Filed Pursuant to Rule 424(b)(3)
Registration No. 333-123182
PROSPECTUS
[CENTERPOINT ENERGY LOGO]
CENTERPOINT ENERGY, INC.
OFFER TO EXCHANGE
3.75% CONVERTIBLE SENIOR NOTES, SERIES B DUE 2023 AND AN EXCHANGE FEE
FOR ALL OUR OUTSTANDING
3.75% CONVERTIBLE SENIOR NOTES DUE 2023
THE EXCHANGE OFFER:
We are offering to exchange, upon the terms and subject to the conditions set
forth in this prospectus and the accompanying letter of transmittal, all of our
outstanding 3.75% Convertible Senior Notes due 2023, which we refer to as the
old notes, for our 3.75% Convertible Senior Notes, Series B due 2023, which we
refer to as the new notes, and an exchange fee. We are conducting the exchange
offer in response to the guidance set forth in the newly adopted Emerging Issues
Task Force Issue No. 04-8, "The Effect of Contingently Convertible Instruments
on Diluted Earnings per Share." Under that guidance, exchanging old notes for
new notes will allow us to exclude the portion of the conversion value of the
new notes attributable to their principal amount from our computation of diluted
earnings per share. To the extent old notes are not exchanged, that guidance
will require us to reflect the entire conversion value of those notes in our
computation of diluted earnings per share, which will result in lower diluted
earnings per share than would be the case if old notes are exchanged for the new
notes.
- Upon our completion of the exchange offer, each $1,000
principal amount of old notes that is validly tendered and not
validly withdrawn will be exchanged for $1,000 principal
amount of new notes and an exchange fee of $1.50. Tenders of
old notes may be withdrawn at any time before 5:00 p.m., New
York City time, on the expiration date of the exchange offer.
- As explained more fully in this prospectus the exchange offer
is subject to customary conditions, some of which we may
waive.
- The exchange offer expires at 5:00 p.m., New York City time,
on August 17, 2005, which we refer to as the expiration date,
unless extended.
THE NEW NOTES:
The terms of the new notes are substantially identical to the old notes, except
for the following modifications:
- Net Share Settlement Upon Conversion. The new notes will
require us to settle all conversions for a combination of cash
and shares, if any, in lieu of only shares. We will pay cash
equal to the lesser of the principal amount of the new notes
and their conversion value. To the extent the conversion value
exceeds the principal amount of the new notes, we may, at our
option, deliver cash, shares of our common stock, or a
combination of cash and shares, equal to such excess amount.
- Adjustment to Conversion Rate Upon Certain Change of Control
Events. The new notes will provide for an increase in the
conversion rate for holders who convert the new notes upon the
occurrence of certain change of control events unless the
acquirer'S common stock is traded on a U.S. national
securities exchange or on the Nasdaq National Market, in which
case, at
our option, the new notes may instead become contingently
convertible into the common stock of the public acquirer,
subject to the net settlement provisions described in this
prospectus.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 13 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 THIS TRANSACTION,
PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Exclusive Dealer Manager:
BANC OF AMERICA SECURITIES LLC
The date of this exchange offer prospectus is July 19, 2005.
TABLE OF CONTENTS
You should only rely on the information contained or incorporated by
reference in this prospectus. Neither we nor the dealer manager has authorized
any other person to provide different or additional information. If anyone
provides you with different or additional information, you should not rely on
it. We are not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the cover page or that any information contained in any document we have
incorporated by reference is accurate as of any date other than the date of the
document incorporated by reference. Our business, financial condition, results
of operations and prospects may have changed since such dates.
Summary............................................................... 1
Risk Factors.......................................................... 13
Summary Consolidated Financial Data................................... 23
Price Range and Dividend History of Our Common Stock.................. 26
The Exchange Offer.................................................... 28
Description of the New Notes.......................................... 35
Description of Capital Stock.......................................... 60
Material United States Federal Income Tax Consequences................ 67
Legal Matters......................................................... 73
Experts............................................................... 73
Where You Can Find More Information................................... 73
Cautionary Statement Regarding Forward-Looking Information............ 75
This prospectus incorporates important business and financial information
about us from other documents that are not included in or delivered with this
prospectus. See "Where You Can Find More Information." The information is
available to you without charge upon your request. You can obtain the documents
incorporated by reference in this prospectus by requesting them in writing or by
telephone from us at the following address and telephone number:
CenterPoint Energy, Inc.
Attn: Investor Relations
P.O. Box 4567
Houston, Texas 77210-4567
(713) 207-6500
To ensure timely delivery of any of our filings, agreements or other documents,
you must make your request to us no later than August 12, 2005, which is five
days before the exchange offer will expire at 5:00 p.m., New York City time, on
August 17, 2005.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus
or incorporated by reference. This summary does not contain all the information
that you should consider before making your decision whether to tender your old
notes for exchange. You should read carefully the entire prospectus and the
documents incorporated by reference.
Unless the context requires otherwise, the terms "CenterPoint Energy,"
"our company," "we," "our," "ours" and "us" refer to CenterPoint Energy, Inc. We
refer to our 3.75% Convertible Senior Notes due 2023 as the "old notes." We
refer to our 3.75% Convertible Senior Notes, Series B due 2023 offered by this
prospectus as the "new notes." We sometimes refer to the old notes and the new
notes collectively as the "notes."
OUR COMPANY
We are a public utility holding company whose indirect wholly owned
subsidiaries include:
- CenterPoint Energy Houston Electric, LLC ("CenterPoint
Houston"), which provides electric transmission and
distribution services to retail electric providers serving
approximately 1.8 million metered customers in a
5,000-square-mile area of the Texas Gulf Coast that has a
population of approximately 4.7 million people and includes
Houston, and
- CenterPoint Energy Resources Corp. ("CERC"), which owns gas
distribution systems serving approximately 3 million customers
in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and
Texas. Through wholly owned subsidiaries, CERC also owns two
interstate natural gas pipelines and gas gathering systems,
provides various ancillary services, and offers variable and
fixed price physical natural gas supplies to commercial and
industrial customers and natural gas distributors.
On April 13, 2005, we completed the sale of our nuclear generation assets,
consisting of a 30.8% undivided interest in the South Texas Project Electric
Generating Station, to Texas Genco LLC (formerly known as GC Power Acquisition
LLC). The sale was effected through the merger of our wholly owned subsidiary,
Texas Genco Holdings, Inc. ("Texas Genco"), with a wholly owned subsidiary of
Texas Genco LLC. The merger was the second and final step of the transaction
announced in July 2004 in which Texas Genco LLC, an entity owned by affiliates
of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co.
L.P. and Texas Pacific Group, agreed to acquire Texas Genco. The first step of
the transaction was completed on December 15, 2004 when Texas Genco LLC acquired
the fossil generation assets (coal, lignite and gas-fired plants) of Texas
Genco.
We are a registered public utility holding company under the Public
Utility Holding Company Act of 1935, as amended (the "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 regulated subsidiaries 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.
Our principal executive offices are located at 1111 Louisiana, Houston,
Texas 77002 (telephone number: 713-207-1111).
TRUE-UP PROCEEDING
Pursuant to the Texas Electric Choice Plan (the "Texas electric
restructuring law"), CenterPoint Houston is permitted to recover certain costs
associated with the transition to competitive retail electric markets in Texas.
The amount of costs recoverable was determined in a true-up proceeding before
the Public Utility Commission of Texas (the "Texas Utility Commission").
CenterPoint Houston's requested true-up balance was $3.7 billion, excluding
interest and net of the retail clawback payable to CenterPoint Houston by a
former affiliate. In December 2004, the Texas Utility Commission approved a
final order in CenterPoint Houston's true-up proceeding authorizing CenterPoint
Houston to recover $2.3 billion including interest through August 31, 2004,
subject to adjustments to reflect accrual of interest on the balance until
recovery, the principal portion of additional excess mitigation credits
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returned to customers after August 31, 2004 and certain other matters. In
January 2005, we appealed certain aspects of the final order seeking to increase
the true-up balance ultimately recovered by CenterPoint Houston. Other parties
have also appealed the order, seeking to reduce the amount authorized for
CenterPoint Houston's recovery. Although we believe we have meritorious
arguments and that the other parties' appeals are without merit, no prediction
can be made as to the ultimate outcome or timing of such appeals.
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THE EXCHANGE OFFER
We have summarized the terms of the exchange offer in this section. Before
you decide whether to tender your old notes in the offer, you should read the
detailed description of the offer under "The Exchange Offer" for further
information.
PURPOSE OF THE EXCHANGE OFFER We are offering to exchange old notes for new
notes with different terms in response to
Emerging Issues Task Force Issue No. 04-8, "The
Effect of Contingently Convertible Instruments
on Diluted Earnings per Share," which is
effective for periods ending after December 15,
2004. EITF No. 04-8 requires that the
calculation of diluted earnings per share
reflect shares issuable under contingently
convertible debt regardless of whether the
contingent feature has been met. The net share
settlement feature of the new notes allows us to
satisfy our obligation due upon conversion to
holders of the new notes by paying cash for all
or a portion of the conversion obligation.
Consequently, the new notes will result in fewer
shares included in the calculation of diluted
earnings per share on a going-forward basis
under EITF No. 04-8 since exercise of the
conversion feature would result in a payment of
cash, rather than shares, for the principal
amount of the new notes. By exchanging old notes
for new notes, we will be able to report a
higher diluted earnings per share on a
going-forward basis than if we had not conducted
the exchange offer. The impact of EITF No. 04-8
on our reported diluted earnings per share from
continuing operations for the three months ended
March 31, 2005 and the year ended December 31,
2004 was $0.02 per share and $0.05 per share,
respectively. For a summary description of the
material differences between the old notes and
the new notes, see "Material Differences between
the Old Notes and the New Notes."
THE EXCHANGE OFFER AND We are offering to exchange $1,000 principal
EXCHANGE FEE amount of new notes and an exchange fee of $1.50
for each $1,000 principal amount of old notes
accepted for exchange. You may tender all, some
or none of your old notes. If all the old notes
are tendered, the total amount of the exchange
fee paid would be $862,500.
We expect to incur borrowings of approximately
$1.7 million under our $1 billion revolving
credit facility to fund the payment of the
exchange fee and other fees and expenses in
connection with the exchange offer. Borrowings
may be made under our revolving credit facility
at LIBOR plus 100 basis points based on current
credit ratings and are available upon customary
terms and conditions for facilities of this
type. An additional utilization fee of 12.5
basis points applies to borrowings any time more
than 50% of the facility is utilized. As of
May 31, 2005, borrowings of $247 million were
outstanding under the revolving credit facility.
Changes in credit ratings would lower or raise
the increment to LIBOR depending on whether
ratings improved or were lowered. We have no
current plan to reduce the amounts borrowed
under our revolving credit facility. The
facility matures in March 2010.
DECIDING WHETHER TO We, our officers and directors, the dealer
PARTICIPATE IN THE EXCHANGE manager, the information agent, the exchange
OFFER agent and the trustee do not make any
recommendation as to whether you should tender
or refrain from tendering all or any portion of
your old notes in the exchange offer. You must
make your own decision whether to tender your
old notes in the exchange offer and, if so, the
aggregate amount of old notes to
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tender. You should read this prospectus and the
letter of transmittal and consult with your
advisors, if any, to make that decision based on
your own financial position and requirements.
CONDITIONS TO THE EXCHANGE The exchange offer is subject to certain
OFFER customary conditions, which we may waive, and to
the condition that the registration statement
and any post-effective amendment to the
registration statement covering the new notes be
effective under the Securities Act of 1933, as
amended (the "1933 Act"). See "The Exchange
Offer -- Conditions to the Exchange Offer."
EXPIRATION DATE; EXTENSION AND The exchange offer will expire at 5:00 p.m., New
AMENDMENT York City time, on August 17, 2005, which we
refer to as the expiration date, unless extended
or earlier terminated by us. We may extend the
expiration date for any reason. If we decide to
extend the expiration date, we will announce any
extensions by press release or other permitted
means no later than 9:00 a.m. on the next
business day after the previously scheduled
expiration of the exchange offer.
We reserve the right to interpret, modify or
amend any of the terms of this exchange offer,
provided that we will comply with applicable
laws that require us to extend the period during
which securities may be tendered or withdrawn as
a result of changes in the terms of or
information relating to the exchange offer.
WITHDRAWAL OF TENDERS You may withdraw a tender of your old notes at
any time before the exchange offer expires by
delivering a written notice of withdrawal to
JPMorgan Chase Bank, National Association, the
exchange agent, before the expiration date. If
you change your mind, you may retender your old
notes by again following the exchange offer
procedures before the exchange offer expires. In
addition, if we have not accepted your tendered
old notes for exchange, you may withdraw your
old notes at any time after September 13, 2005.
PROCEDURES FOR EXCHANGE In order to exchange old notes, you must tender
the old notes together with a properly completed
letter of transmittal and the other agreements
and documents described in the letter of
transmittal.
If you own old notes held through a broker or
other third party, or in "street name," you will
need to follow the instructions in the letter of
transmittal on how to instruct them to tender
the old notes on your behalf, as well as submit
a letter of transmittal and the other agreements
and documents described in this document. We
will determine in our reasonable discretion
whether old notes have been validly tendered.
Old notes may be tendered by electronic
transmission of acceptance through The
Depository Trust Company's, or DTC's, Automated
Tender Offer Program ("ATOP") procedures for
transfer or by delivery of a signed letter of
transmittal pursuant to the instructions
described in the letter of transmittal.
Custodial entities that are participants in
DTC's ATOP must tender old notes through DTC's
ATOP, by which the custodial entity and the
beneficial owner on whose behalf the custodial
entity is acting agree to be bound by the letter
of transmittal. A letter of transmittal need not
accompany tenders effected through ATOP. If you
hold old notes through a custodian, you may also
comply with the procedures for guaranteed
delivery. Please carefully follow
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the instructions contained in this document on
how to tender your securities.
Please see pages 28 through 34 for instructions
on how to exchange your old notes.
ACCEPTANCE OF OLD NOTES We intend to accept all old notes validly
tendered and not withdrawn as of the expiration
of the exchange offer and will issue the new
notes and pay the exchange fee promptly after
expiration of the exchange offer, upon the terms
and subject to the conditions in this prospectus
and the letter of transmittal. We will accept
old notes for exchange after the exchange agent
has received a timely book-entry confirmation of
transfer of old notes into the exchange agent's
DTC account and, if the old notes have not been
tendered through the ATOP procedures, a properly
completed and executed letter of transmittal.
Our oral (promptly confirmed in writing) or
written notice of acceptance to the exchange
agent will be considered our acceptance of
validly tendered old notes.
OLD NOTES NOT ACCEPTED OR We reserve the right not to accept any of the
TENDERED FOR EXCHANGE old notes tendered. Any old notes not accepted
for exchange for any reason will be returned
without expense to you promptly after the
expiration or termination of this exchange
offer. If you do not exchange your old notes in
this exchange offer, or if your old notes are
not accepted for exchange, you will continue to
hold your old notes, you will not receive the
exchange fee and you will be entitled to all the
rights and subject to all the limitations
applicable to the old notes.
ACCRUED INTEREST ON THE OLD Interest on the new notes will accrue from the
NOTES last interest payment date on which interest was
paid on the old notes. Holders whose old notes
are accepted for exchange will be deemed to have
waived the right to receive any interest accrued
on the old notes.
RISK FACTORS You should carefully consider the matters
described under "Risk Factors," as well as other
information set forth or incorporated by
reference in this prospectus and in the letter
of transmittal.
CONSEQUENCES OF NOT The liquidity and trading market for old notes
EXCHANGING OLD NOTES not tendered in the exchange offer could be
adversely affected to the extent a significant
number of the old notes are tendered and
accepted in the exchange offer. Holders who do
not exchange their old notes for new notes will
not receive the exchange fee.
TAX CONSEQUENCES The United States federal income tax
consequences of the exchange offer are unclear.
Although there is no authority directly on
point, Baker Botts L.L.P., our tax counsel, is
of the opinion that the exchange should not
result in a taxable exchange. Accordingly, we
intend to take the position that the exchange
will not result in a taxable exchange. If the
exchange of old notes for new notes constitutes
a taxable exchange, you could incur significant
adverse tax consequences on the exchange.
See "Material United States Federal Income Tax
Consequences" for a summary of certain United
States federal income tax consequences that may
result from the exchange of old notes for new
notes.
5
USE OF PROCEEDS We will not receive any cash proceeds from this
exchange offer. Old notes that are validly
tendered and exchanged for new notes pursuant to
the exchange offer will be canceled.
DEALER MANAGER Banc of America Securities LLC is the dealer
manager for this exchange offer. Its address and
telephone numbers are located on the back cover
of this prospectus.
EXCHANGE AGENT JPMorgan Chase Bank, National Association is the
exchange agent for this exchange offer. Its
address and telephone number are located on the
back cover of this prospectus.
INFORMATION AGENT MacKenzie Partners, Inc. is the information
agent for this exchange offer. Its address and
telephone numbers are located on the back cover
of this prospectus.
6
MATERIAL DIFFERENCES BETWEEN THE OLD NOTES AND NEW NOTES
A summary of the material differences between the old notes and new notes
is set forth in the table below. The table below is qualified in its entirety by
the information contained in this prospectus and the documents governing the old
notes and the new notes, copies of which have been filed as exhibits to the
registration statement of which this prospectus forms a part. For a more
detailed description of the new notes, see "Description of the New Notes."
OLD NOTES NEW NOTES
------------------------------ ---------------------------------
NET SHARE SETTLEMENT UPON CONVERSION Upon conversion of old notes, Each new note generally will be
we will deliver a specified convertible into cash and, if
number of shares of our common applicable, shares of our common
stock (other than cash stock. The value of the cash and
payments for fractional shares to be received upon
shares). conversion of each $1,000
principal amount of new notes is
referred to as the "conversion
value" and equals the product of
(1) the applicable conversion
rate and (2) the average of the
closing price of our common stock
for the ten consecutive trading
days beginning on the second
trading day immediately following
the day the notes are submitted
for conversion.
Upon conversion of the new notes,
we will deliver:
- an amount in cash, referred to
as the "principal return," equal
to the lesser of (a) the aggregate
conversion value of the notes to
be converted and (b) the aggregate
principal amount of the notes to
be converted;
- if the aggregate conversion
value of the new notes to be
converted is greater than the
principal return, an amount equal
to such aggregate conversion
value less the principal return,
referred to as the "net share
amount," at our option, in whole
shares, referred to as the "net
shares," in cash or in a combination of
whole shares and cash; and
- an amount in cash in lieu of
any fractional shares of common
stock.
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OLD NOTES NEW NOTES
--------- ---------------------------------
For more information regarding
our cash payment obligation upon
a conversion of the new notes,
see "Risk Factors - Risk Factors
Related to the New Notes - We may
not have the funds necessary to
purchase the new notes at the
option of the holders or make the
required cash payments upon
conversion of the new notes."
ADJUSTMENT TO CONVERSION RATE UPON None. If you elect to convert your new
CERTAIN CHANGE OF CONTROL EVENTS notes in connection with certain
change of control events, we will
increase the conversion rate for
the new notes surrendered for
conversion by a number of additional
shares as described in "Description
of the New Notes - Adjustment to
Conversion Rate Upon Certain
Fundamental Changes."
If the acquirer is a public
acquirer (as described in
"Description of the New Notes -
Conversion Rights Adjustment to
Conversion Rate Upon Certain
Fundamental Changes --
Conversion Upon a Public Acquirer
Change of Control"), at our
option, the new notes may instead
become contingently convertible
into the common stock of the
public company acquirer, subject
to the net settlement provisions
described in "Description of the
New Notes - Conversion Rights -
Net Share Settlement Upon
Conversion."
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THE NEW NOTES
NEW NOTES Up to $575,000,000 aggregate principal amount of 3.75%
Convertible Senior Notes, Series B Due 2023.
MATURITY DATE May 15, 2023.
INTEREST 3.75% per annum on the principal amount, payable
semi-annually in arrears on each May 15 and November
15. Interest will accrue on the new notes from the last
date on which interest was paid on the old notes. We
will also pay contingent interest on the new notes
under the circumstances described in this prospectus.
RANKING The new notes will be unsecured and will rank equally
in right of payment with all of CenterPoint Energy's
other existing and future unsecured and unsubordinated
indebtedness. The new notes will not have the benefit
of collateral granted to all CenterPoint Energy's
existing secured debt and are effectively subordinated
to existing and future indebtedness and other
liabilities of CenterPoint Energy's subsidiaries. As
discussed in "Description of the New Notes -- General,"
as of May 31, 2005, CenterPoint Energy, on an
unconsolidated basis, had approximately $3.7
billion aggregate principal amount of outstanding
indebtedness, including approximately $678 million
secured by mortgage bonds of CenterPoint Houston.
CONTINGENT INTEREST We will make additional payments of interest, referred
to in this prospectus as "contingent interest," during
any six-month period from May 15 to November 14 or from
November 15 to May 14 commencing on or after May 15,
2008 for which the average trading price of the new
notes for the applicable five trading day reference
period equals or exceeds 120% of the principal amount
of the new notes as of the day immediately preceding
the first day of the applicable six-month interest
period. The amount of contingent interest payable per
note in respect of any six-month period will be equal
to 0.25% of the average trading price, as described in
this prospectus, of a new note for the applicable five
trading day reference period. The five trading day
reference period means the five trading days ending on
the second trading day immediately preceding the
relevant six-month interest period. For more
information about contingent interest, see "Description
of the New Notes -- Contingent Interest."
CONVERSION RIGHTS Holders may convert their new notes under any of the
following circumstances:
(1) during any calendar quarter (and only during such
calendar quarter) if the last reported sale price of
our common stock for at least 20 trading days during
the period of 30 consecutive trading days ending on the
last trading day of the previous calendar quarter, is
greater than or equal to 120% or, following May 15,
2008, 110% of the conversion price per share of our
common stock on such last trading day, or
(2) if the new notes have been called for redemption,
or
(3) upon the occurrence of specified corporate
transactions described under "Description of the New
Notes -- Conversion Rights -- Conversion
9
Upon Specified Corporate Transactions," or
(4) during any period in which the credit ratings
assigned to the new notes by both Moody's and S&P are
lower than Ba2 and BB, respectively, or the new notes
are no longer rated by at least one of these ratings
services or their successors.
In most cases, settlement upon conversion will be in
cash, and, if applicable, shares of our stock, as
summarized above in " -- Material Differences Between
the Old Notes and New Notes." For a more detailed
description of the settlement upon conversion process,
see "Description of the New Notes -- Conversion Rights
-- Net Share Settlement Upon Conversion."
Subject to the conditions described in this prospectus,
holders may convert each of their new notes at an
initial conversion rate of 86.3558 shares of common
stock per $1,000 principal amount of new notes
(equivalent to an initial conversion price of $11.58
per share of common stock). The settlement value will
be paid in cash, shares of our common stock, or a
combination of cash and shares. As described in this
prospectus, the conversion rate may be adjusted for
certain reasons, but it will not be adjusted for
accrued and unpaid interest. Except as otherwise
described in this prospectus, you will not receive any
payment representing accrued and unpaid interest on
conversion of a new note. New notes called for
redemption may be surrendered for conversion prior to
the close of business on the second business day
immediately preceding the redemption date.
OPTIONAL REDEMPTION Prior to May 15, 2008, the new notes will not be
redeemable. On or after May 15, 2008, we may redeem for
cash all or part of the new notes at any time, upon no
less than 30 and no more than 60 days' notice before
the redemption date by mail to the trustee under the
indenture relating to the new notes, the paying agent
and each holder of new notes, for a price equal to 100%
of the principal amount of the new notes to be redeemed
plus any accrued and unpaid interest, including
contingent interest, if any, to the redemption date.
See "Description of the New Notes -- Optional
Redemption."
PURCHASE OF NEW Holders will have the right to require us to purchase
NOTES BY US AT THE all or any portion of the new notes for cash on May 15,
OPTION OF THE HOLDER 2008, May 15, 2013 and May 15, 2018. In each case, we
will pay a purchase price equal to 100% of the
principal amount of the new notes to be purchased plus
any accrued and unpaid interest, including contingent
interest, if any, to such purchase date. See
"Description of the New Notes -- Purchase of New Notes
by Us at the Option of the Holder."
ADJUSTMENT TO The new notes contain a provision designed to afford
CONVERSION RATE UPON certain change of control protection for the holders,
CERTAIN CHANGE OF which is summarized above in " -- Material Differences
CONTROL EVENTS between the Old Notes and New Notes." For a more
detailed description of the adjustment provision, see
"Description of the New Notes -- Conversion Rights --
Adjustment to the Conversion Rate Upon Certain
Fundamental Changes."
FUNDAMENTAL CHANGE If we undergo a Fundamental Change (as defined under
"Description of the New Notes -- Fundamental Change
Requires Purchase of New Notes by Us at the Option of
the Holder") prior to May 15, 2008, holders will
10
have the right, at their option, to require us to
purchase any or all of their new notes for cash, or any
portion of the principal amount thereof that is equal
to $1,000 or an integral multiple of $1,000. The cash
price we are required to pay is equal to 100% of the
principal amount of the new notes to be purchased plus
accrued and unpaid interest, including contingent
interest, if any, to the Fundamental Change purchase
date. See "Description of the New Notes -- Fundamental
Change Requires Purchase of New Notes by Us at the
Option of the Holder."
UNITED STATES FEDERAL The United States federal income tax consequences of
INCOME TAX the exchange offer are unclear. Although there is no
CONSEQUENCES authority directly on point, our tax counsel, Baker
Botts L.L.P., is of the opinion that the exchange
should not result in a taxable exchange. Accordingly,
we intend to take the position that the exchange will
not result in a taxable exchange. If the exchange does
not constitute a taxable exchange, then, apart from the
treatment of the exchange fee, which generally will be
taxable as ordinary income, the material United States
federal income tax consequences to holders of the new
notes will be as described in the prospectus relating
to the old notes. As such, holders of the new notes
will continue to be subject to the contingent payment
debt instrument regulations. Among other things,
pursuant to those regulations, a holder of the new
notes is required to accrue interest income on the new
notes, in the amounts described in the prospectus
relating to the old notes, regardless of whether the
holder uses the cash or accrual method of tax
accounting. Pursuant to the terms of the indenture
relating to the new notes, holders will be deemed to
have agreed to treat the new notes as debt subject to
the contingent payment debt instrument regulations, and
to continue to accrue interest on the new notes in the
same manner and amounts as on the old notes. If the
exchange of old notes for new notes constitutes a
taxable exchange, you could incur significant adverse
tax consequences on the exchange. A discussion of
material United States federal income tax consequences
that may result from the ownership of the new notes is
set forth in this prospectus under the heading
"Material United States Federal Income Tax
Consequences." Owners of the new notes should consult
their tax advisors as to the United States federal,
state, local or other tax consequences of acquiring,
owning and disposing of the new notes and our common
stock.
GOVERNING LAW The indenture and the new notes will be governed by,
and construed in accordance with, the laws of the State
of New York.
GLOBAL SECURITIES The new notes initially will be issued in book-entry
form, and will be represented by permanent global
securities deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the
name of the DTC. Beneficial interests in any of the new
notes will be shown on, and transfers will be effected
only through, records maintained by the DTC or its
nominee and any such interest may not be exchanged for
certificated securities, except in limited
circumstances.
LISTING We do not intend to list the new notes on any national
securities exchange or automatic quotation system.
11
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 Item 503(d) of Regulation
S-K promulgated under the 1933 Act and the 1934 Act. Earnings from continuing
operations in 2002 and 2003 include $697 million and $661 million, respectively,
of non-cash excess cost over market ("ECOM") true-up.
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------- ---------------
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
Ratio of earnings from continuing
operations to fixed charges (1)...... 1.39 1.99 2.03 1.81 1.43 1.69
(1) We do not believe that the ratio for the three-month period is
necessarily indicative of the ratio for the twelve-month period due to
the seasonal nature of our business.
12
RISK FACTORS
You, and your financial and legal advisors, if any, should consider
carefully the following risk factors and other information included in this
prospectus and the documents we have incorporated by reference into this
prospectus before tendering any old notes in the exchange offer. Some of these
risks are shared with any investor in our securities while others are related to
the nature of the new notes themselves or to the exchange offer. Our business
and financial condition could be seriously harmed by any of these risks. In
addition, the trading price of our new notes and common stock could decline due
to the occurrence of any of such events, and you may lose all or part of your
investment.
RISK FACTORS RELATING TO THE EXCHANGE OFFER
You could be subject to additional tax liabilities as a result of the
exchange.
Although there is no authority directly on point, our tax counsel, Baker
Botts L.L.P., is of the opinion that the exchange should not result in a taxable
exchange. Accordingly, we intend to take the position that the exchange will not
result in a taxable exchange. However, the IRS may not agree that the exchange
is not a taxable exchange. If the exchange of old notes for new notes
constitutes a taxable exchange, you could incur significant adverse tax
consequences on the exchange. For example, a holder could be required to
recognize ordinary income in an amount equal to the excess of the fair market
value of the new notes received in the exchange plus the exchange fee over the
holder's adjusted tax basis in the old notes. See "Material United States
Federal Income Tax Consequences -- Exchange of Old Notes for New Notes" for more
information.
The receipt of the exchange fee by a non-U.S. holder (as defined in
"Material United States Federal Income Tax Consequences") participating in the
exchange offer may be subject to United States federal withholding tax. See
"Material United States Federal Income Tax Consequences -- Exchange of Old Notes
for New Notes" for more information.
An active market in the old notes may not continue to exist after
consummation of the exchange offer, and any old notes you retain may become
less liquid and trade at decreased values as a result of the exchange offer.
If a significant number of old notes are exchanged in the exchange offer,
the liquidity of the trading market for the old notes, if any, after the
completion of the exchange offer may be substantially reduced. Any old notes
exchanged will reduce the aggregate number of old notes outstanding. As a
result, the old notes may trade at decreased values compared to the price at
which they would trade if the exchange offer were not consummated, subject to
prevailing interest rates, the market for similar securities and other factors.
An active market in the old notes may not exist or be maintained, and the prices
at which the old notes trade may decrease.
The value of the new notes may be less than the value of the old notes.
We are not making a recommendation as to whether holders of the old notes
should exchange them. We have not retained and do not intend to retain any
unaffiliated representative to act solely on behalf of the holders of the old
notes for purposes of negotiating the terms of the exchange offer or preparing a
report concerning the fairness of the exchange offer. The value of the new notes
received in the exchange offer may not in the future equal or exceed the value
of the old notes tendered, and we do not take a position as to whether you ought
to participate in the exchange offer.
Upon conversion, holders of the new notes will receive the principal return
in cash but may not receive any shares of our common stock and, if they
receive any shares, they will receive fewer shares of common stock relative
to the conversion value of the new notes than a holder of the old notes would
receive upon conversion of old notes.
We may satisfy our conversion obligation to holders by paying cash rather
than by issuing shares of our common stock. Accordingly, upon conversion of a
new note, holders may not receive any shares of our common
13
stock, and, if they receive any shares, they will receive fewer shares of common
stock relative to the conversion value of their new notes than a holder of the
old notes would receive upon conversion of old notes.
RISK FACTORS RELATED TO THE NEW NOTES
The risks related to investing in the new notes are substantially similar
to the risks related to investing in the old notes, except that we will be
required to make a cash payment upon the conversion of the new notes, whereas
under the terms of the old notes we are required to settle the conversion in
shares of our common stock.
The trading prices for the new notes will be directly affected by the trading
prices of our common stock, resulting in greater volatility in the price of
the new notes compared to nonconvertible debt securities.
The trading prices for the new notes in the secondary market will be
directly affected by the trading prices of our common stock, the general level
of interest rates and our credit quality. Because the new notes will be
convertible, the market price of the new notes will be closely related to the
market price of our common stock. This may result in greater volatility in the
new market price of the new notes than would be expected for nonconvertible debt
securities. It is impossible to predict whether the price of our common stock or
interest rates will rise or fall. Trading prices of our common stock will be
influenced by our operating results and prospects and by economic, financial and
other factors. In addition, general market conditions, including the level of,
and fluctuations in, the trading prices of stocks generally, and sales of
substantial amounts of common stock by us in the market after the offering of
the new notes, or the perception that such sales could occur, could affect the
price of our common stock. The new notes could trade at prices that may be lower
than the face value of the new notes.
An active trading market may not develop for the new notes, which could
adversely affect the trading price of the new notes.
No trading market currently exists for the new notes, and we do not intend
to apply for listing of the new notes on any national securities exchange or
automatic quotation system. Accordingly, we cannot predict whether an active
trading market for the new notes will develop or be sustained. If an active
market for the new notes fails to develop or be sustained, the trading price of
the new notes could be adversely affected.
We may not have the funds necessary to purchase the new notes at the option
of the holders or make the required cash payments upon a conversion of the
new notes.
Certain of the events leading to the convertibility of the new notes will
not be in our control. On May 15, 2008, 2013, 2018 or upon a Fundamental Change
(as defined in "Description of the New Notes"), holders of the new notes may
require us to purchase their new notes for cash. Furthermore, our stock price
has increased significantly since we originally issued the old notes, making it
more likely that the new notes will be converted. The new notes, unlike the old
notes, require that we pay cash for at least the lesser of the principal amount
of the new notes and their conversion value upon their conversion by the
holders.
The source of funds for any cash payment required as a result of any such
events will be cash provided by refunding or refinancing activities (including
public offerings), our available cash, revolving credit borrowings, or cash
generated from operating activities or other sources, including funds provided
by a new controlling entity. We may not have sufficient funds available at the
time of any such events to make such required cash payments. Furthermore, the
use of available cash to fund the required payments may impair our ability to
obtain additional financing in the future. The failure by us to deliver cash and
common stock, if any, upon any of the events described above would constitute an
event of default under the indenture for the new notes.
In addition to the potential united states federal income tax consequences of
the exchange offer, you should consider the united states federal income tax
consequences of owning new notes.
If the exchange of the old notes for new notes constitutes a taxable
exchange, the tax consequences to you of owning the new notes could be adverse.
For example, a holder could be required to include in income each year amounts
substantially in excess of or substantially less than amounts required to be
accrued with respect to the old notes.
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We intend to treat the new notes as indebtedness for United States federal
income tax purposes and intend to take the position that the new notes will be
subject to the special regulations governing contingent payment debt instruments
(which we refer to as the "CPDI regulations"). The application of the CPDI
regulations to instruments such as the new notes is uncertain in several
respects, and no ruling will be obtained from the Internal Revenue Service
concerning the application of the CPDI regulations to the new notes. As a
result, the Internal Revenue Service or a court may not agree with the treatment
described in this prospectus. See "Material United States Federal Income Tax
Consequences" for more information.
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
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 -- Certain Contractual and
Regulatory Limits on Ability to Issue Securities and Pay Dividends on our Common
Stock" in Item 2 of Part I of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 and Item 8.01 of our Current Report on Form 8-K filed
July 7, 2005.
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 May 31, 2005, our subsidiaries, excluding subsidiaries issuing trust
preferred securities and transition bonds, had approximately $5.3 billion
principal amount of external indebtedness, of which approximately $2.9 billion
is secured, as well as other liabilities.
If you hold new notes, you will not be entitled to any rights with respect to
our common stock, but you will be subject to all changes made with respect to
our common stock.
If you hold new notes, you will not be entitled to any rights with respect
to our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but you will
be subject to all changes affecting our common stock. You will only be entitled
to rights on our common stock if and when we deliver shares of common stock to
you upon conversion of your new notes and in limited cases under the conversion
rate adjustments of the notes. For example, in the event that an amendment is
proposed to our articles of incorporation or bylaws requiring shareholder
approval and the record date for determining the shareholders of record entitled
to vote on the amendment occurs prior to delivery of the common stock, you will
not be entitled to vote on the amendment, although you will nevertheless be
subject to any changes in the powers, preferences or special rights of our
common stock.
We may issue additional shares of common stock and thereby materially and
adversely affect the price of our common stock.
We are not restricted from issuing additional common stock during the life
of the new notes and have no obligation to consider your interests for any
reason. If we issue additional shares of common stock, it may materially and
adversely affect the price of our common stock and, in turn, the price of the
new notes.
Our rights agreement, articles of incorporation and bylaws, as well as Texas
law, could limit another party's ability to acquire us and could deprive you
of the opportunity to obtain a takeover premium for any shares of common
stock that you may receive upon conversion of new notes.
15
Our rights agreement and a number of provisions that are in our articles
of incorporation and bylaws will make it difficult for another company to
acquire us and for you to receive any related takeover premium for our common
stock. The provisions in our articles of incorporation and bylaws include, among
others, the following:
- the division of our board of directors into three classes serving
staggered terms;
- our board of directors' ability to establish the terms of and issue
preferred stock without shareholder approval;
- limitations on the ability to call meetings of our shareholders; and
- supermajority voting provisions required to amend our articles of
incorporation and bylaws.
Article 13.03 of the Texas Business Corporation Act may also inhibit a takeover
and deprive you of an opportunity to obtain a takeover premium. See "Description
of Our Capital Stock -- Anti-Takeover Effects of Texas Laws and Our Charter and
Bylaw Provisions" and "Description of Our Capital Stock -- Shareholder Rights
Plan."
PRINCIPAL RISK FACTORS ASSOCIATED WITH OUR BUSINESSES
We are a holding company that conducts all of our business operations
through subsidiaries, primarily CenterPoint Houston and CERC. 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 timely recovering the full value
of its true-up components, which could have an adverse impact on CenterPoint
Houston's results of operations, financial condition and cash flows.
On March 31, 2004, CenterPoint Houston filed the final true-up application
required by the Texas electric restructuring law with the Texas Utility
Commission. CenterPoint Houston's requested true-up balance was $3.7 billion,
excluding interest and net of the retail clawback payable to CenterPoint Houston
by a former affiliate. In December 2004, the Texas Utility Commission approved a
final order in CenterPoint Houston's true-up proceeding authorizing CenterPoint
Houston to recover $2.3 billion including interest through August 31, 2004,
subject to adjustments to reflect the benefit of certain deferred taxes and the
accrual of interest and payment of excess mitigation credits after August 31,
2004. In January 2005, we appealed certain aspects of the final order seeking to
increase the true-up balance ultimately recovered by CenterPoint Houston. Other
parties have also appealed the order, seeking to reduce the amount authorized
for CenterPoint Houston's recovery. No prediction can be made as to the ultimate
outcome or timing of such appeals. A failure by CenterPoint Houston to recover
the full value of its true-up components may have an adverse impact on
CenterPoint Houston's results of operations, financial condition and cash flows.
CenterPoint Houston's receivables are concentrated in a small number of
retail electric providers, and any delay or default in payment could
adversely affect CenterPoint Houston's cash flows, financial condition and
results of operations.
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 56 retail electric providers. Adverse economic
conditions, structural problems in the market served by the Electric Reliability
Council of Texas, Inc. ("ERCOT") 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
on a timely basis. Any delay or default in payment could adversely affect
CenterPoint Houston's cash flows, financial condition and results of operations.
Reliant Energy, Inc. (formerly Reliant Resources, Inc.) ("RRI"), through its
subsidiaries, is CenterPoint Houston's largest customer. Approximately
16
69% of CenterPoint Houston's $102 million in billed receivables from retail
electric providers at December 31, 2004 was owed by subsidiaries of RRI.
Rate regulation of CenterPoint Houston's business may delay or deny
CenterPoint Houston's ability to earn a reasonable return and fully recover
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 that CenterPoint Houston
is allowed to charge may not match its expenses at any given time. The
regulatory process in which rates are determined may not always result in rates
that will produce full recovery of CenterPoint Houston's costs and enable
CenterPoint Houston to earn a reasonable return on its invested capital.
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 to customers of the retail electric providers.
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 significant 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 such 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.
RISK FACTORS AFFECTING OUR NATURAL GAS DISTRIBUTION AND PIPELINES AND GATHERING
BUSINESSES
Rate regulation of CERC's business may delay or deny CERC's ability to earn a
reasonable return and fully recover its costs.
CERC's rates for its local distribution companies are regulated by certain
municipalities and state commissions based on an analysis of its invested
capital and its expenses incurred in a test year. Thus, the rates that CERC is
allowed to charge may not match its expenses at any given time. The regulatory
process in which rates are determined may not always result in rates that will
produce full recovery of CERC's costs and enable CERC to earn a reasonable
return on its invested capital.
CERC's businesses must compete with alternative energy sources, which could
lead to less natural gas being marketed, and its pipelines and gathering
businesses must compete directly with others in the transportation, storage,
gathering, treating and processing of natural gas, which could lead to lower
prices, either of which could have an adverse impact on CERC's results of
operations, financial condition and cash flows.
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
17
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, which could affect the ability of CERC's
suppliers and customers to meet their obligations.
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, on the regulated side, 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 the areas in
which CERC operates and increase the risk that CERC's suppliers or customers
fail or are unable to meet their obligations. Additionally, increasing gas
prices could create the need for CERC to provide collateral in order to purchase
gas.
If CERC were to fail to extend a contract with one of its significant
pipeline customers, there could be an adverse impact on its operations.
CERC's contract with Laclede Gas Company, one of its pipeline customers,
is currently scheduled to expire in 2007. To the extent the pipeline is unable
to extend this contract or the contract is renegotiated at rates substantially
less than the rates provided in the current contract, there could be an adverse
effect on CERC's results of operations, financial condition and cash flows.
A decline in CERC's credit rating could result in CERC's having to provide
collateral in order to purchase gas.
If CERC's credit rating were to decline, it might be required to post cash
collateral in order to purchase natural gas. If a credit rating downgrade and
the resultant cash collateral requirement were to occur at a time when CERC was
experiencing significant working capital requirements or otherwise lacked
liquidity, CERC might be unable to obtain the necessary natural gas to meet its
contractual distribution obligations, and its results of operations, financial
condition and cash flows would be adversely affected.
CERC's interstate pipelines' and natural gas gathering and processing
business' revenues and results of operations are subject to fluctuations in
the supply of gas.
CERC's interstate pipelines and natural gas gathering and processing
business 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 substantial portion of CERC's revenues is 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.
RISK FACTORS ASSOCIATED WITH OUR CONSOLIDATED FINANCIAL CONDITION
IF WE ARE UNABLE TO ARRANGE FUTURE FINANCINGS ON ACCEPTABLE TERMS, OUR
ABILITY TO REFINANCE EXISTING INDEBTEDNESS COULD BE LIMITED.
As of December 31, 2004, we had $9.0 billion of outstanding indebtedness
on a consolidated basis. As of May 31, 2005, approximately $1.9 billion
principal amount of this debt must be paid through 2006, excluding principal
repayments of approximately $85 million on transition bonds. The success of our
future financing efforts may depend, at least in part, on:
- the timing and amount of our recovery of the true-up components;
- general economic and capital market conditions;
18
- 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 RRI 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 specific financing transactions
under the 1935 Act.
As of May 31, 2005, our CenterPoint Houston subsidiary had $3.3 billion
principal amount of general mortgage bonds outstanding and $253 million of first
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 $500 million of additional first mortgage bonds
and general mortgage bonds could be issued on the basis of retired bonds and 70%
of property additions as of December 31, 2004, CenterPoint Houston has agreed
under the $1.3 billion collateralized term loan maturing in November 2005 to not
issue, subject to certain exceptions, more than $200 million of any incremental
secured or unsecured debt. In addition, CenterPoint Houston is contractually
prohibited, subject to certain exceptions, from issuing additional first
mortgage bonds. CenterPoint Houston's $1.3 billion credit facility requires that
proceeds from the issuance of transition bonds and certain new net indebtedness
for borrowed money issued by CenterPoint Houston in excess of $200 million be
used to repay borrowings under such facility.
Our capital structure and liquidity will be affected significantly by the
securitization of approximately $1.8 billion of costs authorized for recovery in
our proceeding regarding the transition to competitive retail markets in Texas.
Our current credit ratings are discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Future Sources and Uses of Cash -- Impact on Liquidity of a
Downgrade in Credit Ratings" in Item 2 of Part I of our Quarterly Report on Form
10-Q for the quarter ended March 31, 2005. These credit ratings may not remain
in effect for any given period of time and one or more of these ratings may 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.
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 all our operating income from, and hold 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 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
19
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 AND EARNINGS.
As of December 31, 2004, we had $1.5 billion of outstanding floating-rate
debt owed to third parties. The interest rate spreads on such debt are
substantially above our historical interest rate spreads. In addition, any
floating-rate debt issued by us in the future could be at interest rates
substantially above our historical borrowing rates. An increase in short-term
interest rates could result in higher interest costs and could adversely affect
our results of operations, financial condition and cash flows.
THE USE OF DERIVATIVE CONTRACTS BY US AND OUR SUBSIDIARIES IN THE NORMAL
COURSE OF BUSINESS COULD RESULT IN FINANCIAL LOSSES THAT NEGATIVELY IMPACT
OUR RESULTS OF OPERATIONS AND THOSE OF OUR SUBSIDIARIES.
We and our subsidiaries use derivative instruments, such as swaps,
options, futures and forwards, to manage our commodity and financial market
risks. We and our subsidiaries could recognize financial losses as a result of
volatility in the market values of these contracts, or if a counterparty fails
to perform. In the absence of actively quoted market prices and pricing
information from external sources, the valuation of these financial instruments
can involve management's judgment or use of estimates. As a result, changes in
the underlying assumptions or use of alternative valuation methods could affect
the reported fair value of these contracts.
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,
Incorporated directly or through subsidiaries and include:
- those transferred to RRI or its subsidiaries in connection with the
organization and capitalization of RRI prior to its initial public
offering in 2001; and
- those transferred to Texas Genco in connection with its organization
and capitalization.
In connection with the organization and capitalization of RRI, RRI and its
subsidiaries assumed liabilities associated with various assets and businesses
Reliant Energy, Incorporated transferred to them. RRI 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 RRI and its subsidiaries
for all liabilities associated with the current and historical businesses and
operations of RRI, regardless of the time those liabilities arose. If RRI is
unable to satisfy a liability that has been so assumed in circumstances in which
Reliant Energy, Incorporated has not been released from the liability in
connection with the transfer, we or CenterPoint Houston could be responsible for
satisfying the liability.
RRI reported in its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 that as of March 31, 2005 it had $5.2 billion of total debt and
its unsecured debt ratings are currently below investment grade. If RRI were
unable to meet its obligations, it would need to consider, among various
options, restructuring under the bankruptcy laws, in which event RRI might not
honor its indemnification obligations and claims by RRI's creditors might be
made against us as its former owner.
Reliant Energy, Incorporated and RRI 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 RRI, claims against Reliant Energy, Incorporated have
been made on grounds that include the effect of RRI's financial results on
Reliant Energy, Incorporated's historical financial statements and liability of
Reliant Energy, Incorporated as a controlling shareholder of RRI. We or
CenterPoint
20
Houston could incur liability if claims in one or more of these
lawsuits were successfully asserted against us or CenterPoint Houston and
indemnification from RRI were determined to be unavailable or if RRI 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, Incorporated 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. In connection with the sale of Texas Genco's fossil
generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC, the
separation agreement we entered into with Texas Genco in connection with the
organization and capitalization of Texas Genco was amended to provide that all
of Texas Genco's rights and obligations under the separation agreement relating
to its fossil generation assets, including Texas Genco's obligation to indemnify
us with respect to liabilities associated with the fossil generation assets and
related business, were assigned to and assumed by Texas Genco LLC. In addition,
under the amended separation agreement, Texas Genco is no longer liable for, and
CenterPoint Energy has assumed and agreed to indemnify Texas Genco LLC against,
liabilities that Texas Genco originally assumed in connection with its
organization to the extent, and only to the extent, that such liabilities are
covered by certain insurance policies or other similar agreements held by
CenterPoint Energy. If Texas Genco or Texas Genco LLC were unable to satisfy a
liability that had been so assumed or indemnified against, and provided Reliant
Energy, Incorporated had not been released from the liability in connection with
the transfer, CenterPoint Houston could be responsible for satisfying the
liability.
WE, TOGETHER WITH OUR SUBSIDIARIES, 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 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 regulated subsidiaries 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 affiliated service,
sales and construction contracts.
We received an order from the SEC under the 1935 Act on June 29, 2005
relating to our financing activities, which is effective until June 30, 2008.
Unforeseen events could result in capital needs in excess of currently
authorized amounts, necessitating further authorization from the SEC. Approval
of filings under the 1935 Act can take extended periods.
If our earnings for subsequent quarters are insufficient to pay dividends
from current earnings, additional authority would be required from the SEC for
payment of the quarterly dividend from capital or unearned surplus, and the SEC
may not authorize such payments.
The United States Congress from time to time considers legislation 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 place 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. Insurance coverage may not be available in the
future at current costs or on commercially reasonable terms, and the insurance
proceeds received for any loss of, or any damage to, any of our facilities may
not be sufficient to restore the loss or damage without negative impact on our
results of operations, financial condition and cash flows.
21
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 may not be able to recover such
loss or damage through a change in its regulated rates, and any such recovery
may not be timely granted. Therefore, CenterPoint Houston may not be able to
restore any loss of, or damage to, any of its transmission and distribution
properties without negative impact on its results of operations, financial
condition and cash flows.
22
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data for
the years ended December 31, 2000, 2001, 2002, 2003 and 2004 and for the three
months ended March 31, 2004 and 2005. This table should be read in conjunction
with the consolidated financial statements and the related notes, the reports of
our independent auditors and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of CenterPoint Energy and Subsidiaries" in
our Annual Report on Form 10-K for the year ended December 31, 2004 and the
consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
CenterPoint Energy and Subsidiaries" in our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2005.
The selected financial data presented below give effect to certain
reclassifications necessary to present:
- Texas Genco as discontinued operations (as a result of the sale of
these operations announced on July 21, 2004) in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets";
- RRI as discontinued operations as a result of the distribution of
all of the shares of RRI common stock owned by CenterPoint Energy to
its common shareholders on a pro rata basis;
- 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;
- CenterPoint Energy Management Services, Inc. as discontinued
operations as a result of the decision to sell these operations in
June 2003; and
- 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 separation of the
generation, transmission and distribution, and retail functions of Reliant
Energy, Incorporated in August 2002, as required by the Texas electric
restructuring law.
23
CONSOLIDATED INCOME STATEMENT AND OTHER FINANCIAL DATA
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------- --------------------
2000 2001(1) 2002 2003(2) 2004(3) 2004 2005
------- ------- -------- -------- ------- ------- -------
(In millions, except per share amounts) (Unaudited)
Revenues......................... $ 6,949 $ 7,148 $ 6,438 $ 7,790 $ 8,510 $ 2,528 $ 2,762
------- ------- -------- -------- ------- ------- -------
Gross margin (revenues less fuel
costs)......................... 3,364 3,367 3,484 3,492 2,986 766 813
Income from continuing operations
before extraordinary item and
cumulative effect of accounting
change......................... 52 357 482 409 205 29 67
Discontinued operations.......... 395 565 (4,402) 75 (133) 45 --
Extraordinary item, net of tax... -- -- -- -- (977) -- --
Cumulative effect of accounting
change, net of tax............. -- 58 -- -- -- -- --
------- ------- -------- -------- ------- ------- -------
Net income (loss) attributable to
common shareholders............ $ 447 $ 980 $ (3,920) $ 484 $ (905) $ 74 $ 67
======= ======= ======== ======== ======= ======= =======
Basic earnings (loss) per common
share:
Income from continuing
operations before extraordinary
item and cumulative effect of
accounting change.............. $ 0.18 $ 1.23 $ 1.62 $ 1.35 $ 0.67 $ 0.09 $ 0.22
Discontinued operations.......... 1.39 1.95 (14.78) 0.24 (0.43) 0.15 --
Extraordinary item, net of
tax............................ -- -- -- -- (3.18) -- --
Cumulative effect of accounting
change, net of tax............. -- 0.20 -- -- -- -- --
------- ------- -------- -------- ------- ------- -------
Basic earnings (loss) per common
share.......................... $ 1.57 $ 3.38 $ (13.16) $ 1.59 $ (2.94) $ 0.24 $ 0.22
======= ======= ======== ======== ======= ======= =======
Diluted earnings (loss) per
common share:
Income from continuing
operations before extraordinary
item and cumulative effect of
accounting change.............. $ 0.18 $ 1.22 $ 1.61 $ 1.24 $ 0.61 $ 0.09 $ 0.20
Discontinued operations.......... 1.38 1.93 (14.69) 0.22 (0.37) 0.13 --
Extraordinary item, net of tax... -- -- -- -- (2.72) -- --
Cumulative effect of accounting
change, net of tax............. -- 0.20 -- -- -- -- --
------- ------- -------- -------- ------- ------- -------
Diluted earnings (loss) per
common share................... $ 1.56 $ 3.35 $ (13.08) $ 1.46 $ (2.48) $ 0.22 $ 0.20
======= ======= ======== ======== ======= ======= =======
Cash dividends paid per common
share (4)...................... $ 1.50 $ 1.50 $ 1.07 $ 0.40 $ 0.40 $ 0.10 $ 0.20
Dividend payout ratio from
continuing operations.......... 833% 122% 66% 30% 60% N/A N/A
Return from continuing operations
on average common equity....... 1.0% 6.8% 11.8% 25.7% 14.4% N/A N/A
Ratio of earnings from continued
operations to fixed charges.... 1.39 1.99 2.03 1.81 1.43 1.25 1.69
Capital expenditures,
excluding discontinued
operations..................... $ 653 $ 802 $ 566 $ 497 $ 530 $ 99 $ 122
SEGMENT DATA
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------
2002 2003 2004 2004 2005
------ ------ ------ ------- ------
(In Millions) (Unaudited)
ELECTRIC TRANSMISSION & DISTRIBUTION
Revenues.......................... $2,222 $2,124 $1,521 $ 330 $ 345
Operating Income.................. 1,096 1,020 494 $ 85 80
NATURAL GAS DISTRIBUTION
Revenues.......................... $3,960 $5,435 $6,684 $ 2,131 $2,330
Operating Income.................. 198 202 222 117 139
PIPELINES AND GATHERING
Revenues.......................... $ 374 $ 407 $ 451 $ 102 $ 121
Operating Income.................. 153 158 180 45 64
OTHER OPERATIONS
Revenues.......................... $ 30 $ 28 $ 8 $ 3 $ 7
Operating Loss.................... (7) (25) (32) (7) (7)
ELIMINATIONS/OTHER
Revenues.......................... $ (148) $ (204) $ (153) $ (38) $ (41)
CONSOLIDATED
Revenues.......................... $6,438 $7,790 $8,510 $ 2,528 $2,762
Operating Income.................. 1,440 1,355 864 240 276
24
BALANCE SHEET DATA
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------- ---------------
2000 2001(1) 2002 2003(2) 2004(3) 2005
------- ------- ------- ------- ------- ---------------
(In millions, except per share amounts) (Unaudited)
Book value per common share ....... $ 19.10 $ 22.77 $ 4.74 $ 5.77 $ 3.59 $ 3.67
Market price per common share...... $ 43.31 $ 26.52 $ 8.01 $ 9.69 $ 11.30 $ 12.03
Market price as a percent of 328%
book value ....................... 227% 116% 169% 168% 315%
Current Assets .................... $11,998 $ 6,841 $ 2,194 $ 2,357 $ 2,837 $ 2,235
Noncurrent Assets ................. $23,938 $25,179 $18,440 $19,104 $15,325 $15,320
Assets of discontinued
operations ....................... $18,479 $16,840 $ 4,594 $ 4,244 $ 1,565 $ 1,167
Total assets ...................... $35,936 $32,020 $20,635 $21,461 $18,162 $17,555
Short-term borrowings ............. $ 4,799 $ 3,469 $ 347 $ 63 $ -- $ --
Current Liabilities ............... $18,269 $10,530 $ 3,370 $ 2,537 $ 5,187 $ 4,202
Noncurrent Liabilities ............ $11,480 $14,046 $15,136 $16,985 $11,869 $12,218
Long-term debt obligations,
including current maturities ..... $ 4,989 $ 4,712 $ 9,996 $10,939 $ 9,029 $ 9,477
Trust preferred securities(5) ..... $ 705 $ 706 $ 706 $ -- $ -- $ --
Cumulative preferred stock ........ $ 10 $ -- $ -- $ -- $ -- $ --
Capitalization:
Common stock equity .............. 49% 55% 12% 14% 11% 11%
Trust preferred securities ....... 6% 6% 6% -- -- --
Long-term debt, including
current maturities .............. 45% 39% 82% 86% 89% 89%
(1) 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" ($58 million after-tax gain, or $0.20
earnings per basic and diluted share).
(2) 2003 net income includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 143, "Accounting for Asset
Retirement Obligations" ($80 million after-tax gain, or $0.26 and $0.24
earnings per basic and diluted share, respectively) which is included in
discontinued operations related to Texas Genco.
(3) Net income for the year ended December 31, 2004 includes an after-tax
extraordinary loss of $977 million ($3.18 and $2.72 loss per basic and
diluted share, respectively) based on our analysis of the Texas Utility
Commission's deliberations in the 2004 True-Up Proceeding. Additionally,
we recorded a net after-tax loss of approximately $133 million ($0.43 and
$0.37 loss per basic and diluted share, respectively) in 2004 related to
our interest in Texas Genco.
(4) On January 26, 2005, our board of directors declared a dividend of $0.10
per share of common stock payable on March 10, 2005 to shareholders of
record as of the close of business on February 16, 2005. On March 3, 2005,
our board of directors declared a dividend of $0.10 per share of common
stock payable on March 31, 2005 to shareholders of record as of the close
of business on March 16, 2005. This additional first quarter dividend was
declared in lieu of the regular second quarter dividend to address
technical restrictions that might have limited our ability to pay a
regular dividend during the second quarter of 2005. Due to the limitations
imposed under the 1935 Act, we may declare and pay dividends only from
earnings in the specific quarter in which the dividend is paid, absent
specific authorization from the SEC. As a result of the seasonal nature of
our utility businesses, the second quarter historically provides the
smallest contribution to our annual earnings, while the first quarter is
generally the strongest quarter for our gas distribution business. If our
earnings for subsequent quarters are insufficient to pay dividends from
current earnings, additional authority would be required from the SEC for
payment of the quarterly dividend from capital or unearned surplus, but
the SEC may not authorize such payments.
(5) The subsidiary trusts that issued trust preferred securities have been
deconsolidated as a result of the adoption of FIN 46 "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51" (FIN 46) and the subordinated debentures issued to those
trusts are now reported as long-term debt as of December 31, 2003. For
additional information related to the adoption of FIN 46, please read Note
2(n) to our consolidated financial statements for the year ended December
31, 2004.
25
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK
As of May 31, 2005, 309,102,661 shares of our common stock were
outstanding and were held of record by approximately 57,777 shareholders. Our
common stock is listed on the New York Stock Exchange under the symbol "CNP."
Set forth below are the high and low closing prices for the common stock of
CenterPoint and its predecessors, as reported on the New York Stock Exchange
composite tape for the periods indicated, as reported by Bloomberg, and the cash
dividends declared in these periods. Prior to August 22, 2002, information shown
is for our predecessor, Reliant Energy, Incorporated.
CASH DIVIDENDS
YEAR ENDING DECEMBER 31, 2005 HIGH LOW DECLARED
------ ------ --------------
2nd Quarter $13.21 $11.68 $ 0.07 (1)
1st Quarter $12.61 $10.65 $ 0.20 (1)
YEAR ENDED DECEMBER 31, 2004
4th Quarter $11.34 $10.41 $ 0.10
3rd Quarter $12.21 $10.02 $ 0.10
2nd Quarter $11.88 $10.25 $ 0.10
1st Quarter $11.43 $ 9.72 $ 0.10
YEAR ENDED DECEMBER 31, 2003
4th Quarter $10.11 $ 9.15 $ 0.10
3rd Quarter $ 9.38 $ 7.71 (2)
2nd Quarter $ 9.74 $ 7.37 $ 0.20 (2)
1st Quarter $ 8.55 $ 4.50 $ 0.10
YEAR ENDED DECEMBER 31, 2002
4th Quarter $ 9.00 (3) $ 5.65 (3) $ 0.16
3rd Quarter $17.00 $ 5.40 $ 0.16 (4)
2nd Quarter $25.93 $14.30 $ 0.375
1st Quarter $26.85 $20.35 $ 0.375
(1) In addition to the regular first quarter dividend of $0.10 per share, an
additional dividend of $0.10 per share was declared on March 3, 2005 and
paid on March 31, 2005, in lieu of the regular second quarter dividend. A
dividend of $0.07 per share was declared on June 2, 2005 and paid on June
30, 2005.
(2) The $0.20 per share dividend for the second quarter of 2003 included the
third quarter dividend declared on June 18, 2003 and paid on September 10,
2003.
(3) The fourth quarter 2002 stock prices reflect the distribution of our 83%
ownership interest in RRI on September 30, 2002. The closing price of
RRI's common stock on that date was $1.75 per share.
26
(4) The reduction in the quarterly dividend to $0.16 reflects the reduced size
of CenterPoint Energy after its distribution of all the shares of common
stock of Reliant Resources it owned.
27
THE EXCHANGE OFFER
SECURITIES SUBJECT TO THE EXCHANGE OFFER
We are offering, upon the terms and subject to the conditions set forth in
this prospectus and the accompanying letter of transmittal, to exchange $1,000
principal amount of new notes and an exchange fee of $1.50 for each $1,000
principal amount of validly tendered and accepted old notes. We are offering to
exchange new notes for all of the old notes. However, the exchange offer is
subject to the conditions described in this prospectus and the accompanying
letter of transmittal.
There is currently outstanding $575,000,000 in aggregate principal amount
of old notes. The old notes were issued in may 2003 in transactions exempt from
or not subject to registration under the 1933 Act pursuant to Section 4(2) under
the 1933 act and mature on May 15, 2023. We subsequently filed a registration
statement with the SEC to register the resale of the old notes (the "Resale
Shelf Registration Statement"). Approximately $49 million principal amount of
the old notes have not been transferred pursuant to the Resale Shelf
Registration Statement and still trade in the Private Offerings, Resales and
Trading through Automatic Linkages Market, commonly referred to as the Portal
Market. The registered old notes are traded in the over-the-counter market.
You may tender all, some or none of your old notes, subject to the terms
and conditions of the exchange offer. Holders of old notes must tender their old
notes in a minimum principal amount of $1,000 and multiples thereof.
The exchange offer is not being made to, and we will not accept tenders
for exchange from, holders of old notes in any jurisdiction in which the
exchange offer or the acceptance of the offer would not be in compliance with
the securities or blue sky laws of that jurisdiction.
We, our officers and directors, the dealer manager, the information agent,
the exchange agent and the trustee do not make any recommendation to you as to
whether to exchange all or any portion of your old notes. In addition, we have
not authorized anyone to make any recommendation. You must make your own
decision whether to tender your old notes for exchange and, if so, the amount of
old notes to tender.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of this exchange offer, we will not
be required to accept for exchange any old notes tendered, and we may terminate
or amend this offer if any one of the following conditions precedent to the
exchange offer is not satisfied, or is reasonably determined by us not to be
satisfied, and, in our reasonable judgment, the failure of the condition makes
it impractical to proceed with the offer or with the acceptance for exchange or
exchange and issuance of the new notes:
(1) No action or event shall have occurred, failed to occur or been
threatened, no action shall have been taken, and no statute, rule,
regulation, judgment, order, stay, decree or injunction shall have
been promulgated, enacted, entered, enforced or deemed applicable to
the exchange offer, by or before any court or governmental,
regulatory or administrative agency, authority or tribunal, which
either:
(a) challenges the making of the exchange offer or the exchange of
old notes under the exchange offer or might, directly or
indirectly, prohibit, prevent, restrict or delay consummation
of, or might otherwise adversely affect in any material
manner, the exchange offer or the exchange of old notes under
the exchange offer, or
(b) in our reasonable judgment, could materially adversely affect
our business, condition (financial or otherwise), income,
operations, properties, assets, liabilities or prospects or
would be material to holders of old notes in deciding whether
to accept the exchange offer.
(2) (a) Trading generally shall not have been suspended or materially
limited on or by, as the case may be, either of the NYSE or the
Nasdaq National Market; (b) there shall not have been any
28
suspension or limitation of trading of any of our securities on any
exchange or in the over-the-counter market; (c) no general banking
moratorium shall have been declared by federal or New York
authorities; and (d) there shall not have occurred any major
disruption of bank operations, settlements of securities or
clearance services in the United States.
(3) The trustee with respect to the old notes shall not have objected in
any respect to, or taken any action that could in our reasonable
judgment adversely affect the consummation of, the exchange offer or
the exchange of old notes under the exchange offer, nor shall the
trustee or any holder of old notes have taken any action that
challenges the validity or effectiveness of the procedures we use in
making the exchange offer or the exchange of the old notes under the
exchange offer.
All of the foregoing conditions are for our sole benefit and we may waive
them in our sole discretion. If we waive a condition, it will be deemed waived
for all holders of the old notes. Any determination that we make concerning an
event, development or circumstance described or referred to above shall be
conclusive and binding.
The exchange offer is also subject to the condition that the registration
statement and any post-effective amendment to the registration statement
covering the new notes must be effective under the Securities Act. This
condition is not waivable by us.
If any of the foregoing conditions is not satisfied, we may, at any time
before the expiration of the exchange offer:
(1) terminate the exchange offer and return all tendered old notes to
the holders thereof;
(2) modify, extend or otherwise amend the exchange offer and retain all
tendered old notes until the expiration date, as may be extended,
subject, however, to the withdrawal rights of holders (see " --
Expiration Date; Extensions; Amendments," " -- Proper Execution and
Delivery of Letter of Transmittal" and " -- Withdrawal of Tenders"
below); or
(3) waive the unsatisfied conditions (other than the condition relating
to the effectiveness of the registration statement and any
post-effective amendment to the registration statement, which may
not be waived) and accept all old notes tendered and not previously
withdrawn.
Except for the requirements of applicable United States federal and state
securities laws, we know of no federal or state regulatory requirements to be
complied with or approvals we must obtain in connection with the exchange offer
which, if not complied with or obtained, would have a material adverse effect on
us.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
For purposes of the exchange offer, the term "expiration date" shall mean
5:00 p.m., New York City time, on August 17, 2005, subject to our right to
extend such date and time for the exchange offer in our sole discretion, in
which case, the expiration date will mean the latest date and time to which the
exchange offer is extended.
We reserve the right, in our sole discretion, to (1) extend the exchange
offer, (2) terminate the exchange offer upon failure to satisfy any of the
conditions listed above or (3) amend the exchange offer, by giving oral
(promptly confirmed in writing) or written notice of such extension, termination
or amendment to the exchange agent. Any such extension, termination or amendment
will be followed promptly by a public announcement thereof which, in the case of
an extension, will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
If we amend the exchange offer in a manner that we determine constitutes a
material or significant change, we will extend the exchange offer for a period
of five to twenty business days, depending upon the significance of the
amendment, if the exchange offer would otherwise have expired during such five
to twenty business day period. Any change in the consideration offered to
holders of old notes in the exchange offer will be paid to all holders whose old
notes have previously been tendered pursuant to the exchange offer. In addition,
if we change (1) the percentage of old notes we are offering to exchange, (2)
the amount of the exchange fee or (3) the fees we are paying the dealer manager,
or make a similarly significant change, we will extend the exchange offer for a
period of
29
ten business days from the date that the revised exchange offer materials are
disseminated to holders of the old notes.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the exchange offer,
we will comply with applicable securities laws by disclosing any such amendment
by means of a prospectus supplement that we distribute to the holders of the old
notes. We will have no other obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a timely release
to any appropriate news agency, including Bloomberg Business News and the Dow
Jones News Service.
EFFECT OF TENDER
Any valid tender by a holder of old notes that is not validly withdrawn
prior to the expiration date of the exchange offer will constitute a binding
agreement between that holder and us upon the terms and subject to the
conditions of the exchange offer and the letter of transmittal. The acceptance
of the exchange offer by a tendering holder of old notes will constitute the
agreement by that holder to deliver good and marketable title to the tendered
old notes, free and clear of all liens, charges, claims, encumbrances, interests
and restrictions of any kind.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE
The new notes will be delivered in book-entry form and the exchange fee
will be paid on the settlement date which we anticipate will be promptly
following the expiration date of the exchange offer.
We will be deemed to have accepted validly tendered old notes when, and
if, we have given oral (promptly confirmed in writing) or written notice thereof
to the exchange agent. Subject to the terms and conditions of the exchange
offer, the issuance of new notes will be recorded in book-entry form by the
exchange agent upon receipt of such notice. The exchange agent will act as agent
for tendering holders of the old notes for the purpose of receiving book-entry
transfers of old notes in the exchange agent's account at DTC. If any validly
tendered old notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer, including if old notes are validly withdrawn,
such withdrawn old notes will be returned without expense to the tendering
holder or such old notes will be credited to an account maintained at DTC
designated by the DTC participant who delivered the old notes, in either case,
promptly after the expiration or termination of the exchange offer.
PROCEDURES FOR EXCHANGE
If you hold old notes and wish to exchange them for new notes and the
exchange fee, you must validly tender, or cause the valid tender of, your old
notes using the procedures described in this prospectus and in the accompanying
letter of transmittal.
Only registered holders of old notes are authorized to tender the old
notes. The procedures by which you may tender or cause to be tendered old notes
will depend upon the manner in which the old notes are held, as described below.
TENDER OF OLD NOTES HELD THROUGH A NOMINEE
If you are a beneficial owner of old notes that are held of record by a
custodian bank, depositary, broker, dealer, trust company or other nominee, and
you wish to tender old notes in the exchange offer, you should contact the
record holder promptly and instruct the record holder to tender the old notes on
your behalf using one of the procedures described below. Your nominee will
provide you with its instruction letter, which you must use to give these
instructions.
TENDER OF OLD NOTES THROUGH DTC
Pursuant to authority granted by DTC, if you are a DTC participant that
has old notes credited to your DTC account and thereby held of record by DTC's
nominee, you may directly tender your old notes as if you were the record
holder. References to registered or record holders include DTC participants with
old notes credited to their accounts. If you are not a DTC participant, you may
tender your old notes by book-entry transfer by contacting your
30
broker or opening an account with a DTC participant. Within two business days
after the date of this prospectus, the exchange agent will establish accounts
with respect to the old notes at DTC for purposes of the exchange offer.
Any participant in DTC may tender old notes by effecting a book-entry
transfer of the old notes to be tendered in the exchange offer into the account
of the exchange agent at DTC by electronically transmitting its acceptance of
the exchange offer through DTC's ATOP procedures for transfer; if ATOP
procedures are followed, DTC will then verify the acceptance, execute a
book-entry delivery to the exchange agent's account at DTC and 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 a book-entry
confirmation, which states that DTC has received an express acknowledgment from
a DTC participant tendering old notes that the participant has received and
agrees to be bound by the terms of the letter of transmittal and that we may
enforce the agreement against the participant. A "book-entry confirmation" is a
timely confirmation of a book-entry transfer of old notes into the exchange
agent's account at DTC. DTC participants following this procedure should allow
sufficient time for completion of the ATOP procedures prior to 5:00 p.m. New
York City time on the expiration date of the exchange offer.
Any DTC participant may also tender old notes by completing and signing
the letter of transmittal according to the instructions and delivering it,
together with any signature guarantees and other required documents, to the
exchange agent at its address on the back cover page of this prospectus.
The letter of transmittal (or a signed facsimile thereof), with any
required signature guarantees and other required documents, or (in the case of
book-entry transfer) an agent's message in lieu of the letter of transmittal,
must be transmitted to and received by the exchange agent, and the exchange
agent must have received a timely book-entry confirmation, prior to the
expiration date of the exchange offer at its addresses set forth on the back
cover page of this prospectus. Delivery of such documents to DTC does not
constitute delivery to the exchange agent.
LETTER OF TRANSMITTAL
Subject to and effective upon the acceptance for exchange and exchange of
old notes for new notes, by executing and delivering a letter of transmittal (or
agreeing to the terms of a letter of transmittal pursuant to an agent's
message), a tendering holder of old notes:
- irrevocably sells, assigns and transfers to or upon our order all
right, title and interest in and to, and all claims in respect of or
arising or having arisen as a result of the holder's status as a
holder of the old notes tendered thereby;
- waives any and all rights with respect to the old notes;
- releases and discharges us and the trustee with respect to the old
notes from any and all claims such holder may have, now or in the
future, arising out of or related to the old notes, including,
without limitation, any claims that such holder is entitled to
participate in any redemption of the old notes;
- represents and warrants that the old notes tendered were owned as of
the date of tender, free and clear of all liens, charges, claims,
encumbrances, interests and restrictions of any kind;
- designates an account number of a DTC participant in which the new
notes are to be credited; and
- irrevocably appoints the exchange agent the true and lawful agent
and attorney-in-fact of the holder with respect to any tendered old
notes, with full powers of substitution and revocation (such power
of attorney being deemed to be an irrevocable power coupled with an
interest) to cause the old notes tendered to be assigned,
transferred and exchanged in the exchange offer.
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PROPER EXECUTION AND DELIVERY OF LETTER OF TRANSMITTAL
If you wish to participate in the exchange offer, delivery of your old
notes, signature guarantees and other required documents is your responsibility.
Delivery is not complete until the required items are actually received by the
exchange agent. If you mail these items, we recommend that you (1) use
registered mail with return receipt requested, properly insured, and (2) mail
the required items sufficiently in advance of the expiration date with respect
to the exchange offer to allow sufficient time to ensure timely delivery.
Except as otherwise provided below, all signatures on a letter of
transmittal or a notice of withdrawal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medallion Program, the NYSE
Medallion Signature Program or the Stock Exchange Medallion Program. Signatures
on a letter of transmittal need not be guaranteed if:
- the letter of transmittal is signed by a participant in DTC whose
name appears on a security position listing of DTC as the owner of
the old notes and the holder has not completed the portion entitled
"Special Issuance and Payment Instructions" on the letter of
transmittal; or
- the old notes are tendered for the account of an eligible guarantor
institution.
GUARANTEED DELIVERY PROCEDURES
If you desire to tender your old notes and you cannot complete the
procedures for book-entry transfer set forth above on a timely basis, you may
still tender your old notes if:
- your tender is made through an eligible institution;
- prior to the expiration date, the exchange agent received from the
eligible institution a properly completed and duly executed letter
of transmittal, or a facsimile of such letter of transmittal or an
electronic confirmation pursuant to DTC's ATOP system and notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, that:
(1) sets forth the name and address of the holder of the old notes
tendered;
(2) states that the tender is being made thereby; and
(3) guarantees that within three trading days after the expiration
date a book-entry confirmation and any other documents
required by the letter of transmittal, if any, will be
deposited by the eligible institution with the exchange agent;
and
- book-entry confirmation and all other documents, if any, required by
the letter of transmittal are received by the exchange agent within
three trading days after the expiration date.
WITHDRAWAL OF TENDERS
Tenders of old notes in connection with the exchange offer may be
withdrawn at any time prior to 5:00 p.m. New York City time on the expiration
date of the exchange offer, but you must withdraw all of your old notes
previously tendered. Tenders of old notes may not be withdrawn at any time after
such date unless the exchange offer is extended, in which case tenders of old
notes may be withdrawn at any time prior to the expiration date, as extended. In
addition, tenders may be withdrawn if we have not accepted old notes tendered
for exchange at any time after September 13, 2005.
Beneficial owners desiring to withdraw old notes previously tendered
should contact the DTC participant through which such beneficial owners hold
their old notes. In order to withdraw old notes previously tendered, a DTC
participant may, prior to the expiration date of the exchange offer, withdraw
its instruction previously transmitted through ATOP by (1) withdrawing its
acceptance through ATOP or (2) delivering to the exchange agent, by mail, hand
delivery or facsimile transmission, a notice of withdrawal of such instruction.
The notice of withdrawal must contain the name and number of the DTC
participant. The method of notification is at the risk and
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election of the holder and must be timely received by the exchange agent.
Withdrawal of a prior instruction will be effective upon receipt of the notice
of withdrawal by the exchange agent. All signatures on a notice of withdrawal
must be guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, the NYSE Medallion Signature Program or the Stock Exchange
Medallion Program. However, signatures on the notice of withdrawal need not be
guaranteed if the old notes being withdrawn are held for the account of an
eligible guarantor institution. A withdrawal of an instruction must be executed
by a DTC participant in the same manner as such DTC participant's name appears
on its transmission through ATOP to which such withdrawal relates. A DTC
participant may withdraw a tender only if such withdrawal complies with the
provisions described in this paragraph.
Withdrawals of tenders of old notes may not be rescinded and any old notes
withdrawn will thereafter be deemed not validly tendered for purposes of the
exchange offer. Properly withdrawn old notes, however, may be retendered by
following the procedures described above at any time prior to the expiration
date of the exchange offer.
MISCELLANEOUS
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of old notes in connection
with the exchange offer will be determined by us, in our reasonable judgment,
and our determination will be final and binding. We reserve the absolute right
to reject any and all tenders not in proper form or the acceptance for exchange
of which may, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any defect or irregularity in the tender of any old
notes in the exchange offer, and the interpretation by us 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, provided that we will not
waive any condition to the offer with respect to an individual holder of old
notes unless we waive that condition for all such holders. None of us, the
exchange agent, or any other person will be under any duty to give notification
of any defects or irregularities in tenders or will incur any liability for
failure to give any such notification.
Tenders of old notes involving any irregularities will not be deemed to
have been made until such irregularities have been cured or waived. Old notes
received by the exchange agent in connection with the exchange offer that are
not validly tendered and as to which the irregularities have not been cured or
waived will be returned by the exchange agent to the DTC participant who
delivered such old notes by crediting an account maintained at DTC designated by
such DTC participant promptly after the expiration date of the exchange offer or
the withdrawal or termination of the exchange offer.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the transfer and
exchange of old notes to us in the exchange offer. If transfer taxes are imposed
for any other reason, the amount of those transfer taxes, whether imposed on the
registered holder or any other persons, will be payable by the tendering holder.
Other reasons transfer taxes could be imposed include:
- if new notes in book-entry form are to be registered in the name of
any person other than the person signing the letter of transmittal;
or
- if tendered old notes are registered in the name of any person other
than the person signing the letter of transmittal.
If satisfactory evidence of payment of or exemption from those transfer
taxes is not submitted with the letter of transmittal, the amount of those
transfer taxes will be billed directly to the tendering holder and/or withheld
from any payments due with respect to the old notes tendered by such holder.
OTHER FEES AND EXPENSES
Tendering holders of old notes will not be required to pay any expenses of
soliciting tenders in the exchange offer. However, if a tendering holder handles
the transaction through its broker, dealer, commercial bank, trust company or
other institution, such holder may be required to pay brokerage fees or
commissions.
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EXCHANGE AGENT
JPMorgan Chase Bank, National Association has been appointed the exchange
agent for the exchange offer. Letters of transmittal and all correspondence in
connection with the exchange offer should be sent or delivered by each holder of
old notes, or a beneficial owner's custodian bank, depositary, broker, dealer,
trust company or other nominee, to the exchange agent at the address set forth
on the back cover page of this prospectus. We will pay the exchange agent a fee
of $7,500 plus $50 per tender for each tender in excess of 100 tenders for its
services and will reimburse it for its reasonable, out-of-pocket expenses in
connection with the exchange offer.
INFORMATION AGENT
MacKenzie Partners, Inc. has been appointed as the information agent for
the exchange offer and will receive customary compensation for its services.
Questions concerning tender procedures and requests for additional copies of
this prospectus or the letter of transmittal should be directed to the
information agent at the address set forth on the back cover page of this
prospectus. Holders of old notes may also contact their custodian bank,
depositary, broker, dealer, trust company or other nominee for assistance
concerning the exchange offer.
DEALER MANAGER
We have retained Banc of America Securities LLC to act as dealer manager
in connection with the exchange offer.
We have agreed to pay Banc of America Securities LLC customary fees for
its services as dealer manager in connection with the offer and will reimburse
the dealer manager for certain out-of-pocket expenses, including the fees and
expenses of its legal counsel incurred in connection with the exchange offer.
The obligations of the dealer manager are subject to certain conditions. We have
agreed to indemnify the dealer manager against certain liabilities, including
liabilities under the federal securities laws, or to contribute to payments that
the dealer manager may be required to make in respect thereof. Questions
regarding the terms of the exchange offer may be directed to the dealer manager
at the address set forth on the back cover page of this prospectus.
From time to time, the dealer manager and its affiliates have provided
investment banking, commercial banking and financial advisory services to us for
customary compensation. At any given time, the dealer manager may trade the old
notes or other securities of ours or our affiliates for its own accounts or for
the accounts of its customers, and accordingly, may hold a long or a short
position in the old notes or other securities. To the extent the dealer manager
owns old notes in these accounts at the time of the exchange offer, the dealer
manager may tender those old notes. The dealer manager was an initial purchaser
in the private placement of the old notes.
None of the dealer manager, the information agent or the exchange agent
assumes any responsibility for the accuracy or completeness of the information
concerning us or our affiliates contained in this document or related documents
or for any failure by us to disclose events that may have occurred and may
affect the significance or accuracy of such information.
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DESCRIPTION OF THE NEW NOTES
We will issue the new notes under an indenture dated as of May 19, 2003
between us and JPMorgan Chase Bank, National Association (formerly JPMorgan
Chase Bank), as trustee, as supplemented. The descriptions under this heading
are summaries of the material provisions of the new notes and the indenture.
Such summaries do not purport to be complete and are qualified in their entirety
by reference to the indenture, the form of supplemental indenture and the form
of new note which are included as exhibits to the registration statement of
which this prospectus is a part and are incorporated by reference. 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. In addition to the old notes, our 5.875% Senior Notes
due 2008 ($200,000,000 outstanding), our 6.85% Senior Notes due 2015
($200,000,000 outstanding), our 7.25% Senior Notes due 2010 ($200,000,000
outstanding) and our 2.875% Convertible Senior Notes due 2024 ($255,000,000
outstanding) are currently outstanding under the indenture.
GENERAL
The new notes will mature on May 15, 2023. The new notes will be issued
only in denominations of $1,000 principal amount and integral multiples of
$1,000 principal amount. We may issue additional notes of the same series for a
certain period of time after the exchange offer without the consent of the
holders of the new notes, but the new notes will be limited to $575,000,000 in
aggregate 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 May 31, 2005, CenterPoint Energy, on an unconsolidated basis, had
approximately $3.7 billion aggregate principal amount of outstanding
indebtedness. Of this indebtedness, approximately $678 million of obligations
relating to pollution control bonds issued on CenterPoint Energy's behalf are
secured by general mortgage bonds and first mortgage bonds of CenterPoint
Houston. Excluding subsidiaries issuing trust preferred securities and
transition bonds, as of May 31, 2005, our subsidiaries had approximately $5.3
billion aggregate principal amount of external indebtedness, of which
approximately $2.9 billion is secured, as well as other liabilities.
ADDITIONAL INDEBTEDNESS
The 1935 Act limits the ability of CenterPoint Energy and its subsidiaries
to incur debt without prior authorization. The Commission's current financing
order for CenterPoint Energy is effective until June 30, 2008 and generally
permits the refinancing of the existing obligations of CenterPoint Energy and
its subsidiaries. The financing order also permits utilization of undrawn credit
facilities at CenterPoint Energy, CenterPoint Houston and CERC. Other than in
connection with refinancings of existing obligations, CenterPoint Energy is not
authorized to issue additional debt securities without prior Commission action.
CenterPoint Energy's $1 billion revolving credit facility contains a debt
to EBITDA covenant and an EBITDA to interest covenant. For more information on
the limitations on the ability of CenterPoint Energy and its subsidiaries to
incur debt, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Future Sources and
Uses of Cash -- Certain Contractual and Regulatory Limits on Ability to Issue
Securities and Pay Dividends on Our Common Stock" in Item 2 of Part I
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of our Quarterly Report on Form 10-Q for the period ended March 31, 2005 and
Item 8.01 of our Current Report on Form 8-K filed July 7, 2005.
ACCOUNTING FOR THE EXCHANGE
The new notes do not have substantially different terms than the old notes
as defined in EITF Issue No. 96-19 "Debtor's Accounting for a Modification or
Exchange of Debt Instruments" (EITF 96-19). Accordingly, the carrying amount of
the new notes will be the carrying amount of the old notes, which is also their
face value, and the conversion features of the new notes will not be valued at
issuance. Exchange fees paid to the noteholders will be amortized over the life
of the new notes and all other fees will be expensed. Upon conversion of the
notes, amounts paid in cash will be compared to the recorded carrying value and
a gain or loss on conversion will be recorded.
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 new notes. In
addition, the new 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 rate of 3.75% per year, from the last interest payment
date on which interest was paid on the old notes,
- be payable semi-annually in arrears on May 15 and November 15 of
each year, beginning November 15, 2005,
- be payable to the person in whose name the new notes are registered
at the close of business on the May 1 and November 1 immediately
preceding the applicable interest payment date, which we refer to
with respect to the new 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 (including contingent interest, if
any) 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 or
purchase date (including upon the occurrence of a Fundamental Change, as
described below) 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, redemption date
or purchase date. The term "business day" means, with respect to any new 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.
In addition, we will pay contingent interest on the new notes under the
circumstances described below under " -- Contingent Interest."
CONTINGENT INTEREST
We will pay contingent interest to the holders of new notes during any
six-month period from May 15 to November 14 or from November 15 to May 14
commencing on or after May 15, 2008 for which the average trading
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price of a new note for the applicable five trading day reference period equals
or exceeds 120% of the principal amount of the new note as of the day
immediately preceding the first day of the applicable six-month interest period.
The five trading day reference period means the five trading days ending on the
second trading day immediately preceding the relevant six-month interest period.
During any period when contingent interest is payable, the contingent
interest payable per new note in respect of any six-month period will equal
0.25% of the average trading price of the new note for the applicable five
trading day reference period.
The record date and payment date for contingent interest, if any, will be
the same as the regular record date and payment date for the semi-annual
interest payments on the new notes.
The "trading price" of the new notes on any date of determination means
the average of the secondary market bid quotations per $1,000 principal amount
of new notes obtained by the bid solicitation agent for $10 million principal
amount of new notes at approximately 4:00 p.m., New York City time, on such
determination date from three unaffiliated, nationally recognized securities
dealers we select, provided that if:
- at least three such bids are not obtained by the bid solicitation
agent, or
- in our reasonable judgment, the bid quotations are not indicative of
the secondary market value of the new notes,
then the trading price of the new notes will equal (a) the then applicable
conversion rate of the new notes multiplied by (b) the average of the last
reported sale prices of our common stock for the five trading days ending on
such determination date, appropriately adjusted to take into account the
occurrence, during the period commencing on the first trading day during that
five day trading period and ending on such determination date, of any event that
would result in an adjustment of the conversion rate under the indenture.
The "last reported sale price" of our common stock on any date means the
closing sale price per share (or, if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average asked prices) on that date as
reported in composite transactions for the principal U.S. securities exchange on
which our common stock is traded or, if our common stock is not listed on a U.S.
national or regional securities exchange, as reported by the Nasdaq National
Market.
If our common stock is not listed for trading on a U.S. national or
regional securities exchange and not reported by the Nasdaq National Market on
the relevant date, the "last reported sale price" will be the last quoted bid
price for our common stock in the over-the-counter market on the relevant date
as reported by the National Quotation Bureau or similar organization.
If our common stock is not so quoted, the "last reported sale price" will
be the average of the mid-point of the last bid and ask prices for our common
stock on the relevant date from each of at least three nationally recognized
independent investment banking firms selected by us for this purpose.
The bid solicitation agent will initially be the trustee. We may change
the bid solicitation agent at any time, but the bid solicitation agent may not
be our affiliate. The bid solicitation agent will solicit bids from nationally
recognized securities dealers we believe are willing to bid for the new notes.
We will notify the holders of the new notes upon a determination that they
will be entitled to receive contingent interest during a six-month interest
period. In connection with providing such notice, we will issue a press release
and publish a notice containing information regarding the contingent interest
determination in a newspaper of general circulation in The City of New York or
publish the information on our web site or through such other public medium as
we may use at that time.
OPTIONAL REDEMPTION
No sinking fund is provided for the new notes. Prior to May 15, 2008, the
new notes will not be redeemable. On or after May 15, 2008, we may redeem for
cash all or part of the new notes at any time, upon not
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less than 30 nor more than 60 days' notice before the redemption date by mail to
the trustee, the paying agent and each holder of new notes, for a price equal to
100% of the principal amount of the new notes to be redeemed plus any accrued
and unpaid interest, including contingent interest, if any, to the redemption
date.
If we decide to redeem fewer than all of the outstanding new notes, the
trustee will select the new notes to be redeemed (in principal amounts of $1,000
or integral multiples of $1,000) by lot, on a pro rata basis or by another
method the trustee considers fair and appropriate.
If the trustee selects a portion of your new note for partial redemption
and you convert a portion of the same new note, the converted portion will be
deemed to be from the portion selected for redemption.
In the event of any redemption in part, we will not be required to:
- issue, register the transfer of or exchange any new note during a
period of 15 days before the mailing of the redemption notice, or
- register the transfer of or exchange any new note so selected for
redemption, in whole or in part, except the unredeemed portion of
any new note being redeemed in part.
CONVERSION RIGHTS
Subject to the conditions and during the periods and under the
circumstances described below, holders may convert each of their new notes into
a combination of cash and common stock as described under "-Net Share Settlement
Upon Conversion," initially at a conversion rate of 86.3558 shares of common
stock per $1,000 principal amount of new notes (equivalent to an initial
conversion price of $11.58 per share of common stock) at any time prior to the
close of business on May 15, 2023. The conversion rate and the equivalent
conversion price in effect at any given time are referred to as the "applicable
conversion rate" and the "applicable conversion price," respectively, and will
be subject to adjustment as described below. A holder may convert fewer than all
of such holder's new notes so long as the new notes converted are an integral
multiple of $1,000 principal amount.
Except as otherwise described below, you will not receive any cash payment
representing accrued and unpaid interest (including contingent interest, if any)
upon conversion of a new note and we will not adjust the conversion rate to
account for the accrued and unpaid interest. Delivery of cash and shares of
common stock in a collective amount equal to the "conversion value" (as such
term is defined under " -- Net Share Settlement Upon Conversion") will be deemed
to satisfy our obligation to pay the principal amount of the new notes,
including accrued and unpaid interest (including contingent interest, if any).
As a result, accrued and unpaid interest (including contingent interest, if any)
will be deemed paid in full rather than canceled, extinguished or forfeited. The
trustee will initially act as the conversion agent.
If a holder converts new notes, we will pay any documentary, stamp or
similar issue or transfer tax due on any issue of shares of our common stock
upon the conversion, unless the tax is due because the holder requests the
shares to be issued or delivered to a person other than the holder, in which
case the holder will pay that tax.
If a holder wishes to exercise its conversion right, such holder must
deliver a conversion notice, together, if the new notes are in certificated
form, with the certificated security, to the conversion agent along with
appropriate endorsements and transfer documents, if required, and pay any
transfer or similar tax, if required. Holders may obtain copies of the required
form of the conversion notice from the conversion agent. Cash payable upon
conversion, together with a certificate for the number of full shares of our
common stock, if any, into which any notes are converted, will be delivered
through the conversion agent as described under " -- Net Share Settlement Upon
Conversion."
If a holder has already delivered a purchase notice as described under
either " -- Purchase of New Notes by Us at the Option of the Holder" or " --
Fundamental Change Requires Purchase of New Notes by Us at the Option of the
Holder" with respect to a new note, however, the holder may not surrender that
new note for conversion until the holder has withdrawn the purchase notice in
accordance with the indenture.
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Holders of new notes at the close of business on a regular record date
will receive payment of interest, including contingent interest, if any, payable
on the corresponding interest payment date notwithstanding the conversion of
such new notes at any time after the close of business on such regular record
date. New notes surrendered for conversion by a holder during the period from
the close of business on any regular record date to the opening of business on
the immediately following interest payment date must be accompanied by payment
of an amount equal to the interest, including contingent interest, if any, that
the holder is to receive on the new notes; provided, however, that no such
payment need be made if (1) we have specified a redemption date that is after a
record date and on or prior to the immediately following interest payment date,
(2) we have specified a purchase date following a Fundamental Change that is
during such period or (3) any overdue interest (including overdue contingent
interest, if any) exists at the time of conversion with respect to such new
notes to the extent of such overdue interest.
Holders may surrender their new notes for conversion into cash and, if
applicable, shares of our common stock prior to stated maturity in only the
circumstances described below.
CONVERSION UPON SATISFACTION OF SALE PRICE CONDITION. A holder may
surrender any of its new notes for conversion into cash and, if applicable,
shares of our common stock in any calendar quarter (and only during such
calendar quarter) if the last reported sale price of our common stock for at
least 20 trading days during the period of 30 consecutive trading days ending on
the last trading day of the previous calendar quarter is greater than or equal
to 120% or, following May 15, 2008, 110% of the conversion price per share of
our common stock on such last trading day.
CONVERSION UPON REDEMPTION. If we redeem the new notes, holders may
convert new notes into cash and, if applicable, shares of our common stock at
any time prior to the close of business on the second business day immediately
preceding the redemption date, even if the new notes are not otherwise
convertible at such time.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS. If we elect to:
- distribute to all holders of our common stock certain rights
entitling them to purchase, for a period expiring within 60 days
after the date of the distribution, shares of our common stock at
less than the last reported sale price of a share of our common
stock on the trading day immediately preceding the declaration date
of the distribution, or
- distribute to all holders of our common stock our assets, debt
securities or certain rights to purchase our securities, which
distribution has a per share value as determined by our board of
directors exceeding 15% of the last reported sale price of a share
of our common stock on the trading day immediately preceding the
declaration date for such distribution,
we must notify the holders of the new notes at least 20 business days prior to
the ex-dividend date for such distribution. Once we have given such notice,
holders may surrender their new notes for conversion into cash and, if
applicable, common stock at any time until the earlier of the close of business
on the business day immediately prior to the ex-dividend date or our
announcement that such distribution will not take place, even if the new notes
are not otherwise convertible at such time; provided, however, that a holder may
not exercise this right to convert if the holder may participate in the
distribution without conversion. The "ex-dividend date" is the first date upon
which a sale of the common stock does not automatically transfer the right to
receive the relevant dividend from the seller of the common stock to its buyer.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash or
property other than securities, or if a transaction described in clause (3) of
the definition of Fundamental Change in "Fundamental Change Requires Purchase of
New Notes by Us at the Option of the Holder" (or in connection with a
transaction that would have been a Fundamental Change under such clause (3) but
for the existence of the 105% Trading Price Exception (as defined below)) occurs
on or prior to May 15, 2008 and results in an increase in the conversion rate of
the new notes as described under "Conversion Rate Adjustments - Adjustment to
Conversion Rate Upon Certain Fundamental Changes - General," a holder may
surrender new notes for conversion at any time from and after the date which is
15 days prior to the anticipated effective date of the transaction until and
including the date which is 15 days after the actual effective date of such
39
transaction (or, if such transaction also results in holders having a right to
require us to repurchase their new notes, until the Fundamental Change purchase
date).
If and only to the extent holders elect to convert new notes in connection
with a transaction described in clause (3) of the definition of Fundamental
Change in "Fundamental Change Requires Purchase of New Notes by Us at the Option
of the Holder" below (or in connection with a transaction that would have been a
Fundamental Change under such clause (3) but for the existence of the 105%
Trading Price Exception) that occurs on or prior to May 15, 2008 pursuant to
which 10% or more of the consideration for our common stock (other than cash
payments for fractional shares) in such Fundamental Change transaction consists
of cash, securities or other property that are not traded or scheduled to be
traded immediately following such transaction on a U.S. national securities
exchange or the Nasdaq National Market, we will increase the conversion rate by
a number of additional shares as described under "Conversion Rate Adjustments -
Adjustment to Conversion Rate Upon Certain Fundamental Changes - General" or, in
lieu thereof, we may in certain circumstances elect to adjust the conversion
rate and related conversion obligation so that the new notes are convertible
into shares of the acquiring or surviving entity as described under "Conversion
Rate Adjustments - Adjustment to Conversion Rate Upon Certain Fundamental
Changes - Conversion Upon a Public Acquirer Change of Control."
If we engage in certain reclassifications of our common stock or are a
party to a consolidation, merger, binding share exchange or transfer of all or
substantially all of our assets pursuant to which our common stock is converted
into cash, securities or other property, then at the effective time of the
transaction, the conversion value and the "net share amount" (as such term is
defined in " - Net Share Settlement Upon Conversion") will be based on the kind
and amount of cash, securities or other property which the holder would have
received if the holder had converted its new notes immediately prior to the
effectiveness of the transaction. In addition, if holders convert their new
notes following the effectiveness of the transaction, the net share amount will
be paid, at our option, in such cash, securities or other property rather than
shares of our common stock, in cash or in a combination thereof. Notwithstanding
the first sentence of this paragraph, if we elect to adjust the conversion rate
and our conversion obligation as described in "Conversion Rate Adjustments -
Adjustment to Conversion Rate Upon Certain Fundamental Changes - Conversion Upon
a Public Acquirer Change of Control," the provisions described in that section
will apply instead of the provisions described in the first sentence of this
paragraph.
If the transaction also constitutes a Fundamental Change, as defined
below, a holder can require us to purchase all or a portion of its new notes as
described below under " -- Fundamental Change Requires Purchase of New Notes by
Us at the Option of the Holder."
CONVERSION UPON CREDIT RATINGS EVENT. A holder may convert new notes into
our common stock and cash during any period in which the credit ratings assigned
to the new notes by both Moody's Investors Service, Inc. and S&P's Ratings
Services are lower than Ba2 and BB, respectively, or the new notes are no longer
rated by at least one of these ratings services or their successors.
CONVERSION RATE ADJUSTMENTS. The conversion rate will be subject to
adjustment, without duplication, upon the occurrence of any of the following
events:
(1) the payment of dividends and other distributions on our common
stock payable exclusively in shares of our common stock or our other
capital stock,
(2) the issuance to all holders of our common stock of rights or
warrants that allow the holders to purchase shares of our common stock for
a period expiring within 60 days from the date of issuance of the rights
or warrants at less than the market price on the record date for the
determination of shareholders entitled to receive the rights or warrants,
(3) subdivisions, combinations, or certain reclassifications of our
common stock,
(4) distributions to all holders of our common stock of our assets,
debt securities or rights or warrants to purchase our securities
(excluding (A) any dividend, distribution or issuance covered by clauses
(1) or (2) above and (B) any dividend or distribution paid exclusively in
cash), if these distributions, aggregated on a rolling twelve-month basis,
have a per share value exceeding 15% of the market price of our common
stock on the trading day immediately preceding the declaration of the
distribution. In cases
40
where (a) the fair market value per share of common stock of the assets,
debt securities or rights or warrants to purchase our securities
distributed to shareholders equals or exceeds the market price of our
common stock on the record date for the determination of shareholders
entitled to receive such distribution, or (b) the market price of our
common stock on the record date for determining the shareholders entitled
to receive the distribution exceeds the fair market value per share of
common stock of the assets, debt securities or rights or warrants so
distributed by less than $1.00, rather than being entitled to an
adjustment in the conversion rate, the holder will be entitled to receive
upon conversion, in addition to cash and, if applicable, shares of our
common stock, the kind and amount of assets, debt securities or rights or
warrants comprising the distribution that the holder would have received
if the holder had converted the holder's new notes immediately prior to
the record date for determining the shareholders entitled to receive the
distribution, and
(5) distributions made during any of our quarterly fiscal periods
consisting exclusively of cash to all holders of outstanding shares of
common stock in an aggregate amount that, together with (A) other all-cash
distributions made during such quarterly fiscal period, and (B) any cash
and the fair market value, as of the expiration of any tender or exchange
offer (other than consideration payable in respect of any odd-lot tender
offer) of any consideration payable in respect of any tender or exchange
offer, by us or any of our subsidiaries for shares of common stock
concluded during such quarterly fiscal period, exceed the product of $0.10
(appropriately adjusted from time to time for any stock dividends on or
subdivisions or combinations of our common stock) multiplied by the number
of shares of common stock outstanding on the record date for such
distribution.
With respect to paragraph (4) above, in the event that we make a
distribution to all holders of our common stock consisting of capital stock of,
or similar equity interests in, a subsidiary or other business unit of ours, the
conversion rate will be adjusted based on the market value of the securities so
distributed relative to the market value of our common stock, in each case based
on the average last reported sales prices of those securities for the 10 trading
days commencing on and including the fifth trading day after the date on which
"ex-dividend trading" commences for such dividend or distribution on the New
York Stock Exchange or such other national or regional exchange or market on
which the securities are then listed or quoted.
Notwithstanding the foregoing, in no event will the conversion rate exceed
129.5337, which we refer to as the "maximum conversion rate," as a result of an
adjustment pursuant to paragraphs (4) and (5) above or pursuant to a transaction
described in clause (3) of the definition of Fundamental Change (or in
connection with a transaction that would have been a Fundamental Change under
such clause (3) but for the existence of the 105% Trading Price Exception). The
maximum conversion rate will be appropriately adjusted from time to time for any
stock dividends on or subdivisions or combinations of our common stock.
In addition to these adjustments, we may increase the conversion rate as
our board of directors considers advisable to avoid or diminish any income tax
to holders of our common stock or rights to purchase our common stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes. We may also, from time to
time, to the extent permitted by applicable law, increase the conversion rate by
any amount for any period of at least 20 days if our board of directors has
determined that such increase would be in our best interests. If our board of
directors makes such a determination, it will be conclusive. We will give
holders of new notes at least 15 days' notice of such an increase in the
conversion rate.
As used in this prospectus, "market price" means the average of the last
reported sale prices per share of our common stock for the 20 trading day period
ending on the applicable date of determination (if the applicable date of
determination is a trading day or, if not, then on the last trading day prior to
the applicable date of determination), appropriately adjusted to take into
account the occurrence, during the period commencing on the first of the trading
days during the 20 trading day period and ending on the applicable date of
determination, of any event that would result in an adjustment of the conversion
rate under the indenture.
No adjustment to the conversion rate or the ability of a holder of a new
note to convert will be made if the holder will otherwise participate in the
distribution without conversion or in certain other cases.
The applicable conversion rate will not be adjusted:
41
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends
or interest payable on our securities and the investment of
additional optional amounts in shares of our common stock under any
plan,
- upon the issuance of any shares of our common stock or options or
rights to purchase those shares pursuant to any present or future
employee, director or consultant benefit plan or program of or
assumed by us or any of our subsidiaries,
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right or exercisable, exchangeable or convertible
security not described in the preceding bullet and outstanding as of
the date the new notes were first issued,
- for a change in the par value of our common stock, or
- for accrued and unpaid interest, including contingent interest, if
any.
If, upon conversion of the new notes, holders will receive shares of our
common stock, holders will also receive the rights under our shareholder rights
plan or under any future rights plan we may adopt, whether or not the rights
have separated from the common stock at the time of conversion unless, prior to
conversion, the rights have expired, terminated or been redeemed or exchanged.
See "Description of Capital Stock -- Shareholder Rights Plan."
No adjustment in the applicable conversion price will be required unless
the adjustment would require an increase or decrease of at least 1% of the
applicable conversion price. If the adjustment is not made because the
adjustment does not change the applicable conversion price by more than 1%, then
the adjustment that is not made will be carried forward and taken into account
in any future adjustment. Any adjustments not made to the conversion price of
the old notes because the adjustment did not change the conversion price by more
than 1% will be carried forward and taken into account in any future adjustment
of the conversion price of the new notes.
ADJUSTMENT TO CONVERSION RATE UPON CERTAIN FUNDAMENTAL CHANGES.
GENERAL. If and only to the extent holders elect to convert new notes in
connection with a transaction described in clause (3) of the definition of
Fundamental Change in " -- Fundamental Change Requires Purchase of New Notes by
Us at the Option of the Holder" below (or in connection with a transaction that
would have been a Fundamental Change under such clause (3) but for the existence
of the 105% Trading Price Exception) that occurs on or prior to May 15, 2008
pursuant to which 10% or more of the consideration for our common stock (other
than cash payments for fractional shares) in such Fundamental Change transaction
consists of cash or securities or other property that are not traded or
scheduled to be traded immediately following such transaction on a U.S. national
securities exchange or the Nasdaq National Market, we will increase the
conversion rate for the new notes surrendered for conversion by a number of
additional shares (the "additional shares") as described below.
The number of additional shares will be determined by reference to the
table below, based on the date on which such Fundamental Change transaction
becomes effective (the "effective date") and the price (the "stock price") paid
per share of our common stock in such Fundamental Change transaction. If holders
of our common stock receive only cash in such Fundamental Change transaction,
the stock price will be the cash amount paid per share. Otherwise, the stock
price will be the average of the last reported sale prices of our common stock
on the five trading days prior to but not including the effective date of such
Fundamental Change transaction.
The stock prices set forth in the first row of the table below (i.e.,
column headers) will be adjusted as of any date on which the conversion rate of
the new notes is adjusted, as described above under " - Conversion Rate
Adjustments." The adjusted stock prices will equal the stock prices applicable
immediately prior to such adjustment, multiplied by a fraction, the numerator of
which is the conversion rate immediately prior to the adjustment giving rise to
the stock price adjustment and the denominator of which is the conversion rate
as so adjusted. The number of additional shares will be adjusted in the same
manner as the conversion rate as set forth under " - Conversion Rate
Adjustments."
42
The following table sets forth the hypothetical stock price and number of
additional shares to be issuable per $1,000 principal amount of new notes:
STOCK PRICE
EFFECTIVE
DATE $ 7.72 $ 8.25 $ 9.00 $10.00 $12.50 $15.00 $17.50 $20.00 $22.50 $25.00 $27.50 $30.00 $32.50 $35.00 $37.50 $40.00
November
15, 2005 43.18 35.00 26.51 19.44 9.38 4.72 2.50 1.40 0.88 0.58 0.39 0.27 0.18 0.12 0.07 0.00
May 15,
2006 43.18 34.98 26.37 18.97 8.66 4.12 2.04 1.08 0.66 0.43 0.29 0.20 0.13 0.08 0.00 0.00
November
15, 2006 43.18 34.95 26.27 18.18 7.24 2.81 0.98 0.80 0.40 0.19 0.11 0.08 0.01 0.00 0.00 0.00
May 15,
2007 43.18 34.93 26.03 17.64 6.72 2.53 0.65 0.20 0.22 0.13 0.07 0.02 0.00 0.00 0.00 0.00
November
15, 2007 43.18 34.90 25.57 17.13 5.36 1.48 0.36 0.14 0.09 0.05 0.03 0.01 0.00 0.00 0.00 0.00
May 15,
2008 43.18 34.88 25.31 16.40 3.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
The stock prices and additional share amounts set forth above are based on
a common stock price of $7.72 at the time of the initial offering of the old
notes on May 13, 2003 and an initial conversion rate of 86.3558.
The exact stock prices and effective dates may not be set forth in the
table above, in which case:
- If the stock price is between the two stock price amounts in the
table or the effective date is between two effective dates in the
table, the number of additional shares will be determined by a
straight-line interpolation between the number of additional shares
set forth for the higher and lower stock price amounts and the two
dates, as applicable, based on a 365-day year.
- If the stock price is in excess of $40.00 per share (subject to
adjustment), no additional shares will be issuable upon conversion.
- If the stock price is less than $7.72 per share (subject to
adjustment), no additional shares will be issuable upon conversion.
Our obligation to satisfy the additional share requirement could be
considered a penalty, in which case the enforceability thereof would be subject
to general principles of reasonableness of economic remedies.
CONVERSION UPON A PUBLIC ACQUIRER CHANGE OF CONTROL. Notwithstanding the
foregoing, in the case of a public acquirer change of control (as defined
below), we may, in lieu of increasing the conversion rate by additional shares
as described under " - Adjustment to Conversion Rate Upon Certain Fundamental
Changes - General" above, elect to adjust the conversion rate and the related
conversion obligation such that from and after the effective date of such public
acquirer change of control, holders of the new notes will be entitled to convert
their new notes (subject to the satisfaction of the conditions to conversion
described under "Conversion Rights") into a number of shares of public acquirer
common stock (as defined below) by adjusting the conversion rate in effect
immediately prior to the public acquirer change of control by a fraction:
- the numerator of which will be (1) in the case of a share exchange,
consolidation or merger, pursuant to which our common stock is
converted into cash, securities or other property, the average value
of all cash and any other consideration (as determined by our board
of directors) paid or payable per share of common stock or (2) in
the case of any other public acquirer change of control, the average
of the last reported sale
43
price of our common stock for the five consecutive trading days
prior to but excluding the effective date of such public acquirer
change of control, and
- the denominator of which will be the average of the last reported
sale prices of the public acquirer common stock for the five
consecutive trading days commencing on the trading day next
succeeding the effective date of such public acquirer change of
control.
A "public acquirer change of control" means any event that would otherwise
obligate us to increase the conversion rate as described above under " -
Adjustment to Conversion Rate Upon Certain Fundamental Changes - General" and
the acquirer (or any other entity that directly or indirectly has beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of
the voting power of all shares of the acquirer's capital stock that are entitled
to vote generally in the election of directors or that is a direct or indirect
wholly owned subsidiary of the acquirer) has a class of common stock traded on a
national securities exchange or quoted on the Nasdaq National Market or which
will be so traded or quoted when issued or exchanged in connection with such
Fundamental Change (the "public acquirer common stock").
Upon a public acquirer change of control, if we so elect, holders may
convert their new notes (subject to the satisfaction of the conditions to
conversion described under "Conversion Rights") at the adjusted conversion rate
described in the second preceding paragraph but will not be entitled to the
increased conversion rate described under " - Adjustment to Conversion Rate Upon
Certain Fundamental Changes - General." We are required to notify holders of new
notes of our election in our notice to holders of such transaction. As described
above under "Conversion Rights - Conversion Upon Specified Corporate
Transactions," holders may convert their new notes upon a public acquirer change
of control during the periods specified. In addition, a holder may also, subject
to certain conditions, require us to repurchase all or a portion of its new
notes as described under "Fundamental Change Requires Purchase of New Notes by
Us at the Option of the Holder."
NET SHARE SETTLEMENT UPON CONVERSION.
Subject to certain exceptions described above under " -- Conversion upon
Specified Corporate Transactions," once new notes are tendered for conversion,
holders tendering the new notes will be entitled to receive, per $1,000
principal amount of new notes, cash and, if applicable, shares of our common
stock. The aggregate value of the cash and shares to which a holder is entitled
upon conversion of each $1,000 principal amount of new notes is referred to as
the "conversion value" and will be equal to the product of (1) the applicable
conversion rate on the conversion date, and (2) the average of the closing price
of our common stock for each of the ten consecutive trading days (appropriately
adjusted to take into account the occurrence during such period of stock splits
and similar events) beginning on the second trading day immediately following
the day the notes are submitted for conversion, which we refer to as the "10-day
average price."
Subject to certain exceptions described above and under " -- Conversion
upon Specified Corporate Transactions," we will deliver the conversion value of
the notes surrendered for conversion to converting holders as follows:
- an amount in cash, referred to as the "principal return," equal to
the lesser of (a) the aggregate conversion value of the notes to be
converted and (b) the aggregate principal amount of the notes to be
converted;
- if the aggregate conversion value of the notes to be converted is
greater than the principal return, an amount equal to such aggregate
conversion value less the principal return, referred to as the "net
share amount," at our option, in whole shares, referred to as the
"net shares," determined as set forth below, in cash or in a
combination thereof; and
- an amount in cash in lieu of any fractional shares of common stock.
The cash payment and the number of net shares, if any, to be paid will be
determined by dividing the net share amount by the 10-day average price.
44
The conversion value, principal return, net share amount and the number of
net shares, if any, will be determined by us at the end of the 10 consecutive
trading day period beginning on the second trading day immediately following the
day the notes are submitted for conversion, referred to as the "determination
date." We will pay the cash and deliver the net shares, if any, promptly after
the determination date, but in no event later than five business days after the
later of the determination date and the date the holder satisfies the conversion
procedure requirements.
PURCHASE OF NEW NOTES BY US AT THE OPTION OF THE HOLDER
Holders have the right to require us to purchase the new notes on May 15,
2008, May 15, 2013 and May 15, 2018 (each, a "purchase date"). Any new note
purchased by us on a purchase date will be paid for in cash. We will be required
to purchase any outstanding new notes for which a holder delivers a written
purchase notice to the paying agent. This notice must be delivered during the
period beginning at any time from the opening of business on the date that is 20
business days prior to the relevant purchase date until the close of business on
the fifth business day prior to the purchase date. If the purchase notice is
given and withdrawn during such period, we will not be obligated to purchase the
related new notes. Our purchase obligation will be subject to some additional
conditions as described in the indenture. Also, as described in the "Risk
Factors" section of this prospectus under the caption "Risks Related to the New
Notes -- We may not have the funds necessary to purchase the new notes at the
option of the holders or make the required cash payments upon a conversion of
the new notes," we may not have funds sufficient to purchase the new notes when
we are required to do so. Our failure to purchase the new notes when we are
required to do so will constitute an event of default under the indenture with
respect to the new notes.
The purchase price payable will be equal to 100% of the principal amount
of the new notes to be purchased plus any accrued and unpaid interest, including
contingent interest, if any, to such purchase date. For a discussion of the
United States federal income tax treatment of a holder receiving cash, see
"Material United States Federal Income Tax Consequences."
On or before the 20th business day prior to each purchase date, we will
provide to the trustee, the paying agent and to all holders of the new notes at
their addresses shown in the register of the registrar, and to beneficial owners
as required by applicable law, a notice stating, among other things:
- the purchase price,
- the name and address of the paying agent and the conversion agent,
and
- the procedures that holders must follow to require us to purchase
their new notes.
In connection with providing such notice, we will issue a press release
and publish a notice containing this information in a newspaper of general
circulation in The City of New York or publish the information on our web site
or through such other public medium as we may use at that time.
A notice electing to require us to purchase your new notes must state:
- if certificated new notes have been issued, the certificate numbers
of the new notes,
- the portion of the principal amount of new notes to be purchased, in
integral multiples of $1,000, and
- that the new notes are to be purchased by us pursuant to the
applicable provisions of the new notes and the indenture.
If the new notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
No new notes may be purchased at the option of holders if there has
occurred and is continuing an event of default other than an event of default
that is cured by the payment of the purchase price of the new notes.
45
You may withdraw any purchase notice in whole or in part by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the purchase date. The notice of
withdrawal must state:
- the principal amount of the withdrawn new notes,
- if certificated new notes have been issued, the certificate numbers
of the withdrawn new notes, and
- the principal amount, if any, which remains subject to the purchase
notice.
If the new notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
You must either effect book-entry transfer or deliver the new notes,
together with necessary endorsements, to the office of the paying agent to
receive payment of the purchase price. You will receive payment promptly
following the later of the purchase date or the time of book-entry transfer or
the delivery of the new notes. If the paying agent holds money sufficient to pay
the purchase price of the new notes on the business day following the purchase
date, then on and after the purchase date:
- the new notes will cease to be outstanding and interest, including
contingent interest, will cease to accrue (whether or not book-entry
transfer of the new notes is made or whether or not the new notes
are delivered to the paying agent), and
- all other rights of the holder will terminate (other than the right
to receive the purchase price upon delivery or transfer of the new
notes).
FUNDAMENTAL CHANGE REQUIRES PURCHASE OF NEW NOTES BY US AT THE OPTION OF THE
HOLDER
If a Fundamental Change (as defined below in this section) occurs at any
time prior to May 15, 2008, holders will have the right, at their option, to
require us to purchase any or all of their new notes for cash, or any portion of
the principal amount thereof, that is equal to $1,000 or an integral multiple of
$1,000. The cash price we are required to pay is equal to 100% of the principal
amount of the new notes to be purchased plus accrued and unpaid interest,
including contingent interest, if any, to the Fundamental Change purchase date.
If a Fundamental Change occurs on or after May 15, 2008 no holder will have a
right to require us to purchase any new notes, except as described above under "
-- Purchase of New Notes by Us at the Option of the Holder." For a discussion of
the United States federal income tax treatment of a holder receiving cash, see
"Material United States Federal Income Tax Consequences."
A "Fundamental Change" will be deemed to have occurred at the time after
the new notes are originally issued that any of the following occurs:
(1) our common stock or other common stock into which the new notes
are convertible is neither listed for trading on a United States national
securities exchange nor approved for trading on the Nasdaq National Market
or another established automated over-the-counter trading market in the
United States,
(2) a "person" or "group" within the meaning of Section 13(d) of the
Securities Exchange Act of 1934 other than us, our subsidiaries or our or
their employee benefit plans, files a Schedule TO or any other schedule,
form or report under the Securities Exchange Act of 1934 disclosing that
such person or group has become the direct or indirect ultimate
"beneficial owner," as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, of our common equity representing more than 50% of the voting
power of our common equity entitled to vote generally in the election of
directors,
(3) consummation of any share exchange, consolidation or merger of
us pursuant to which our common stock will be converted into cash,
securities or other property or any sale, lease or other transfer in one
transaction or a series of transactions of all or substantially all of the
consolidated assets of
46
us and our subsidiaries, taken as a whole, to any person other than us or
one or more of our subsidiaries; provided, however, that a transaction
where the holders of our common equity immediately prior to such
transaction have directly or indirectly, more than 50% of the aggregate
voting power of all classes of common equity of the continuing or
surviving corporation or transferee entitled to vote generally in the
election of directors immediately after such event shall not be a
Fundamental Change, or
(4) continuing directors (as defined below in this section) cease to
constitute at least a majority of our board of directors.
A Fundamental Change will not be deemed to have occurred in respect of any
of the foregoing, however, if either:
(1) the last reported sale price of our common stock for any five
trading days within the 10 consecutive trading days ending immediately
before the later of the Fundamental Change or the public announcement
thereof, equals or exceeds 105% of the conversion price of the new notes
in effect immediately before the Fundamental Change or the public
announcement thereof (the "105% Trading Exception"), or
(2) at least 90% of the consideration, excluding cash payments for
fractional shares, in the transaction or transactions constituting the
Fundamental Change consists of shares of capital stock traded on a
national securities exchange or quoted on the Nasdaq National Market or
which will be so traded or quoted when issued or exchanged in connection
with a Fundamental Change (these securities being referred to as "publicly
traded securities") and as a result of this transaction or transactions
the new notes become convertible into such publicly traded securities,
excluding cash payments for fractional shares.
For purposes of the above paragraph the term capital stock of any person
means any and all shares (including ordinary shares or American Depositary
Shares), interests, participations or other equivalents however designated of
corporate stock or other equity participations, including partnership interests,
whether general or limited, of such person and any rights (other than debt
securities convertible or exchangeable into an equity interest), warrants or
options to acquire an equity interest in such person.
"Continuing director" means a director who either was a member of our
board of directors on May 13, 2003 who becomes a member of our board of
directors subsequent to that date and whose appointment, election or nomination
for election by our shareholders is duly approved by a majority of the
continuing directors on our board of directors at the time of such approval,
either by a specific vote or by approval of the proxy statement issued by us on
behalf of the board of directors in which such individual is named as nominee
for director.
On or before the 30th day after the occurrence of a Fundamental Change, we
will provide to the trustee, the paying agent and to all holders of the new
notes at their addresses shown in the register of the registrar, and to
beneficial owners as required by applicable law, a notice stating, among other
things:
- the events causing the Fundamental Change,
- the date of the Fundamental Change,
- the last date on which a holder may exercise the purchase right,
- the Fundamental Change purchase price,
- the Fundamental Change purchase date,
- the name and address of the paying agent and the conversion agent,
- the conversion rate and any adjustments to the conversion rate,
47
- that new notes with respect to which a Fundamental Change purchase
notice has been given by the holder may be converted only if the
holder withdraws the Fundamental Change purchase notice in
accordance with the terms of the indenture, and
- the procedures that holders must follow to require us to purchase
their new notes.
In connection with providing such notice, we will issue a press release
and publish a notice containing this information in a newspaper of general
circulation in The City of New York or publish the information on our web site
or through such other public medium as we may use at that time.
To exercise the purchase right, holders must deliver, on or before the
35th day after the date of our notice of a Fundamental Change, subject to
extension to comply with applicable law, the new notes to be purchased, duly
endorsed for transfer, together with a written purchase notice and the form
entitled "Form of Fundamental Change Purchase Notice" duly completed, to the
paying agent. The purchase notice must state:
- if certificated, the certificate numbers of the new notes to be
delivered for purchase,
- the portion of the principal amount of new notes to be purchased,
which must be $1,000 or an integral multiple thereof, and
- that the new notes are to be purchased by us pursuant to the
applicable provisions of the new notes and the indenture.
If the new notes are not in certificated form, the notice must comply with
applicable DTC procedures.
Holders may withdraw any purchase notice (in whole or in part) by a
written notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the Fundamental Change purchase date. The
notice of withdrawal must state:
- the principal amount of the withdrawn new notes,
- if certificated new notes have been issued, the certificate numbers
of the withdrawn new notes, and
- the principal amount, if any, which remains subject to the purchase
notice.
If the new notes are not in certificated form, the notice must comply with
applicable DTC procedures.
We will be required to purchase the new notes no later than 35 days after
the date of our notice of the occurrence of the relevant Fundamental Change,
subject to extension to comply with applicable law. Holders will receive payment
of the Fundamental Change purchase price promptly following the later of the
Fundamental Change purchase date or the time of book-entry transfer or the
delivery of the new notes. If the paying agent holds money or securities
sufficient to pay the Fundamental Change purchase price of the new notes on the
business day following the Fundamental Change purchase date, then on and after
the Fundamental Change purchase date:
- the new notes will cease to be outstanding and interest, including
contingent interest, if any, will cease to accrue (whether or not
book-entry transfer of the new notes is made or whether or not the
new notes are delivered to the paying agent), and
- all other rights of the holder will terminate (other than the right
to receive the Fundamental Change purchase price upon delivery or
transfer of the new notes).
The rights of the holders to require us to purchase their new notes upon a
Fundamental Change could discourage a potential acquirer of us. The Fundamental
Change purchase feature, however, is not the result of
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management's knowledge of any specific effort to accumulate shares of our common
stock, to obtain control of us by any means or part of a plan by management to
adopt a series of anti-takeover provisions.
We will comply with the federal securities laws, including Rule 13e-4
under the Exchange Act, in connection with the purchase of any new notes that we
are required to make upon the occurrence of a Fundamental Change.
The term Fundamental Change is limited to specified transactions and may
not include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to purchase the new notes upon a
Fundamental Change may not protect holders in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
No new notes may be purchased at the option of holders upon a Fundamental
Change if there has occurred and is continuing an event of default other than an
event of default that is cured by the payment of the Fundamental Change purchase
price of the new notes.
The definition of Fundamental Change includes a phrase relating to the
sale, lease or other transfer of "all or substantially all" of our consolidated
assets. There is no precise, established definition of the phrase "substantially
all" under applicable law. Accordingly, the ability of a holder of the new notes
to require us to purchase its new notes as a result of the sale, lease or other
transfer of less than all of our assets may be uncertain.
If a Fundamental Change were to occur, we may not have enough funds to pay
the Fundamental Change purchase price. See "Risk Factors" under the caption
"Risks Related to the New Notes -- We may not have the funds necessary to
purchase the new notes at the option of the holders or make the required cash
payments upon a conversion of the new notes." Our failure to purchase the new
notes when required following a Fundamental Change will constitute an event of
default under the indenture with respect to the new notes. In addition, we have,
and may in the future incur, other indebtedness with similar change in control
provisions permitting holders to accelerate or to require us to purchase our
indebtedness upon the occurrence of similar events or on some specific dates.
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 new 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.
However, certain of these transactions occurring prior to May 15, 2008
could constitute a Fundamental Change (as defined above) permitting each holder
to require us to purchase the new notes of such holder as described above.
EVENTS OF DEFAULT
Each of the following will be an event of default under the indenture with
respect to the new notes:
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- our failure to pay the principal of or premium, if any, on the new
notes when due,
- our failure to pay any interest, including contingent interest, if
any, on the new notes 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 new notes have
given us written notice of the failure or 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 will not be an event of
default if, at the time such event occurs, CERC or CenterPoint
Houston, as the case may be, is not one of our affiliates,
- specified events involving bankruptcy, insolvency or reorganization
of us, CERC or CenterPoint Houston; provided that any specified
event involving CERC or CenterPoint Houston will not be an event of
default if, at the time such event occurs, CERC or CenterPoint
Houston, as the case may be, is not one of our affiliates,
- our failure to redeem new notes after we have exercised our
redemption option,
- our failure to satisfy our conversion obligation upon exercise of a
holder's conversion right, and
- our failure to purchase new notes upon the occurrence of a
Fundamental Change or exercise by a holder of its option to require
us to purchase such holder's new notes,
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, and the notice refers to the new notes generally, us and the indenture.
If an event of default occurs and is continuing, either the trustee or the
holders of at least 25% in principal amount of the outstanding new notes may
declare the principal amount of the new notes due and immediately payable. In
order to declare the principal amount of the new notes 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 new notes plus accrued
and unpaid interest, including contingent interest, if any, which has then been
accrued.
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 new notes then
outstanding under the indenture shall be due and payable immediately.
At any time after any declaration of acceleration of the new notes, 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:
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- we have paid or deposited with the trustee a sum sufficient to pay:
- all overdue installments of interest on the new notes,
including contingent interest, if any,
- the principal of (and premium, if any, on) the new notes 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 owed to the trustee under the indenture, and
- all events of default, other than the non-payment of the principal
amount of the new notes which became due solely by such declaration
of acceleration, have been cured or waived as provided in the
indenture. 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. The holders of a majority in
principal amount of the outstanding new notes 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 new 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.
A holder of a new note 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 new notes,
- holders of at least 25% in principal amount of the outstanding
new notes 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 new notes do not give the trustee a
direction inconsistent with the request.
However, these limitations do not apply to a suit by a holder of a new note
demanding payment of the principal, premium, if any, or interest on a new note
on or after the date the payment is due.
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.
MODIFICATION AND WAIVER
We may enter into one or more supplemental indentures with the trustee
without the consent of the holders of the new notes in order to:
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- evidence the succession of another corporation 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 to or change any provision of the indenture to the extent
necessary to issue new notes 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 any series of debt securities,
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 to 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 any series of debt securities,
- 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.
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 new 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,
- reduces the principal amount of, or any premium or interest
on, any debt security,
- reduces the redemption price, purchase price or Fundamental
Change purchase price of the new notes or changes the terms
applicable to redemption or purchase 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,
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- impairs the right to institute suit for the enforcement of any
payment on any new note,
- 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 new notes, or
decreases the conversion or exchange rate or increases the
conversion price of any convertible or exchangeable debt
security,
- alters the manner of calculation or rate of contingent
interest payable on any new note or extends 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.
Holders of a majority in principal amount of the outstanding new notes may
waive past defaults or noncompliance with restrictive provisions of the
indenture. However, the consent of holders of each outstanding new note is
required to:
- waive any default in the payment of principal, premium, if
any, or interest,
- waive any covenants and provisions of the indenture that may
not be amended without the consent of the holder of each
outstanding new note,
- waive any default in any payment of redemption price, purchase
price or Fundamental Change purchase price with respect to any
new notes, or
- waive any default which constitutes a failure to convert any
new note in accordance with its terms and the terms of the
indenture.
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.
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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 the payment or redemption of which
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.
We will generally be entitled to set any day as a record date for
determining the holders of outstanding new notes 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 new notes. 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 new notes on the record date. To be effective, the action
must be taken by holders of the requisite principal amount of new notes 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.
DEFEASANCE
The new notes will be subject to both legal defeasance and discharge and
covenant defeasance at our option. However, our obligations with respect to the
convertibility of the new notes will survive any such action by us.
DEFEASANCE AND DISCHARGE. We will be discharged from all of our
obligations with respect to the new notes, except for certain obligations to
convert, exchange or register the transfer of new notes, to replace stolen, lost
or mutilated new notes, 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 new notes 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 new notes to the stated maturity of the new
notes in accordance with the terms of the indenture and the new 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 new notes 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.
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 new notes. We, in order to exercise such option,
will be required to deposit, in trust for the benefit of the holders of the new
notes, 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 new notes to the stated maturity in accordance with the
terms of the indenture and the new notes. However, our obligations with respect
to the convertibility of the new notes will survive any such action by us. We
will also be required, among other things, to deliver to the trustee an opinion
of counsel to the effect that holders of the new notes 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 new notes and the new 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 the new notes at the time of their stated maturity, but
might not be sufficient to pay amounts due on such new notes upon any
acceleration resulting from the event of default. In such case, we would remain
liable for those payments.
SATISFACTION AND DISCHARGE
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We may discharge our obligations under the indenture while new notes
remain outstanding, other than our obligations in respect of conversion, if (1)
all outstanding debt securities issued under the indenture have become due and
payable, whether at stated maturity, or any redemption date or any purchase
date, (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 or purchase.
CALCULATIONS IN RESPECT OF NEW NOTES
We will be responsible for making all calculations called for under the
new notes. These calculations include, but are not limited to, determinations of
the market prices of our common stock, accrued interest payable on the new notes
and the conversion price of the new notes. We will make all these calculations
in good faith and, absent manifest error, our calculations will be final and
binding on holders of new notes. We will provide a schedule of our calculations
to each of the trustee and the conversion agent, and each of the trustee and
conversion agent is entitled to rely upon the accuracy of our calculations
without independent verification. The trustee will forward our calculations to
any holder of new notes upon the request of that holder.
SINKING FUND
We are not obligated to make mandatory redemption or sinking fund payments
with respect to the new 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 " -- Fundamental Change
Requires Purchase of New Notes by Us at the Option of the Holder," " --
Consolidation, Merger and Sale of Assets" and " -- Conversion Rights --
Conversion Upon Specified Corporate Transactions."
LIMITATIONS ON LIENS. So long as any of the new notes are outstanding, we
will not pledge, mortgage, hypothecate or grant a security interest in, or
permit any such mortgage, pledge, security interest or other lien upon, any
capital stock or other equity interests owned by us of any Significant
Subsidiary to secure any Indebtedness, without making effective provision
whereby the outstanding new notes are 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 to secure obligations
under our current credit facility 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 created on or after May 13, 2003 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
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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,
- 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 our 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 under this covenant 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.
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"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
- 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 will be deemed indebtedness of such person.
"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 interest
having ordinary voting power to elect a majority of the board of directors or
comparable governing body of such corporation or entity (irrespective of whether
at the time capital stock of any other class or classes of such corporation
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 new notes to the persons in whose names the
new 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 new
notes at their stated maturity to the persons to whom we pay the principal
amount of the new notes.
We will pay principal, premium, if any, and interest on the new 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
- by 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 new 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 new notes at all times.
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 new notes
that remains unclaimed for two years after the date the payments became due, may
be repaid to us. After we have been repaid, holders entitled to those payments
may only look to us
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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.
EXCHANGE AND TRANSFER OF THE NEW NOTES
We will issue the new notes in registered form, without coupons. We will
only issue new notes in denominations of integral multiples of $1,000.
Holders may present new 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 new 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 new
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 new notes. 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.
However, we are required to maintain a transfer agent in each place of payment
for the new notes at all times.
In the event we elect to redeem the new notes, neither we nor the trustee
will be required to register the transfer or exchange of new notes:
- during the period beginning at the opening of business 15 days
before the day we mail the notice of redemption for the new
notes and ending at the close of business on the day the
notice is mailed, or
- if we have selected the new notes for redemption, in whole or
in part, except for the unredeemed portion of the new notes.
BOOK-ENTRY SYSTEM
We will issue the new notes in the form of global securities. The global
securities will be deposited with, or on behalf of, DTC and registered in the
name of a nominee of DTC. Except under circumstances described below, the new
notes will not be issued in definitive form.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("participants") or persons
that may hold interests through participants. Ownership of beneficial interests
in a global security will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of persons other than participants). The laws of some states
require that some purchasers of securities take physical delivery of the
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a global security.
So long as DTC or its nominee is the registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the new notes represented by that global security for all
purposes under the indenture. Except as provided below, owners of beneficial
interests in a global security will not be entitled to have new notes
represented by that global security registered in their names, will not receive
or be entitled to receive physical delivery of new notes in definitive form and
will not be considered the owners or holders thereof under the indenture.
Principal and interest payments, if any, on new notes registered in the name of
DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner of the relevant global security. Neither we, the trustee,
any paying agent or the security registrar for the new notes will have any
responsibility or liability for any aspect of the records relating to nor
payments made on account of beneficial
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interests in a global security or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
We expect that DTC or its nominee, upon receipt of any payment of
principal or interest will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant global security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in a global security held through these participants 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 the participants.
Beneficial owners of interests in global securities who desire to convert
their interests into common stock should contact their brokers or other
participants or indirect participants through whom they hold such beneficial
interests to obtain information on procedures, including proper forms and
cut-off times, for submitting requests for conversion.
Unless and until they are exchanged in whole or in part for new notes in
definitive form, the global securities may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of
DTC. Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
If DTC at any time is unwilling or unable to continue as a depositary,
defaults in the performance of its duties as depositary or ceases to be a
clearing agency registered under the Securities Exchange Act of 1934 or other
applicable statute or regulation, and a successor depositary is not appointed by
us within 90 days, we will issue new notes in definitive form in exchange for
the global securities relating to the new notes. In addition, we may at any time
and in our sole discretion determine not to have the new notes or portions of
the new notes represented by one or more global securities and, in that event,
will issue individual new notes in exchange for the global security or
securities representing the new notes. Further, if we so specify with respect to
any new notes, an owner of a beneficial interest in a global security
representing the new notes may, on terms acceptable to us and the depositary for
the global security, receive individual new notes in exchange for the beneficial
interest. In any such instance, an owner of a beneficial interest in a global
security will be entitled to physical delivery in definitive form of new notes
represented by the global security equal in principal amount to the beneficial
interest, and to have the new notes registered in its name. New notes so issued
in definitive form will be issued as registered new notes in denominations of
$1,000 and integral multiples thereof, unless otherwise specified by us.
GOVERNING LAW
New York law will govern the indenture and the new notes.
THE TRUSTEE
JPMorgan Chase Bank, National Association (formerly JPMorgan Chase Bank)
will be the trustee, security registrar, paying agent and conversion agent under
the indenture for the new notes. As of May 31, 2005, the trustee served as
trustee for $2.3 billion aggregate principal amount of our outstanding debt
securities and $1.2 billion aggregate principal amount of outstanding pollution
control bonds issued on our behalf. 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 new notes
will be given by mail to the addresses as they appear in the security register.
LISTING
We do not intend to list the new notes on any national securities exchange
or automatic quotation system.
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DESCRIPTION OF CAPITAL STOCK
The following descriptions are summaries of material terms of our common
stock, preferred stock, articles of incorporation and bylaws. This summary is
qualified by reference to our amended and restated articles of incorporation and
amended and restated bylaws, each as amended to date, copies of which we have
previously filed with the SEC, and by the provisions of applicable law. Our
authorized capital stock consists of:
- 1,000,000,000 shares of common stock, par value $0.01 per
share, of which 309,102,661 shares were outstanding as of May
31, 2005 and
- 20,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares were outstanding as of May 31, 2005.
A series of our preferred stock, designated Series A Preferred Stock, has
been reserved for issuance upon exercise of the preferred stock purchase rights
attached to each share of our common stock pursuant to the shareholder's rights
plan discussed below.
COMMON STOCK
VOTING RIGHTS. Holders of our common stock are entitled to one vote for
each share on all matters submitted to a vote of shareholders, including the
election of directors. There are no cumulative voting rights. Subject to the
voting rights expressly conferred under prescribed conditions to the holders of
our preferred stock, the holders of our common stock possess exclusive full
voting power for the election of directors and for all other purposes.
DIVIDENDS. Subject to preferences that may be applicable to any of our
outstanding preferred stock, the holders of our common stock are entitled to
dividends when, as and if declared by the board of directors out of funds
legally available for that purpose.
LIQUIDATION RIGHTS. If we are liquidated, dissolved or wound up, the
holders of our common stock will be entitled to a pro rata share in any
distribution to shareholders, but only after satisfaction of all of our
liabilities and of the prior rights of any outstanding class of our preferred
stock, which may include the right to participate further with the holders of
our common stock in the distribution of any of our remaining assets.
PREEMPTIVE RIGHTS. Holders of our common stock are not entitled to any
preemptive or conversion rights or other subscription rights.
TRANSFER AGENT AND REGISTRAR. Our shareholder services division serves as
transfer agent and registrar for our common stock.
OTHER PROVISIONS. There are no redemption or sinking fund provisions
applicable to our common stock. No personal liability will attach to holders of
such shares under the laws of the State of Texas. Subject to the provisions of
our articles of incorporation and bylaws imposing certain supermajority voting
provisions, the rights of the holders of shares of our common stock may not be
modified except by a vote of at least a majority of the shares outstanding,
voting together as a single class.
PREFERRED STOCK
Our board of directors may cause us to issue preferred stock from time to
time in one or more series and may fix the number of shares and the terms of
each series without the approval of our shareholders. Our board of directors may
determine the terms of each series, including:
- the designation of the series,
- dividend rates and payment dates,
- redemption rights,
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- liquidation rights,
- sinking fund provisions,
- conversion rights,
- voting rights, and
- any other terms.
The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of our common stock. It could also
affect the likelihood that holders of our common stock will receive dividend
payments and payments upon liquidation. The issuance of shares of preferred
stock, or the issuance of rights to purchase shares of preferred stock, could be
used to discourage an attempt to obtain control of us. For example, if, in the
exercise of its fiduciary obligations, our board were to determine that a
takeover proposal was not in our best interest, the board could authorize the
issuance of a series of preferred stock containing class voting rights that
would enable the holder or holders of the series to prevent or make the change
of control transaction more difficult. Alternatively, a change of control
transaction deemed by the board to be in our best interest could be facilitated
by issuing a series of preferred stock having sufficient voting rights to
provide a required percentage vote of the shareholders.
For purposes of the rights plan described below, our board of directors
has designated a series of preferred stock to constitute the Series A Preferred
Stock. For a description of the rights plan, see " -- Anti-Takeover Effects of
Texas Laws and Our Charter and Bylaw Provisions" and " -- Shareholder Rights
Plan."
ANTI-TAKEOVER EFFECTS OF TEXAS LAWS AND OUR CHARTER AND BYLAW PROVISIONS
Some provisions of Texas law and our articles of incorporation and bylaws
could make the following more difficult:
- acquisition of us by means of a tender offer,
- acquisition of control of us by means of a proxy contest or
otherwise, or
- removal of our incumbent officers and directors.
These provisions, as well as our shareholder rights plan, are designed to
discourage coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board of directors. We believe that the benefits
of this increased protection gives us the potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or restructure
us, and that the benefits of this increased protection outweigh the
disadvantages of discouraging those proposals, because negotiation of those
proposals could result in an improvement of their terms.
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CHARTER AND BYLAW PROVISIONS
ELECTION AND REMOVAL OF DIRECTORS. The exact number of members of our
board of directors will be fixed from time to time by resolution of the board of
directors. Our board of directors is divided into three classes, Class I, Class
II and Class III. Each class is as nearly equal in number of directors as
possible. The terms of office of the directors of Class I expire at the annual
meeting of shareholders in 2006, of Class II expire at the annual meeting of
shareholders in 2007 and of Class III expire at the annual meeting of
shareholders in 2005. At each annual meeting, the shareholders elect the number
of directors equal to the number in the class whose term expires at the meeting
to hold office until the third succeeding annual meeting. This system of
electing and removing directors may discourage a third party from making a
tender offer for or otherwise attempting to obtain control of us, because it
generally makes it more difficult for shareholders to replace a majority of the
directors. In addition, no director may be removed except for cause, and,
subject to the voting rights expressly conferred under prescribed conditions to
the holders of our preferred stock, directors may be removed for cause only by
the holders of a majority of the shares of capital stock entitled to vote at an
election of directors. Subject to the voting rights expressly conferred under
prescribed conditions to the holders of our preferred stock, any vacancy
occurring on the board of directors and any newly created directorship may be
filled by a majority of the remaining directors in office or by election by the
shareholders.
SHAREHOLDER MEETINGS. Our articles of incorporation and bylaws provide
that special meetings of holders of common stock may be called only by the
chairman of our board of directors, our chief executive officer, the president,
the secretary, a majority of our board of directors or the holders of at least
50% of the shares outstanding and entitled to vote.
MODIFICATION OF ARTICLES OF INCORPORATION. In general, amendments to our
articles of incorporation which are recommended by the board of directors
require the affirmative vote of holders of at least a majority of the voting
power of all outstanding shares of capital stock entitled to vote in the
election of directors. The provisions described above under " -- Election and
Removal of Directors" and " -- Shareholder Meetings" may be amended only by the
affirmative vote of holders of at least 66 2/3% of the voting power of all
outstanding shares of capital stock entitled to vote in the election of
directors. The provisions described below under " -- Modification of Bylaws" may
be amended only by the affirmative vote of holders of at least 80% of the voting
power of all outstanding shares of capital stock entitled to vote in the
election of directors.
MODIFICATION OF BYLAWS. Our board of directors has the power to alter,
amend or repeal the bylaws or adopt new bylaws by the affirmative vote of at
least 80% of all directors then in office at any regular or special meeting of
the board of directors called for that purpose. The shareholders also have the
power to alter, amend or repeal the bylaws or adopt new bylaws by the
affirmative vote of holders of at least 80% of the voting power of all
outstanding shares of capital stock entitled to vote in the election of
directors, voting together as a single class.
OTHER LIMITATIONS ON SHAREHOLDER ACTIONS. Our bylaws also impose some
procedural requirements on shareholders who wish to:
- make nominations in the election of directors,
- propose that a director be removed,
- propose any repeal or change in the bylaws, or
- propose any other business to be brought before an annual or
special meeting of shareholders.
Under these procedural requirements, a shareholder must deliver timely
notice to the corporate secretary of the nomination or proposal along with
evidence of:
- the shareholder's status as a shareholder,
- the number of shares beneficially owned by the shareholder,
- a list of the persons with whom the shareholder is acting in
concert, and
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- the number of shares such persons beneficially own.
To be timely, a shareholder must deliver notice:
- in connection with an annual meeting of shareholders, not less
than 90 nor more than 180 days prior to the date on which the
immediately preceding year's annual meeting of shareholders
was held; provided that if the date of the annual meeting is
advanced by more than 30 days prior to or delayed by more than
60 days after the date on which the immediately preceding
year's annual meeting of shareholders was held, not less than
180 days prior to such annual meeting and not later than the
last to occur of (i) the 90th day prior to such annual meeting
or (ii) the 10th day following the day on which we first make
public announcement of the date of such meeting, or
- in connection with a special meeting of shareholders, not less
than 40 nor more than 60 days prior to the date of the special
meeting.
In order to submit a nomination for the board of directors, a shareholder
must also submit information with respect to the nominee that we would be
required to include in a proxy statement, as well as some other information. If
a shareholder fails to follow the required procedures, the shareholder's nominee
or proposal will be ineligible and will not be voted on by our shareholders.
LIMITATION ON LIABILITY OF DIRECTORS. Our articles of incorporation
provide that no director will be personally liable to us or our shareholders for
monetary damages for breach of fiduciary duty as a director, except as required
by law as in effect from time to time. Currently, Texas law requires that
liability be imposed for the following:
- any breach of the director's duty of loyalty to us or our
shareholders,
- any act or omission not in good faith that constitutes a
breach of duty of the director to the corporation or an act or
omission that involves intentional misconduct or a knowing
violation of law,
- a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action
taken within the scope of a director's office, and
- an act or omission for which the liability of a director is
expressly provided for by statute.
Our bylaws provide that we will indemnify our officers and directors and advance
expenses to them in connection with proceedings and claims, to the fullest
extent permitted by the Texas Business Corporation Act ("TBCA"). The bylaws
authorize our board of directors to indemnify and advance expenses to people
other than our officers and directors in certain circumstances.
TEXAS ANTI-TAKEOVER LAW
We are subject to Article 13.03 of the TBCA. That section prohibits Texas
corporations from engaging in a wide range of specified transactions with any
affiliated shareholder during the three-year period immediately following the
affiliated shareholder's acquisition of shares in the absence of certain board
of director or shareholder approvals. An affiliated shareholder is any person,
other than the corporation and any of its wholly owned subsidiaries, that is or
was within the preceding three-year period the beneficial owner of 20% or more
of any class or series of stock entitled to vote generally in the election of
directors. Article 13.03 may deter any potential unfriendly offers or other
efforts to obtain control of us that are not approved by our board. This may
deprive the shareholders of opportunities to sell shares of our common stock at
a premium to the prevailing market price.
SHAREHOLDER RIGHTS PLAN
Each share of our common stock includes one right to purchase from us a
unit consisting of one one-thousandth of a share of our Series A Preferred Stock
at a purchase price of $42.50 per unit, subject to adjustment. The rights are
issued pursuant the Rights Agreement dated as of January 1, 2002 between us and
JPMorgan Chase
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Bank, National Association (formerly JPMorgan Chase Bank) (the "Rights
Agreement"). We have summarized selected portions of the Rights Agreement and
the rights below. This summary is qualified by reference to the Rights
Agreement, a copy of which we have previously filed with the SEC.
DETACHMENT OF RIGHTS; EXERCISABILITY. The rights will attach to all
certificates representing our common stock issued prior to the "release date."
That date will occur, except in some cases, on the earlier of:
- ten days following a public announcement that a person or
group of affiliated or associated persons, whom we refer to
collectively as an "acquiring person," has acquired, or
obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding shares of our common stock, or
- ten business days following the start of a tender offer or
exchange offer that would result in a person becoming an
acquiring person.
Our board of directors may defer the release date in some circumstances. Also,
some inadvertent acquisitions of our common stock will not result in a person
becoming an acquiring person if the person promptly divests itself of sufficient
common stock.
Until the release date:
- common stock certificates will evidence the rights,
- the rights will be transferable only with those certificates,
- new common stock certificates will contain a notation
incorporating the Rights Agreement by reference, and
- the surrender for transfer of any common stock certificate
will also constitute the transfer of the rights associated
with the common stock represented by the certificate.
The rights are not exercisable until the release date and will expire at
the close of business on December 31, 2011, unless we redeem or exchange them at
an earlier date as described below.
As soon as practicable after the release date, the rights agent will mail
certificates representing the rights to holders of record of common stock as of
the close of business on the release date. From that date on, only separate
rights certificates will represent the rights. We will also issue rights with
all shares of common stock issued prior to the release date. We will also issue
rights with shares of common stock issued after the release date in connection
with some employee benefit plans or upon conversion of some securities,
including the notes offered by this prospectus. Except as otherwise determined
by our board of directors, we will not issue rights with any other shares of
common stock issued after the release date.
FLIP-IN EVENT. A flip-in event will occur under the Rights Agreement when
a person becomes an acquiring person other than pursuant to a "permitted offer."
The Rights Agreement defines "permitted offer" as a tender or exchange offer for
all outstanding shares of our common stock at a price and on terms that a
majority of the independent directors of our board of directors determines to be
fair to and otherwise in the best interests of us and the best interest of our
shareholders.
If a flip-in event occurs, each right, other than any right that has
become null and void as described below, will become exercisable to receive (in
lieu of the shares of Series A Preferred Stock otherwise purchasable) the number
of shares of common stock, or in certain circumstances, cash, property or other
securities, which has a "current market price" equal to two times the exercise
price of the right. Please refer to the Rights Agreement for the definition of
"current market price."
FLIP-OVER EVENT. A "flip-over event" will occur under the Rights Agreement
when, at any time from and after the time a person becomes an acquiring person:
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- we are acquired or we acquire any person in a merger or other
business combination transaction, other than specified mergers
that follow a permitted offer, or
- 50% or more of our assets, cash flow or earning power is sold
or transferred.
If a flip-over event occurs, each holder of a right, except rights that are
voided as described below, will thereafter have the right to receive, on
exercise of the right, a number of shares of common stock of the acquiring
company that has a current market price equal to two times the exercise price of
the right.
When a flip-in event or a flip-over event occurs, all rights that then
are, or under the circumstances the Rights Agreement specifies previously were,
beneficially owned by an acquiring person or specified related parties will
become null and void in the circumstances the Rights Agreement specifies.
SERIES A PREFERRED STOCK. After the release date, each right will entitle
the holder to purchase a one one-thousandth share of our Series A Preferred
Stock, which fraction will be essentially the economic equivalent of one share
of common stock.
ANTI-DILUTION. The number of outstanding rights associated with a share of
common stock, the number of fractional shares of Series A Preferred Stock
issuable upon exercise of a right and the exercise price of the right are
subject to adjustment in the event of certain stock dividends on, or a
subdivision, combination or reclassification of, our common stock occurring
prior to the release date. The exercise price of the rights and the number of
fractional shares of Series A Preferred Stock or other securities or property
issuable on exercise of the rights are subject to adjustment from time to time
to prevent dilution in the event of certain transactions affecting the Series A
Preferred Stock.
With some exceptions, we will not be required to adjust the exercise price
of the rights until cumulative adjustments amount to at least 1% of the exercise
price. The Rights Agreement also will not require us to issue fractional shares
of Series A Preferred Stock that are not integral multiples of the specified
fractional share and, in lieu thereof, we will make a cash adjustment based on
the market price of the Series A Preferred Stock on the last trading date prior
to the date of exercise. Pursuant to the Rights Agreement, we reserve the right
to require prior to the occurrence of any flip-in event or flip-over event that,
on any exercise of rights, a number of rights must be exercised so that it will
issue only whole shares of Series A Preferred Stock.
REDEMPTION OF RIGHTS. At any time until the time a person becomes an
acquiring person, we may redeem the rights in whole, but not in part at a price
of $.005 per right, payable, at our option, in cash, shares of common stock or
such other consideration as our board of directors may determine. Upon such
redemption, the rights will terminate and the only right of the holders of
rights will be to receive the $.005 redemption price.
EXCHANGE OF RIGHTS. At any time after the occurrence of a flip-in event,
and prior to a person's becoming the beneficial owner of 50% or more of our
outstanding common stock or the occurrence of a flip-over event, we may exchange
the rights (other than rights owned by an acquiring person or an affiliate or an
associate of an acquiring person, which will have become void, in whole or in
part), at an exchange ratio of one share of common stock, and/or other equity
securities deemed to have the same value as one share of common stock, per
right, subject to adjustment.
SUBSTITUTION. If we have an insufficient number of authorized but unissued
shares of common stock available to permit an exercise or exchange of rights
upon the occurrence of a flip-in event, we may substitute certain other types of
property for common stock so long as the total value received by the holder of
the rights is equivalent to the value of the common stock that the shareholder
would otherwise have received. We may substitute cash, property, equity
securities or debt, reduce the exercise price of the rights or use any
combination of the foregoing.
NO RIGHTS AS A SHAREHOLDER. Until a right is exercised, a holder of rights
will have no rights to vote or receive dividends or any other rights as a holder
of our preferred or common stock.
AMENDMENT OF TERMS OF RIGHTS. Our board of directors may amend any of the
provisions of the Rights Agreement, other than the redemption price, at any time
prior to the time a person becomes an acquiring person.
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Thereafter, the board of directors may only amend the Rights Agreement in order
to cure any ambiguity, defect or inconsistency or to make changes that do not
materially and adversely affect the interests of holders of the rights,
excluding the interests of any acquiring person.
RIGHTS AGENT. JPMorgan Chase Bank, National Association (formerly JPMorgan
Chase Bank) will serve as rights agent with regard to the rights.
ANTI-TAKEOVER EFFECTS. The rights will have anti-takeover effects. They
will cause substantial dilution to any person or group that attempts to acquire
us without the approval of our board of directors. As a result, the overall
effect of the rights may be to make more difficult or discourage any attempt to
acquire us even if such acquisition may be favorable to the interests of our
shareholders. Because our board of directors can redeem the rights or approve a
permitted offer, the rights should not interfere with a merger or other business
combination approved by the board of directors.
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MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES
GENERAL
The following sections under this heading describe the material United
States federal income tax consequences relating to the exchange offer and the
ownership and disposition of the new notes. The statements of legal conclusion
herein constitute the opinion of our tax counsel, Baker Botts L.L.P., and are
based on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), final and temporary Treasury regulations, rulings and judicial
decisions now in effect, all of which are subject to change possibly with
retroactive effect or differing interpretations. We have not sought any ruling
from the Internal Revenue Service (the "IRS") with respect to the conclusions
reached herein, and the IRS may challenge one or more of the conclusions
described herein. In such event, the United States federal income tax
consequences of the exchange offer and the ownership and disposition of the new
notes could differ from those described herein. Except where noted, the
following deals only with old notes and new notes held as capital assets by U.S.
holders (as defined below) who own old notes and acquire new notes pursuant to
the exchange offer.
The following sections do not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, certain former
citizens or former long-term residents of the United States, tax-exempt
entities, persons holding old notes or new notes in a tax-deferred or
tax-advantaged account or persons holding old notes or new notes as a hedge
against currency risks, as a position in a "straddle" or as part of a "hedging"
or "conversion" transaction for tax purposes.
We do not address all of the tax consequences that may be relevant to an
investor in old notes or new notes. In particular, we do not address:
- the United States federal income tax consequences to
shareholders in, or partners or beneficiaries of, an entity
that is a holder of old notes or new notes,
- the United States federal estate, gift or alternative minimum
tax consequences of the purchase, ownership or disposition of
old notes or new notes,
- the United States federal income tax consequences to U.S.
holders whose functional currency is not the United States
dollar, or
- any state, local or foreign tax consequences of the purchase,
ownership or disposition of old notes or new notes.
Persons considering the exchange offer should consult their own tax
advisors concerning the application of the United States federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of old notes or new notes arising under other United
States federal tax laws and the laws of any other taxing jurisdiction.
For purposes of the following sections, a U.S. holder is a beneficial
owner of old notes or new notes that for U.S. federal income tax purposes is:
- an individual citizen or resident of the United States,
- a corporation, including any entity treated as a corporation
for United States federal income tax purposes, created or
organized in or under the laws of the United States, or any
political subdivision thereof,
- an estate if its income is subject to United States federal
income taxation regardless of its source, or
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- a trust (1) that is subject to the primary supervision of a
United States court and the control of one or more United
States persons or (2) that has a valid election in effect
under applicable Treasury regulations to be treated as a
United States person.
A non-U.S. holder is a beneficial owner of old notes or new notes that is
neither a U.S. holder nor a partnership.
If a partnership (including for this purpose any entity treated as a
partnership for United States federal income tax purposes) is a beneficial owner
of old notes or new notes, the United States federal income tax treatment of a
partner in the partnership will generally depend on the status of the partner
and the activities of the partnership. A holder of old notes or new notes that
is a partnership and partners in such partnership should consult their
individual tax advisors about the United States federal income tax consequences
of holding and disposing of old notes or new notes.
EXCHANGE OF OLD NOTES FOR NEW NOTES
CHARACTERIZATION OF THE EXCHANGE
Under current Treasury regulations, the exchange of old notes for new
notes pursuant to the exchange offer will be treated as an exchange for United
States federal income tax purposes (a "Tax Exchange") only if, based on all of
the facts and circumstances, the legal rights and obligations under the new
notes differ from those under the old notes to a degree that is economically
significant. Although there is no authority directly on point interpreting these
regulations, our tax counsel is of the opinion that the exchange should not
result in a Tax Exchange because in their opinion the differences between the
legal rights and obligations under the new notes and those under the old notes
should not be viewed as being economically significant. Accordingly, we intend
to take the position that the exchange will not constitute a Tax Exchange. That
position, however, is subject to uncertainty and could be challenged by the IRS.
TREATMENT IF NO TAX EXCHANGE
If the legal rights and obligations under the new notes do not differ from
those under the old notes to an economically significant degree, the exchange
will not be treated as a Tax Exchange and the new notes will be treated as a
continuation of the old notes. In that case, apart from the receipt of the
exchange fee (discussed below), there will be no United States federal income
tax consequences to a holder who exchanges old notes for new notes pursuant to
the exchange offer, and any such holder will have the same adjusted tax basis
and holding period in the new notes as it had in the old notes immediately
before the exchange. We intend to treat payment of the exchange fee as
consideration to holders for participating in the exchange offer and we will
report such payments to holders and to the IRS for information reporting
purposes in accordance with such treatment. Under that treatment, such payment
generally would result in ordinary income to holders participating in the
exchange offer.
POSSIBLE ALTERNATIVE TAX CHARACTERIZATION OF THE EXCHANGE
As stated above, in the opinion of our tax counsel, the exchange should
not constitute a Tax Exchange. However, the IRS may not agree with this
conclusion. If the exchange were determined to constitute a Tax Exchange, the
United States federal income tax consequences of the exchange would depend on
whether or not the exchange was treated as a tax-free reorganization. If the
exchange were so treated, a holder of old notes would not recognize any loss on
the exchange and would recognize gain on the exchange only to the extent of the
exchange fee. If the exchange constituted a Tax Exchange but was not treated as
a tax-free reorganization, the exchange would be a fully taxable transaction,
and an exchanging holder would be required to recognize any gain (taxable as
ordinary income) or any loss in an amount equal to the difference between the
amount realized on the exchange and the holder's adjusted basis in the old notes
surrendered. Under certain circumstances, all or part of any loss on such
exchange may be a capital loss. For these purposes, such holder's amount
realized generally would equal the fair market value of the new notes received
plus the exchange fee.
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CLASSIFICATION AND TREATMENT OF THE NEW NOTES
TREATMENT IF NO TAX EXCHANGE
If the exchange of the old notes for new notes does not constitute a Tax
Exchange, then, apart from the treatment of the exchange fee, the material
United States federal income tax consequences to holders of the new notes will
be the same as those relating to the old notes. As such, holders of the new
notes will continue to be subject to the contingent payment debt instrument
regulations ("CPDI Regulations"), discussed immediately below.
CLASSIFICATION UNDER THE CPDI REGULATIONS
As with the old notes, we intend to treat the new notes as indebtedness
subject to the CPDI Regulations for United States federal income tax purposes.
Pursuant to the terms of the indenture under which the new notes will be issued,
we and each holder of the new notes agree to treat the new notes as debt
instruments subject to the CPDI Regulations. In addition, under the indenture,
each holder will be deemed to have agreed to treat the fair market value of our
common stock received by such holder upon conversion as a contingent payment and
to accrue interest with respect to the new notes as original issue discount for
United States federal income tax purposes according to the "noncontingent bond
method," set forth in section 1.1275-4(b) of the CPDI Regulations, using the
comparable yield (as defined below) compounded semiannually and the projected
payment schedule (as defined below) determined by us. The following sections
describe the U.S. federal income tax consequences of the ownership and
disposition of the new notes based on the treatment described above.
The application of the CPDI Regulations to instruments such as the new
notes is uncertain in several respects, however, and, as a result, the IRS or a
court may not agree with the treatment described in this prospectus. Any
differing treatment could affect the amount, timing and character of income,
gain or loss in respect of an investment in the new notes. In particular, a
holder might be required to accrue interest income at a higher or lower rate,
might not recognize income, gain or loss upon conversion of the new notes into
shares of our common stock, and might recognize capital gain or loss upon a
taxable disposition of the new notes. Holders should consult their tax advisors
concerning the tax treatment of holding and disposing of the new notes.
ACCRUAL OF INTEREST ON THE NEW NOTES
Pursuant to the CPDI Regulations, a U.S. holder will be required to accrue
interest income on the new notes, which we sometimes refer to as original issue
discount, in the amounts described below, regardless of whether the U.S. holder
uses the cash or accrual method of tax accounting. Accordingly, U.S. holders
will likely be required to include in taxable income in each year in excess of
the accruals on the new notes for non-tax purposes (i.e., in excess of the
stated semi-annual cash interest payable on the notes and any contingent
interest payments actually received in that year).
The CPDI Regulations provide that a U.S. holder must accrue an amount of
ordinary interest income, as original issue discount for United States federal
income tax purposes, for each accrual period prior to and including the maturity
date of the notes that equals:
- the product of (1) the adjusted issue price (as defined below)
of the notes as of the beginning of the accrual period and (2)
the comparable yield (as defined below) of the notes, adjusted
for the length of the accrual period,
- divided by the number of days in the accrual period, and
- multiplied by the number of days during the accrual period
that the U.S. holder held the notes.
The new notes' issue price is the first price at which a substantial
amount of the old notes were sold to the public, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The adjusted issue price of a new
note is its issue price increased by any interest income previously accrued on
the old notes and new notes, determined without regard to any adjustments to
interest accruals described below, and decreased by the amount of any projected
payments (as
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defined below) previously made (including payments of stated cash interest) with
respect to the old notes and the new notes.
Unless certain conditions are met, the term "comparable yield" means the
annual yield we would pay, as of the initial issue date of the old notes, on a
noncontingent, nonconvertible, fixed-rate debt instrument with terms and
conditions otherwise comparable to those of the old notes. We intend to take the
position that the comparable yield for the new notes is the same as that for the
old notes, which is 5.81%, compounded semiannually. The precise manner of
calculating the comparable yield, however, is not entirely clear. If the
comparable yield were successfully challenged by the IRS, the redetermined yield
could differ materially from the comparable yield provided by us. Moreover, the
projected payment schedule could differ materially from the projected payment
schedule provided by us.
The CPDI Regulations require that we provide to U.S. holders, solely for
the United States federal income tax purposes, a schedule of the projected
amounts of payments, which we refer to as projected payments, on the new notes.
This schedule must produce the comparable yield. The projected payment schedule
includes the semiannual stated cash interest payable on the new notes and the
old notes at the rate of 3.75% per annum, estimates for certain contingent
interest payments and an estimate for a payment at maturity taking into account
the conversion feature. In this connection, the fair market value of any common
stock (and cash, if any) received by a holder upon conversion will be treated as
a contingent payment.
The comparable yield and the schedule of projected payments for the new
notes will be the same as those set forth in the indenture relating to the old
notes, and will also be set forth in the indenture relating to the new notes.
U.S. holders may also obtain the projected payment schedule by submitting a
written request for such information to: CenterPoint Energy, Inc., 1111
Louisiana, Houston, Texas 77002, Attention: Treasurer.
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. holder's
interest accruals and adjustments thereof in respect of the new notes for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the new notes.
Amounts treated as interest under the CPDI Regulations are treated as
original issue discount for all purposes of the Code.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE NEW NOTES
As noted above, the projected payment schedule includes amounts
attributable to the stated semi-annual cash interest payable on the new notes
and the old notes. Accordingly, the receipt of the stated semi-annual cash
interest payments will not be separately taxable to U.S. holders. If, during any
taxable year, a U.S. holder receives actual payments with respect to the new
notes for that taxable year that in the aggregate exceed the total amount of
projected payments for that taxable year, the U.S. holder will incur a "net
positive adjustment" under the CPDI Regulations equal to the amount of such
excess. The U.S. holder will treat a "net positive adjustment" as additional
interest income. For this purpose, the payments in a taxable year include the
fair market value of property received in that year, including the fair market
value of our common stock received upon conversion.
If a U.S. holder receives in a taxable year actual payments with respect
to the new notes for that taxable year that in the aggregate are less than the
amount of projected payments for that taxable year, the U.S. holder will incur a
"net negative adjustment" under the CPDI Regulations equal to the amount of such
deficit. This adjustment will (a) first reduce the U.S. holder's interest income
on the new notes for that taxable year and (b) to the extent of any excess after
the application of (a), give rise to an ordinary loss to the extent of the U.S.
holder's interest income on the new notes during prior taxable years, reduced to
the extent such interest was offset by prior net negative adjustments. Any
negative adjustments in excess of the amounts described in (a) and (b) will be
carried forward and treated as a negative adjustment in the succeeding taxable
year and will offset future interest income accruals in respect of the new notes
or will reduce the amount realized on the sale, exchange, or purchase by us at
the holder's option, conversion, redemption or retirement of the new notes.
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SALE, EXCHANGE, CONVERSION OR REDEMPTION OF THE NEW NOTES
Generally, the sale or exchange of a new note, the purchase of a new note
by us at the holder's option or the redemption or retirement of a new note for
cash will result in taxable gain or loss to a U.S. holder. As described above,
our calculation of the comparable yield and the schedule of projected payments
for the new notes includes the receipt of common stock upon conversion as a
contingent payment with respect to the new notes. Accordingly, we intend to
treat the receipt of our common stock by a U.S. holder upon the conversion of a
new note as a contingent payment under the CPDI Regulations. Under this
treatment, conversion also would result in taxable gain or loss to the U.S.
holder. As described above, holders will be deemed to have agreed to be bound by
our determination of the comparable yield and the schedule of projected
payments.
The amount of gain or loss on a taxable sale, exchange, purchase by us at
the holder's option, conversion, redemption or retirement would be equal to the
difference between (a) the amount of cash plus the fair market value of any
other property received by the U.S. holder, including the fair market value of
any of our common stock received, and (b) the U.S. holder's adjusted tax basis
in the new note. A U.S. holder's adjusted tax basis in a new note will generally
be equal to the U.S. holder's original purchase price for the old note,
increased by any interest income previously accrued by the U.S. holder with
respect to the old notes and the new notes (determined without regard to any
adjustments to interest accruals described above), and decreased by the amount
of any projected payments that have been previously made in respect of the old
notes and the new notes to the U.S. holder (without regard to the actual amount
paid). Gain recognized upon a sale, exchange, purchase by us at the holder's
option, conversion, redemption or retirement of a new note will generally be
treated as ordinary interest income; any loss will be ordinary loss to the
extent of interest previously included in income, and thereafter, capital loss
(which will be long-term if the note is held for more than one year). The
deductibility of net capital losses by individuals and corporations is subject
to limitations.
A U.S. holder's tax basis in our common stock received upon a conversion
of a new note will equal the then current fair market value of such common
stock. The U.S. holder's holding period for the common stock received will
commence on the day immediately following the date of conversion.
TREATMENT IF TAX EXCHANGE
If the exchange does constitute a Tax Exchange, we would need to determine
a new comparable yield and projected payment schedule for the new notes. Holders
would remain subject to the requirements of the CPDI Regulations, including,
among other things, the requirement that holders accrue interest for United
States federal income tax purposes based on the new comparable yield, and
holders may be required to accrue interest income at a significantly different
rate and on a significantly different schedule than is applicable to the old
notes. For purposes of the CPDI Regulations, the issue price of the new notes
generally would be equal to their fair market value at the time of the exchange
and would be adjusted in subsequent periods in a manner consistent with the
description above in " -- Classification Under the CPDI Regulations --
Adjustments to Interest Accruals on the New Notes."
CONSTRUCTIVE DIVIDENDS
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for United States federal
income tax purposes and, in accordance with the anti-dilution provisions of the
new notes, the conversion rate of the new notes is increased, such increase may
be deemed to be the payment of a taxable dividend to holders of the new notes.
Generally, a holder's basis in a new note will be increased by the amount of any
such deemed taxable dividend. Such treatment could also occur if and to the
extent certain adjustments in the conversion rate (such as the adjustment to the
conversion rate described in "Description of the New Notes -- Conversion Rights
-- Adjustment to the Conversion Rate Upon Certain Fundamental Changes") increase
the proportionate interest of a holder of the notes in the fully diluted common
stock, whether or not such holder ever exercises its conversion privilege.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain holders may be subject to the United States information reporting
and backup withholding rules as explained in the registration statement relating
to the old notes. These rules may also apply to the payment of the exchange fee
in connection with the exchange offer.
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ADDITIONAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
TREATMENT IF NO TAX EXCHANGE
If, consistent with the opinion of our tax counsel, the exchange is not
treated as a Tax Exchange, then, as discussed above, the new notes will be
treated as a continuation of the old notes and, apart from the receipt of the
exchange fee, there will be no United States federal income tax consequences to
a holder who exchanges old notes for new notes pursuant to the exchange offer.
In that case, a non-U.S. holder generally should have the same United States
federal income tax consequences as would have arisen if it continued to hold the
old notes, including the withholding tax and other consequences described in the
registration statement relating to the old notes. The receipt of the exchange
fee by non-U.S. holders participating in the exchange offer may be subject to
United States federal withholding tax.
TREATMENT IF TAX EXCHANGE
If the exchange is treated as a Tax Exchange, then any gain realized by a
non-U.S. holder on the Tax Exchange will be eligible for exemption from United
States federal income or withholding tax as described in the registration
statement relating to the old notes. In addition, payments on the new notes made
to a non-U.S. holder, including a payment in cash or common stock pursuant to a
conversion, and any gain realized on a sale or exchange of the new notes, will
generally be exempt from United States federal income or withholding tax, as
described in the registration statement relating to the old notes. Constructive
dividends made to non-U.S. holders, however, will generally be subject to United
States federal withholding tax.
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LEGAL MATTERS
The validity of the new notes and the common stock that may be issued upon
conversion of the new notes 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, 2003 and 2004, and for each of the three years
in the period ended December 31, 2004, management's report on the effectiveness
of internal control over financial reporting as of December 31, 2004 and the
related financial statement schedules, incorporated by reference in this
prospectus have been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports (which reports (1) express an
unqualified opinion and include an explanatory paragraph relating to the
definitive agreement to sell CenterPoint Energy's subsidiary, Texas Genco, (2)
express an unqualified opinion on management's assessment regarding the
effectiveness of internal control over financial reporting and (3) express an
unqualified opinion on the effectiveness of internal control over financial
reporting), and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements 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 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 deemed to be furnished and
not filed with the SEC) 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, as amended
(the "1934 Act") (excluding information deemed to be furnished and not filed
with the SEC) until this offering is terminated.
- our Annual Report on Form 10-K for the year ended December 31,
2004,
- our Quarterly Report on Form 10-Q for the quarter ended March
31, 2005,
- our Current Report on Form 8-K filed January 26, 2005,
- our Current Report on Form 8-K filed February 25, 2005,
- Item 8.01 of our Current Report on Form 8-K filed March 8,
2005 relating to fourth quarter and full year 2004 results,
- our Current Report on Form 8-K filed March 8, 2005 relating to
our filing of a registration statement on Form S-4,
- our Current Report on Form 8-K filed March 11, 2005,
- our Current Report on Form 8-K filed March 18, 2005,
- our Current Report on Form 8-K filed April 8, 2005,
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- our Current Report on Form 8-K filed April 15, 2005,
- Item 8.01 of our Current Report on Form 8-K filed April 29,
2005,
- our Current Report on Form 8-K filed July 1, 2005,
- our Current Report on Form 8-K filed July 7, 2005,
- Item 8.01 of our Current Report on Form 8-K filed
July 19, 2005, and
- the description of our common stock (including the related
preferred share purchase rights) contained in our Current
Report on Form 8-K filed September 6, 2002, as we may update
that description from time to time.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
In this prospectus, including the information we incorporate by reference,
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. Actual results may differ
materially from those expressed or implied by these forward-looking 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 13 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.
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[CENTERPOINT ENERGY LOGO]
CENTERPOINT ENERGY, INC.
OFFER TO EXCHANGE
3.75% CONVERTIBLE SENIOR NOTES DUE 2023, SERIES B AND AN EXCHANGE FEE
FOR ALL OF OUR OUTSTANDING
3.75% CONVERTIBLE SENIOR NOTES DUE 2023
The exchange agent for the exchange offer is:
JPMORGAN CHASE BANK, NATIONAL ASSOCIATION
By overnight, courier or hand: By mail: By facsimile:
JPMorgan Chase Bank, National P.O. Box 2320 (214) 468-6494
Association Dallas, Texas 75521-2320 Attention: Frank Ivins
Institutional Trust Services
2001 Bryan Street, 9th Floor
Dallas, Texas 75201 For information:
Attn: Frank Ivins (800) 275-2048
Questions, requests for assistance and requests for additional copies of
this prospectus and related letter of transmittal may be directed to the
information agent at the phone numbers listed below. You may also contact the
dealer manager at the telephone number set forth below or your custodian bank,
depositary, broker, trust company or other nominee for assistance concerning the
exchange offer.
The information agent for the exchange offer is:
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
Phone: (212) 929-5500 (Call Collect)
or
(800) 322-2885 (Toll Free)
Fax: (212)929-0308
Email: proxy@mackenziepartners.com
The dealer manager for the exchange offer is:
BANC OF AMERICA SECURITIES LLC
Equity-Linked Liability Management
9 West 57th Street
New York, NY 10019
(212)933-2200(call collect)
or
(888) 583-8900 x 2200(toll free)
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