer
restrictions on the old notes. In general, the old notes may not be offered or
sold unless they are registered or exempt from registration under the Securities
Act of 1933 and applicable state securities laws. Except in connection with this
exchange offer or as required by the registration rights agreements, we do not
intend to register resales of the old notes under the Securities Act of 1933.
Tenders of old notes under the exchange offer will reduce the aggregate
principal amount of the unregistered notes outstanding. This may have an adverse
effect upon, and increase the volatility of, the market price of any old notes
that you continue to hold following completion of the exchange offer due to a
reduction in liquidity.
PRINCIPAL RISK FACTORS ASSOCIATED WITH OUR BUSINESSES
We are a holding company that conducts all of our business operations
through subsidiaries, primarily CenterPoint Houston, CERC and Texas Genco. The
following summarizes the principal risk factors associated with the businesses
conducted by each of these subsidiaries:
RISK FACTORS AFFECTING OUR ELECTRIC TRANSMISSION & DISTRIBUTION BUSINESS
CENTERPOINT HOUSTON MAY NOT BE SUCCESSFUL IN RECOVERING THE FULL VALUE OF
ITS STRANDED COSTS AND REGULATORY ASSETS RELATED TO GENERATION.
CenterPoint Houston is entitled to recover its stranded costs (the
excess of regulatory net book value of generation assets, as defined by the
Texas electric restructuring law, over the market value of those assets) and its
regulatory assets related to generation. CenterPoint Houston expects to make a
filing on March 31, 2004 in a true-up proceeding provided for by the Texas
electric restructuring law. The purpose of this proceeding will be to quantify
and reconcile:
- the amount of stranded costs,
- regulatory assets that were not previously recovered through the
issuance of transition bonds by a subsidiary,
- differences in the prices achieved in the state mandated auctions
of Texas Genco's generation capacity and Texas Utility Commission
estimates,
- fuel over- or under-recovery, and
- the "price to beat" clawback.
CenterPoint Houston will be required to establish and support the
amounts of these costs in order to recover them. CenterPoint Houston expects
these costs to be substantial. We cannot assure you that CenterPoint Houston
will be able to successfully establish and support its estimates of the value of
these costs. CenterPoint Houston's $1.3 billion collateralized term loan that
matures in November 2005 is expected to be repaid or refinanced with the
proceeds from the issuance of transition bonds to recover its stranded costs and
the balance of its regulatory assets. If CenterPoint Houston does not receive
the proceeds on or before the maturity date, its ability to repay or refinance
this term loan will be adversely affected.
18
The Texas Utility Commission's ruling that the true-up proceeding
filing will be made on March 31, 2004 means that the calculation of the market
value of a share of Texas Genco common stock for purposes of the Texas Utility
Commission's stranded cost determination might be more or less than the per
share purchase price calculated under the option held by Reliant Resources to
purchase our 81% ownership interest in Texas Genco. The purchase price under the
option will be based on market prices during the 120 trading days ending on
January 9, 2004, but under the filing schedule prescribed by the Texas Utility
Commission, the value of that ownership interest for the stranded cost
determination will be based on market prices during the 120 trading days ending
on March 30, 2004. If Reliant Resources exercises its option at a lower price
than the market value used by the Texas Utility Commission, CenterPoint Houston
would be unable to recover the difference.
CENTERPOINT HOUSTON'S RECEIVABLES ARE CONCENTRATED IN A SMALL NUMBER OF
RETAIL ELECTRIC PROVIDERS.
CenterPoint Houston's receivables from the distribution of electricity
are collected from retail electric providers that supply the electricity
CenterPoint Houston distributes to their customers. Currently, CenterPoint
Houston does business with approximately 31 retail electric providers. Adverse
economic conditions, structural problems in the new ERCOT market or financial
difficulties of one or more retail electric providers could impair the ability
of these retail providers to pay for CenterPoint Houston's services or could
cause them to delay such payments. CenterPoint Houston depends on these retail
electric providers to remit payments timely to it. Any delay or default in
payment could adversely affect CenterPoint Houston's cash flows, financial
condition and results of operations. Approximately 78% of CenterPoint Houston's
$119 million in receivables from retail electric providers at June 30, 2003 was
owed by subsidiaries of Reliant Resources. CenterPoint Houston's financial
condition may be adversely affected if Reliant Resources is unable to meet these
obligations. Reliant Resources, through its subsidiaries, is CenterPoint
Houston's largest customer. Pursuant to the Texas electric restructuring law,
Reliant Resources may be obligated to make a large "price to beat" clawback
payment to CenterPoint Houston in 2004. CenterPoint Houston expects the
clawback, if any, to be applied against any stranded cost recovery to which
CenterPoint Houston is entitled or, if no stranded costs are recoverable, to be
refunded to retail electric providers.
RATE REGULATION OF CENTERPOINT HOUSTON'S BUSINESS MAY DELAY OR DENY
CENTERPOINT HOUSTON'S FULL RECOVERY OF ITS COSTS.
CenterPoint Houston's rates are regulated by certain municipalities and
the Texas Utility Commission based on an analysis of its invested capital and
its expenses incurred in a test year. Thus, the rates CenterPoint Houston is
allowed to charge may not match its expenses at any given time. While rate
regulation in Texas is premised on providing a reasonable opportunity to recover
reasonable and necessary operating expenses and to earn a reasonable return on
its invested capital, there can be no assurance that the Texas Utility
Commission will judge all of CenterPoint Houston's costs to be reasonable or
necessary or that the regulatory process in which rates are determined will
always result in rates that will produce full recovery of CenterPoint Houston's
costs.
DISRUPTIONS AT POWER GENERATION FACILITIES OWNED BY THIRD PARTIES COULD
INTERRUPT CENTERPOINT HOUSTON'S SALES OF TRANSMISSION AND DISTRIBUTION
SERVICES.
CenterPoint Houston depends on power generation facilities owned by
third parties to provide retail electric providers with electric power which it
transmits and distributes. CenterPoint Houston does not own or operate any power
generation facilities. If power generation is disrupted or if power generation
capacity is inadequate, CenterPoint Houston's services may be interrupted, and
its results of operations, financial condition and cash flows may be adversely
affected.
CENTERPOINT HOUSTON'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.
A portion of CenterPoint Houston's revenues is derived from rates that
it collects from each retail electric provider based on the amount of
electricity it distributes on behalf of each retail electric provider. Thus,
CenterPoint Houston's revenues and results of operations are subject to
seasonality, weather conditions and other changes in electricity usage, with
revenues being higher during the warmer months.
19
RISK FACTORS AFFECTING OUR ELECTRIC GENERATION BUSINESS
TEXAS GENCO'S REVENUES AND RESULTS OF OPERATIONS ARE IMPACTED BY MARKET
RISKS THAT ARE BEYOND ITS CONTROL.
Texas Genco sells electric generation capacity, energy and ancillary
services in the ERCOT market. The ERCOT market consists of the majority of the
population centers in the State of Texas and represents approximately 85% of the
demand for power in the state. Under the Texas electric restructuring law, Texas
Genco and other power generators in Texas are not subject to traditional
cost-based regulation and, therefore, may sell electric generation capacity,
energy and ancillary services to wholesale purchasers at prices determined by
the market. As a result, Texas Genco is not guaranteed any rate of return on its
capital investments through mandated rates, and its revenues and results of
operations depend, in large part, upon prevailing market prices for electricity
in the ERCOT market. Market prices for electricity, generation capacity, energy
and ancillary services may fluctuate substantially. Texas Genco's gross margins
are primarily derived from the sale of capacity entitlements associated with its
large, solid fuel base-load generating units, including its coal and lignite
fueled generating stations and the South Texas Project. The gross margins
generated from payments associated with the capacity of these units are directly
impacted by natural gas prices. Since the fuel costs for Texas Genco's base-load
units are largely fixed under long-term contracts, they are generally not
subject to significant daily and monthly fluctuations. However, the market price
for power in the ERCOT market is directly affected by the price of natural gas.
Because natural gas is the marginal fuel for facilities serving the ERCOT market
during most hours, its price has a significant influence on the price of
electric power. As a result, the price customers are willing to pay for
entitlements to Texas Genco's solid fuel-fired base-load capacity generally
rises and falls with natural gas prices.
Market prices in the ERCOT market may also fluctuate substantially due
to other factors. Such fluctuations may occur over relatively short periods of
time. Volatility in market prices may result from:
- oversupply or undersupply of generation capacity,
- power transmission or fuel transportation constraints or
inefficiencies,
- weather conditions,
- seasonality,
- availability and market prices for natural gas, crude oil and
refined products, coal, enriched uranium and uranium fuels,
- changes in electricity usage,
- additional supplies of electricity from existing competitors or
new market entrants as a result of the development of new
generation facilities or additional transmission capacity,
- illiquidity in the ERCOT market,
- availability of competitively priced alternative energy sources,
- natural disasters, wars, embargoes, terrorist attacks and other
catastrophic events, and
- federal and state energy and environmental regulation and
legislation.
THERE IS CURRENTLY A SURPLUS OF GENERATING CAPACITY IN THE ERCOT MARKET AND
WE EXPECT THE MARKET FOR WHOLESALE POWER TO BE HIGHLY COMPETITIVE.
The amount by which power generating capacity exceeded peak demand
(reserve margin) in the ERCOT market has exceeded 20% since 2001, and the Texas
Utility Commission and the ERCOT Independent System Operator (ISO) have
forecasted the reserve margin for 2003 to continue to exceed 20%. The
commencement of commercial operation of new facilities in the ERCOT market will
increase the competitiveness of the wholesale power market, which could have a
material adverse effect on Texas Genco's results of operations, financial
condition, cash flows and the market value of Texas Genco's assets.
20
Texas Genco's competitors include generation companies affiliated with
Texas-based utilities, independent power producers, municipal and co-operative
generators and wholesale power marketers. The unbundling of vertically
integrated utilities into separate generation, transmission and distribution,
and retail businesses pursuant to the Texas electric restructuring law could
result in a significant number of additional competitors participating in the
ERCOT market. Some of Texas Genco's competitors may have greater financial
resources, lower cost structures, more effective risk management policies and
procedures, greater ability to incur losses, greater potential for profitability
from ancillary services, and greater flexibility in the timing of their sale of
generating capacity and ancillary services than Texas Genco does.
TEXAS GENCO IS SUBJECT TO OPERATIONAL AND MARKET RISKS ASSOCIATED WITH ITS
CAPACITY AUCTIONS.
Texas Genco is obligated to sell substantially all of its available
capacity and related ancillary services through 2003 pursuant to capacity
auctions. In these auctions, Texas Genco sells firm entitlements on a forward
basis to capacity and ancillary services dispatched within specified operational
constraints. Although Texas Genco has reserved a portion of its aggregate net
generation capacity from its capacity auctions for planned or forced outages at
its facilities, unanticipated plant outages or other problems with its
generation facilities could result in its firm capacity and ancillary services
commitments exceeding its available generation capacity. As a result, Texas
Genco could be required to obtain replacement power from third parties in the
open market to satisfy its firm commitments that could result in significant
additional costs. In addition, an unexpected outage at one of Texas Genco's
lower cost facilities could require it to run one of its higher cost plants in
order to satisfy its obligations even though the energy payments for the
dispatched power are based on the cost at the lower-cost facility.
The mechanics, regulations and agreements governing Texas Genco's
capacity auctions are complex. The state mandated auctions require, among other
things, Texas Genco's capacity entitlements to be sold in pre-determined
amounts. The characteristics of the capacity entitlements Texas Genco sells in
state mandated auctions are defined by rules adopted by the Texas Utility
Commission and, therefore, cannot be changed to respond to market demands or
operational requirements without approval by the Texas Utility Commission.
THE OPERATION OF TEXAS GENCO'S POWER GENERATION FACILITIES INVOLVES RISKS
THAT COULD ADVERSELY AFFECT ITS REVENUES, COSTS, RESULTS OF OPERATIONS,
FINANCIAL CONDITION AND CASH FLOWS.
Texas Genco is subject to various risks associated with operating its
power generation facilities, any of which could adversely affect its revenues,
costs, results of operations, financial condition and cash flows. These risks
include:
- operating performance below expected levels of output or
efficiency,
- breakdown or failure of equipment or processes,
- disruptions in the transmission of electricity,
- shortages of equipment, material or labor,
- labor disputes,
- fuel supply interruptions,
- limitations that may be imposed by regulatory requirements,
including, among others, environmental standards,
- limitations imposed by the ERCOT ISO,
- violations of permit limitations,
- operator error, and
- catastrophic events such as fires, hurricanes, explosions,
floods, terrorist attacks or other similar occurrences.
21
A significant portion of Texas Genco's facilities were constructed many
years ago. Older generation equipment, even if maintained in accordance with
good engineering practices, may require significant capital expenditures to keep
it operating at high efficiency and to meet regulatory requirements. This
equipment is also likely to require periodic upgrading and improvement. Any
unexpected failure to produce power, including failure caused by breakdown or
forced outage, could result in increased costs of operations and reduced
earnings.
TEXAS GENCO RELIES ON POWER TRANSMISSION FACILITIES THAT IT DOES NOT OWN OR
CONTROL AND THAT ARE SUBJECT TO TRANSMISSION CONSTRAINTS WITHIN THE ERCOT
MARKET. IF THESE FACILITIES FAIL TO PROVIDE TEXAS GENCO WITH ADEQUATE
TRANSMISSION CAPACITY, IT MAY NOT BE ABLE TO DELIVER WHOLESALE ELECTRIC
POWER TO ITS CUSTOMERS AND IT MAY INCUR ADDITIONAL COSTS.
Texas Genco depends on transmission and distribution facilities owned
and operated by CenterPoint Houston and by others to deliver the wholesale
electric power it sells from its power generation facilities to its customers,
who in turn deliver power to the end users. If transmission is disrupted, or if
transmission capacity infrastructure is inadequate, Texas Genco's ability to
sell and deliver wholesale electric energy may be adversely impacted.
The single control area of the ERCOT market is currently organized into
four congestion zones. Transmission congestion between the zones could impair
Texas Genco's ability to schedule power for transmission across zonal
boundaries, which are defined by the ERCOT ISO, thereby inhibiting Texas Genco's
efforts to match its facility scheduled outputs with its customer scheduled
requirements. In addition, power generators participating in the ERCOT market
could be liable for congestion costs associated with transferring power between
zones.
TEXAS GENCO'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS
COULD BE ADVERSELY IMPACTED BY A DISRUPTION OF ITS FUEL SUPPLIES.
Texas Genco relies primarily on natural gas, coal, lignite and uranium
to fuel its generation facilities. Texas Genco purchases its fuel from a number
of different suppliers under long-term contracts and on the spot market. Under
Texas Genco's capacity auctions, it sells firm entitlements to capacity and
ancillary services. Therefore, any disruption in the delivery of fuel could
prevent Texas Genco from operating its facilities, or force Texas Genco to enter
into alternative arrangements at higher than prevailing market prices, to meet
its auction commitments, which could adversely affect its results of operations,
financial condition and cash flows.
TO DATE, TEXAS GENCO HAS SOLD A SUBSTANTIAL PORTION OF ITS AUCTIONED
CAPACITY ENTITLEMENTS TO SUBSIDIARIES OF RELIANT RESOURCES. ACCORDINGLY,
TEXAS GENCO'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS
COULD BE ADVERSELY AFFECTED IF RELIANT RESOURCES DECLINED TO PARTICIPATE IN
TEXAS GENCO'S FUTURE AUCTIONS OR FAILED TO MAKE PAYMENTS WHEN DUE UNDER
RELIANT RESOURCES' PURCHASED ENTITLEMENTS.
Subsidiaries of Reliant Resources purchased entitlements to 63% of
Texas Genco's available 2002 capacity and through July 2003 had purchased 71% of
Texas Genco's available 2003 capacity. Reliant Resources made these purchases
either through the exercise of its contractual rights to purchase 50% of the
entitlements Texas Genco auctions in its contractually mandated auctions or
through the submission of bids. In the event Reliant Resources declined to
participate in Texas Genco's future auctions or failed to make payments when
due, Texas Genco's results of operations, financial condition and cash flows
could be adversely affected. As of June 30, 2003, Reliant Resources' securities
ratings are below investment grade. Texas Genco has been granted a security
interest in accounts receivable and/or securitization notes associated with the
accounts receivable of certain subsidiaries of Reliant Resources to secure up to
$250 million in purchase obligations.
TEXAS GENCO MAY INCUR SUBSTANTIAL COSTS AND LIABILITIES AS A RESULT OF ITS
OWNERSHIP OF NUCLEAR FACILITIES.
Texas Genco owns a 30.8% interest in the South Texas Project, a nuclear
powered generation facility. As a result, Texas Genco is subject to risks
associated with the ownership and operation of nuclear facilities. These risks
include:
- the potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the
storage, handling and disposal of radioactive materials,
22
- limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with
nuclear operations, and
- uncertainties with respect to the technological and financial
aspects of decommissioning nuclear plants at the end of their
licensed lives.
The NRC has broad authority under federal law to impose licensing and
safety-related requirements for the operation of nuclear generation facilities.
In the event of non-compliance, the NRC has the authority to impose fines, shut
down a unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. Revised safety requirements promulgated
by the NRC could necessitate substantial capital expenditures at nuclear plants.
In addition, although we have no reason to anticipate a serious nuclear incident
at the South Texas Project, if an incident did occur, it could have a material
adverse effect on Texas Genco's results of operations, financial condition and
cash flows.
TEXAS GENCO'S OPERATIONS ARE SUBJECT TO EXTENSIVE REGULATION, INCLUDING
ENVIRONMENTAL REGULATION. IF TEXAS GENCO FAILS TO COMPLY WITH APPLICABLE
REGULATIONS OR OBTAIN OR MAINTAIN ANY NECESSARY GOVERNMENTAL PERMIT OR
APPROVAL, IT MAY BE SUBJECT TO CIVIL, ADMINISTRATIVE AND/OR CRIMINAL
PENALTIES THAT COULD ADVERSELY IMPACT ITS RESULTS OF OPERATIONS, FINANCIAL
CONDITION AND CASH FLOWS.
Texas Genco's operations are subject to complex and stringent energy,
environmental and other governmental laws and regulations. The acquisition,
ownership and operation of power generation facilities require numerous permits,
approvals and certificates from federal, state and local governmental agencies.
These facilities are subject to regulation by the Texas Utility Commission
regarding non-rate matters. Existing regulations may be revised or
reinterpreted, new laws and regulations may be adopted or become applicable to
Texas Genco or any of its generation facilities or future changes in laws and
regulations may have a detrimental effect on its business.
Operation of the South Texas Project is subject to regulation by the
NRC. This regulation involves testing, evaluation and modification of all
aspects of plant operation in light of NRC safety and environmental
requirements. Continuous demonstrations to the NRC that plant operations meet
applicable requirements are also required. The NRC has the ultimate authority to
determine whether any nuclear powered generating unit may operate.
Water for certain of Texas Genco's facilities is obtained from public
water authorities. New or revised interpretations of existing agreements by
those authorities or changes in price or availability of water may have a
detrimental effect on Texas Genco's business.
Texas Genco's business is subject to extensive environmental regulation
by federal, state and local authorities. Texas Genco is required to comply with
numerous environmental laws and regulations and to obtain numerous governmental
permits in operating its facilities. Texas Genco may incur significant
additional costs to comply with these requirements. If Texas Genco fails to
comply with these requirements or with any other regulatory requirements that
apply to its operations, it could be subject to administrative, civil and/or
criminal liability and fines, and regulatory agencies could take other actions
seeking to curtail its operations. These liabilities or actions could adversely
impact its results of operations, financial condition and cash flows.
Existing environmental regulations could be revised or reinterpreted,
new laws and regulations could be adopted or become applicable to Texas Genco or
its facilities, and future changes in environmental laws and regulations could
occur, including potential regulatory and enforcement developments related to
air emissions. If any of these events occurs, Texas Genco's business, results of
operations, financial condition and cash flows could be adversely affected.
Texas Genco may not be able to obtain or maintain from time to time all
required environmental regulatory approvals. If there is a delay in obtaining
any required environmental regulatory approvals or if Texas Genco fails to
obtain and comply with them, it may not be able to operate its facilities or it
may be required to incur additional costs. Texas Genco is generally responsible
for all on-site liabilities associated with the environmental condition of its
power generation facilities, regardless of when the liabilities arose and
whether the liabilities are known or unknown. These liabilities may be
substantial.
23
RISK FACTORS AFFECTING OUR NATURAL GAS DISTRIBUTION AND PIPELINES AND GATHERING
BUSINESSES
CERC'S BUSINESSES MUST COMPETE WITH ALTERNATIVE ENERGY SOURCES, AND ITS
PIPELINES AND GATHERING BUSINESSES MUST COMPETE DIRECTLY WITH OTHERS IN THE
TRANSPORTATION AND STORAGE OF NATURAL GAS.
CERC competes primarily with alternate energy sources such as
electricity and other fuel sources. In some areas, intrastate pipelines, other
natural gas distributors and marketers also compete directly with CERC for
natural gas sales to end-users. In addition, as a result of federal regulatory
changes affecting interstate pipelines, natural gas marketers operating on these
pipelines may be able to bypass CERC's facilities and market, sell and/or
transport natural gas directly to commercial and industrial customers. Any
reduction in the amount of natural gas marketed, sold or transported by CERC as
a result of competition may have an adverse impact on CERC's results of
operations, financial condition and cash flows.
CERC's two interstate pipelines and its gathering systems compete with
other interstate and intrastate pipelines and gathering systems in the
transportation and storage of natural gas. The principal elements of competition
are rates, terms of service, and flexibility and reliability of service. They
also compete indirectly with other forms of energy, including electricity, coal
and fuel oils. The primary competitive factor is price. The actions of CERC's
competitors could lead to lower prices, which may have an adverse impact on
CERC's results of operations, financial condition and cash flows.
CERC'S NATURAL GAS DISTRIBUTION BUSINESS IS SUBJECT TO FLUCTUATIONS IN
NATURAL GAS PRICING LEVELS.
CERC is subject to risk associated with price movements of natural gas.
Movements in natural gas prices might affect CERC's ability to collect balances
due from its customers and could create the potential for uncollectible accounts
expense to exceed the recoverable levels built into CERC's tariff rates. In
addition, a sustained period of high natural gas prices could apply downward
demand pressure on natural gas consumption in CERC's service territory.
Additionally, increasing gas prices could create the need for CERC to provide
collateral in order to purchase gas.
CERC MAY INCUR CARRYING COSTS ASSOCIATED WITH PASSING THROUGH CHANGES IN
THE COSTS OF NATURAL GAS.
Generally, the regulations of the states in which CERC operates allow
it to pass through changes in the costs of natural gas to its customers through
purchased gas adjustment provisions in the applicable tariffs. There is,
however, a timing difference between its purchases of natural gas and the
ultimate recovery of these costs. Consequently, CERC may incur carrying costs as
a result of this timing difference that are not recoverable from its customers.
The failure to recover those additional carrying costs may have an adverse
effect on CERC's results of operations, financial condition and cash flows.
IF CERC FAILS TO EXTEND CONTRACTS WITH TWO OF ITS SIGNIFICANT INTERSTATE
PIPELINES' CUSTOMERS, THERE COULD BE AN ADVERSE IMPACT ON ITS OPERATIONS.
Contracts with two of our interstate pipelines' significant customers,
CenterPoint Energy Arkla and Laclede Gas Company, are currently scheduled to
expire in 2005 and 2007, respectively. To the extent the pipelines are unable to
extend these contracts or the contracts are renegotiated at rates substantially
different than the rates provided in the current contracts, there could be an
adverse effect on CERC's results of operations, financial condition and cash
flows.
CERC'S INTERSTATE PIPELINES ARE SUBJECT TO FLUCTUATIONS IN THE SUPPLY OF
GAS.
CERC's interstate pipelines largely rely on gas sourced in the various
supply basins located in the Midcontinent region of the United States. To the
extent the availability of this supply is substantially reduced, it could have
an adverse effect on CERC's results of operations, financial condition and cash
flows.
CERC'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.
A portion of CERC's revenues are derived from natural gas sales and
transportation. Thus, CERC's revenues and results of operations are subject to
seasonality, weather conditions and other changes in natural gas usage, with
revenues being higher during the winter months.
24
RISK FACTORS ASSOCIATED WITH OUR CONSOLIDATED FINANCIAL CONDITION
IF WE ARE UNABLE TO ARRANGE FUTURE FINANCINGS ON ACCEPTABLE TERMS, OUR
ABILITY TO FUND FUTURE CAPITAL EXPENDITURES AND REFINANCE EXISTING
INDEBTEDNESS COULD BE LIMITED.
As of June 30, 2003, we had $11.1 billion of outstanding indebtedness
and trust preferred securities, including approximately $157 million of debt
that must be refinanced in 2003. In addition, the capital constraints and other
factors currently impacting our businesses may require our future indebtedness
to include terms that are more restrictive or burdensome than those of our
current or historical indebtedness. These terms may negatively impact our
ability to operate our business, adversely affect our financial condition and
results of operations or severely restrict or prohibit distributions from our
subsidiaries. The success of our future financing efforts may depend, at least
in part, on:
- general economic and capital market conditions,
- credit availability from financial institutions and other
lenders,
- investor confidence in us and the market in which we operate,
- maintenance of acceptable credit ratings,
- market expectations regarding our future earnings and probable
cash flows,
- market perceptions of our ability to access capital markets on
reasonable terms,
- our exposure to Reliant Resources in connection with its
indemnification obligations arising in connection with its
separation from us,
- provisions of relevant tax and securities laws, and
- our ability to obtain approval of financing transactions under
the 1935 Act.
As of the date of this prospectus, our CenterPoint Houston subsidiary
has $3.1 billion of general mortgage bonds outstanding. It may issue additional
general mortgage bonds on the basis of retired bonds, 70% of property additions
or cash deposited with the trustee. Although approximately $380 million (after
taking into account CenterPoint Houston's issuance of $300 million aggregate
principal amount of general mortgage bonds on September 9, 2003) of additional
general mortgage bonds could be issued on the basis of retired bonds and
property additions existing as of June 30, 2003, CenterPoint Houston has agreed
under the $1.3 billion collateralized term loan maturing in 2005, as amended, to
not issue, subject to certain exceptions, any incremental secured or unsecured
debt in excess of $200 million. However, we would be required to use, subject to
certain exceptions, the net cash proceeds of any such issuance to repay loans
under our credit facility. In addition, CenterPoint Houston is contractually
prohibited, subject to certain exceptions, from issuing additional first
mortgage bonds.
Our current credit ratings are discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations of CenterPoint
Energy and Subsidiaries--Liquidity and Capital Resources--Future Sources and
Uses of Cash Flows--Impact on Liquidity of a Downgrade in Credit Ratings" in
Item 2 of Part I of our Second Quarter 2003 Form 10-Q. On October 7, 2003,
Moody's Investors Services, Inc. placed our senior unsecured credit rating on
review for downgrade, reflecting concerns that may lead to a downgrade. We
cannot assure you that these credit ratings will remain in effect for any given
period of time or that one or more of these ratings will not be lowered or
withdrawn entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities. Each rating should be
evaluated independently of any other rating. Any future reduction or withdrawal
of one or more of our credit ratings could have a material adverse impact on our
ability to access capital on acceptable terms.
25
AS A HOLDING COMPANY WITH NO OPERATIONS OF OUR OWN, WE WILL DEPEND ON
DISTRIBUTIONS FROM OUR SUBSIDIARIES TO MEET OUR PAYMENT OBLIGATIONS, AND
PROVISIONS OF APPLICABLE LAW OR CONTRACTUAL RESTRICTIONS COULD LIMIT THE
AMOUNT OF THOSE DISTRIBUTIONS.
We derive substantially all our operating income from, and hold
substantially all our assets through, our subsidiaries. As a result, we will
depend on distributions from our subsidiaries in order to meet our payment
obligations. In general, these subsidiaries are separate and distinct legal
entities and will have no obligation to provide us with funds for our payment
obligations, whether by dividends, distributions, loans or otherwise. In
addition, provisions of applicable law, such as those limiting the legal sources
of dividends and those under the 1935 Act, limit their ability to make payments
or other distributions to us, and they could agree to contractual restrictions
on their ability to make distributions.
Our right to receive any assets of any subsidiary, and therefore the
right of our creditors to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. In addition, even if we were a creditor of any subsidiary, our rights
as a creditor would be subordinated to any security interest in the assets of
that subsidiary and any indebtedness of the subsidiary senior to that held by
us.
AN INCREASE IN SHORT-TERM INTEREST RATES COULD ADVERSELY AFFECT OUR CASH
FLOWS.
As of June 30, 2003, we had $3.7 billion of outstanding floating-rate
debt owed to third parties. Because of capital constraints impacting our
business at the time some of this floating-rate debt was entered into, the
interest rates are substantially above our historical borrowing rates. In
addition, any floating-rate debt issued by us in the future could be at interest
rates substantially above our historical borrowing rates. While we may seek to
use interest rate swaps in order to hedge portions of our floating-rate debt, we
may not be successful in obtaining hedges on acceptable terms. Any increase in
short-term interest rates would result in higher interest costs and could
adversely affect our results of operations, financial condition and cash flows.
OTHER RISKS
WE AND CENTERPOINT HOUSTON COULD INCUR LIABILITIES ASSOCIATED WITH
BUSINESSES AND ASSETS THAT WE HAVE TRANSFERRED TO OTHERS.
Under some circumstances, we and CenterPoint Houston could incur
liabilities associated with assets and businesses we and CenterPoint Houston no
longer own. These assets and businesses were previously owned by Reliant Energy
directly or through subsidiaries and include:
- those transferred to Reliant Resources or its subsidiaries in
connection with the organization and capitalization of Reliant
Resources prior to its initial public offering in 2001,
- those transferred to Texas Genco in connection with its
organization and capitalization, and
- those transferred to CenterPoint Energy in connection with the
Restructuring.
In connection with the organization and capitalization of Reliant
Resources, Reliant Resources and its subsidiaries assumed liabilities associated
with various assets and businesses Reliant Energy transferred to them. Reliant
Resources also agreed to indemnify, and cause the applicable transferee
subsidiaries to indemnify, us and our subsidiaries, including CenterPoint
Houston, with respect to liabilities associated with the transferred assets and
businesses. The indemnity provisions were intended to place sole financial
responsibility on Reliant Resources and its subsidiaries for all liabilities
associated with the current and historical businesses and operations of Reliant
Resources, regardless of the time those liabilities arose. If Reliant Resources
is unable to satisfy a liability that has been so assumed in circumstances in
which Reliant Energy has not been released from the liability in connection with
the transfer, we or CenterPoint Houston could be responsible for satisfying the
liability.
Reliant Resources reported in its Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2003 that as of June 30, 2003 it had $7.7
billion of total debt and its unsecured debt ratings are currently below
investment grade. If Reliant Resources is unable to meet its obligations, it
would need to consider, among various options, restructuring under the
bankruptcy laws, in which event Reliant Resources might not honor its
26
indemnification obligations and claims by Reliant Resources' creditors might be
made against us as its former owner.
Reliant Energy and Reliant Resources are named as defendants in a
number of lawsuits arising out of power sales in California and other West Coast
markets and financial reporting matters. Although these matters relate to the
business and operations of Reliant Resources, claims against Reliant Energy have
been made on grounds that include the effect of Reliant Resources' financial
results on Reliant Energy's historical financial statements and liability of
Reliant Energy as a controlling shareholder of Reliant Resources. We or
CenterPoint Houston could incur liability if claims in one or more of these
lawsuits were successfully asserted against us or CenterPoint Houston and
indemnification from Reliant Resources were determined to be unavailable or if
Reliant Resources were unable to satisfy indemnification obligations owed with
respect to those claims.
In connection with the organization and capitalization of Texas Genco,
Texas Genco assumed liabilities associated with the electric generation assets
Reliant Energy transferred to it. Texas Genco also agreed to indemnify, and
cause the applicable transferee subsidiaries to indemnify, us and our
subsidiaries, including CenterPoint Houston, with respect to liabilities
associated with the transferred assets and businesses. In many cases the
liabilities assumed were held by CenterPoint Houston and CenterPoint Houston was
not released by third parties from these liabilities. The indemnity provisions
were intended generally to place sole financial responsibility on Texas Genco
and its subsidiaries for all liabilities associated with the current and
historical businesses and operations of Texas Genco, regardless of the time
those liabilities arose. If Texas Genco were unable to satisfy a liability that
had been so assumed or indemnified against, and provided Reliant Energy had not
been released from the liability in connection with the transfer, CenterPoint
Houston could be responsible for satisfying the liability.
IF RELIANT RESOURCES DOES NOT EXERCISE ITS OPTION TO PURCHASE THE COMMON
STOCK OF TEXAS GENCO THAT WE OWN, WE MAY NOT BE ABLE TO MONETIZE TEXAS
GENCO ON THE SAME TERMS OR ON THE SAME TIME SCHEDULE AS PROVIDED BY THE
OPTION.
Reliant Resources reported in its Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2003 that as of June 30, 2003 it had $7.7
billion of total debt and its unsecured debt ratings are currently below
investment grade. It is not clear whether Reliant Resources will exercise its
option to purchase the common stock of Texas Genco that we own. If Reliant
Resources does not exercise its option, we will have to pursue an alternative
strategy to monetize Texas Genco. We may not be able to monetize our interest in
Texas Genco under any alternative strategy on terms as favorable as those
provided by the Reliant Resources option or as quickly as under the option. In
addition, delays in monetization may increase the risk that the value of the
ownership interest used in the stranded cost determination, which is to be based
on market prices for Texas Genco common stock during the 120 trading days ending
on March 30, 2004, will be higher than the proceeds received in the monetization
process.
IF THE ERCOT MARKET DOES NOT FUNCTION IN THE MANNER CONTEMPLATED BY THE
TEXAS ELECTRIC RESTRUCTURING LAW, TEXAS GENCO'S AND CENTERPOINT HOUSTON'S
BUSINESS, PROSPECTS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH
FLOWS COULD BE ADVERSELY IMPACTED.
The competitive electric market in Texas became fully operational in
January 2002, and none of CenterPoint Houston, Texas Genco, the Texas Utility
Commission, ERCOT or other market participants has any significant operating
history under the market framework created by the Texas electric restructuring
law. The initiatives under the Texas electric restructuring law have had a
significant impact on the nature of the electric power industry in Texas and the
manner in which participants in the ERCOT market conduct their business. These
changes are ongoing, and we cannot predict the future development of the ERCOT
market or the ultimate effect that this changing regulatory environment will
have on the businesses of CenterPoint Houston or Texas Genco.
Some restructured markets in other states have experienced supply
problems and extreme price volatility. If the ERCOT market does not function as
intended by the Texas electric restructuring law, Texas Genco's and CenterPoint
Houston's results of operations, financial condition and cash flows could be
adversely affected. In addition, any market failures could lead to revisions or
reinterpretations of the Texas electric restructuring law, the adoption of new
laws and regulations applicable to Texas Genco or CenterPoint Houston or their
respective facilities and other future changes in laws and regulations that may
have a detrimental effect on Texas Genco's and CenterPoint Houston's businesses.
27
WE, TOGETHER WITH OUR SUBSIDIARIES, OTHER THAN TEXAS GENCO, ARE SUBJECT TO
REGULATION UNDER THE 1935 ACT. THE 1935 ACT AND RELATED RULES AND
REGULATIONS IMPOSE A NUMBER OF RESTRICTIONS ON OUR ACTIVITIES.
We and our subsidiaries, other than Texas Genco, are subject to
regulation by the SEC under the 1935 Act. The 1935 Act, among other things,
limits the ability of a holding company and its subsidiaries to issue debt and
equity securities without prior authorization, restricts the source of dividend
payments to funds from current and retained earnings without prior
authorization, regulates sales and acquisitions of certain assets and businesses
and governs affiliate transactions.
We received an order from the SEC under the 1935 Act on June 30, 2003
relating to our financing activities, which is effective until June 30, 2005. We
must seek a new order before the expiration date. Although authorized levels of
financing, together with current levels of liquidity, are believed to be
adequate during the period the order is effective, unforeseen events could
result in capital needs in excess of authorized amounts, necessitating further
authorization from the SEC. Approval of filings under the 1935 Act can take
extended periods.
The United States Congress is currently considering legislation which
has a provision that would repeal the 1935 Act. We cannot predict at this time
whether this legislation or any variation thereof will be adopted or, if
adopted, the effect of any such law on our business.
OUR INSURANCE COVERAGE MAY NOT BE SUFFICIENT. INSUFFICIENT INSURANCE
COVERAGE AND INCREASED INSURANCE COSTS COULD ADVERSELY IMPACT OUR RESULTS
OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS.
We currently have general liability and property insurance in effect to
cover certain of our facilities in amounts that we consider appropriate. Such
policies are subject to certain limits and deductibles and do not include
business interruption coverage. We cannot assure you that insurance coverage
will be available in the future on commercially reasonable terms or that the
insurance proceeds received for any loss of or any damage to any of our
facilities will be sufficient to restore the loss or damage without negative
impact on our results of operations, financial condition and cash flows. The
costs of our insurance coverage have increased significantly in recent months
and may continue to increase in the future.
Texas Genco and the other owners of the South Texas Project maintain
nuclear property and nuclear liability insurance coverage as required by law and
periodically review available limits and coverage for additional protection. The
owners of the South Texas Project currently maintain $2.75 billion in property
damage insurance coverage, which is above the legally required minimum, but is
less than the total amount of insurance currently available for such losses.
Under the federal Price Anderson Act, the maximum liability to the public of
owners of nuclear power plants was $9.3 billion as of June 30, 2003. Owners are
required under the Price Anderson Act to insure their liability for nuclear
incidents and protective evacuations. Texas Genco and the other owners of the
South Texas Project currently maintain the required nuclear liability insurance
and participate in the industry retrospective rating plan. In addition, the
security procedures at this facility have recently been enhanced to provide
additional protection against terrorist attacks. All potential losses or
liabilities associated with the South Texas Project may not be insurable, and
the amount of insurance may not be sufficient to cover them. In particular,
Texas Genco's insurance policies are subject to certain limits and deductibles
and do not include business interruption coverage.
In common with other companies in its line of business that serve
coastal regions, CenterPoint Houston does not have insurance covering its
transmission and distribution system because CenterPoint Houston believes it to
be cost prohibitive. If CenterPoint Houston were to sustain any loss of or
damage to its transmission and distribution properties, it would be entitled to
seek to recover such loss or damage through a change in its regulated rates,
although there is no assurance that CenterPoint Houston ultimately would obtain
any such rate recovery or that any such rate recovery would be timely granted.
Therefore, we cannot assure you that CenterPoint Houston will be able to restore
any loss of or damage to its transmission and distribution properties without
negative impact on our results of operations, financial condition and cash
flows.
CHANGES IN TECHNOLOGY MAY ADVERSELY AFFECT OUR REVENUES AND RESULTS OF
OPERATIONS.
A significant portion of Texas Genco's generation facilities were
constructed many years ago and rely on older technologies. Some of Texas Genco's
competitors may have newer generation facilities and technologies that
28
allow them to produce and sell power more efficiently, which could adversely
affect Texas Genco's results of operations, financial condition and cash flows.
In addition, research and development activities are ongoing to improve
alternate technologies to produce electricity, including fuel cells,
microturbines, windmills and photovoltaic (solar) cells. It is possible that
advances in these or other technologies will reduce the current costs of
electricity production utilizing newer facilities to a level that is below that
of Texas Genco's generation facilities. If this occurs, Texas Genco's generation
facilities will be less competitive and the value of its power plants could be
significantly impaired. Also, electricity demand could be reduced by increased
conservation efforts and advances in technology that could likewise
significantly reduce the value of Texas Genco's power generation facilities.
The continuous process of technological development may result in the
introduction to retail customers of economically attractive alternatives to
purchasing electricity through CenterPoint Houston's distribution facilities.
Manufacturers of self-generation facilities continue to develop smaller-scale,
more-fuel-efficient generating units that can be cost-effective options for some
retail customers with smaller electric energy requirements. Any reduction in the
amount of electric energy CenterPoint Houston distributes as a result of these
technologies may have an adverse impact on its results of operations, financial
condition and cash flows in the future.
OUR REVENUES AND RESULTS OF OPERATIONS ARE SUBJECT TO RISKS THAT ARE BEYOND
OUR CONTROL, INCLUDING BUT NOT LIMITED TO FUTURE TERRORIST ATTACKS OR
RELATED ACTS OF WAR.
The cost of repairing damage to our operating subsidiaries' facilities
due to storms, natural disasters, wars, terrorist acts and other catastrophic
events, in excess of reserves established for such repairs, may adversely impact
our results of operations, financial condition and cash flows. The occurrence or
risk of occurrence of future terrorist activity may impact our results of
operations, financial condition and cash flows in unpredictable ways. These
actions could also result in adverse changes in the insurance markets and
disruptions of power and fuel markets. In addition, our electric transmission
and distribution, electric generation, natural gas distribution and pipeline and
gathering facilities could be directly or indirectly harmed by future terrorist
activity. The occurrence or risk of occurrence of future terrorist attacks or
related acts of war could also adversely affect the United States economy. A
lower level of economic activity could result in a decline in energy
consumption, which could adversely affect our revenues and margins and limit our
future growth prospects. Also, these risks could cause instability in the
financial markets and adversely affect our ability to access capital.
RISKS RELATED TO THE NEW NOTES
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NEW
NOTES.
The new notes will be new securities for which currently there is no
established trading market. We cannot assure you that a trading market will
develop for each series of new notes. Even if a market for each series of new
notes does develop, we cannot assure you that there will be liquidity in that
market, or that each series of new notes might not trade for less than their
original value or face amount. If a liquid market for each series of new notes
does not develop, you may be unable to resell such new notes for a long period
of time, if at all. This means you may not be able to readily convert your new
notes into cash, and the new notes may not be accepted as collateral for a loan.
Even if a market for each series of new notes develops, trading prices
could be higher or lower than the initial offering prices. The prices of each
series of new notes will depend on many factors, including prevailing interest
rates, our operating results and the market for similar securities. Declines in
the market prices for debt securities generally may also materially and
adversely affect the liquidity of each series of new notes, independent of our
financial performance.
THE NEW NOTES WILL BE EFFECTIVELY SUBORDINATED TO EXISTING AND FUTURE
INDEBTEDNESS AND OTHER LIABILITIES OF OUR SUBSIDIARIES.
We derive substantially all our operating income from, and hold
substantially all our assets through, our subsidiaries. As a result, we will
depend on distributions from our subsidiaries in order to meet our payment
obligations under any debt securities, including the new notes and our other
obligations. In general, these subsidiaries are separate and distinct legal
entities and will have no obligation to pay any amounts due on our debt
securities or to provide us with funds for our payment obligations, whether by
dividends, distributions, loans or otherwise. In addition, provisions of
applicable law, such as those limiting the legal sources of dividends and those
29
under the 1935 Act, limit their ability to make payments or other distributions
to us, and they could agree to contractual restrictions on their ability to make
distributions. For a discussion of restrictions under the 1935 Act, please read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of CenterPoint Energy and Subsidiaries--Liquidity and Capital
Resources--Future Sources and Uses of Cash Flows--Capitalization" in Item 2 of
Part I of our Second Quarter 2003 Form 10-Q.
Our right to receive any assets of any subsidiary, and therefore the
right of our creditors to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. In addition, even if we were a creditor of any subsidiary, our rights
as a creditor would be subordinated to any security interest in the assets of
that subsidiary and any indebtedness of the subsidiary senior to that held by
us. As of June 30, 2003, our subsidiaries, excluding subsidiaries issuing trust
preferred securities and transition bonds, had $4.7 billion of external
indebtedness, $2.4 billion of which was secured.
30
PRIVATE PLACEMENT
We issued $200,000,000 aggregate principal amount of the 2008 old notes
and $200,000,000 aggregate principal amount of the 2015 old notes on May 27,
2003 and $200,000,000 aggregate principal amount of the 2010 old notes on
September 9, 2003 to the initial purchasers of those respective series of old
notes. We issued each series of old notes to the initial purchasers in
transactions exempt from or not subject to registration under the Securities Act
of 1933. The initial purchasers then offered and resold the old notes to
qualified institutional buyers or non-U.S. persons in compliance with Regulation
S under the Securities Act of 1933 initially at the following prices:
- 99.969% of the principal amount of the 2008 old notes;
- 99.958% of the principal amount of the 2015 old notes; and
- 99.782% of the principal amount of the 2010 old notes.
We received net proceeds, after deducting the discount to the initial
purchasers, of approximately $397 million from the offering and sale of the 2008
old notes and 2015 old notes and approximately $198.1 million from the offering
and sale of the 2010 old notes. The net proceeds from the offering of the old
notes were used to repay a portion of the outstanding borrowings under our bank
facility, which, at the time they were paid, bore interest at a weighted average
interest rate of approximately 5.7% and matured on June 30, 2005.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new
notes. In consideration for issuing the new notes of each series, we will
receive in exchange a like principal amount of old notes of that series. The old
notes surrendered in exchange for the new notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the new notes will not result in
any change in our capitalization.
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THE EXCHANGE OFFER
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult your financial
and tax advisors in making your own decision on what action to take.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of each series of old notes, we entered
into a registration rights agreement with the initial purchasers of such series
of old notes. In each such agreement, we agreed to file a registration statement
relating to an offer to exchange each series of old notes for the new notes of
that series. We also agreed to use our reasonable commercial efforts to complete
the exchange offer within 315 days after the date of issuance of each series of
old notes. We are offering each series of the new notes under this prospectus in
an exchange offer for the old notes of that series to satisfy our obligations
under the registration rights agreements. We refer to our offer to exchange each
series of the new notes for the old notes of that series as the "exchange
offer."
The exchange offer consists of separate, independent offers for each
series of old notes. The new notes of a series will have terms substantially
identical to the old notes of that series, except that the new notes will not
contain terms with respect to transfer restrictions, registration rights and
additional interest for failure to observe certain obligations under the
relevant registration rights agreement. The new notes of a series will vote
together with the old notes of that series not exchanged on all matters on which
holders of the old notes and new notes of such series are entitled to vote. The
2008 old notes and the 2015 old notes were issued on May 27, 2003, and the 2010
old notes were issued on September 9, 2003.
RESALE OF NEW NOTES
Based on interpretations of the Staff in "no-action letters" to third
parties, we believe that each new note issued in the exchange offer may be
offered for resale, resold and transferred by you without compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933
if:
- you are not our "affiliate" within the meaning of Rule 405 under
the Securities Act of 1933,
- you acquire such new notes in the ordinary course of your
business, and
- you are not engaged in, and do not intend to engage in, and have
no arrangement or understanding with any person to participate
in, a distribution of new notes.
The SEC has not, however, considered the legality of our exchange offer
in the context of a "no-action letter," and there can be no assurance that the
staff of the SEC would make a similar determination with respect to our new
notes as it has in other interpretations to other parties.
If you tender your old notes with the intention of participating in any
manner in a distribution of the new notes, you:
- cannot rely on the interpretations of the Staff, and
- must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with a
secondary resale transaction of the old notes.
Unless an exemption from registration is otherwise available, the
resale by any noteholder intending to distribute new notes should be covered by
an effective registration statement under the Securities Act of 1933 containing
the selling noteholder's information required by Item 507 or Item 508, as
applicable, of Regulation S-K under the Securities Act of 1933. This prospectus
may be used for an offer to resell, resale or other retransfer of new notes only
as specifically described in this prospectus. Failure to comply with the
registration and prospectus delivery requirements by a holder subject to these
requirements should result in that holder incurring liability for which it is
not indemnified by us. With respect to broker-dealers, only those that acquired
the old notes for their own account as a result of market-making activities or
other trading activities may participate in the exchange offer. Each
broker-dealer that receives new notes for its own account in exchange for old
notes, where such old notes were
32
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. Please read "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this
prospectus and in the letter of transmittal, we will accept for exchange any old
notes of a series properly tendered and not withdrawn prior to the expiration
date of the exchange offer for new notes of that series. We will issue $1,000
principal amount of new notes of the relevant series in exchange for each $1,000
principal amount of old notes of that series surrendered under the exchange
offer. Old notes may be tendered only in integral multiples of $1,000.
The exchange offer for old notes of each series is not conditioned upon
any minimum aggregate principal amount of old notes being tendered for exchange
or upon the consummation of the exchange offer for old notes of any other
series.
As of the date of this prospectus, there is approximately $600 million
principal amount of old notes. This prospectus and the letter of transmittal are
being sent to all registered holders of old notes. There will be no fixed record
date for determining registered holders of old notes entitled to participate in
the exchange offer.
We intend to conduct the exchange offer in accordance with the
provisions of the registration rights agreements, the applicable requirements of
the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules
and regulations of the SEC. Old notes that are not tendered for exchange in the
exchange offer:
- will remain outstanding,
- will continue to accrue interest, and
- will be entitled to the rights and benefits that holders have
under the indenture and, if applicable, the relevant registration
rights agreement.
However, these old notes will not be freely tradable. Except as specified in the
registration rights agreements, we are not obligated to, nor do we currently
anticipate that we will register the old notes under the Securities Act of 1933.
Please read "--Consequences of Failure to Exchange" below.
We will be deemed to have accepted for exchange properly tendered old
notes when we have given oral or written notice of the acceptance to the
exchange agent and complied with the applicable provisions of the relevant
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender old notes in the exchange offer, you will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the exchange offer. It is important that you
read "--Fees and Expenses" for more details about fees and expenses incurred in
the exchange offer.
We will return any old notes that we do not accept for exchange for any
reason without expense to the tendering holder as promptly as practicable after
the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer for old notes of each series will expire at 5:00
p.m., New York City time, on , 2003, unless in our sole discretion we extend
it.
EXTENSIONS, DELAY IN ACCEPTANCE, TERMINATION, OR AMENDMENT
We expressly reserve the right, at any time or from time to time, at
our discretion, to extend the period of time during which the exchange offer for
any series of old notes is open. We may extend that period for each series
independently. We may delay acceptance for exchange of any old notes of a series
by giving oral or written notice
33
of the extension to their holders. During any such extensions, all old notes of
that series you have previously tendered will remain subject to the exchange
offer for that series, and we may accept them for exchange.
To extend the exchange offer, we will notify the exchange agent orally
or in writing of any extension. We also will make a public announcement of the
extension no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
If any of the conditions described below under "--Conditions to the
Exchange Offer" has not been satisfied with respect to the exchange offer for
any series of old notes, we reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes of that series,
- to extend the exchange offer for that series, or
- to terminate the exchange offer for that series.
We will give oral or written notice of such delay, extension or
termination to the exchange agent. Subject to the terms of the registration
rights agreements, we also reserve the right to amend the terms of the exchange
offer for any series in any manner.
Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes of the series affected. If we amend the exchange
offer in a manner that we determine to constitute a material change, we will
promptly disclose that amendment by means of a prospectus supplement. We will
distribute the supplement to the registered holders of the old notes of the
series affected. Depending upon the significance of the amendment and the manner
of disclosure to the registered holders, we will extend the exchange offer if
the exchange offer would otherwise expire during such period.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required
to accept for exchange, or exchange any new notes of a series for, any old notes
of that series, and we may terminate the exchange offer for that series as
provided in this prospectus before accepting any old notes of that series for
exchange, if in our reasonable judgment:
- the exchange offer for that series, or the making of any exchange
by a holder of old notes of that series, would violate any
applicable law or any applicable interpretation of the Staff, or
- any action or proceeding has been instituted or threatened in any
court or by or before any governmental agency with respect to the
exchange offer for that series that, in our judgment, would
reasonably be expected to impair our ability to proceed with that
exchange offer.
In addition, we will not be obligated to accept for exchange the old
notes of any holder that has not made to us:
- the representations described under "--Procedures for Tendering"
and "Plan of Distribution" and in the letter of transmittal, and
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make
available to us an appropriate form for registering the new notes
under the Securities Act of 1933.
We expressly reserve the right to amend or terminate the exchange offer
for any series of old notes, and to reject for exchange any old notes not
previously accepted for exchange in that exchange offer, upon the occurrence
34
of any of the conditions to that exchange offer specified above. We will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the old notes of the series affected as promptly
as practicable.
These conditions are for our sole benefit, and we may assert them or
waive them in whole or in part at any time or at various times in our sole
discretion. Our failure at any time to exercise any of these rights will not
mean that we have waived our rights. Each right will be deemed an ongoing right
that we may assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered,
and will not issue new notes in exchange for any such old notes, if at such time
any stop order has been threatened or is in effect with respect to the
registration statement of which this prospectus forms a part or the
qualification of the indenture relating to the new notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
HOW TO TENDER GENERALLY
Only a holder of old notes may tender such old notes in the exchange
offer. To tender in the exchange offer, a holder must either (1) comply with the
procedures for physical tender or (2) comply with the automated tender offer
program procedures of The Depository Trust Company, or DTC, described below.
To complete a physical tender, a holder must:
- complete, sign and date the letter of transmittal or a facsimile
of the letter of transmittal,
- have the signature on the letter of transmittal guaranteed if the
letter of transmittal so requires,
- mail or deliver the letter of transmittal or facsimile to the
exchange agent prior to the expiration date, and
- deliver the old notes to the exchange agent prior to the
expiration date or comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents at
its address provided above under "Prospectus Summary--The Exchange Agent" prior
to the expiration date.
To complete a tender through DTC's automated tender offer program, the
exchange agent must receive, prior to the expiration date, a timely confirmation
of book-entry transfer of such old notes into the exchange agent's account at
DTC according to the procedure for book-entry transfer described below or a
properly transmitted agent's message.
The tender by a holder that is not withdrawn prior to the expiration
date and our acceptance of that tender will constitute an agreement between the
holder and us in accordance with the terms and subject to the conditions
described in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. YOU MAY REQUEST YOUR BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the old notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
35
DTC's system may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. If you are unable to deliver confirmation of
the book-entry tender of your old notes into the exchange agent's account at DTC
or all other documents required by the letter of transmittal to the exchange
agent on or prior to the expiration date, you must tender your old notes
according to the guaranteed delivery procedures described below.
TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial
institution that is a participant in DTC's system may use DTC's automated tender
offer program to tender its old notes. Accordingly, participants in the program
may, instead of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, transmit their acceptance of the exchange
offer electronically. They may do so by causing DTC to transfer the old notes to
the exchange agent in accordance with its procedures for transfer. DTC will then
send an agent's message to the exchange agent.
An "agent's message" is a message transmitted by DTC to and received by
the exchange agent and forming part of the book-entry confirmation, stating
that:
- DTC has received an express acknowledgment from a participant
in DTC's automated tender offer program that is tendering old
notes that are the subject of such book-entry confirmation,
- the participant has received and agrees to be bound by the
terms of the letter of transmittal or, in the case of an
agent's message relating to guaranteed delivery, the
participant has received and agrees to be bound by the
applicable notice of guaranteed delivery, and
- we may enforce the agreement against such participant.
HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own old notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender those old notes, you should contact the registered holder as soon as
possible and instruct the registered holder to tender on your behalf. If you are
a beneficial owner and wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and delivering your old
notes, either:
- make appropriate arrangements to register ownership of the old
notes in your name, or
- obtain a properly completed bond power from the registered
holder of your old notes.
The transfer of registered ownership may take considerable time and may
not be completed prior to the expiration date.
SIGNATURES AND SIGNATURE GUARANTEES
You must have signatures on a letter of transmittal or a notice of
withdrawal described below under "--Withdrawal of Tenders" guaranteed by an
eligible institution unless the old notes are tendered:
- by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal and the new notes
are being issued directly to the registered holder of the old
notes tendered in the exchange offer for those new notes, or
- for the account of an eligible institution.
An "eligible institution" is a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, in each case, that is a member of one
of the recognized signature guarantee programs identified in the letter of
transmittal.
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WHEN ENDORSEMENTS OR BOND POWERS ARE NEEDED
If a person other than the registered holder of any old notes signs the
letter of transmittal, the old notes must be endorsed or accompanied by a
properly completed bond power. The registered holder must sign the bond power as
the registered holder's name appears on the old notes. An eligible institution
must guarantee that signature.
If the letter of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, or
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, they also must submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the
validity, form, eligibility, time of receipt, acceptance of tendered old notes
and withdrawal of tendered old notes. Our determination will be final and
binding. We reserve the absolute right to reject any old notes not properly
tendered or any old notes our acceptance of which, in the opinion of our
counsel, might be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of the exchange offer as to particular old notes.
Our interpretation of the terms and conditions of the exchange offer, including
the instructions in the letter of transmittal, will be final and binding on all
parties.
Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within such time as we determine. Neither we, the
exchange agent nor any other person will be under any duty to give notification
of defects or irregularities with respect to tenders of old notes, nor will we
or those persons incur any liability for failure to give such notification.
Tenders of old notes will not be deemed made until such defects or
irregularities have been cured or waived. Any old notes received by the exchange
agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
WHEN WE WILL ISSUE NEW NOTES
In all cases, we will issue new notes of the relevant series for
similar old notes that we have accepted for exchange in the exchange offer only
after the exchange agent timely receives:
- such old notes or a timely book-entry confirmation of transfer
of such old notes into the exchange agent's account at DTC,
and
- a properly completed and duly executed letter of transmittal
and all other required documents or a properly transmitted
agent's message.
RETURN OF OLD NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered old notes of a series for exchange for
any reason described in the terms and conditions of the exchange offer or if old
notes are submitted for a greater principal amount than the holder desires to
exchange, we will return the unaccepted or non-exchanged old notes of that
series without expense to their tendering holder. In the case of old notes of a
series tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described below, such non-exchanged old notes will
be credited to an account maintained with DTC. These actions will occur as
promptly as practicable after the expiration or termination of the exchange
offer.
YOUR REPRESENTATIONS TO US
By signing or agreeing to be bound by the letter of transmittal, you
will represent to us that, among other things:
- any new notes that you receive are being acquired in the
ordinary course of your business,
- you have no arrangement or understanding with any person to
participate in the distribution (within the meaning of the
Securities Act of 1933) of the old notes or the new notes,
37
- you are not our "affiliate," as defined in Rule 405 under the
Securities Act of 1933, or, if you are our affiliate, you will
comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 to the extent
applicable,
- if you are not a broker-dealer, you are not engaged in, and do
not intend to engage in, a distribution of the new notes,
- if you are a broker-dealer, you are not tendering old notes
acquired directly from us or one of our affiliates,
- if you are a broker-dealer, you will receive the new notes for
your own account in exchange for old notes that you acquired
as a result of market-making activities or other trading
activities, and you will deliver a prospectus in connection
with any resale of such new notes, and
- you are not acting on behalf of any person who could not
truthfully and completely make the foregoing representations.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes but they are not immediately
available or if you cannot deliver your old notes, the letter of transmittal or
any other required documents to the exchange agent or comply with the applicable
procedures under DTC's automated tender offer program prior to the expiration
date, you may tender if:
- the tender is made through an eligible institution,
- prior to the expiration date, the exchange agent receives from
such eligible institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile
transmission, mail or hand delivery or a properly transmitted
agent's message and notice of guaranteed delivery:
- stating your name and address, the registered
number(s) of your old notes and the principal amount
of old notes tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three New York Stock
Exchange- trading days after the expiration date, the
letter of transmittal or facsimile thereof or agent's
message in lieu thereof, together with the old notes
or a book-entry confirmation, and any other documents
required by the letter of transmittal will be
deposited by such eligible institution with the
exchange agent, and
- the exchange agent receives such properly completed and
executed letter of transmittal or facsimile or agent's
message, as well as all tendered old notes in proper form for
transfer or a book-entry confirmation, and all other documents
required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
If you wish to tender old notes pursuant to the guaranteed delivery
procedures described in the letter of transmittal, you must ensure that the
exchange agent receives the notice of guaranteed delivery prior to 5:00 p.m.,
New York City time, on the applicable expiration date. Upon request to the
exchange agent, the exchange agent will send a notice of guaranteed delivery to
you if you wish to tender your old notes according to the guaranteed delivery
procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective:
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- the exchange agent must receive a written notice of withdrawal
at one of the addresses listed above under "Prospectus
Summary--The Exchange Agent," or
- the withdrawing holder must comply with the appropriate
procedures of DTC's automated tender offer program.
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to
be withdrawn,
- identify the old notes to be withdrawn, including the
registration number or numbers and the principal amount of
such old notes,
- be signed by the person who tendered the old notes in the same
manner as the original signature on the letter of transmittal
used to deposit those old notes or be accompanied by documents
of transfer sufficient to permit the trustee to register the
transfer in the name of the person withdrawing the tender, and
- specify the name in which such old notes are to be registered,
if different from that of the person who tendered the old
notes.
If old notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility
and time of receipt of notice of withdrawal, and our determination shall be
final and binding on all parties. We will deem any old notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any old notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at DTC according to the procedures described above,
such old notes will be credited to an account maintained with DTC for the old
notes. This return or crediting will take place as soon as practicable after
withdrawal. You may retender properly withdrawn old notes by following one of
the procedures described under "--Procedures for Tendering" above at any time on
or prior to 5:00 p.m., New York City time, on the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional solicitation
by facsimile, e-mail, telephone or in person by our officers and regular
employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus, letters of transmittal
and related documents to the beneficial owners of the old notes and in handling
or forwarding tenders for exchange.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees for the new notes,
- fees and expenses of the exchange agent and trustee,
- accounting and legal fees,
39
- printing costs, and
- related fees and expenses.
TRANSFER TAXES
If you tender your old notes for exchange, you will not be required to
pay any transfer taxes. We will pay or cause to be paid all transfer taxes, if
any, applicable to the exchange of old notes in the exchange offer. The
tendering holder will, however, be required to pay any transfer taxes, whether
imposed on the registered holder or any other person, if:
- certificates representing new notes or old notes for principal
amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person
other than the registered holder of old notes tendered,
- tendered old notes are registered in the name of any person
other than the person signing the letter of transmittal, or
- a transfer tax is imposed for any reason other than the
exchange of old notes for new notes in the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a
tendering holder is not submitted with the letter of transmittal, the amount of
such transfer taxes will be billed directly to that tendering holder. The
exchange agent will retain possession of new notes with a face amount equal to
the amount of the transfer taxes due until it receives payment of the taxes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your old notes for new notes in the exchange
offer, or if you tender your old notes but subsequently withdraw them, you will
remain subject to the existing restrictions on transfer of the old notes. In
general, you may not offer or sell the old notes unless either the offer and
sale is registered under the Securities Act of 1933 or the offer or sale is
exempt from or not subject to registration under the Securities Act of 1933 and
applicable state securities laws. Except as required by the registration rights
agreements, we do not intend to register resales of the old notes under the
Securities Act of 1933.
The tender of old notes of a series in the exchange offer will reduce
the outstanding principal amount of the old notes of that series. Due to the
corresponding reduction in liquidity, this may have an adverse effect upon, and
increase the volatility of, the market price of any old notes of that series
which you continue to hold.
ACCOUNTING TREATMENT
We will amortize our expenses of the exchange offer relating to each
series of old notes over the term of the new notes of that series under
generally accepted accounting principles.
OTHER
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult your financial
and tax advisors in making your decision on what action to take. In the future,
we may seek to acquire untendered old notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. We
have no present plan to acquire any old notes that are not tendered in the
exchange offer or to file a registration statement to permit resales of any
untendered old notes, except as required by the registration rights agreements.
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DESCRIPTION OF THE NOTES
We will issue the new notes, and we issued the old notes, under an
indenture, dated as of May 19, 2003, as supplemented (the "indenture"), between
us and JPMorgan Chase Bank, as trustee. We sometimes refer to the old notes and
the new notes in this prospectus collectively as the "notes." The descriptions
under this heading are summaries of the material provisions of the notes and the
indenture. Such summaries do not purport to be complete and are qualified in
their entirety by reference to the indenture and the notes. For a complete
description of the notes, you should refer to the indenture and the supplemental
indentures establishing the terms of the notes, which we have filed with the
SEC. References to article and section numbers in this prospectus, unless
otherwise indicated, are references to article and section numbers of the
indenture. For purposes of this summary, the terms "we," "our," "ours" and "us"
refer only to CenterPoint Energy, Inc. and not to any of our subsidiaries.
We may issue debt securities from time to time in one or more series
under the indenture. There is no limitation on the amount of debt securities we
may issue under the indenture. Our 2008 old notes ($200,000,000 outstanding as
of September 30, 2003), 2015 old notes ($200,000,000 outstanding as of September
30, 2003), 2010 old notes ($200,000,000 outstanding as of September 30, 2003)
and 3.75% Convertible Senior Notes due 2023 ($575,000,000 outstanding as of
September 30, 2003) are currently outstanding under the indenture.
The old notes of a series and the new notes of that series will
constitute a single series of debt securities under the indenture. If the
exchange offer for notes of a series is consummated, holders of old notes of
that series who do not exchange their old notes for new notes of that series
will vote together with holders of new notes of that series for all relevant
purposes under the indenture. Accordingly, in determining whether the required
holders have given any notice, consent or waiver or taken any other action
permitted under the indenture, any old notes of a series that remain outstanding
after the applicable exchange offer will be aggregated with the new notes of
that series, and the holders of those old notes and new notes will vote together
as a single series. All references in this prospectus to specified percentages
in aggregate principal amount of old notes of a series means, at any time after
the applicable exchange offer is consummated, the percentages in aggregate
principal amount of the old notes of that series and the new notes of that
series collectively then outstanding.
GENERAL
The 2008 new notes will mature on June 1, 2008 and are initially
limited to $200 million in aggregate principal amount. The 2015 new notes will
mature on June 1, 2015 and are initially limited to $200 million in aggregate
principal amount. The 2010 new notes will mature on September 1, 2010 and are
initially limited to $200 million in aggregate principal amount. However, we may
issue additional notes of each series from time to time, without the consent of
the holders of the notes. The new notes will be issued only in denominations of
$1,000 principal amount and integral multiples of $1,000 principal amount.
The new notes will:
- be general unsecured obligations,
- rank equally in right of payment with all of our other
existing and future unsecured and unsubordinated indebtedness,
and
- with respect to the assets and earnings of our subsidiaries,
effectively rank below all of the liabilities of our
subsidiaries.
As of October 31, 2003, CenterPoint Energy, on an unconsolidated basis,
had approximately $5.3 billion aggregate principal amount of outstanding
indebtedness, including approximately $924 million of obligations relating to
pollution control bonds issued on our behalf that are secured by general
mortgage bonds or first mortgage bonds of CenterPoint Houston. We have granted
the lenders under our credit facility a security interest in the stock of Texas
Genco. Excluding subsidiaries issuing trust preferred securities and transition
bonds, as of October 31, 2003, our subsidiaries had approximately $5.1 billion
aggregate principal amount of external indebtedness, of which approximately $2.7
billion is secured, as well as other liabilities.
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STRUCTURAL SUBORDINATION
We are a holding company that conducts substantially all of our
operations through our subsidiaries. Our only significant assets are the capital
stock of our subsidiaries, and our subsidiaries generate substantially all of
our operating income and cash flow. As a result, dividends or advances from our
subsidiaries are the principal source of funds necessary to meet our debt
service obligations. Contractual provisions or laws, including the 1935 Act, as
well as our subsidiaries' financial condition and operating requirements, may
limit our ability to obtain cash from our subsidiaries that we may require to
pay our debt service obligations, including payments on the notes. In addition,
the notes will be effectively subordinated to all of the liabilities of our
subsidiaries with regard to the assets and earnings of our subsidiaries.
INTEREST
Interest on the new notes will:
- accrue at the respective rates shown on the cover page of this
prospectus from the latest date to which interest shall have
been paid on the old note surrendered in exchange therefor or,
if no interest has been paid on such old note, from the date
of original issuance of such old note,
- be payable semi-annually in arrears on each June 1 and
December 1, with the initial interest payment date following
the consummation of the exchange offer being 1, 200 ,
for the 2008 new notes and the 2015 new notes, and on each
March 1 and September 1, with the initial interest payment
date following the consummation of the exchange offer
being 1, 200 , for the 2010 new notes,
- be payable to the person in whose name the notes are
registered at the close of business on the May 15 and November
15, for the 2008 new notes and the 2015 new notes, and on the
February 15 and August 15, for the 2010 new notes, immediately
preceding the applicable interest payment date, which we refer
to with respect to the notes as "regular record dates,"
- be computed on the basis of a 360-day year comprised of twelve
30-day months, and
- be payable on overdue interest to the extent permitted by law
at the same rate as interest is payable on principal.
If any interest payment date, the maturity date or any redemption date
falls on a day that is not a business day, the required payment will be made on
the next succeeding business day with the same force and effect as if made on
the relevant interest payment date, maturity date or redemption date and no
additional amounts will accrue on that payment for the period from and after the
interest payment date, maturity date or redemption date, as the case may be, to
the date of that payment on the next succeeding business day. The term "business
day" means, with respect to any note, any day other than a Saturday, a Sunday or
a day on which banking institutions in The City of New York are authorized or
required by law, regulation or executive order to close.
OPTIONAL REDEMPTION
We may redeem each series of notes, in whole or in part, at our option
exercisable at any time and from time to time upon not less than 30 and not more
than 60 days' notice as provided in the indenture, on any date prior to their
maturity at a redemption price equal to:
- 100% of the principal amount of the notes redeemed, plus
- accrued and unpaid interest thereon, if any, and additional
interest (as described in "Registration Rights") thereon, if
any, to, but excluding, the redemption date, plus
- the make-whole premium described below, if any.
The redemption price will never be less than 100% of the principal
amount of the notes redeemed plus accrued and unpaid interest thereon, if any,
to, but excluding, the redemption date.
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The amount of the make-whole premium with respect to any note to be
redeemed will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the redemption
date, of:
- each interest payment that, but for such redemption, would
have been payable on the note or portion thereof being
redeemed on each interest payment date occurring after the
redemption date (excluding any accrued and unpaid interest for
the period prior to the redemption date), and
- the principal amount that, but for such redemption, would have
been payable at the final maturity of the note or portion
thereof being redeemed, over
(2) the principal amount of the note being redeemed.
The present values of interest and principal payments referred to in
clause (1) above will be determined in accordance with generally accepted
principles of financial analysis. These present values will be calculated by
discounting the amount of each payment of interest or principal from the date
that each such payment would have been payable, but for the redemption, to the
redemption date at a discount rate equal to the comparable treasury yield (as
defined below) plus 50 basis points.
The make-whole premium will be calculated by an independent investment
banking institution of national standing appointed by us. If we fail to appoint
an independent investment banking institution at least 45 days prior to the
redemption date, or if the independent investment banking institution we appoint
is unwilling or unable to calculate the make-whole premium, the calculation will
be made by Citigroup Global Markets Inc. for the 2008 notes and the 2015 notes
and by Deutsche Bank Securities Inc. for the 2010 notes. If Citigroup Global
Markets Inc. or Deutsche Bank Securities Inc., as applicable, is unwilling or
unable to make the calculation, we will appoint a different independent
investment banking institution of national standing to make the calculation.
For purposes of determining the make-whole premium, "comparable
treasury yield" means a rate of interest per annum equal to the weekly average
yield to maturity of United States Treasury Securities that have a constant
maturity that corresponds to the remaining term to maturity of the notes to be
redeemed, calculated to the nearest 1/12th of a year. The comparable treasury
yield will be determined as of the third business day immediately preceding the
applicable redemption date.
The weekly average yields of United States Treasury Securities will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release. If this statistical release sets forth a weekly
average yield for United States Treasury Securities having a constant maturity
that is the same as the remaining term calculated as set forth above, then the
comparable treasury yield will be equal to such weekly average yield. In all
other cases, the comparable treasury yield will be calculated by interpolation
on a straight-line basis, between the weekly average yields on the United States
Treasury Securities that have a constant maturity closest to and greater than
the remaining term and the United States Treasury Securities that have a
constant maturity closest to and less than the remaining term (in each case as
set forth in the H.15 statistical release or any successor release). Any weekly
average yields calculated by interpolation will be rounded to the nearest
1/100th of 1%, with any figure of 1/200th of 1% or above being rounded upward.
If weekly average yields for United States Treasury Securities are not available
in the H.15 statistical release or otherwise, then the comparable treasury yield
will be calculated by interpolation of comparable rates selected by an
independent investment banking institution selected in the manner described in
the second preceding paragraph.
If we redeem any series of notes in part, the trustee will select the
notes for redemption on a pro rata basis, by lot or by such other method as the
trustee in its sole discretion deems fair and appropriate. We will only redeem
notes in multiples of $1,000 in original principal amount. If any note is to be
redeemed in part only, the notice of redemption will state the portion of the
principal amount to be redeemed. A note in principal amount equal to the
unredeemed portion of the original note will be issued upon the cancellation of
the original note.
43
CONSOLIDATION, MERGER AND SALE OF ASSETS
Under the indenture, we may not consolidate with or merge into, or
convey, transfer or lease our properties and assets substantially as an entirety
to, any person, referred to as a "successor person" unless:
- the successor person is a corporation, partnership, trust or
other entity organized and validly existing under the laws of
the United States of America or any state thereof or the
District of Columbia,
- the successor person expressly assumes our obligations with
respect to the notes and the indenture,
- immediately after giving effect to the transaction, no event
of default, and no event which, after notice or lapse of time
or both, would become an event of default, would occur and be
continuing, and
- we have delivered to the trustee the certificates and opinions
required under the indenture. (Section 801)
EVENTS OF DEFAULT
Each of the following will be an event of default under the indenture
with respect to the notes of a series:
- our failure to pay the principal of or premium, if any, on the
notes of that series when due, including at maturity or upon
redemption,
- our failure to pay any interest, including additional
interest, if any, on the notes of that series for 30 days
after the interest becomes due,
- our failure to perform, or our breach, in any material
respect, of any other covenant or warranty in the indenture,
other than a covenant or warranty included in the indenture
solely for the benefit of another series of debt securities
issued under the indenture, for 90 days after either the
trustee or holders of at least 25% in principal amount of the
outstanding notes of that series have given us written notice
of the breach in the manner required by the indenture,
- the default by us, CERC or CenterPoint Houston in a scheduled
payment at maturity, upon redemption or otherwise in the
aggregate principal amount of $50 million or more, after the
expiration of any applicable grace period, of any
Indebtedness, or the acceleration of any Indebtedness of us,
CERC or CenterPoint Houston in such aggregate principal
amount, so that it becomes due and payable prior to the date
on which it would otherwise have become due and payable and
such payment default is not cured or such acceleration is not
rescinded within 30 days after notice to us in accordance with
the terms of the Indebtedness; provided that such payment
default or acceleration of CERC or CenterPoint Houston shall
not be an event of default if, at the time such event occurs,
CERC or CenterPoint Houston, as the case may be, shall not be
affiliated with us, and
- specified events involving bankruptcy, insolvency or
reorganization of us, CERC or CenterPoint Houston; provided
that any specified event involving CERC or CenterPoint Houston
shall not be an event of default if, at the time such event
occurs, CERC or CenterPoint Houston, as the case may be, shall
not be affiliated with us,
provided, however, that no event described in the third bullet point above will
be an event of default until an officer of the trustee, assigned to and working
in the trustee's corporate trust department, has actual knowledge of the event
or until the trustee receives written notice of the event at its corporate trust
office. (Section 501)
If an event of default occurs and is continuing with respect to notes
of a series, either the trustee or the holders of at least 25% in principal
amount of the outstanding notes of that series may declare the principal amount
of the notes of that series due and immediately payable. In order to declare the
principal amount of the notes of that series due and immediately payable, the
trustee or the holders must deliver a notice that satisfies the requirements of
the indenture. Upon a declaration by the trustee or the holders, we will be
obligated to pay the principal amount of the notes of that series plus accrued
and unpaid interest, including additional interest, if any.
44
This right does not apply if an event of default described in the fifth
bullet point above occurs. If one of the events of default described in the
fifth bullet point above occurs and is continuing, the notes then outstanding
under the indenture shall be due and payable immediately.
At any time after any declaration of acceleration of the notes of any
series, but before a judgment or decree for payment of the money due has been
obtained by the trustee, the event of default giving rise to the declaration of
acceleration will, without further act, be deemed to have been waived, and such
declaration and its consequences will, without further act, be deemed to have
been rescinded and annulled if:
- we have paid or deposited with the trustee a sum sufficient to
pay:
- all overdue installments of interest on the notes of
that series,
- the principal of (and premium, if any, on) the notes
of that series which have become due otherwise than
by such declaration of acceleration and any interest
thereon at the rate or rates prescribed therefor,
- to the extent lawfully permitted, interest upon
overdue interest, and
- all sums paid or advanced by, and certain sums owed
to, the trustee under the indenture, and
- all events of default, other than the non-payment of the
principal amount of the notes of that series which became due
solely by such declaration of acceleration, have been cured or
waived as provided in the indenture. (Section 502) See
"--Modification and Waiver" below.
If an event of default occurs and is continuing, the trustee will
generally have no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless the holders
offer reasonable indemnity to the trustee. (Section 603) The holders of a
majority in principal amount of the outstanding notes of any series will
generally have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee for the notes, provided that:
- the direction is not in conflict with any law or the
indenture,
- the trustee may take any other action it deems proper which is
not inconsistent with the direction, and
- the trustee will generally have the right to decline to follow
the direction if an officer of the trustee determines, in good
faith, that the proceeding would involve the trustee in
personal liability or would otherwise be contrary to
applicable law. (Section 512)
A holder of a note of any series may only pursue a remedy under the
indenture if:
- the holder has previously given the trustee written notice of
a continuing event of default for the notes of that series,
- holders of at least 25% in principal amount of the outstanding
notes of that series have made a written request to the
trustee to pursue that remedy,
- the holders have offered reasonable indemnity to the trustee,
- the trustee fails to pursue that remedy within 60 days after
receipt of the request, and
- during that 60-day period, the holders of a majority in
principal amount of the notes of that series do not give the
trustee a direction inconsistent with the request. (Section
507)
However, these limitations do not apply to a suit by a holder of a note
demanding payment of the principal, premium, if any, or interest on a note on or
after the date the payment is due. (Section 508)
45
We will be required to furnish to the trustee annually a statement by
some of our officers regarding our performance or observance of any of the terms
of the indenture and specifying all of our known defaults, if any. (Section
1004)
MODIFICATION AND WAIVER
We may enter into one or more supplemental indentures with the trustee
without the consent of the holders of any of the notes in order to:
- evidence the succession of another person to us, or successive
successions and the assumption of our covenants, agreements
and obligations by a successor,
- add to our covenants for the benefit of the holders of any
series of debt securities issued under the indenture or to
surrender any of our rights or powers,
- add events of default for any series of debt securities issued
under the indenture,
- add or change any provision of the indenture to the extent
necessary to issue any series of debt securities in bearer
form,
- add to, change or eliminate any provision of the indenture
applying to one or more series of debt securities issued under
the indenture, provided that if such action adversely affects
the interests of any holder of debt securities of any series,
the addition, change or elimination will become effective with
respect to that series only when no security of that series
remains outstanding,
- convey, transfer, assign, mortgage or pledge any property to
or with the trustee or to surrender any right or power
conferred upon us by the indenture,
- establish the form or terms of any series of debt securities
issued under the indenture,
- provide for uncertificated securities in addition to
certificated securities,
- evidence and provide for successor trustees or to add or
change any provisions to the extent necessary to appoint a
separate trustee or trustees for a specific series of debt
securities,
- correct any ambiguity, defect or inconsistency under the
indenture, provided that such action does not adversely affect
the interests of the holders of debt securities of any series,
- supplement any provisions of the indenture necessary to
defease and discharge any series of debt securities, provided
that such action does not adversely affect the interests of
the holders of any series of debt securities,
- comply with the rules or regulations of any securities
exchange or automated quotation system on which any debt
securities are listed or traded, or
- add, change or eliminate any provisions of the indenture in
accordance with any amendments to the Trust Indenture Act of
1939, provided that the action does not adversely affect the
rights or interests of any holder of debt securities. (Section
901)
We may enter into one or more supplemental indentures with the trustee
in order to add to, change or eliminate provisions of the indenture or to modify
the rights of the holders of one or more series of debt securities, including
the notes, if we obtain the consent of the holders of a majority in principal
amount of the outstanding debt securities of each series affected by the
supplemental indenture, treated as one class. However, without the consent of
the holders of each outstanding debt security affected by the supplemental
indenture, we may not enter into a supplemental indenture that:
- changes the stated maturity of the principal of, or any
installment of principal of or interest on, any debt security,
except to the extent permitted by the indenture,
46
- reduces the principal amount of, or any premium or interest
on, any debt security,
- reduces the redemption price of the notes or changes the terms
applicable to redemption in a manner adverse to the holder,
- reduces the amount of principal of an original issue discount
security or any other debt security payable upon acceleration
of the maturity thereof,
- changes the place or currency of payment of principal,
premium, if any, or interest,
- impairs the right to institute suit for the enforcement of any
payment on any debt security,
- reduces the percentage in principal amount of outstanding debt
securities of any series, the consent of whose holders is
required for modification or amendment of the indenture,
- reduces the percentage in principal amount of outstanding debt
securities of any series necessary for waiver of compliance
with certain provisions of the indenture or for waiver of
certain defaults,
- makes certain modifications to such provisions with respect to
modification and waiver,
- makes any change that adversely affects the right to convert
or exchange any debt security, including the notes, or
decreases the conversion or exchange rate or increases the
conversion price of any convertible or exchangeable debt
security,
- in the case of any series of the notes, alters the manner of
calculation or rate of additional interest payable on any note
or extend the time for payment of any such amount, or
- changes the terms and conditions pursuant to which any series
of debt securities that is secured in a manner adverse to the
holders of the debt securities. (Section 902)
Holders of a majority in principal amount of the outstanding notes of a
series may waive past defaults or noncompliance with restrictive provisions of
the indenture with respect to that series. However, the consent of holders of
each outstanding note of a series is required to:
- waive any default in the payment of principal, premium, if
any, or interest on any note of that series, or
- waive any covenants and provisions of the indenture that may
not be amended without the consent of the holder of each
outstanding note of that series. (Sections 513 and 1006)
In order to determine whether the holders of the requisite principal
amount of the outstanding debt securities have taken an action under the
indenture as of a specified date:
- the principal amount of an "original issue discount security"
that will be deemed to be outstanding will be the amount of
the principal that would be due and payable as of such date
upon acceleration of the maturity to such date,
- if, as of such date, the principal amount payable at the
stated maturity of a debt security is not determinable, for
example, because it is based on an index, the principal amount
of such debt security deemed to be outstanding as of such date
will be an amount determined in the manner prescribed for such
debt security,
- the principal amount of a debt security denominated in one or
more foreign currencies or currency units that will be deemed
to be outstanding will be the $U.S. equivalent, determined as
of such date in the manner prescribed for such debt security,
of the principal amount of such debt security or, in the case
of a debt security described in the two preceding bullet
points, of the amount described above, and
- debt securities owned by us or any other obligor upon the debt
securities or any of our or their affiliates will be
disregarded and deemed not to be outstanding.
47
An "original issue discount security" means a debt security issued under the
indenture which provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration of maturity. Some debt
securities, including those for whose payment or redemption money has been
deposited or set aside in trust for the holders and those that have been fully
defeased pursuant to Section 1402 of the indenture, will not be deemed to be
outstanding. (Section 101)
We will generally be entitled to set any day as a record date for
determining the holders of outstanding notes of a series entitled to give or
take any direction, notice, consent, waiver or other action under the indenture.
In limited circumstances, the trustee will be entitled to set a record date for
action by holders of outstanding notes of a series. If a record date is set for
any action to be taken by holders, the action may be taken only by persons who
are holders of outstanding notes of the relevant series on the record date. To
be effective, the action must be taken by holders of the requisite principal
amount of notes of that series within a specified period following the record
date. For any particular record date, this period will be 180 days or such
shorter period as we may specify, or the trustee may specify, if it set the
record date. This period may be shortened or lengthened by not more than 180
days. (Section 104)
DEFEASANCE
The provisions of the indenture relating to defeasance and discharge of
indebtedness, or defeasance of restrictive covenants, will apply to the notes of
each series. (Section 1401)
DEFEASANCE AND DISCHARGE. We will be discharged from all of our
obligations with respect to the notes of a series, except for certain
obligations to exchange or register the transfer of notes of that series, to
replace stolen, lost or mutilated notes of that series, to maintain paying
agencies and to hold moneys for payment in trust, upon the deposit in trust for
the benefit of the holders of the notes of that series of money or U.S.
government obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal, premium, if any, and interest on
the notes of that series to the stated maturity of such notes in accordance with
the terms of the indenture and such notes. Such defeasance or discharge may
occur only if, among other things, we have delivered to the trustee an opinion
of counsel to the effect that we have received from, or there has been published
by, the United States Internal Revenue Service a ruling, or there has been a
change in tax law, in either case to the effect that holders of the notes of
that series will not recognize gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge were not to occur.
(Sections 1402 and 1404)
DEFEASANCE OF CERTAIN COVENANTS. In certain circumstances, we may omit
to comply with specified restrictive covenants, and that in those circumstances
the occurrence of certain events of default, which are described in the third
bullet point under "--Events of Default" above, with respect to such restrictive
covenants, and those described in the fourth bullet point under "--Events of
Default" above, will be deemed not to be or result in an event of default, in
each case with respect to the notes of a series. We, in order to exercise such
option, will be required to deposit, in trust for the benefit of the holders of
the notes of that series, money or U.S. government obligations, or both, which,
through the payment of principal and interest in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal, premium, if any, and interest on such notes to the stated maturity in
accordance with the terms of the indenture and such notes. We will also be
required, among other things, to deliver to the trustee an opinion of counsel to
the effect that holders of the notes of that series will not recognize gain or
loss for federal income tax purposes as a result of such deposit and defeasance
of certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance were not to occur. In the event we exercise this
option with respect to any notes of a series and such notes were declared due
and payable because of the occurrence of any event of default, the amount of
money and U.S. government obligations so deposited in trust would be sufficient
to pay amounts due on such notes at the time of their stated maturity, but might
not be sufficient to pay amounts due on such notes upon any acceleration
resulting from the event of default. In such case, we would remain liable for
those payments. (Sections 1403 and 1404)
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding if (1) all outstanding
48
debt securities issued under the indenture have become due and payable, (2) all
outstanding debt securities issued under the indenture have or will become due
and payable at their scheduled maturity within one year, or (3) all outstanding
debt securities issued under the indenture are scheduled for redemption in one
year, and in each case, we have deposited with the trustee an amount sufficient
to pay and discharge all outstanding debt securities issued under the indenture
on the date of their scheduled maturity or the scheduled date of redemption.
SINKING FUND
We are not obligated to make mandatory redemption or sinking fund
payments with respect to the notes.
RESTRICTIVE COVENANT
Other than the covenant described below, the indenture does not contain
financial covenants and does not restrict us from paying dividends, incurring
additional indebtedness or issuing or repurchasing any of our other securities.
The indenture also does not protect holders in the event of a highly leveraged
transaction, except to the extent described under "--Consolidation, Merger and
Sale of Assets."
LIMITATIONS ON LIENS. So long as any of the notes are outstanding, we
will not pledge, mortgage, hypothecate or grant a security interest in, or
permit any mortgage, pledge, security interest or other lien upon, any capital
stock or other equity interests now or hereafter owned by us in any Significant
Subsidiary to secure any Indebtedness, without making effective provision
whereby the outstanding notes shall be equally and ratably secured. This
restriction shall not apply to:
- any mortgage, pledge, security interest, lien or encumbrance
upon the capital stock of Texas Genco Holdings, Inc. to secure
obligations under our credit facility existing in May 2003 or
any extension, renewal, refunding, amendment or replacement
thereof,
- any mortgage, pledge, security interest, lien or encumbrance
upon the capital stock or other equity interests of
CenterPoint Energy Transition Bond Company, LLC or any other
special purpose subsidiary hereafter created by us in
connection with the issuance of securitization bonds for the
economic value of generation-related regulatory assets and
stranded costs,
- any mortgage, pledge, security interest, lien or encumbrance
upon any capital stock or other equity interests in an entity
which was not affiliated with us prior to one year before the
grant of such mortgage, pledge, security interest, lien or
encumbrance (or the capital stock or other equity interests of
a holding company formed to acquire or hold such capital stock
or other equity interests) created at the time of our
acquisition of the capital stock or other equity interests or
within one year after such time to secure all or a portion of
the purchase price for such capital stock or other equity
interests; provided that the principal amount of any
Indebtedness secured by such mortgage, pledge, security
interest, lien or encumbrance does not exceed 100% of such
purchase price and the fees, expenses and costs incurred in
connection with such acquisition and acquisition financing,
- any mortgage, pledge, security interest, lien or encumbrance
existing upon capital stock or other equity interests in an
entity which was not affiliated with us prior to one year
before the grant of such mortgage, pledge, security interest,
lien or encumbrance at the time of our acquisition of such
capital stock or other equity interests (whether or not the
obligations secured thereby are assumed by us or such
subsidiary becomes a Significant Subsidiary); provided that
(i) such mortgage, pledge, security interest, lien or
encumbrance existed at the time such entity became a
Significant Subsidiary and was not created in anticipation of
the acquisition and (ii) any such mortgage, pledge, security
interest, lien or encumbrance does not by its terms secure any
Indebtedness other than Indebtedness existing or committed
immediately prior to the time such entity becomes a
Significant Subsidiary,
- liens for taxes, assessments or governmental charges or levies
to the extent not past due or which are being contested in
good faith by appropriate proceedings diligently conducted and
for which we have provided adequate reserves for the payment
thereof in accordance with generally accepted accounting
principles,
49
- pledges or deposits in the ordinary course of business to
secure obligations under workers' compensation laws or similar
legislation,
- materialmen's, mechanics', carriers', workers' and repairmen's
liens imposed by law and other similar liens arising in the
ordinary course of business for sums not yet due or currently
being contested in good faith by appropriate proceedings
diligently conducted,
- attachment, judgment or other similar liens, which have not
been effectively stayed, arising in connection with court
proceedings; provided that such liens, in the aggregate, shall
not secure judgments which exceed $50,000,000 aggregate
principal amount at any one time outstanding; provided further
that the execution or enforcement of each such lien is
effectively stayed within 30 days after entry of the
corresponding judgment (or the corresponding judgment has been
discharged within such 30 day period) and the claims secured
thereby are being contested in good faith by appropriate
proceedings timely commenced and diligently prosecuted,
- other liens not otherwise referred to in the above bullets,
provided that the Indebtedness secured by such liens in the
aggregate, shall not exceed 1% of consolidated gross assets
appearing in our most recent audited consolidated financial
statements at any one time outstanding,
- any mortgage, pledge, security interest, lien or encumbrance
on the capital stock or other equity interests of any
subsidiary that was otherwise permitted hereunder if such
subsidiary subsequently becomes a Significant Subsidiary, or
- any extension, renewal or refunding of Indebtedness secured by
any mortgage, pledge, security interest, lien or encumbrance
described in the above bullets; provided that the principal
amount of any such Indebtedness is not increased by an amount
greater than the fees, expenses and costs incurred in
connection with such extension, renewal or refunding.
DEFINED TERMS
An "affiliate" of, or a person "affiliated" with, a specific person is
a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.
The term "control" (including the terms "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract, or otherwise.
"Indebtedness," as applied to any person, means bonds, debentures,
notes and other instruments or arrangements representing obligations created or
assumed by such person, in respect of:
- obligations for money borrowed, other than unamortized debt
discount or premium,
- obligations evidenced by a note or similar instrument given in
connection with the acquisition of any business, properties or
assets of any kind,
- obligations as lessee under a capital lease, and
- any amendments, renewals, extensions, modifications and
refundings of any such indebtedness or obligations listed in
the three immediately preceding bullet points.
All indebtedness of such type secured by a lien upon property owned by such
person, although such person has not assumed or become liable for the payment of
such indebtedness, is also deemed to be indebtedness of such person. All
indebtedness for borrowed money incurred by any other persons which is directly
guaranteed as to payment of principal by such person will for all purposes of
the indenture be deemed to be indebtedness of such person, but no other
contingent obligation of such person in respect of indebtedness incurred by any
other persons shall be deemed indebtedness of such person.
50
"Significant Subsidiary" means CERC, CenterPoint Houston and Texas
Genco, and any other subsidiary which, at the time of the creation of a pledge,
mortgage, security interest or other lien upon any capital stock or other equity
interests of such subsidiary, has consolidated gross assets (having regard to
our beneficial interest in the shares, or the like, of that subsidiary) that
represent at least 25% of our consolidated gross assets appearing in our most
recent audited consolidated financial statements.
A "subsidiary" of any entity means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (i) the issued and outstanding capital stock or comparable interests
having ordinary voting power to elect a majority of the board of directors or
comparable governing body of such entity (irrespective of whether at the time
capital stock or comparable interests of any other class or classes of such
entity shall or might have voting power upon the occurrence of any contingency),
(ii) the interest in the capital or profits of such limited liability company,
partnership, joint venture or other entity or (iii) the beneficial interest in
such trust or estate, is at the time directly or indirectly owned or controlled
by such entity, by such entity and one or more of its other subsidiaries or by
one or more of such entity's other subsidiaries.
PAYMENT AND PAYING AGENT
We will pay interest on the notes to the persons in whose names the
notes are registered at the close of business on the applicable record date for
each interest payment. However, we will pay the interest payable on the notes at
their stated maturity to the persons to whom we pay the principal amount of the
notes. (Section 307)
We will pay principal, premium, if any, and interest on the notes at
the offices of the paying agents we designate. However, except in the case of a
global security, we may pay interest by:
- check mailed to the address of the person entitled to the
payment as it appears in the security register, or
- wire transfer in immediately available funds to the place and
account designated in writing by the person entitled to the
payment as specified in the security register.
We have designated the trustee as the sole paying agent for the notes. At any
time, we may designate additional paying agents or rescind the designation of
any paying agents. However, we are required to maintain a paying agent in each
place of payment for the notes at all times. (Sections 307 and 1002)
Any money deposited with the trustee or any paying agent or then held
by us for the payment of principal, premium, if any, and interest on the notes
that remains unclaimed for two years after the date the payments became due, may
be repaid to us upon our request. After we have been repaid, holders entitled to
those payments may only look to us for payment as our unsecured general
creditors. The trustee and any paying agents will not be liable for those
payments after we have been repaid. (Section 1003)
EXCHANGE AND TRANSFER OF THE NOTES
We will issue the notes in registered form, without coupons. We will
only issue notes in denominations of integral multiples of $1,000.
Holders may present notes for exchange or for registration of transfer
at the office of the security registrar or at the office of any transfer agent
we designate for that purpose. The security registrar or designated transfer
agent will exchange or transfer the notes if it is satisfied with the documents
of title and identity of the person making the request. We will not charge a
service charge for any exchange or registration of transfer of notes. However,
we may require payment of a sum sufficient to cover any tax or other
governmental charge payable for the registration of transfer or exchange. The
trustee will serve as the security registrar for the notes. (Section 305) At any
time we may:
- designate additional transfer agents,
- rescind the designation of any transfer agent, or
- approve a change in the office of any transfer agent.
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However, we are required to maintain a transfer agent in each place of payment
for the notes at all times. (Sections 305 and 1002)
If the notes of any series are to be redeemed in part, neither we nor
the trustee will be required to register the transfer or exchange of notes of
that series:
- during the period beginning at the opening of business 15 days
before the day we mail the notice of redemption for such notes
and ending at the close of business on the day the notice is
mailed, or
- if we have selected such notes for redemption, in whole or in
part, except for the unredeemed portion of such notes.
(Section 305)
GOVERNING LAW
New York law will govern the indenture and the notes. (Section 112)
THE TRUSTEE
JPMorgan Chase Bank is the trustee, security registrar and paying agent
under the indenture for the notes. We maintain banking relationships in the
ordinary course of business with the trustee and its affiliates. As of November
3, 2003, the trustee served as trustee for $2.0 billion aggregate principal
amount of our outstanding debt securities and pollution control bonds issued on
our behalf aggregating $1.0 billion outstanding. In addition, the trustee serves
as trustee for debt securities of some of our subsidiaries. The trustee and its
affiliates are also parties to credit agreements under which we and our
affiliates have bank lines of credit. We and our affiliates also maintain
depository and other banking, investment banking and investment management
relationships with the trustee and its affiliates. The trustee also serves as
rights agent under our shareholder rights plan.
NOTICES
Except as otherwise described herein, notice to holders of the notes
will be given by mail to the addresses as they appear in the security register.
52
REGISTRATION RIGHTS
In connection with the sale of each series of old notes, we entered
into a registration rights agreement with the initial purchasers of each series
of old notes pursuant to which we agreed, for the benefit of the holders of such
series of old notes at our cost, to use our reasonable commercial efforts:
- to file with the SEC a registration statement under the
Securities Act of 1933 relating to an exchange offer for each
series of old notes within 180 days after the date of issuance
of the relevant series of old notes,
- to cause the exchange offer registration statement to be
declared effective under the Securities Act of 1933 within 270
days after the date of issuance of the relevant series of old
notes and to keep the exchange offer registration statement
effective until the expiration of the exchange offer, and
- unless the exchange offer would not be permitted by applicable
law or SEC policy, to cause the exchange offer to be
consummated within 315 days after the date of issuance of the
relevant series of old notes.
We agreed that upon the registration statement of which this prospectus
forms a part being declared effective, we would offer the new notes of a series
in exchange for surrender of the old notes of that series. We agreed to keep the
exchange offer open for not less than 20 business days (or longer if required by
applicable law) after the date on which notice of the exchange offer is mailed
to the registered holders of the old notes. For each old note of a series
validly tendered to us pursuant to the exchange offer for that series and not
withdrawn by the holder thereof, the holder of such old note will receive a new
note of that series having a principal amount equal to that of the surrendered
old note. Interest on each new note will accrue from the last interest payment
date on which interest was paid on the old note surrendered in exchange therefor
or, if no interest has been paid on an old note, from the date of the issuance
of the old notes. The new notes of a series will vote together with the old
notes of that series which are not exchanged on all matters on which holders of
such series of old notes and new notes of such series are entitled to vote.
Each holder, other than certain specified holders, who wishes to
exchange its old notes of a series for new notes of that series pursuant to the
exchange offer for that series will be required to make to us the
representations described under "The Exchange Offer--Your Representations to Us"
to participate in that exchange offer.
In addition, in connection with any resales of new notes, any
broker-dealer who acquired notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act of 1933. Please read "The
Exchange Offer--Resale of New Notes."
In the event that:
- we reasonably determine that changes in law or the applicable
interpretations of the Staff do not permit us to effect the
exchange offer,
- the exchange offer for any series of notes is not consummated
on or prior to the 315th day following the issuance of the old
notes of that series, or
- any initial purchaser notifies us within 20 business days
following consummation of the exchange offer (i) that it is
not permitted by applicable law or SEC policy to participate
in the exchange offer, (ii) that it may not resell new notes
with this prospectus, or (iii) that it is a broker-dealer and
owns old notes acquired directly from us or one of our
affiliates,
then we will at our cost in lieu of effecting (or, in the case of such a request
by an initial purchaser, in addition to effecting) the registration of the new
notes of the affected series pursuant to the registration statement of which
this prospectus forms a part:
- as promptly as practicable, file with the SEC a "shelf"
registration statement to cover resales of the old notes of
the affected series,
53
- use our reasonable commercial efforts to cause the shelf
registration statement to be declared effective under the
Securities Act of 1933 no later than 345 days after the date
of issuance of the affected series of old notes, and
- use our reasonable commercial efforts to keep effective the
shelf registration statement until two years after the date of
the issuance of the affected series of old notes or until all
of the old notes covered by the shelf registration statement
have been sold.
We will have the ability to suspend the availability of the shelf
registration statement during certain "black out" periods.
In the event of the filing of the shelf registration statement, we will
provide to each relevant holder of old notes copies of the prospectus which
forms a part of the shelf registration statement and notify each such holder
when the shelf registration statement has become effective. A holder of old
notes that sells old notes pursuant to the shelf registration statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act of 1933 in
connection with such sales and will be bound by the provisions of the respective
registration rights agreement that is applicable to such a holder (including
certain indemnification obligations). In addition, each holder of old notes will
be required to deliver to us information to be used in connection with the shelf
registration statement and to provide comments to us on the shelf registration
statement in order to have such holder's old notes included in the shelf
registration statement and to benefit from the provisions regarding the increase
in the interest rate borne by the old notes described in the following
paragraph.
In the event that:
- the registration statement of which this prospectus forms a
part is not declared effective by the SEC on or prior to the
270th day following the date of issuance of the relevant
series of old notes,
- the exchange offer is not consummated or the shelf
registration statement with respect to the old notes is not
declared effective on or prior to the 315th day following the
date of issuance of the relevant series of old notes, or
- any required exchange offer registration statement or shelf
registration statement relating to the old notes is filed and
declared effective but shall thereafter either be withdrawn by
us or becomes subject to an effective stop order suspending
the effectiveness of such registration statement (except as
specifically permitted in the registration rights agreements)
without being succeeded within 30 days by an amendment thereto
or an additional registration statement filed and declared
effective, each such event listed in the three bullet points
above, referred to as a "registration default",
then the interest rate borne by the affected series of old notes will be
increased by .25% per annum upon the occurrence of each registration default,
which rate will increase by an additional .25% per annum if such registration
default has not been cured within 90 days after the occurrence thereof and
continuing until all registration defaults for such series of old notes have
been cured, provided that the aggregate amount of any such increase in the
interest rate on such series of old notes shall in no event exceed .50% per
annum; and provided, further, that if the registration statement of which this
prospectus forms a part is not declared effective on or prior to the 270th day
following the date of issuance of any series of old notes, and we shall request
holders of old notes of the affected series to provide the information called
for by the relevant registration rights agreement for inclusion in the shelf
registration statement, then old notes of the affected series owned by holders
who do not deliver such information to us or who do not provide comments to us
on the shelf registration statement when required pursuant to the relevant
registration rights agreement will not be entitled to any such increase in the
interest rate for any day after the 315th day following the date of issuance of
such series of old notes. All accrued additional interest will be paid to
holders of old notes in the same manner and at the same time as regular payments
of interest on the old notes. Following the cure of all registration defaults
for the affected series of old notes, the accrual of additional interest on such
series will cease and the interest rate of such series will revert to the
original rate.
New York law governs each of the registration rights agreements. The
foregoing is a summary description of material provisions of each of the
registration rights agreements. Because it is a summary, it does not purport to
54
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the registration rights agreements, copies of which are
filed as exhibits to the registration statement of which this prospectus forms a
part. You should read the relevant registration rights agreement carefully and
in its entirety because it, and not this description, defines your rights as a
holder of the relevant series of old notes.
The information set forth above concerning certain interpretations of
and positions taken by the SEC staff is not intended to constitute legal advice,
and prospective investors should consult their own legal advisors with respect
to these matters.
BOOK-ENTRY DELIVERY AND SETTLEMENT
We will issue the new notes in the form of one or more permanent global
notes in definitive, fully registered, book-entry form. The global notes will be
deposited with or on behalf of DTC and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the trustee in accordance with
the FAST Balance Certificate Agreement between DTC and the trustee. The global
notes will be deposited on behalf of the acquirors of the new notes for credit
to the respective accounts of the acquirors or to such other accounts as they
may direct at DTC. Please read "The Exchange Offer--Book-Entry Transfer."
CERTIFICATED NOTES
Certificated notes will be issued to each person that DTC identifies as
the beneficial owner of the old notes represented by the global notes, upon
surrender by DTC of the global notes, if (i) we notify the trustee in writing
that DTC or any successor depositary (the "depositary") is no longer willing or
able to act as a depositary for the global notes or DTC ceases to be registered
as a clearing agency under the Securities Exchange Act of 1934 and a successor
depositary is not appointed within 90 days of such notice or cessation, (ii) we,
at our option, notify the trustee in writing that we elect to cause the issuance
of new notes in definitive form under the indenture or (iii) upon the occurrence
of certain other events as provided pursuant to the indenture.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear
Bank, S.A./N.V., as operator of the Euroclear System ("Euroclear"), and
Clearstream Banking, societe anonyme ("Clearstream Banking"), set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to change by them from time to time. Neither we nor the initial
purchasers take any responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
Regarding DTC. According to DTC, the following information with respect
to DTC has been provided to the industry for informational purposes only and is
not intended to serve as a representation, warranty, or contract modification of
any kind. We have obtained the information in this section concerning DTC and
the DTC's book-entry system from sources that we believe are reliable. However,
we take no responsibility for the accuracy of this information.
DTC is:
- a limited-purpose trust company organized under the New York
Banking Law,
- a "banking organization" within the meaning of the New York
Banking Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and
- a "clearing agency" registered under Section 17A of the
Securities Exchange Act of 1934.
DTC holds and provides asset servicing for over 2 million issues of
U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money
market instruments from over 85 countries that DTC's participants
55
("direct participants") deposit with DTC. DTC also facilitates the post-trade
settlement among direct participants of sales and other securities transactions
in deposited securities, through electronic computerized book-entry transfers
and pledges between direct participants' accounts. This eliminates the need for
physical movement of securities certificates. Direct participants include:
- both U.S. and non-U.S. securities brokers and dealers,
- banks,
- trust companies,
- clearing corporations, and
- certain other organizations.
DTC is a wholly owned subsidiary of The Depository Trust & Clearing
Corporation, which is owned by a number of direct participants of DTC and
members of the National Securities Clearing Corporation, Government Securities
Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing
Corporation, as well as by the New York Stock Exchange, Inc., the American Stock
Exchange LLC, and the National Association of Securities Dealers, Inc. Access to
the DTC system is also available to others such as both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly ("indirect participants"). DTC
has Standard & Poor's highest rating: AAA. The DTC rules applicable its
participants are on file with the SEC. More information about DTC can be found
at http://www.dtcc.com.
Purchases of new notes under the DTC system must be made by or through
direct participants, which will receive a credit for the new notes on DTC's
records. The ownership interest of each actual purchaser of each new note,
referred to as a beneficial owner, is in turn to be recorded on the direct and
indirect participants' records. Beneficial owners will not receive written
confirmation from DTC of their purchase. Beneficial owners are, however,
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the direct or indirect
participant through which the beneficial owner entered into the transaction.
Transfers of ownership interests in the new notes are to be accomplished by
entries made on the books of participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing their ownership
interests in new notes, except in the event that use of the book-entry system
for the new notes is discontinued. The laws of some states require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such laws may impair the ability to transfer beneficial interests in a
global security.
Neither we nor the trustee shall be liable for any delay by the
depositary, its nominee or any direct or indirect participant in identifying the
beneficial owners of the related new notes, and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the depositary or nominee for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the new
notes to be issued).
So long as the depositary for the global notes, or its nominee, is the
registered owner of the global notes, the depositary or its nominee, as the case
may be, will be considered the sole owner or holder of the new notes represented
by the global notes for all purposes under the indenture. Except as described
above, beneficial owners will not:
- be entitled to have new notes represented by the global notes
registered in their names,
- receive or be entitled to receive physical delivery of new
notes in definitive form, and
- be considered the owners or holders thereof under the
indenture.
To facilitate subsequent transfers, all new notes deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of new notes with DTC and their registration
in the name of Cede & Co. or such
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other DTC nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the new notes. DTC's records
reflect only the identity of the direct participants to whose accounts the new
notes are credited, which may or may not be the beneficial owners. The direct
and indirect participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or
vote with respect to new notes unless authorized by a direct participant in
accordance with DTC's procedures. Under its usual procedures, DTC mails an
omnibus proxy to us as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the new notes are credited on the record date (identified in a
listing attached to the omnibus proxy).
Redemption proceeds, distributions, and dividend payments on the new
notes will be made to Cede & Co. or such other nominee as may be requested by an
authorized representative of DTC. DTC's practice is to credit direct
participants' accounts upon DTC's receipt of funds and corresponding detail
information from us on the payment date in accordance with their respective
holdings shown on DTC's records. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such participant
and not of DTC, its nominee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of redemption
proceeds, distributions, and dividend payments to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is our
responsibility, disbursement of such payments to direct participants will be the
responsibility of DTC, and disbursement of such payments to the beneficial
owners will be the responsibility of direct and indirect participants.
DTC may discontinue providing its services as depositary with respect
to the new notes at any time by giving us reasonable notice. Under such
circumstances, in the event that we do not obtain a successor securities
depositary, certificates for the new notes are required to be printed and
delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, certificates
for the new notes will be printed and delivered.
We cannot assure you that DTC will distribute payments on the new notes
made to DTC or its nominee as the registered owner or any redemption or other
notices to the participants, or that the participants or others will distribute
the payments or notices to the beneficial owners, or that they will do so on a
timely basis, or that DTC will serve and act in the manner described in this
prospectus. Beneficial owners should make appropriate arrangements with their
broker or dealer regarding distribution of information regarding the new notes
that may be transmitted by or through DTC.
Procedures for DTC and Cross Market Transfer. Transfers between
participants in DTC will be effected in accordance with DTC's procedures and
will be settled in same-day funds. Transfers between participants in Euroclear
or Clearstream Banking will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Cross-market transfers between the participants in DTC, on the one
hand, and Euroclear or Clearstream Banking participants, on the other hand, will
be effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream Banking, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream Banking, as the case may be, by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Clearstream
Banking, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant global notes in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC.
Euroclear participants and Clearstream Banking participants may not deliver
instructions directly to the depositaries for Euroclear or Clearstream Banking.
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Because of time zone differences, the new notes account of a Euroclear
or Clearstream Banking participant purchasing an interest in a global note from
a participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or Clearstream Banking participant, during the new
notes settlement processing day (which must be a business day for Euroclear and
Clearstream Banking) immediately following the settlement date of DTC. Cash
received in Euroclear or Clearstream Banking as a result of sales of interests
in a global note by or through a Euroclear or Clearstream Banking participant to
a participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Clearstream Banking cash
account only as of the business day for Euroclear or Clearstream Banking
following DTC's settlement date.
Although DTC, Euroclear and Clearstream Banking have agreed to the
foregoing procedures to facilitate transfers of interests in the global notes
among participants in DTC, Euroclear and Clearstream Banking, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC, Euroclear or Clearstream Banking
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of old notes for new notes
and the beneficial ownership and disposition of the new notes.
This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect, or different interpretations. This discussion only addresses tax
considerations for beneficial owners of the notes that hold the notes as
"capital assets," within the meaning of the Code. Moreover, this discussion is
for general information only and does not address all of the tax consequences
that may be relevant to specific beneficial owners of the notes in light of
their particular circumstances or to beneficial owners of the notes subject to
special treatment under U.S. federal income tax laws (such as banks, insurance
companies, tax-exempt entities, retirement plans, dealers in securities,
brokers, expatriates, partnerships or other pass-through entities, persons who
hold their notes as part of a straddle, hedge, conversion transaction or other
integrated investment, persons whose functional currency is not the U.S. dollar,
persons subject to the alternative minimum tax or persons deemed to sell the
notes under the constructive sale provisions of the Code). This discussion does
not address any U.S. state and local or non-U.S. tax considerations relating to
the purchase, ownership and disposition of the notes.
As used in this discussion, the term "U.S. Holder" means a beneficial
owner of a note that is, for U.S. federal income tax purposes:
- an individual who is a citizen or resident of the U.S.,
- a corporation created or organized in or under the laws of the
U.S. or of any State or political subdivision thereof or
therein, including the District of Columbia,
- an estate the income of which is subject to U.S. federal
income tax regardless of the source thereof, or
- a trust with respect to which a court within the U.S. is able
to exercise primary supervision over its administration and
one or more U.S. persons have the authority to control all of
its substantial decisions, or certain electing trusts that
were in existence on August 19, 1996 and were treated as
domestic trusts on that date.
The term "Non-U.S. Holder" means a beneficial owner of a note that is,
for U.S. federal income tax purposes, a nonresident alien or a corporation,
trust or estate that is not a U.S. Holder. Purchasers of notes that are
partnerships or that would hold the notes through a partnership or similar
pass-through entity should consult their tax advisors regarding the U.S. federal
income tax consequences to them of holding the notes.
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EXCHANGE OF NOTES
The exchange of new notes of a series for old notes of that series
pursuant to the exchange offer for that series will not constitute a taxable
event for U.S. federal income tax purposes. Consequently, no gain or loss will
be recognized by a holder of an old note of a series upon receipt of a new note
of that series. A holder's adjusted tax basis in the new note will be the same
as the adjusted tax basis in the old note exchanged therefor. A holder's holding
period of the new note will include the holding period of the old note exchanged
therefor.
U.S. HOLDERS
PAYMENT OF INTEREST
In general, interest payable on a note will be taxable to a U.S. Holder
as ordinary interest income at the time it is received or accrued, in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes.
MARKET DISCOUNT
Under the market discount rules of the Code, a U.S. Holder who
purchases a note at a market discount will generally be required to treat any
gain recognized on the sale, exchange, retirement or other taxable disposition
of the note as ordinary income to the extent of the accrued market discount that
has not been previously included in income. Market discount is generally defined
as the amount by which a U.S. Holder's purchase price for a note is less than
the note's stated redemption price at maturity (generally, the note's principal
amount) on the date of purchase, subject to a statutory de minimis exception. In
general, market discount accrues on a ratable basis over the remaining term of
the note unless a U.S. Holder makes an irrevocable election to accrue market
discount on a constant yield to maturity basis.
A U.S. Holder who acquires a note at a market discount may be required
to defer a portion of any interest expense that otherwise may be deductible on
any indebtedness incurred or continued to purchase or carry such note until the
U.S. Holder disposes of the note in a taxable transaction. A U.S. Holder who has
elected under the applicable Code provision to include market discount in income
annually as such discount accrues will not, however, be required to treat any
gain recognized as ordinary income or to defer any deductions for interest
expense under these rules. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the taxable year to which the election applies and may
not be revoked without the consent of the IRS.
Holders should consult their tax advisors as to the portion of any gain
that would be taxable as ordinary income under the market discount rules and any
other consequences of the market discount rules that may apply to them in
particular.
AMORTIZABLE BOND PREMIUM
A U.S. Holder who purchases a note for an amount in excess of its
principal amount will be considered to have purchased the note at a premium. A
U.S. Holder may elect to amortize the premium over the remaining term of the
note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the U.S. Holder's interest income from the note. A
U.S. Holder who elects to amortize the premium on a note must reduce its tax
basis in the note by the amount of the premium amortized in any year. An
election to amortize bond premium applies to all taxable debt obligations then
owned and thereafter acquired by the U.S. Holder and may be revoked only with
the consent of the IRS. Bond premium on a note held by a U.S. Holder who does
not make such an election will decrease the capital gain or increase the capital
loss otherwise recognized on the disposition of the note.
SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF THE NOTES
Upon the sale, exchange, retirement or other disposition of a note, a
U.S. Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued and unpaid interest, which will be taxable
as interest income (as described above)) and such U.S. Holder's adjusted tax
basis in the note.
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Subject to the market discount rules summarized above, such gain or loss
generally will be capital gain or loss and will be long-term capital gain or
loss if, at the time of the disposition, the U.S. Holder's holding period for
the note is more than one year. Long-term capital gains recognized by an
individual or non-corporate U.S. Holder are generally subject to a reduced U.S.
federal income tax rate. Capital losses are subject to limits on deductibility.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, payments made on the notes and proceeds from the sale or
other disposition of the notes may be subject to backup withholding, currently
at a rate of 28% (increased to 31% beginning in 2011). In general, backup
withholding will apply to a non-corporate U.S. Holder if such U.S. Holder:
- fails to furnish, under penalties of perjury, its Taxpayer
Identification Number, or TIN (which for an individual is the
holder's Social Security number),
- furnishes an incorrect TIN,
- is notified by the IRS that it has failed to properly report
payments of interest and dividends, or
- under certain circumstances, fails to certify, under penalties
of perjury, that it has furnished a correct TIN and is a U.S.
person and has not been notified by the IRS that it is subject
to backup withholding due to underreporting of interest or
dividends, or otherwise fails to comply with applicable
requirements of the backup withholding rules.
Any amounts withheld under the backup withholding rules from a payment
to a U.S. Holder generally will be allowed as a refund or a credit against such
U.S. Holder's U.S. federal income tax liability, provided that the required
procedures are followed.
A U.S. Holder will also be subject to information reporting with
respect to payments on the notes and proceeds from the sale or other disposition
of the notes, unless such U.S. Holder is a corporation or other exempt recipient
and appropriately establishes an exemption.
NON-U.S. HOLDERS
For purposes of the following discussion, interest on the notes, and
gain on the sale, exchange, retirement or other disposition of the notes, will
be considered "U.S. trade or business income" of a Non-U.S. Holder if such
income or gain is effectively connected with the conduct of a trade or business
in the United States by such Non-U.S. Holder.
PAYMENT OF INTEREST
Subject to the discussion below concerning backup withholding, a
Non-U.S. Holder will not be subject to U.S. federal income or withholding tax in
respect of interest paid on the notes if the interest qualifies for the
"portfolio interest exemption." This will be the case if each of the following
requirements is satisfied:
- the interest is not U.S. trade or business income,
- the Non-U.S. Holder does not actually or constructively own
10% or more of the voting stock of the issuer,
- the Non-U.S. Holder is not a controlled foreign corporation,
within the meaning of the Code, that is actually or
constructively related to the issuer, and
- the Non-U.S. Holder provides the withholding agent with the
appropriate certification.
The certification requirement generally will be satisfied if the
Non-U.S. Holder provides the withholding agent with a statement on IRS Form
W-8BEN (or suitable substitute or successor form), together with all appropriate
attachments, signed under penalties of perjury, identifying the Non-U.S. Holder
and stating, among
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other things, that the Non-U.S. Holder is not a U.S. person. Non-U.S. Holders
should consult their tax advisors regarding alternative methods for satisfying
the certification requirement.
If the portfolio interest exemption is not satisfied with respect to a
Non-U.S. Holder, a 30% withholding tax will apply to interest paid on the notes
to such Non-U.S. Holder, unless another exemption is applicable. For example, an
applicable income tax treaty may reduce or eliminate such tax, in which event a
Non-U.S. Holder claiming the benefit of such treaty must provide the withholding
agent with a properly executed IRS Form W-8BEN (or suitable substitute or
successor form). Alternatively, an exemption applies if the interest is U.S.
trade or business income and the Non-U.S. Holder provides an appropriate
statement to that effect on IRS Form W-8ECI (or suitable substitute or successor
form). In the latter case, such Non-U.S. Holder generally will be subject to
U.S. federal income tax with respect to all income from the notes in the same
manner as U.S. Holders, as described above, unless an applicable income tax
treaty provides otherwise. Additionally, Non-U.S. Holders that are corporations
could be subject to a branch profits tax with respect to any such U.S. trade or
business income at a rate of 30% (or at a reduced rate under an applicable
income tax treaty).
SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF THE NOTES
Generally, a Non-U.S. Holder will not be subject to U.S. federal income
tax on gain realized upon the sale, exchange, retirement or other disposition of
a note, unless (i) such Non-U.S. Holder is an individual present in the United
States for 183 days or more in the taxable year of the sale, exchange,
retirement or other disposition and certain other conditions are met or (ii) the
gain is U.S. trade or business income. If the first exception applies, the
Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate
of 30% (or at a reduced rate under an applicable income tax treaty) on the
amount by which capital gains allocable to U.S. sources (including gains from
the sale, exchange, retirement or other disposition of the note) exceed capital
losses allocable to U.S. sources. If the second exception applies, the Non-U.S.
Holder generally will be subject to U.S. federal income tax with respect to such
gain in the same manner as U.S. Holders, as described above, unless an
applicable income tax treaty provides otherwise. Additionally, Non-U.S. Holders
that are corporations could be subject to a branch profits tax with respect to
gain that is U.S. trade or business income at a rate of 30% (or at a reduced
rate under an applicable income tax treaty).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain Non-U.S. Holders may be subject to information reporting and
backup withholding with respect to interest payments on the notes. Treasury
regulations provide that such information reporting and backup withholding
generally will not apply to interest payments on the notes to a Non-U.S. Holder
if such Non-U.S. Holder certifies that it is not a U.S. person under penalties
of perjury or otherwise establishes an exemption.
Additional information reporting and backup withholding requirements
with respect to the payment of the proceeds from the disposition of a note
(including a redemption) by a Non-U.S. Holder are as follows:
- If the proceeds are paid to or through the U.S. office of a
broker, they generally will be subject to information reporting
and backup withholding unless the Non-U.S. Holder certifies that
it is not a U.S. person under penalties of perjury or otherwise
establishes an exemption.
- If the proceeds are paid to or through a non-U.S. office of a
broker that is not a U.S. person and is not a foreign person with
certain specified U.S. connections (a "U.S. related person"),
they will not be subject to information reporting or backup
withholding.
- If the proceeds are paid to or through a non-U.S. office of a
broker that is a U.S. person or a U.S. related person, they
generally will be subject to information reporting (but not
backup withholding) unless the Non-U.S. Holder certifies that it
is not a U.S. person under penalties of perjury or otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder generally will be allowed as a refund or a credit against
such Non-U.S. Holder's U.S. federal income tax liability, provided that the
required procedures are followed.
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In addition to the foregoing, the amount of interest paid on or with
respect to the notes held by each Non-U.S. Holder during each calendar year and
the amount of tax, if any, withheld from such payments must be reported to such
Non-U.S. Holder and the IRS. Copies of the information returns reporting such
interest and withholding also may be made available by the IRS to the tax
authorities in the country in which a Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS
PARTICULAR CIRCUMSTANCES AND TAX SITUATION. A HOLDER SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff in no-action letters issued to
third parties, we believe that you may transfer new notes issued in the exchange
offer in exchange for old notes if:
- you acquire such new notes in the ordinary course of your
business, and
- you are not engaged in, and do not intend to engage in, and have
no arrangement or understanding with any person to participate
in, a distribution of new notes.
We believe that you may not transfer new notes issued in the exchange
offer in exchange for old notes if you are:
- our affiliate within the meaning of Rule 405 under the Securities
Act of 1933,
- a broker-dealer that acquired old notes directly from us or one
of our affiliates, or
- a broker-dealer that acquired old notes as a result of
market-making or other trading activities without compliance with
the registration and prospectus delivery provisions of the
Securities Act of 1933.
The information described above concerning interpretations of and
positions taken by the Staff is not intended to constitute legal advice, and
broker-dealers should consult their own legal advisors with respect to these
matters.
If you wish to exchange your old notes for new notes in the exchange
offer, you will be required to make representations to us as described in "The
Exchange Offer -- Your Representations to Us" and in the letter of transmittal.
In addition, if a broker-dealer receives new notes for its own account in
exchange for old notes that it acquired as a result of market-making activities
or other trading activities, it will be required to acknowledge that it will
deliver a prospectus in connection with any resale by it of such new notes. A
broker-dealer may use this prospectus, as we may amend or supplement it, in
connection with these resales. We have agreed that, for a period of 180 days
after the expiration of the exchange offer, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 200 , all dealers effecting
transactions in the new notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of the new notes by
broker-dealers. New notes that broker-dealers receive for their own account in
the exchange offer may be sold from time to time:
- in one or more transactions in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the new notes, or
- through a combination of such methods of resale,
62
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of new notes. Any broker-dealer that resells new
notes that it received for its own account in the exchange offer and any broker
or dealer that participates in a distribution of the new notes may be deemed to
be an "underwriter" within the meaning of the Securities Act of 1933, and any
profit on any such resale of new notes and any commission or concessions that
these persons receive may be deemed to be underwriting compensation under the
Securities Act of 1933. The letter of transmittal states that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
For a period of 180 days after the expiration of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the noteholders, other
than commissions or concessions of any brokers or dealers. We will indemnify the
noteholders, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act of 1933.
TRANSFER RESTRICTIONS
The offer and sale of old notes of each series were not registered
under the Securities Act of 1933. Accordingly, we offered and sold the old notes
only in private sales exempt from or not subject to the registration
requirements of the Securities Act of 1933:
- to qualified institutional buyers under Rule 144A under the
Securities Act of 1933, or
- to non-U.S. persons outside the United States in compliance with
Regulation S under the Securities Act of 1933.
You may not offer or sell those old notes in the United States or to,
or for the account or benefit of, U.S. persons except in transactions exempt
from or not subject to the registration requirements of the Securities Act of
1933.
LEGAL MATTERS
The validity of the new notes of each series will be passed upon for us
by Baker Botts L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of CenterPoint Energy and its
subsidiaries as of December 31, 2001 and 2002, and for each of the three years
in the period ended December 31, 2002 and the related financial statement
schedules, incorporated by reference in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports (which
reports express an unqualified opinion and includes explanatory paragraphs
referring to the distribution of Reliant Resources, Inc. and the change in
method of accounting for goodwill and certain intangible assets), which are
included in CenterPoint Energy's Current Report on Form 8-K filed November 7,
2003 that is incorporated herein by reference, and has been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the SEC. You may read and
copy any document we file with the SEC at the SEC's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
further information regarding the operation of the SEC's public reference room
by calling the SEC at 1-800-SEC-0330. Our filings are also available to the
public on the SEC's Internet site located at http://www.sec.gov.
We have obtained a no-action letter from the SEC which provides that we
will be treated as the successor of Reliant Energy, Incorporated for financial
reporting purposes under the Securities Exchange Act of 1934. We are
"incorporating by reference" into this prospectus information we file with the
SEC. This means we are disclosing important information to you by referring you
to the documents containing the information. The information we incorporate by
reference is considered to be part of this prospectus. Information that we file
later with the SEC that is deemed incorporated by reference into this prospectus
(but not information filed with or furnished to the SEC and not deemed
incorporated) will automatically update and supersede information previously
included.
We are incorporating by reference into this prospectus the documents
listed below and any subsequent filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (excluding
information deemed to be furnished and not filed with the SEC) until the date
the offering made in this prospectus terminates. The documents we incorporate by
reference are:
- our Annual Report on Form 10-K for the year ended December 31,
2002 (referred to in this prospectus as our "2002 Form 10-K"),
- Item 5 of our Current Report on Form 8-K filed January 7, 2003,
- Item 5 of our Current Report on Form 8-K filed February 13, 2003,
- our Current Report on Form 8-K filed March 3, 2003,
- our Current Reports on Form 8-K filed March 27, 2003,
- our Quarterly Report on Form 10-Q for the period ended March 31,
2003,
- our Current Report on Form 8-K filed April 23, 2003,
- Item 5 of our Current Report on Form 8-K filed April 24, 2003,
- Item 5 of our Current Report on Form 8-K filed May 1, 2003,
- our Current Report on Form 8-K filed May 12, 2003,
- our Current Report on Form 8-K filed May 16, 2003,
- our Current Report on Form 8-K filed May 30, 2003,
- our Current Report on Form 8-K filed June 3, 2003,
- our Current Reports on Form 8-K filed June 20, 2003,
- our Quarterly Report on Form 10-Q for the period ended June 30,
2003 (referred to in this prospectus as our "Second Quarter 2003
Form 10-Q"),
- Item 5 of our Current Report on Form 8-K filed July 29, 2003,
- Item 5 of our Current Report on Form 8-K filed September 3, 2003,
- our Current Reports on Form 8-K filed September 10, 2003,
- Item 5 of our Current Report on Form 8-K filed September 18,
2003,
64
- our Current Report on Form 8-K filed September 25, 2003,
- Item 5 of our Current Report on Form 8-K filed October 21, 2003,
- our Current Report on Form 8-K filed November 5, 2003, and
- our Current Report on Form 8-K filed November 7, 2003 (referred
to in this prospectus as our "November 7, 2003 Form 8-K").
Our November 7, 2003 Form 8-K contains the Selected Financial Data,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Financial Statements and Supplementary Data of CenterPoint Energy
from our May 12, 2003 Form 8-K with revisions for certain reclassifications and
other items.
You may also obtain a copy of our filings with the SEC at no cost by
writing to or telephoning us at the following address:
CenterPoint Energy, Inc.
Attn: Investor Services
P.O. Box 4567
Houston, Texas 77210-4567
(713) 207-3060
This prospectus is part of a registration statement that we have filed
with the SEC relating to the new notes. As permitted by SEC rules, this
prospectus does not contain all of the information included in the registration
statement and the accompanying exhibits and schedules we file with the SEC. You
should read the registration statement and the exhibits and schedules for more
information about us and the new notes.
65
$600,000,000
CENTERPOINT ENERGY, INC.
OFFER TO EXCHANGE
5.875% Senior Notes due 6.850% Senior Notes due 7.25% Senior Notes due
2008, Series B 2015, Series B 2010, Series B
for all outstanding for all outstanding for all outstanding
5.875% Senior Notes due 6.850% Senior Notes due 7.25% Senior Notes due
2008, Series A 2015, Series A 2010, Series A
PROSPECTUS
, 2003
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02.A.(16) and Article 2.02-1 of the Texas Business
Corporation Act and Article V of the Amended and Restated Bylaws of CenterPoint
Energy, Inc., a Texas corporation ("CenterPoint"), provide CenterPoint with
broad powers and authority to indemnify its directors and officers and to
purchase and maintain insurance for such purposes. Pursuant to such statutory
and Bylaw provisions, CenterPoint has purchased insurance against certain costs
of indemnification that may be incurred by it and by its officers and directors.
Additionally, Article IX of CenterPoint's Amended and Restated Articles
of Incorporation provides that a director of CenterPoint is not liable to
CenterPoint or its shareholders for monetary damages for any act or omission in
the director's capacity as director, except that Article IX does not eliminate
or limit the liability of a director for (i) any breach of such director's duty
of loyalty to CenterPoint or its shareholders, (ii) any act or omission not in
good faith that constitutes a breach of duty of such director to CenterPoint or
an act or omission that involves intentional misconduct or a knowing violation
of law, (iii) a transaction from which such director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office or (iv) an act or omission for which the
liability of a director is expressly provided for by statute.
Article IX also provides that any subsequent amendments to Texas
statutes that further limit the liability of directors will inure to the benefit
of the directors, without any further action by shareholders. Any repeal or
modification of Article IX shall not adversely affect any right of protection of
a director of CenterPoint existing at the time of the repeal or modification.
See "Item 22. Undertakings" for a description of Securities and
Exchange Commission's, or the SEC's, position regarding such indemnification
provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
INDEX TO EXHIBITS
REPORT OR SEC FILE OR
EXHIBIT REGISTRATION REGISTRATION EXHIBIT
NUMBER DOCUMENT DESCRIPTION STATEMENT STATEMENT REFERENCE
------- -------------------------------- ---------------------------------- ------------ ---------
3.1 Amended and Restated Articles of Registration Statement on Form S-4 333-69502 3.1
Incorporation of CenterPoint of CenterPoint Energy, Inc.
Energy, Inc.
3.1.1 Articles of Amendment to the Form 10-K of CenterPoint Energy, 1-31447 3.1.1
Amended and Restated Articles of Inc. for the year ended December 31,
Incorporation of CenterPoint 2001
Energy, Inc.
3.2 Amended and Restated Bylaws of Form 10-K of CenterPoint Energy, 1-31447 3.2
CenterPoint Energy, Inc. Inc. for the year ended December 31,
2001
4.1 Indenture, dated as of May 19, Current Report on Form 8-K of 1-31447 4.1
2003, between CenterPoint Energy, CenterPoint Energy, Inc. filed June
Inc. and JPMorgan Chase Bank as 3, 2003
trustee (the "Trustee")
II-1
4.2 Supplemental Indenture No. 2, Current Report on Form 8-K of 1-31447 4.2
dated as of May 27, 2003, between CenterPoint Energy, Inc. filed June
CenterPoint Energy, Inc. and the 3, 2003
Trustee, with respect to
$200,000,000 aggregate principal
amount of 5.875% Senior Notes due
2008 and $200,000,000 aggregate
principal amount of 6.850% Senior
Notes due 2015 (including the form
of Note)
4.3 Supplemental Indenture No. 3 dated Current Report on Form 8-K of 1-31447 4.2
as of September 9, 2003, between CenterPoint Energy, Inc. filed
CenterPoint Energy, Inc. and the September 10, 2003
Trustee, with respect to
$200,000,000 aggregate principal
amount of 7.25% Senior Notes due
2010 (including the form of Note)
4.4 Registration Rights Agreement, Form 10-Q of CenterPoint Energy, 1-31447 4.5.5
dated as of May 27, 2003, among Inc. for the quarter ended June 30,
CenterPoint Energy, Inc., 2003
Citigroup Global Markets Inc.,
Deutsche Bank Securities Inc. and
Wachovia Securities, Inc., as
representatives of the initial
purchasers
4.5 Registration Rights Agreement,
dated as of September 9, 2003,
among CenterPoint Energy, Inc.,
Bank of America Securities LLC,
Deutsche Bank Securities Inc. and
Wachovia Capital Markets, LLC, as
representatives of the initial
purchasers
5.1* Opinion of Baker Botts L.L.P.
12.1 Statement Regarding Computation
of Ratios of Earnings to Fixed
Charges for the twelve-month
periods ended December 31, 2002 and
the six-month periods ended June
30, 2002 and 2003
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Baker Botts L.L.P.
(contained in Exhibit 5.1)
24.1 Power of Attorney (included on the
signature page of the Registration
Statement)
II-2
25.1 Statement of Eligibility and
Qualifications under the Trust
Indenture Act of 1939, as amended,
of JPMorgan Chase Bank, as trustee
under the Indenture
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed
Delivery
99.3 Form of Letter to Depository
Trust Company Participants
99.4 Form of Letter to Clients
--------------------------------------
* To be filed by amendment
(b) Financial Statement Schedules
Not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended
(the "Securities Act");
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
II-3
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless, in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
the State of Texas, on November 7, 2003.
CENTERPOINT ENERGY, INC.
By: /s/ David M. McClanahan
-------------------------------------
David M. McClanahan
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David M. McClanahan, Scott E. Rozzell and
Rufus S. Scott, and each of them severally, his true and lawful attorney or
attorneys-in-fact and agents, with full power to act with or without the others
and with full power of substitution and resubstitution, to execute in his name,
place and stead, in any and all capacities, any or all amendments (including
pre-effective and post-effective amendments) to this Registration Statement and
any registration statement for the same offering filed pursuant to Rule 462
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents and each of
them full power and authority, to do and perform in the name and on behalf of
the undersigned, in any and all capacities, each and every act and thing
necessary or desirable to be done in and about the premises, to all intents and
purposes and as fully as they might or could do in person, hereby ratifying,
approving and confirming all that said attorneys-in-fact and agents or their
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David M. McClanahan President, November 7, 2003
-------------------------------------- Chief Executive Officer and Director
David M. McClanahan (Principal Executive Officer)
/s/ Gary L. Whitlock Executive Vice President November 7, 2003
-------------------------------------- and Chief Financial Officer
Gary L. Whitlock (Principal Financial Officer)
/s/ James S. Brian Senior Vice President and November 7, 2003
-------------------------------------- Chief Accounting Officer
James S. Brian (Principal Accounting Officer)
/s/ Milton Carroll Director November 7, 2003
--------------------------------------
Milton Carroll
/s/ Derrill Cody Director November 7, 2003
--------------------------------------
Derrill Cody
II-5
/s/ John T. Cater Director November 7, 2003
--------------------------------------
John T. Cater
/s/ O. Holcombe Crosswell Director November 7, 2003
--------------------------------------
O. Holcombe Crosswell
/s/ Thomas F. Madison Director November 7, 2003
--------------------------------------
Thomas F. Madison
/s/ Michael E. Shannon Director November 7 , 2003
--------------------------------------
Michael E. Shannon
II-6
INDEX TO EXHIBITS
REPORT OR SEC FILE OR
EXHIBIT REGISTRATION REGISTRATION EXHIBIT
NUMBER DOCUMENT DESCRIPTION STATEMENT STATEMENT REFERENCE
------- -------------------------------- ---------------------------------- ------------ ---------
3.1 Amended and Restated Articles of Registration Statement on Form S-4 333-69502 3.1
Incorporation of CenterPoint of CenterPoint Energy, Inc.
Energy, Inc.
3.1.1 Articles of Amendment to the Form 10-K of CenterPoint Energy, 1-31447 3.1.1
Amended and Restated Articles of Inc. for the year ended December 31,
Incorporation of CenterPoint 2001
Energy, Inc.
3.2 Amended and Restated Bylaws of Form 10-K of CenterPoint Energy, 1-31447 3.2
CenterPoint Energy, Inc. Inc. for the year ended December 31,
2001
4.1 Indenture, dated as of May 19, Current Report on Form 8-K of 1-31447 4.1
2003, between CenterPoint Energy, CenterPoint Energy, Inc. filed June
Inc. and JPMorgan Chase Bank as 3, 2003
trustee (the "Trustee")
4.2 Supplemental Indenture No. 2, Current Report on Form 8-K of 1-31447 4.2
dated as of May 27, 2003, between CenterPoint Energy, Inc. filed June
CenterPoint Energy, Inc. and the 3, 2003
Trustee, with respect to
$200,000,000 aggregate principal
amount of 5.875% Senior Notes due
2008 and $200,000,000 aggregate
principal amount of 6.850% Senior
Notes due 2015 (including the form
of Note)
4.3 Supplemental Indenture No. 3 dated Current Report on Form 8-K of 1-31447 4.2
as of September 9, 2003, between CenterPoint Energy, Inc. filed
CenterPoint Energy, Inc. and the September 10, 2003
Trustee, with respect to
$200,000,000 aggregate principal
amount of 7.25% Senior Notes due
2010 (including the form of Note)
4.4 Registration Rights Agreement, Form 10-Q of CenterPoint Energy, 1-31447 4.5.5
dated as of May 27, 2003, among Inc. for the quarter ended June 30,
CenterPoint Energy, Inc., 2003
Citigroup Global Markets Inc.,
Deutsche Bank Securities Inc. and
Wachovia Securities, Inc., as
representatives of the initial
purchasers
4.5 Registration Rights Agreement,
dated as of September 9, 2003,
among CenterPoint Energy, Inc.,
Bank of America Securities LLC,
Deutsche Bank Securities Inc. and
Wachovia Capital Markets, LLC, as
representatives of the initial
purchasers
5.1* Opinion of Baker Botts L.L.P.
12.1 Statement Regarding Computation
of Ratios of Earnings to Fixed
Charges for the twelve-month
periods ended December 31, 2002 and
the six-month periods ended June
30, 2002 and 2003
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Baker Botts L.L.P.
(contained in Exhibit 5.1)
24.1 Power of Attorney (included on the
signature page of the Registration
Statement)
25.1 Statement of Eligibility and
Qualifications under the Trust
Indenture Act of 1939, as amended,
of JPMorgan Chase Bank, as trustee
under the Indenture
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed
Delivery
99.3 Form of Letter to Depository
Trust Company Participants
99.4 Form of Letter to Clients
----------------------------
* To be filed by amendment.