Filed Pursuant to Rule 424(b)(3)
Registration No. 333-114440
PROSPECTUS
[CENTERPOINT ENERGY LOGO]
$255,000,000
2.875% Convertible Senior Notes due 2024
and
Common Stock Issuable Upon Conversion of the Notes
This prospectus relates to $255,000,000 aggregate principal amount of
our 2.875% Convertible Senior Notes due 2024. We originally issued and sold the
notes to Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Banc of
America Securities LLC, Credit Suisse First Boston LLC, J.P. Morgan Securities
Inc., Wachovia Capital Markets LLC, ABN AMRO Rothschild LLC, Banc One Capital
Markets, Inc., Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Commerzbank Aktiengesellschaft and Scotia Capital (USA) Inc. in a
private placement in December 2003. This prospectus will be used by selling
security holders to resell their notes and the common stock issuable upon
conversion of the notes.
The notes will bear interest at the rate of 2.875% per year. Interest
on the notes will be payable on January 15 and July 15 of each year, beginning
on July 15, 2004. Beginning with the six-month interest period commencing on
January 15, 2007, we will pay contingent interest during a six-month interest
period if the average trading price of a note is above a specified level during
a specified period prior to such six-month interest period as described in this
prospectus.
The notes are convertible by holders into shares of our common stock at
an initial conversion rate of 78.0640 shares of our common stock per $1,000
principal amount of notes (subject to adjustment in certain events), which is
equal to an initial conversion price of $12.81 per share, under the following
circumstances: (1) if the price of our common stock issuable upon conversion
reaches specified thresholds described in this prospectus, (2) if we call the
notes for redemption, (3) upon the occurrence of specified corporate
transactions described in this prospectus or (4) if the credit ratings assigned
to the notes decline below the levels described in this prospectus. Upon
conversion, we will have the right to deliver, in lieu of shares of our common
stock, cash or a combination of cash and common stock.
The notes will mature on January 15, 2024. We may redeem some or all of
the notes at any time on or after January 15, 2007. The redemption prices are
described under the caption "Description of the Notes -- Optional Redemption."
The notes will be unsecured and will rank equally with all of our other
unsecured and unsubordinated indebtedness from time to time outstanding. Holders
will have the right to require us to purchase the notes at a purchase price
equal to 100% of the principal amount of the notes plus accrued and unpaid
interest, including contingent interest and additional amounts, if any, on
January 15, 2007, January 15, 2012 and January 15, 2017 or upon a fundamental
change as described in this prospectus.
The notes will be treated as contingent payment debt instruments that
will be subject to special United States federal income tax rules. For
discussion of the special tax rules governing contingent payment debt
instruments, see "Material United States Federal Income Tax Considerations."
Our common stock is listed on the New York Stock Exchange under the
symbol "CNP." The last reported sales price of our common stock on the New York
Stock Exchange on April 29, 2004 was $10.88 per share.
The notes trade in the Private Offerings, Resales and Trading through
Automatic Linkages Market commonly referred to as the Portal Market; however,
the notes resold pursuant to this prospectus will no longer trade in the Portal
Market.
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
We will not receive any of the proceeds from the sale of the notes or
shares of common stock by any of the selling security holders. The notes and the
shares of common stock may be offered and sold from time to time directly from
the selling security holders or alternatively through underwriters of
broker-dealers or agents. The notes and the shares of common stock may be sold
in one or more transactions at fixed prices, at the prevailing market prices at
the time of sale, at varying prices determined at the time of sale, or at
negotiated prices. See "Plan of Distribution."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is April 30, 2004.
1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THAT DOCUMENT. ANY INFORMATION WE HAVE INCORPORATED BY REFERENCE IS
ACCURATE ONLY AS OF THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE.
TABLE OF CONTENTS
Page
----
WHERE YOU CAN FIND MORE INFORMATION......................................................................... 2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION.................................................. 3
PROSPECTUS SUMMARY.......................................................................................... 5
RISK FACTORS................................................................................................ 10
USE OF PROCEEDS............................................................................................. 13
DESCRIPTION OF THE NOTES.................................................................................... 14
DESCRIPTION OF OUR CAPITAL STOCK............................................................................ 38
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................................... 45
SELLING SECURITY HOLDERS.................................................................................... 52
PLAN OF DISTRIBUTION........................................................................................ 55
VALIDITY OF SECURITIES...................................................................................... 58
EXPERTS..................................................................................................... 58
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the SEC. You may read and
copy any document we file with the SEC at the SEC's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
further information regarding the operation of the SEC's public reference room
by calling the SEC at 1-800-SEC-0330. Our filings are also available to the
public on the SEC's Internet site located at http://www.sec.gov.
This prospectus is part of a registration statement we have filed with
the SEC relating to the notes and the common stock issuable upon conversion
thereof. As permitted by SEC rules, this prospectus does not contain all of the
information we have included in the registration statement and the accompanying
exhibits and schedules we file with the SEC. You may refer to the registration
statement, the exhibits and the schedules for more information about us and our
securities. The registration statement, exhibits and schedules are available at
the SEC's public reference room or through its Web site.
We have obtained a no-action letter from the SEC which provides that we
will be treated as the successor of Reliant Energy, Incorporated for financial
reporting purposes under the Securities Exchange Act of 1934. We are
"incorporating by reference" into this prospectus information we file with the
SEC. This means we are disclosing important information to you by referring you
to the documents containing the information. The information we incorporate by
reference is considered to be part of this prospectus. Information that we file
later with the SEC that is deemed incorporated by reference into this prospectus
(but not information deemed to be furnished to 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 (excluding
information deemed to be furnished to and not filed with the SEC) until all the
securities are sold:
- our Annual Report on Form 10-K for the year ended December 31,
2003 (our "2003 Form 10-K"),
- our Current Report on Form 8-K filed January 29, 2004,
2
- Item 5 of our Current Report on Form 8-K filed February 12,
2004,
- our Current Report on Form 8-K filed March 10, 2004,
- our Current Report on Form 8-K filed April 1, 2004 which
reports that our subsidiary, CenterPoint Energy Resources
Corp., entered into a new credit agreement,
- Item 5 of our Current Report on Form 8-K filed April 1, 2004
which reports the filing of our final true-up application,
- Item 5 of our Current Report on Form 8-K filed April 22, 2004,
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.
You may also obtain a copy of our filings with the SEC at no cost by
writing to or telephoning us at the following address:
CenterPoint Energy, Inc.
Attn: Investor Services
P.O. Box 4567
Houston, Texas 77210-4567
(713) 207-1111
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements that are not historical facts. These
statements are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those expressed or implied by these statements. In some cases, you can
identify our forward-looking statements by the words "anticipate," "believe,"
"continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may,"
"objective," "plan," "potential," "predict," "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 to our management 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.
The following are some of the factors that could cause actual results
to differ materially from those expressed or implied in forward-looking
statements:
- the timing and outcome of the regulatory process leading to
the determination and recovery of the true-up components and
the securitization of these amounts;
- the timing and results of the monetization of our interest in
Texas Genco Holdings, Inc.;
- state and federal legislative and regulatory actions or
developments, including deregulation, re-regulation and
restructuring of the electric utility industry, constraints
placed on our activities or business by the Public Utility
Holding Company Act of 1935, as amended ("1935 Act"), changes
in or application of laws or regulations applicable to other
aspects of our business and actions with respect to:
3
- allowed rates of return,
- rate structures,
- recovery of investments, and
- operation and construction of facilities,
- termination after 2003 of accruals for the true-up of the
difference between market prices for generation projected by
the Public Utility Commission of Texas and the actual market
prices for generation as determined in the state-mandated
capacity auctions,
- industrial, commercial and residential growth in our service
territory and changes in market demand and demographic
patterns,
- the timing and extent of changes in commodity prices,
particularly natural gas,
- changes in interest rates or rates of inflation,
- weather variations and other natural phenomena,
- the timing and extent of changes in the supply of natural gas,
- commercial bank and financial market conditions, our access to
capital, the cost of such capital, receipt of certain
approvals under the 1935 Act, and the results of our financing
and refinancing efforts, including availability of funds in
the debt capital markets,
- actions by rating agencies,
- inability of various counterparts to meet their obligations to
us,
- non-payment for our services due to financial distress of our
customers, including Reliant Resources, Inc. ("Reliant
Resources"),
- the outcome of the pending lawsuits against us, Reliant
Energy, Incorporated and Reliant Resources,
- the ability of Reliant Resources to satisfy its obligations to
us, including indemnity obligations and obligations to pay the
"price to beat" clawback,
- other factors we discuss in "Risk Factors" beginning on page
26 of our 2003 10-K.
Other risk factors are described in other documents we file with the
SEC and incorporated by reference in 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.
4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and does not contain all the
information that you should consider regarding CenterPoint Energy, Inc. and your
investment in the notes. You should read carefully the entire prospectus,
including the risk factors, financial data and financial statements included or
incorporated by reference herein and the other documents incorporated by
reference in this prospectus.
Unless the context requires otherwise, the terms "CenterPoint Energy,"
"our company," "we," "our," "ours" and "us" refer to CenterPoint Energy, Inc.;
the term "CenterPoint Houston" refers to CenterPoint Energy Houston Electric,
LLC, our electric utility subsidiary; and the term "CERC" refers to CenterPoint
Energy Resources Corp., our gas distribution and pipelines and gathering
subsidiary. We refer to our 2.875% Convertible Senior Notes due 2024 offered by
this prospectus as the "notes."
OUR COMPANY
We are a public utility holding company. Our indirect wholly owned
subsidiaries include (i) CenterPoint Houston, which provides electric
transmission and distribution services in a 5,000-square mile area of the Texas
Gulf Coast that includes Houston, and (ii) 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
and provides various ancillary services. We also have an approximately 81%
ownership interest in Texas Genco Holdings, Inc. ("Texas Genco"), which owns and
operates electric generating plants in Texas. We distributed approximately 19%
of the outstanding common stock of Texas Genco to our shareholders in January
2003.
We are a registered public utility holding company under the Public
Utility Holding Company Act of 1935 ("1935 Act"). The 1935 Act and related rules
and regulations impose a number of restrictions on our activities and those of
our subsidiaries other than Texas Genco. 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 executive offices are located at 1111 Louisiana, Houston, Texas
77002 (telephone number 713-207-1111).
5
THE OFFERING
For a more complete description of the terms of the notes, see
"Description of the Notes" beginning on page 14.
Issuer.............................. CenterPoint Energy, Inc.
Securities Offered.................. $255,000,000 aggregate principal amount of 2.875% Convertible Senior Notes
due 2024.
Maturity............................ January 15, 2024.
Interest............................ 2.875% per annum on the principal amount, payable semiannually in arrears
on each January 15 and July 15, beginning July 15, 2004. We will also pay
contingent interest and additional amounts on the notes under the
circumstances described in this prospectus.
Ranking............................. The 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 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 the
"Description of the Notes" section beginning on page 14, as of March 31,
2004, CenterPoint Energy, on an unconsolidated basis, had approximately
$5.3 billion aggregate principal amount of outstanding indebtedness,
including approximately $1.7 billion secured by the stock of Texas Genco
and approximately $807 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
January 15 to July 14 or from July 15 to January 14 commencing on or after
January 15, 2007 for which the average trading price of the notes for the
applicable five trading day reference period equals or exceeds 120% of the
principal amount of the 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 of a 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 Notes
-- Contingent Interest" beginning on page 15.
Conversion Rights................... Holders may convert their notes into shares of our common stock 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% of the conversion price per share of our common
stock on such last trading day, or
(2) if the notes have been called for redemption, or
(3) upon the occurrence of specified corporate transactions described
under "Description of the Notes -- Conversion Rights -- Conversion
Upon Specified Corporate Transactions" beginning on page 18, or
6
(4) during any period in which the credit ratings assigned to the notes
by both Moody's and S&P are lower than Ba2 and BB, respectively, or
the notes are no longer rated by at least one of these rating services
or their successors.
For each $1,000 principal amount of notes surrendered for conversion, you
will receive 78.0640 shares of our common stock. This represents an initial
conversion price of $12.81 per share of common stock. 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 upon conversion of a note; however, we will
continue to pay additional amounts, if any, on the notes and the common
stock issuable upon conversion thereof to the holder in accordance with the
registration rights agreement. Upon conversion, we will have the right to
deliver, in lieu of shares of our common stock, cash or a combination of
cash and common stock. 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 January 15, 2007, the notes will not be redeemable. On or after
January 15, 2007, we may redeem for cash all or part of the notes at any
time, upon not less than 30 nor more than 60 days' notice before the
redemption date by mail to the trustee under the indenture under which the
notes have been issued, the paying agent and each holder of notes, for a
price equal to 100% of the principal amount of the notes to be redeemed
plus any accrued and unpaid interest, including contingent interest, if
any, and additional amounts owed, if any, to the redemption date. See
"Description of the Notes -- Optional Redemption" on page 16.
Purchase of Notes by Us at the Option
of the Holder....................... Holders have the right to require us to purchase all or any portion of the
notes for cash on January 15, 2007, January 15, 2012 and January 15,
2017. In each case, we will pay a purchase price equal to 100% of the
principal amount of the notes to be purchased plus any accrued and unpaid
interest, including contingent interest, if any, and additional amounts
owed, if any, to such purchase date. See "Description of the Notes --
Purchase of Notes by Us at the Option of the Holder" beginning on page 21.
Fundamental Change.................. If we undergo a Fundamental Change (as defined under "Description of the
Notes -- Fundamental Change Requires Purchase of Notes by Us at the
Option of the Holder" beginning on page 22) prior to January 15, 2007,
holders will have the right, at their option, to require us to purchase
any or all of their 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 notes to be purchased plus accrued and unpaid interest, including
contingent interest, if any, and additional amounts owed, if any, to the
Fundamental Change purchase date. See "Description of the Notes --
Fundamental Change Requires Purchase of Notes by Us at the Option of the
Holder" beginning on page 22.
Significant Covenants............... The notes have been issued under an indenture containing certain
restrictive covenants for your benefit. These covenants, which are
described under "Description of the Notes" beginning on page 14, restrict
our ability, with certain exceptions, to:
- incur certain debt secured by liens, and
7
- merge, consolidate or transfer substantially all of our assets.
Use of Proceeds..................... We will not receive any proceeds from the sale by the selling security
holders of the notes or the common stock issuable upon conversion thereof.
See "Use of Proceeds" on page 13.
Trustee, Paying Agent and Conversion
Agent............................... JPMorgan Chase Bank.
Risk Factors........................ You should consider carefully all of the information set forth and
incorporated by reference in this prospectus and, in particular, you should
evaluate the specific factors set forth under "Risk Factors" beginning on
page 10 before deciding whether to invest in the notes.
U.S. Federal Income Tax
Considerations...................... We and each holder agree in the indenture to treat the notes as contingent
payment debt instruments for U.S. federal income tax purposes. As a holder
of notes, you will agree to accrue original issue discount on a constant
yield to maturity basis at a rate comparable to the rate at which we would
borrow in a noncontingent, nonconvertible borrowing, 5.06%, compounded
semi-annually, even though the notes will have a significantly lower stated
yield to maturity. You may recognize taxable income in each year
significantly in excess of interest payments (whether fixed or contingent)
actually received that year. Additionally, you will generally be required
to recognize ordinary income on the gain, if any, realized on a sale,
exchange, conversion or redemption of the notes. In the case of a
conversion, this gain will be measured by the amount of cash and fair
market value of any stock received. A summary of the United States federal
income tax consequences of ownership of the notes and our common stock is
described in this prospectus under the heading "Material United States
Federal Income Tax Considerations" beginning on page 45. Owners of the
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 notes and our common stock.
Governing Law....................... The indenture and the notes are governed by, and construed in accordance
with, the laws of the State of New York.
Book-Entry Form..................... The notes were issued in book-entry form and are represented by permanent
global certificates deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of a nominee of DTC.
Beneficial interests in any of the notes are shown on, and transfers will
be effected only through, records maintained by DTC or its nominee and any
such interest may not be exchanged for certificated securities, except in
limited circumstances.
Listing............................. The notes sold in the initial placement to qualified institutional buyers
are eligible for trading on the Private Offerings, Resales and Trading
through Automatic Linkages Market commonly referred to as the Portal
Market; however, the notes resold pursuant to this prospectus will no
longer be eligible for trading on the Portal Market. We do not intend to
apply for listing of the notes on any securities exchange or for inclusion
of the notes in any automated quotation system. Our common stock is
traded on the New York Stock Exchange under the symbol "CNP."
8
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for
each of the periods indicated, calculated pursuant to SEC rules. Earnings from
continuing operations in 2002 and 2003 include $697 million and $661 million,
respectively, of non-cash ECOM true-up.
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Ratio of earnings from continuing
operations to fixed charges........... 5.38 1.80 2.18 1.70 1.68
9
RISK FACTORS
In addition to the information contained elsewhere in this prospectus
and the risk factors described in "Item 1. Business - Risk Factors" in our 2003
10-K, which discussion is incorporated in this section by reference, and any
risk factors included in other documents incorporated by reference herein, the
following risk factors should be considered carefully by each prospective
investor before making an investment decision.
RISKS RELATED TO THE NOTES
THE MARKET PRICE OF THE NOTES COULD BE SIGNIFICANTLY AFFECTED BY THE
MARKET PRICE OF OUR COMMON STOCK.
We expect that the market price of our notes will be significantly
affected by the market price of our common stock. This may result in greater
volatility in the market price of the notes than would be expected for
nonconvertible debt securities. The market price of our common stock will likely
continue to fluctuate in response to factors including the following, many of
which are beyond our control:
- quarterly fluctuations in our operating and financial results,
- changes in financial estimates and recommendations by
financial analysts,
- changes in the ratings of our notes or other securities,
- developments related to litigation or regulatory proceedings
involving us,
- fluctuations in the stock price and operating results of our
competitors,
- dispositions, acquisitions and financings, and
- general conditions in the industries in which we operate.
In addition, the stock markets in general, including the New York Stock
Exchange, recently have experienced significant price and trading fluctuations.
These fluctuations have resulted in volatility in the market prices of
securities that often has been unrelated or disproportionate to changes in
operating performance. These broad market fluctuations may affect adversely the
market prices of our notes and our common stock.
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE
NOTES.
There is currently no public market for the notes. Although the notes
sold to qualified institutional buyers under Rule 144A are eligible for trading
on the Portal Market, the notes resold pursuant to this prospectus will no
longer be eligible for trading on the Portal Market. As a result, there may be a
limited market for the notes. We do not intend to apply for listing of the notes
on any securities exchange or for the inclusion of the notes in any automated
quotation system. Accordingly, we cannot predict whether an active trading
market for the notes will develop or be sustained. If an active market for the
notes fails to develop or be sustained, the trading price of the notes could
fall. If an active trading market were to develop, the notes could trade at
prices that may be lower than the initial offering price of the notes. In
addition, the market price for the notes may be adversely affected by changes in
our financial performance, changes in the overall market for similar securities
and performance or prospects for companies in our industry.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE
THE NOTES UPON A FUNDAMENTAL CHANGE OR OTHER PURCHASE DATE, AS REQUIRED
BY THE INDENTURE GOVERNING THE NOTES.
On January 15, 2007, January 15, 2012 and January 15, 2017, holders of
the notes may require us to purchase their notes for cash. In addition, holders
of the notes also may require us to purchase their notes upon a Fundamental
Change as described under "Description of the Notes -- Fundamental Change
Requires Purchase of Notes by Us at the Option of the Holder." A Fundamental
Change also may constitute an event of default, and result
10
in the acceleration of the maturity of our then existing indebtedness, under
another indenture or other agreement. We cannot assure you that we would have
sufficient financial resources, or would be able to arrange financing, to pay
the purchase price for the notes tendered by holders. Failure by us to purchase
the notes when required will result in an event of default with respect to the
notes.
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF OWNING THE NOTES.
We intend to treat the notes as indebtedness for United States federal
income tax purposes and intend to take the position that the notes will be
subject to the special regulations governing contingent payment debt instruments
(which we refer to as the "CPDI regulations"). The notes will be subject to the
CPDI regulations if the contingency represented by the provision of contingent
interest on the notes is neither remote nor incidental, as stated in section
1.1275-4(a)(5) of the CPDI regulations. The application of the CPDI regulations
to instruments such as the notes is uncertain in several respects, and, as a
result, no assurance can be given that the Internal Revenue Service or a court
will agree with the treatment described herein, and no ruling will be obtained
from the Internal Revenue Service concerning the application of the CPDI
regulations to the notes. Any differing treatment could affect the amount,
timing and character of income, gain or loss in respect of an investment in the
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 notes into shares of our common stock, might recognize capital gain or
loss upon a taxable disposition of the notes and might have an adjusted tax
basis in the notes or our common stock acquired upon conversion of a note
materially different than discussed herein. Please read "Material United States
Federal Income Tax Considerations" in this prospectus.
THE 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 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 7 of Part II of our 2003 Form 10-K.
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. Excluding subsidiaries issuing trust preferred securities and transition
bonds, as of March 31, 2004, 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.
IF YOU HOLD 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 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 the common stock. You will only be entitled
to rights on the common stock if and when we deliver shares of common stock to
you in exchange for your notes and in limited cases under the anti-dilution
adjustments of the notes. For example, in the event that an amendment is
proposed to our articles of incorporation or by-laws 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
11
vote on the amendment, although the shares issued upon exchange of your notes
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 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
notes.
OUR ARTICLES OF INCORPORATION AND BYLAW PROVISIONS, AND SEVERAL OTHER
FACTORS, COULD LIMIT ANOTHER PARTY'S ABILITY TO ACQUIRE US AND COULD
DEPRIVE YOU OF THE OPPORTUNITY TO OBTAIN A TAKEOVER PREMIUM FOR YOUR
SHARES OF COMMON STOCK.
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. 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."
12
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling security
holders of the notes or the common stock issuable upon their conversion.
We issued $255,000,000 aggregate principal amount of the notes on
December 17, 2003. We issued the notes to the initial purchasers in a private
placement. We used the proceeds from this financing to redeem approximately $250
million aggregate liquidation amount of the 8.125% trust preferred securities,
Series A, issued by HL&P Capital Trust I, one of our subsidiary trusts.
13
DESCRIPTION OF THE NOTES
We issued the notes under an indenture dated as of May 19, 2003 between
us and JPMorgan Chase Bank, as trustee, as supplemented. The descriptions under
this heading are summaries of the material provisions of the notes and the
indenture. Such summaries do not purport to be complete and are qualified in
their entirety by reference to the indenture and the notes. For a complete
description of the notes, you should refer to the indenture and the supplemental
indenture establishing the terms of the notes, which we have filed with the SEC.
References to article and section numbers in this prospectus, unless otherwise
indicated, are references to article and section numbers of the indenture. For
purposes of this summary, the terms "we," "our," "ours" and "us" refer only to
CenterPoint Energy, Inc. and not to any of our subsidiaries.
We may issue debt securities from time to time in one or more series
under the indenture. There is no limitation on the amount of debt securities we
may issue under the indenture. In addition to the 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 3.75% Convertible Senior Notes due 2023 ($575,000,000
outstanding) are currently outstanding under the indenture.
GENERAL
The notes will mature on January 15, 2024. The notes are issued only in
denominations of $1,000 principal amount and integral multiples of $1,000
principal amount. The notes are limited to $255,000,000 in aggregate principal
amount.
The notes:
- are 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 March 31, 2004, CenterPoint Energy, on an unconsolidated basis,
had approximately $5.3 billion aggregate principal amount of outstanding
indebtedness. Of this indebtedness, approximately $1.7 billion is secured by the
stock of Texas Genco and approximately $807 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 March 31, 2004, 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.
STRUCTURAL SUBORDINATION
We are a holding company that conducts substantially all of our
operations through our subsidiaries. Our only significant assets are the capital
stock of our subsidiaries, and our subsidiaries generate substantially all of
our operating income and cash flow. As a result, dividends or advances from our
subsidiaries are the principal source of funds necessary to meet our debt
service obligations. Contractual provisions or laws, including the 1935 Act, as
well as our subsidiaries' financial condition and operating requirements, may
limit our ability to obtain cash from our subsidiaries that we may require to
pay our debt service obligations, including payments on the notes. In addition,
the notes will be effectively subordinated to all of the liabilities of our
subsidiaries with regard to the assets and earnings of our subsidiaries.
14
INTEREST
Interest on the notes will:
- accrue at the rate of 2.875% per year from December 17, 2003,
- be payable semi-annually in arrears on each January 15 and
July 15, beginning July 15, 2004,
- be payable to the person in whose name the notes are
registered at the close of business on the January 1 and July
1 immediately preceding the applicable interest payment date,
which we refer to with respect to the notes as "regular record
dates,"
- be computed on the basis of a 360-day year comprised of twelve
30-day months, and
- be payable on overdue interest to the extent permitted by law
at the same rate as interest is payable on principal.
If any interest payment date, the maturity date, or any redemption date
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 and no interest will accrue on that payment for the period from
and after the interest payment date, maturity date, redemption date or purchase
date (including upon the occurrence of a Fundamental Change), as the case may
be, to the date of that payment on the next succeeding business day. The term
"business day" means, with respect to any note, any day other than a Saturday, a
Sunday or a day on which banking institutions in The City of New York are
authorized or required by law, regulation or executive order to close.
In addition, we will pay contingent interest and additional amounts on
the notes under the circumstances described below under "-- Contingent
Interest" and "-- Registration Rights."
CONTINGENT INTEREST
We will pay contingent interest to the holders of notes during any
six-month period from January 15 to July 14 or from July 15 to January 14
commencing on or after January 15, 2007 for which the average trading price of a
note for the applicable five trading day reference period equals or exceeds 120%
of the principal amount of the 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 note in respect of any six-month period will equal 0.25% of
the average trading price of the 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 notes.
The "trading price" of the notes on any date of determination means the
average of the secondary market bid quotations per $1,000 principal amount of
notes obtained by the bid solicitation agent for $10 million principal amount of
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 notes,
15
then the trading price of the notes will equal (a) the then applicable
conversion rate of the 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 notes.
We will notify the holders of the 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 notes. Prior to January 15, 2007,
the notes will not be redeemable. On or after January 15, 2007, we may redeem
for cash all or part of the notes at any time, upon not less than 30 nor more
than 60 days' notice before the redemption date to the trustee, the paying agent
and each holder of notes, for a price equal to 100% of the principal amount of
the notes to be redeemed plus any accrued and unpaid interest, including
contingent interest and additional amounts, if any, to the redemption date.
If we decide to redeem fewer than all of the outstanding notes, the
trustee will select the notes to be redeemed (in principal amounts of $1,000 or
integral multiples thereof) 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 note for partial redemption
and you convert a portion of the same 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 note during a
period of 15 days before the mailing of the redemption notice,
or
- register the transfer of or exchange any note so selected for
redemption, in whole or in part, except the unredeemed portion
of any note being redeemed in part.
16
CONVERSION RIGHTS
Subject to the conditions and during the periods and under the
circumstances described below, holders may convert each of their notes into
shares of our common stock initially at a conversion rate of 78.0640 shares of
common stock per $1,000 principal amount of notes (equivalent to an initial
conversion price of $12.81 per share of common stock) at any time prior to the
close of business on January 15, 2024. 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 notes so long as the 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 note and we will not adjust the conversion rate to
account for the accrued and unpaid interest. Upon conversion of a note, we will
become obligated to deliver to you a fixed number of shares of our common stock
(or, as described below, cash or a combination of cash and shares of common
stock in lieu thereof) and any cash payment to account for fractional shares
(the "conversion obligation"). Except in the case of a cash settlement or a
combined settlement as described below, the cash payment for fractional shares
will be based on the last reported sale price of our common stock on the trading
day immediately prior to the conversion date. Delivery of shares of common stock
(or, as described below, cash or a combination of cash and shares of common
stock in lieu thereof) and any cash payment to account for fractional shares
will be deemed to satisfy our obligation to pay the principal amount of the
notes, including accrued and unpaid interest (including contingent interest, if
any). 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. Notwithstanding conversion
of any notes, the holders of the notes and any common stock issuable upon
conversion thereof will continue to be entitled to receive additional amounts in
accordance with the registration rights agreement. See " -- Registration Rights"
below.
If a holder converts notes, we will pay any documentary, stamp or
similar issue or transfer tax due on the 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 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. The date you comply with these requirements is
referred to as the "conversion date." Holders may obtain copies of the required
form of the conversion notice from the conversion agent.
If a holder has already delivered a purchase notice as described under
either " -- Purchase of Notes by Us at the Option of the Holder" or " --
Fundamental Change Requires Purchase of Notes by Us at the Option of the Holder"
with respect to a note, however, the holder may not surrender that note for
conversion until the holder has withdrawn the purchase notice in accordance with
the indenture.
Holders of 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
notes at any time after the close of business on such regular record date. 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 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 notes to the extent
of such overdue interest. The holders of the notes and any common stock issuable
upon conversion thereof will continue to be entitled to receive additional
amounts in accordance with the registration rights agreement.
17
Holders may surrender their notes for conversion into shares of our
common stock prior to stated maturity only in the circumstances described below.
For a discussion of the federal income tax consequences of a conversion of the
notes into our common stock, see "Material United States Federal Income Tax
Considerations."
Upon conversion, we will satisfy our conversion obligation by
delivering to you either (1) shares of our common stock, (2) cash or (3) a
combination of cash and shares of our common stock, as follows:
(1) Share Settlement. If we elect to satisfy the entire
conversion obligation in shares of our common stock, then we will
deliver to you a number of full shares equal to (a) the aggregate
principal amount of notes to be converted divided by 1,000 multiplied
by (b) the applicable conversion rate, together with any cash payment
for fractional shares.
(2) Cash Settlement. If we elect to satisfy the entire
conversion obligation in cash, then we will deliver to you an amount in
cash equal to the product of:
- (a) the aggregate principal amount of notes to be
converted divided by 1,000 multiplied by (b) the
applicable conversion rate and
- the average of the last reported sale prices of our
common stock for the five trading day period starting
the third trading day following the conversion date
(the "applicable stock price").
(3) Combined Settlement. If we elect to satisfy a portion of
the conversion obligation in cash (the "partial cash amount") and a
portion in shares of our common stock, then we will deliver to you such
partial cash amount, plus a number of full shares equal to (a) the cash
settlement amount as described in clause (2) above minus such partial
cash amount divided by (b) the applicable stock price, together with
any cash payment for fractional shares determined using the applicable
stock price.
If we choose to satisfy the conversion obligation by share settlement,
then settlement in shares will be made on or prior to the fifth trading day
following the conversion date. If we choose to satisfy the conversion obligation
by cash settlement or combined settlement, then we will notify you, through the
trustee, of the dollar amount to be satisfied in cash at any time on or before
the date that is two business days following the conversion date (the
"settlement notice period"). Share settlement will apply automatically if we do
not notify you that we have chosen another settlement method.
If we timely elect cash settlement or combined settlement, then you may
retract your conversion notice at any time during the two business day period
beginning on the business day after the settlement notice period (the
"conversion retraction period"). You cannot retract your conversion notice (and
your conversion notice therefore will be irrevocable) if we elect share
settlement. If you have not retracted your conversion notice during the
conversion retraction period, then cash settlement or combined settlement will
be made through the conversion agent no later than the third business day
following the determination of the applicable stock price.
CONVERSION UPON SATISFACTION OF SALE PRICE CONDITION. A holder may
surrender any of its notes for conversion into 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% of the conversion price per
share of our common stock on such last trading day.
CONVERSION UPON REDEMPTION. If we redeem the notes, holders may convert
notes into 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 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
18
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 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 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 notes for conversion 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
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, a holder may surrender 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 15 days after the actual effective date
of such transaction. 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 right to convert a note into our common
stock will be changed into a right to convert a note into the kind and amount of
cash, securities or other property which the holder would have received if the
holder had converted its notes immediately prior to the transaction. If we
engage in any transaction described in the preceding sentence, the conversion
rate will not be adjusted. If the transaction also constitutes a Fundamental
Change, as defined below, a holder can require us to purchase all or a portion
of its notes as described below under " -- Fundamental Change Requires Purchase
of Notes by Us at the Option of the Holder."
CONVERSION UPON CREDIT RATINGS EVENT. A holder may convert notes into
our common stock during any period in which the credit ratings assigned to the
notes by both Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services are lower than Ba2 and BB, respectively, or the 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
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, (B) any dividend or distribution
paid exclusively in cash, and (C) our prior distributions of shares of
common stock of Reliant Resources and of Texas Genco), 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 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
19
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 the 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 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 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 109.2896, which we refer to as the "maximum conversion rate," as a result
of an adjustment pursuant to paragraphs (4) and (5) above. 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 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
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:
- 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,
20
- 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 notes were first issued,
- for a change in the par value of our common stock, or
- for accrued and unpaid interest, including contingent interest
or additional amounts, if any.
The holders will receive, upon conversion of the notes, in addition to
common stock, 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 Our
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.
PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
Holders have the right to require us to purchase the notes on January
15, 2007, January 15, 2012 and January 15, 2017 (each, a "purchase date"). Any
note purchased by us on a purchase date will be paid for in cash. We will be
required to purchase any outstanding 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 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
Notes -- We may not have the ability to raise the funds necessary to purchase
the notes upon a Fundamental Change or other purchase date, as required by the
indenture governing the notes," we may not have funds sufficient to purchase the
notes when we are required to do so. Our failure to purchase the notes when we
are required to do so will constitute an event of default under the indenture
with respect to the notes.
The purchase price payable will be equal to 100% of the principal
amount of the notes to be purchased plus any accrued and unpaid interest,
including contingent interest and additional amounts, 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
Considerations."
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 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 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.
21
A notice electing to require us to purchase your notes must state:
- if certificated notes have been issued, the certificate
numbers of the notes,
- the portion of the principal amount of notes to be purchased,
in integral multiples of $1,000, and
- that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
No 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 a default
that is cured by the payment of the purchase price of the notes.
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 notes,
- if certificated notes have been issued, the certificate
numbers of the withdrawn notes, and
- the principal amount, if any, which remains subject to the
purchase notice.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
You must either effect book-entry transfer or deliver the 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 notes. If the paying agent holds money sufficient to pay the
purchase price of the notes on the business day following the purchase date,
then on and after that purchase date:
- the notes will cease to be outstanding and interest, including
contingent interest and additional amounts, if any, will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the 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 notes).
FUNDAMENTAL CHANGE REQUIRES PURCHASE OF 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 January 15, 2007, holders will have the right, at their
option, to require us to purchase any or all of their 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 notes to be purchased plus accrued and unpaid
interest, including contingent interest and additional amounts, if any, to the
Fundamental Change purchase date. If a Fundamental Change occurs on or after
January 15, 2007, no holder will have a right to require us to purchase any
notes, except as described above under " -- Purchase of 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 Considerations."
A "Fundamental Change" will be deemed to have occurred at the time
after the notes are originally issued that any of the following occurs:
22
(1) our common stock or other common stock into which the
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 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 notes in effect immediately before the Fundamental Change or the
public announcement thereof, 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 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 December 12, 2003 or 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 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,
23
- 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,
- that notes with respect to which a Fundamental Change purchase
notice has been given 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 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 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 notes to be
delivered for purchase,
- the portion of the principal amount of notes to be purchased,
which must be $1,000 or an integral multiple thereof, and
- that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture.
If the notes are not in certificated form, the notice must comply with
appropriate 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 notes,
- if certificated notes have been issued, the certificate
numbers of the withdrawn notes, and
- the principal amount, if any, which remains subject to the
purchase notice.
If the notes are not in certificated form, the notice must comply with
appropriate DTC procedures.
We will be required to purchase 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 notes. If the paying agent holds money sufficient to pay the
Fundamental Change purchase price of the notes on the business day following the
Fundamental Change purchase date, then on and after the Fundamental Change
purchase date:
24
- the notes will cease to be outstanding and interest, including
contingent interest and additional amounts, if any, will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the 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 notes).
The rights of the holders to require us to purchase their notes upon a
Fundamental Change could discourage a potential acquirer of us. The Fundamental
Change purchase feature, however, is not the result of 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.
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 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 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 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 notes to
require us to purchase its 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 Notes -- We may not have the ability to raise the funds
necessary to purchase the notes upon a Fundamental Change or other purchase
date, as required by the indenture governing the notes." Our failure to purchase
the notes when required following a Fundamental Change will constitute an event
of default under the indenture with respect to the 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 notes and the indenture,
- immediately after giving effect to the transaction, no event
of default, and no event which, after notice or lapse of time
or both, would become an event of default, would occur and be
continuing, and
- we have delivered to the trustee the certificates and opinions
required under the indenture. (Section 801)
However, certain of these transactions occurring prior to January 15,
2007 could constitute a Fundamental Change (as defined above) permitting each
holder to require us to purchase the notes of such holder as described above.
25
EVENTS OF DEFAULT
Each of the following will be an event of default under the indenture
with respect to the notes:
- our failure to pay the principal of or premium, if any, on the
notes when due,
- our failure to pay any interest, including contingent interest
and additional amounts, if any, on the 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 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 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 notes upon the occurrence of a
Fundamental Change or exercise by a holder of its option to
require us to purchase such holder's 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 notes generally, us and the indenture.
(Section 501)
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 notes may
declare the principal amount of the notes due and immediately payable. In order
to declare the principal amount of the 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 notes plus accrued and unpaid
interest, including contingent interest and additional amounts, if any which
have 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 notes then outstanding
under the indenture shall be due and payable immediately.
At any time after any declaration of acceleration of the 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
26
will, without further act, be deemed to have been waived, and such declaration
and its consequences will, without further act, be deemed to have been rescinded
and annulled if:
- we have paid or deposited with the trustee a sum sufficient to
pay:
- all overdue installments of interest on the notes,
including contingent interest and additional amounts,
if any,
- the principal of (and premium, if any, on) the notes
which have become due otherwise than by such
declaration of acceleration and any interest thereon
at the rate or rates prescribed therefore,
- 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 notes which became due solely by such
declaration of acceleration, have been cured or waived as
provided in the indenture. (Section 502) See " -- Modification
and Waiver" below.
If an event of default occurs and is continuing, the trustee will
generally have no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless the holders
offer reasonable indemnity to the trustee. (Section 603) The holders of a
majority in principal amount of the outstanding notes will generally have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee for the notes, provided that:
- the direction is not in conflict with any law or the
indenture,
- the trustee may take any other action it deems proper which is
not inconsistent with the direction, and
- the trustee will generally have the right to decline to follow
the direction if an officer of the trustee determines, in good
faith, that the proceeding would involve the trustee in
personal liability or would otherwise be contrary to
applicable law. (Section 512)
A holder of a note may only pursue a remedy under the indenture if:
- the holder has previously given the trustee written notice of
a continuing event of default for the notes,
- holders of at least 25% in principal amount of the outstanding
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 notes do not give the trustee a
direction inconsistent with the request. (Section 507)
However, these limitations do not apply to a suit by a holder of a note
demanding payment of the principal, premium, if any, or interest on a note on or
after the date the payment is due. (Section 508)
We will be required to furnish to the trustee annually a statement by
some of our officers regarding our performance or observance of any of the terms
of the indenture and specifying all of our known defaults, if any. (Section
1004)
27
MODIFICATION AND WAIVER
We may enter into one or more supplemental indentures with the trustee
without the consent of the holders of the notes in order to:
- 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 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. (Section
901)
We may enter into one or more supplemental indentures with the trustee
in order to add to, change or eliminate provisions of the indenture or to modify
the rights of the holders of one or more series of debt securities, including
the notes, if we obtain the consent of the holders of a majority in principal
amount of the outstanding debt securities of each series affected by the
supplemental indenture, treated as one class. However, without the consent of
the holders of each outstanding debt security affected by the supplemental
indenture, we may not enter into a supplemental indenture that:
28
- 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,
- in the case of the notes, reduces the redemption price,
purchase price or Fundamental Change purchase price of the
notes or changes the terms applicable to redemption or
purchase of the notes in a manner adverse to the holder,
- reduces the amount of principal of an original issue discount
security or any other debt security payable upon acceleration
of the maturity thereof,
- changes the place or currency of payment of principal,
premium, if any, or interest,
- impairs the right to institute suit for the enforcement of any
payment on any 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 notes, or
decreases the conversion or exchange rate or increases the
conversion price of any convertible or exchangeable debt
security,
- in the case of the notes, alters the manner of calculation or
rate of contingent interest or additional amounts payable on
any 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. (Section 902)
Holders of a majority in principal amount of the outstanding notes may
waive past defaults or noncompliance with restrictive provisions of the
indenture. However, the consent of holders of each outstanding 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 note,
- waive any default in any payment of redemption price, purchase
price or Fundamental Change purchase price with respect to any
notes, or
- waive any default which constitutes a failure to convert any
note in accordance with its terms and the terms of the
indenture. (Sections 513 and 1006)
In order to determine whether the holders of the requisite principal
amount of the outstanding debt securities have taken an action under the
indenture as of a specified date:
- the principal amount of an "original issue discount security"
that will be deemed to be outstanding will be the amount of
the principal that would be due and payable as of such date
upon acceleration of the maturity to such date,
29
- 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.
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. (Section 101)
We will generally be entitled to set any day as a record date for
determining the holders of outstanding 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 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 notes on the record date. To be effective, the action must be
taken by holders of the requisite principal amount of 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. (Section 104)
DEFEASANCE
The 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 notes will survive any such action by us. (Section 1401)
DEFEASANCE AND DISCHARGE. We will be discharged from all of our
obligations with respect to the notes, except for certain obligations to
convert, exchange or register the transfer of notes, to replace stolen, lost or
mutilated 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 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 notes to the stated maturity of the notes in accordance with the
terms of the indenture and the notes. Such defeasance or discharge may occur
only if, among other things, we have delivered to the trustee an opinion of
counsel to the effect that we have received from, or there has been published
by, the United States Internal Revenue Service a ruling, or there has been a
change in tax law, in either case to the effect that holders of the notes will
not recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge were not to occur. (Sections 1402
and 1404)
DEFEASANCE OF CERTAIN COVENANTS. In certain circumstances, we may omit
to comply with specified restrictive covenants, and that in those circumstances
the occurrence of certain events of default, which are described in the third
bullet point under " -- Events of Default" above, with respect to such
restrictive covenants, and those described in the fourth bullet point under " --
Events of Default" above, will be deemed not to be or result in an event of
default, in each case with respect to the notes. We, in order to exercise such
option, will be required to deposit, in trust for the benefit of the holders of
the 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 notes to the stated maturity in accordance with
30
the terms of the indenture and the notes. However, our obligations with respect
to the convertibility of the 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 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 notes and the 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 notes at the time of their stated maturity, but might not be
sufficient to pay amounts due on such notes upon any acceleration resulting from
the event of default. In such case, we would remain liable for those payments.
(Sections 1403 and 1404)
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding, 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 NOTES
We will be responsible for making all calculations called for under the
notes. These calculations include, but are not limited to, determinations of the
market prices of our common stock, accrued interest payable on the notes and the
conversion price of the notes. We will make all these calculations in good faith
and, absent manifest error, our calculations will be final and binding on
holders of notes. We will provide a schedule of our calculations to each of the
trustee and the conversion agent, and the trustee and conversion agent are
entitled to rely upon the accuracy of our calculations without independent
verification. The trustee will forward our calculations to any holder of 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 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 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 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 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,
31
- 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 December 17,
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 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
32
Indebtedness is not increased by an amount greater than the
fees, expenses and costs incurred in connection with such
extension, renewal or refunding.
DEFINED TERMS
An "affiliate" of, or a person "affiliated" with, a specific person is
a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.
The term "control" (including the terms "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract, or otherwise.
"Indebtedness," as applied to any person, means bonds, debentures,
notes and other instruments or arrangements representing obligations created or
assumed by such person, in respect of:
- obligations for money borrowed, other than unamortized debt
discount or premium,
- obligations evidenced by a note or similar instrument given in
connection with the acquisition of any business, properties or
assets of any kind,
- obligations as lessee under a capital lease, and
- 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 notes to the persons in whose names the
notes are registered at the close of business on the applicable record date for
each interest payment. However, we will pay the interest payable on the notes at
their stated maturity to the persons to whom we pay the principal amount of the
notes. (Section 307)
We will pay principal, premium, if any, and interest on the notes at
the offices of the paying agents we designate. However, except in the case of a
global security, we may pay interest by:
33
- 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 notes. At any
time, we may designate additional paying agents or rescind the designation of
any paying agents. However, we are required to maintain a paying agent in each
place of payment for the notes at all times. (Sections 307 and 1002)
Any money deposited with the trustee or any paying agent or then held
by us for the payment of principal, premium, if any, and interest on the notes
that remains unclaimed for two years after the date the payments became due, may
be repaid to us upon our request. After we have been repaid, holders entitled to
those payments may only look to us for payment as our unsecured general
creditors. The trustee and any paying agents will not be liable for those
payments after we have been repaid. (Section 1003)
EXCHANGE AND TRANSFER OF THE NOTES
We will issue the notes in registered form, without coupons. We will
only issue notes in denominations of integral multiples of $1,000.
Holders may present notes for exchange or for registration of transfer
at the office of the security registrar or at the office of any transfer agent
we designate for that purpose. The security registrar or designated transfer
agent will exchange or transfer the notes if it is satisfied with the documents
of title and identity of the person making the request. We will not charge a
service charge for any exchange or registration of transfer of notes. However,
we may require payment of a sum sufficient to cover any tax or other
governmental charge payable for the registration of transfer or exchange. The
trustee will serve as the security registrar for the notes. (Section 305) At any
time we may:
- designate additional transfer agents,
- rescind the designation of any transfer agent, or
- approve a change in the office of any transfer agent.
However, we are required to maintain a transfer agent in each place of payment
for the notes at all times. (Sections 305 and 1002)
In the event we elect to redeem the notes, neither we nor the trustee
will be required to register the transfer or exchange of notes:
- during the period beginning at the opening of business 15 days
before the day we mail the notice of redemption for the notes
and ending at the close of business on the day the notice is
mailed, or
- if we have selected the notes for redemption, in whole or in
part, except for the unredeemed portion of the notes. (Section
305)
BOOK-ENTRY SYSTEM
We originally issued the notes in the form of global securities. The
global securities were deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. The notes sold pursuant to this prospectus will be
represented by a new unrestricted global security. Except under circumstances
described below, the notes will not be issued in definitive form.
Investors who purchased notes in offshore transactions in reliance on
Regulation S under the Securities Act of 1933 may hold their interest in a
global security directly through Euroclear Bank S.A./N.V., as operator of the
34
Euroclear System ("Euroclear"), and Clearstream Banking, societe anonyme
("Clearstream"), if they are participants in such systems, or indirectly through
organizations that are participants in such systems. Euroclear and Clearstream
will hold interests in the global securities on behalf of their participants
through their respective depositaries, which in turn will hold such interests in
the global securities in customers' securities accounts in the depositaries'
names on the books of DTC.
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 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 notes represented by
that global security registered in their names, will not receive or be entitled
to receive physical delivery of notes in definitive form and will not be
considered the owners or holders thereof under the indenture. Principal and
interest payments, if any, on 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 notes will have any responsibility or liability
for any aspect of the records relating to nor payments made on account of
beneficial 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 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. Transfers
between participants in Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(Brussels time). Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the global securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in the global securities from
a DTC participant will be credited during the securities settlement processing
day (which must be a business day for Euroclear or Clearstream, as the case may
be) immediately following the
35
DTC settlement date, and such credit of any transactions interests in the global
securities settled during such processing day will be reported to the relevant
Euroclear or Clearstream participant on such day. Cash received by Euroclear or
Clearstream as a result of sales of interests in the global securities by or
through a Euroclear or Clearstream participant to a DTC participant will be
received with value on the DTC settlement date, but will be available in the
relevant Euroclear or Clearstream cash account only as of the business day
following settlement in DTC.
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 notes in definitive form in exchange for the
global securities relating to the notes. In addition, we may at any time and in
our sole discretion determine not to have the notes or portions of the notes
represented by one or more global securities and, in that event, will issue
individual notes in exchange for the global security or securities representing
the notes. Further, if we so specify with respect to any notes, an owner of a
beneficial interest in a global security representing the notes may, on terms
acceptable to us and the depositary for the global security, receive individual
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 notes represented by the global security equal in
principal amount to the beneficial interest, and to have the notes registered in
its name. Notes so issued in definitive form will be issued as registered 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 notes. (Section 112)
THE TRUSTEE
JPMorgan Chase Bank is the trustee, security registrar, paying agent
and conversion agent under the indenture for the notes. We maintain banking
relationships in the ordinary course of business with the trustee and its
affiliates. As of March 31, 2004, the trustee served as trustee for $2.3 billion
aggregate principal amount of our outstanding debt securities and $1.3 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 notes
will be given by mail to the addresses as they appear in the security register.
LISTING
The notes sold to qualified institutional buyers are eligible for
trading on the Portal Market; however, the notes resold pursuant to this
prospectus will no longer be eligible for trading on the Portal Market.
REGISTRATION RIGHTS
We have entered into a registration rights agreement with the initial
purchasers of the notes for the benefit of the holders of the notes and the
common stock issuable upon conversion thereof. We have filed the registration
statement of which this prospectus is a part to satisfy our obligations under
the registration rights agreement. Under this agreement, we will, at our cost,
use reasonable commercial efforts to keep the shelf registration statement
effective after its effective date until the earliest to occur of the following:
36
- all securities covered by the registration statement have been
sold pursuant to an effective registration statement,
- the date on which all registrable securities have been sold
pursuant to Rule 144 under the Securities Act of 1933,
- such time as there are no longer any registrable securities
outstanding, and
- the second anniversary of the last date of original issuance
of the notes.
We refer to the notes and the common stock issuable upon conversion
thereof as registrable securities. We will be permitted to suspend the
effectiveness of the shelf registration statement or the use of the prospectus
that is part of the shelf registration statement during specified periods (not
to exceed 45 consecutive days or an aggregate of 90 days in any consecutive
12-month period) in specified circumstances, including circumstances relating to
pending corporate developments, without being required to pay additional
amounts. We need not specify the nature of the event giving rise to a suspension
in any notice to the holders of the notes of the existence of a suspension.
If:
- after the effectiveness of the shelf registration statement,
we fail to file a post-effective amendment, prospectus
supplement or report with the SEC within ten business days
after a holder provides us with the questionnaire referred to
below, if such filing is necessary to enable the holder to
deliver the prospectus to purchasers of such holder's
registrable securities, which failure continues for a period
of five business days after we receive notice thereof from
that holder,
- the registration statement ceases to be effective or fails to
be usable without being succeeded within 30 days by a
post-effective amendment, prospectus supplement or report
filed with the SEC pursuant to the Securities Exchange Act of
1934 that cures the failure of the registration statement to
be effective or usable, or
- the aggregate duration of any suspension periods in any period
exceeds the limits described above,
then, in each case, we will pay additional amounts, until such failure is cured,
to all holders of notes (or in the case of the first bullet point above, the
affected holder) equal to 0.25% of the aggregate principal amount of notes per
annum for the first 90 days following such failure, increasing by 0.25% per
annum at the beginning of each subsequent 90-day period. With respect to shares
of common stock issued upon conversion of the notes, we will pay additional
amounts equal to 0.25% per annum of the then applicable conversion price for the
first 90 days, increasing by 0.25% per annum at the beginning of each subsequent
90-day period. Additional amounts on the registrable securities will not,
however, exceed 0.50% per annum at any time. Any additional amounts due will be
payable in cash semi-annually in arrears on the same dates as the interest
payment dates for the notes.
The term "applicable conversion price" means, as of any date of
determination, $1,000 principal amount of notes as of such date of determination
divided by the conversion rate in effect as of such date of determination or, if
no notes are then outstanding, the conversion rate that would be in effect were
notes then outstanding.
A holder who elects to sell any securities pursuant to the shelf
registration statement:
- will be required to be named as a selling security holder,
- will be required to deliver a prospectus to purchasers,
- will be subject to the civil liability provisions under the
Securities Act of 1933 in connection with any sales, and
37
- will be bound by the provisions of the registration rights
agreement, which are applicable to the holder, including
certain indemnification obligations.
To be named as a selling security holder in the shelf registration
statement when it first becomes effective, holders must complete and deliver a
questionnaire, the form of which can be obtained from us upon request, at least
five business days prior to the effectiveness of the shelf registration
statement. If we receive from a holder of registrable securities a completed
questionnaire, together with such other information as may be reasonably
requested by us, after the effectiveness of the shelf registration statement, we
will file an amendment to the shelf registration statement or supplement to the
related prospectus within ten business days to permit the holder to deliver a
prospectus to purchasers of registrable securities. Any holder that does not
complete and deliver a questionnaire or provide such other information will not
be named as a selling security holder in this prospectus and therefore will not
be permitted to sell any registrable securities under the shelf registration
statement.
DESCRIPTION OF OUR 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 307,072,860 shares are outstanding as of March
31, 2004, and
- 20,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares are outstanding as of March 31,
2004.
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
38
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,
- 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
39
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.
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 2004 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:
40
- 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
- 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.
41
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 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
42
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:
- 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
43
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. 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 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.
44
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
This is a summary of material United States federal income tax
consequences relevant to holders of the notes. This summary is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (including retroactive changes) or possible differing interpretations.
The discussion below deals only with holders who hold the notes (and the shares
of our common stock acquired upon conversion of the notes) as capital assets and
who acquire the notes from a selling security holder as described under "Selling
Security Holders" pursuant to an offering of such notes under this prospectus in
the first sale of such notes by such selling security holder after the notes are
first registered with the SEC. The discussion does 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 the notes (or our common stock acquired
upon conversion of a note) in a tax-deferred or tax-advantaged account or
persons holding the notes or shares of common stock 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 the 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 the notes (or our common stock acquired
upon conversion of a note),
- the United States federal estate, gift or alternative minimum
tax consequences of the purchase, ownership or disposition of
the notes (or our common stock acquired upon conversion of a
note),
- the United States federal income tax consequences to 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 the notes (or our common stock
acquired upon conversion of a note).
Persons considering the purchase of the notes 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 the notes (or our common stock acquired upon
conversion of a note) arising under other United States federal tax laws and the
laws of any other taxing jurisdiction.
For purposes of the discussion that follows, a U.S. holder is a
beneficial owner of the notes (or our common stock acquired upon conversion of a
note) 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
- 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 the notes (or our common
stock acquired upon conversion of a note) 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 the notes (or our common stock
45
acquired upon conversion of a note), 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 the notes (or our
common stock acquired upon conversion of a note) that is a partnership and
partners in such partnership should consult their own tax advisors about the
United States federal income tax consequences of holding and disposing of the
notes (or our common stock acquired upon conversion of a note).
No statutory or judicial authority directly addresses the treatment of
the notes or instruments similar to the notes for United States federal income
tax purposes. The Internal Revenue Service (the "IRS") has issued a revenue
ruling with respect to instruments similar to the notes. To the extent it
addresses the issues, this ruling supports certain aspects of the treatment
described below. No ruling has been or is expected to be sought from the IRS
with respect to the United States federal income tax consequences to the holders
of the notes. The IRS would not be precluded from taking contrary positions to
those set forth herein. As a result, no assurance can be given that the IRS will
agree with all of the tax characterizations and the tax consequences described
below.
WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES AND OUR COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS.
CLASSIFICATION OF THE NOTES
We intend to treat the notes as indebtedness for United States federal
income tax purposes and take the position that the notes will be subject to the
special regulations governing contingent payment debt instruments (the "CPDI
regulations"). Pursuant to the terms of the indenture, we and each holder of the
notes agree, for United States federal income tax purposes, to treat the notes
as debt instruments that are subject to the CPDI regulations, and the remainder
of this discussion assumes that the notes will be so treated.
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 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. Notwithstanding the issuance of the revenue ruling
referred to above, the application of the CPDI regulations to instruments such
as the notes is uncertain in several respects, and, as a result, no assurance
can be given that the IRS or a court will agree with the treatment described
herein. Any differing treatment could affect the amount, timing and character of
income, gain or loss in respect of an investment in the 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 notes into
shares of our common stock, might recognize capital gain or loss upon a taxable
disposition of the notes and might have an adjusted tax basis in the notes or
our common stock acquired upon conversion of a note materially different than
discussed herein. Holders should consult their tax advisors concerning the tax
treatment of holding and disposing of the notes.
TREATMENT OF U.S. HOLDERS
ACCRUAL OF INTEREST ON THE NOTES
Pursuant to the CPDI regulations, a U.S. holder will be required to
accrue interest income on the 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 interest in taxable income in each
year in excess of the accruals on the 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).
46
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:
(1) the product of (i) the adjusted issue price (as defined below) of
the notes as of the beginning of the accrual period and (ii) the
comparable yield (as defined below) of the notes, adjusted for the
length of the accrual period,
(2)divided by the number of days in the accrual period, and
(3) multiplied by the number of days during the accrual period that the
U.S. holder held the notes.
The notes' issue price is the first price at which a substantial amount
of the notes was sold, 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 note is its issue price
increased by any interest income previously accrued, determined without regard
to any adjustments to interest accruals described below, and decreased by the
amount of any projected payments, as defined below (including payments of stated
cash interest) with respect to the notes.
Unless certain conditions are met, the term "comparable yield" means
the annual yield we would pay, as of the initial issue date, on a noncontingent,
nonconvertible, fixed-rate debt instrument with terms and conditions otherwise
comparable to those of the notes. We intend to take the position that the
comparable yield for the notes is 5.06%, 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 United States federal income tax purposes, a schedule of the projected
amounts of payments, which we refer to as projected payments, on the notes. This
schedule must produce the comparable yield. The projected payment schedule
includes the semiannual stated cash interest payable on the notes at the rate of
2.875% 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.
U.S. holders may 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 NOTES FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR
REPRESENTATION REGARDING THE ACTUAL AMOUNTS PAYABLE ON THE NOTES.
Amounts treated as interest under the CPDI regulations are treated as
original issue discount for all purposes of the Internal Revenue Code of 1986,
as amended (the "Code").
ADJUSTMENTS TO INTEREST ACCRUALS ON THE NOTES
As noted above, the projected payment schedule includes amounts
attributable to the stated semi-annual cash interest payable on the 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 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
47
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 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 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 notes during prior taxable years,
reduced to the extent such interest was offset by prior net negative
adjustments. A negative adjustment is not subject to the two percent floor
limitation imposed on miscellaneous itemized deductions under section 67 of the
Code. Any negative adjustment 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
notes or will reduce the amount realized on the sale, exchange, purchase by us
at the holder's option, conversion, redemption or retirement of the notes.
If a U.S. holder purchases notes at a discount or premium to the
adjusted issue price, the discount will be treated as a positive adjustment, and
will increase the U.S. holder's adjusted tax basis, and the premium will be
treated as a negative adjustment, and will reduce the U.S. holder's adjusted tax
basis. The U.S. holder must reasonably allocate the adjustment over the
remaining term of the notes by reference to the accruals of original issue
discount at the comparable yield or to the projected payments. It may be
reasonable to allocate the adjustment over the remaining term of the notes pro
rata with the accruals of original issue discount at the comparable yield. U.S.
holders should consult their tax advisors regarding these allocations.
SALE, EXCHANGE, CONVERSION OR REDEMPTION OF THE NOTES
Generally, the sale or exchange of a note, the purchase of a note by us
at the holder's option or the redemption or retirement of a 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 notes includes the receipt of common stock (and cash, if any) upon
conversion as a contingent payment with respect to the notes. Accordingly, we
intend to treat the receipt of our common stock (and cash, if any) by a U.S.
holder upon the conversion of a 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 note. A U.S. holder's adjusted tax basis in a note will generally be equal
to the U.S. holder's original purchase price for the note, increased by any
interest income previously accrued by the U.S. holder (determined without regard
to any adjustments to interest accruals described above, other than adjustments
to reflect a discount or premium to the adjusted issue price, if any), and
decreased by the amount of any projected payments, as defined above, projected
to have been made through such date in respect of the 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 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 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.
CONSTRUCTIVE DIVIDENDS
If at any time we were to make a distribution of property to our
shareholders that would be taxable to the shareholders as a dividend for United
States federal income tax purposes and, in accordance with the anti-dilution
48
provisions of the notes, the conversion rate of the notes were increased, such
increase might be deemed to be the payment of a taxable dividend to holders of
the notes.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness, or assets, or an increase in the
event of an extraordinary cash dividend may result in deemed dividend treatment
to holders of the notes, but, generally, an increase in the event of stock
dividends or the distribution of rights to subscribe for common stock would not
be so treated.
ADDITIONAL AMOUNTS
We may be required to make payments of additional amounts as described
under "Description of the Notes - Registration Rights." We intend to take the
position for United States federal income tax purposes that any such additional
payments should be taxable to U.S. holders as additional ordinary income when
received or accrued, in accordance with their method of tax accounting. Our
determination is binding on holders of the notes, unless they explicitly
disclose that they are taking a different position to the IRS on their tax
returns for the year during which they acquire the note. The IRS could take a
contrary position from that described above, which could affect the timing of
U.S. holders' income from the notes with respect to the payments of additional
amounts.
U.S. holders should consult their tax advisors concerning the
appropriate tax treatment of the payment of any additional amounts with respect
to the notes.
DIVIDENDS ON COMMON STOCK
If, after a U.S. holder converts a note and receives our common stock,
we make distributions on our common stock, the distributions will constitute
dividends taxable to the holder as ordinary income for United States federal
income tax purposes to the extent of our current or accumulated earnings and
profits as determined under United States federal income tax principles. If a
U.S. holder is an individual and receives a distribution that is treated as a
dividend, recently enacted legislation generally reduces the maximum tax rate
applicable to such distribution to 15%. However, there are several exceptions
and restrictions regarding the availability of the reduced tax rates, such as
restrictions relating to (i) the U.S. holder's holding period of stock on which
the dividends are received, (ii) such holder's obligation, if any, to make
related payments with respect to positions in substantially similar or related
property, and (iii) amounts the U.S. holder takes into account as investment
income under section 163(d)(4)(B) of the Code. The reduced rates apply only to
dividends received on or before December 31, 2008. Individuals should consult
their tax advisors regarding the extent, if any, to which any exceptions and
restrictions may apply to their particular factual situation.
To the extent that a U.S. holder receives distributions on shares of
common stock that would otherwise constitute dividends for United States federal
income tax purposes but that exceed our current and accumulated earnings and
profits, such distributions will be treated first as a non-taxable return of
capital reducing the holder's tax basis in the shares of common stock. Any such
distributions in excess of the U.S. holder's tax basis in the shares of common
stock will generally be treated as capital gain. Subject to applicable
limitations, distributions on our common stock constituting dividends paid to
holders that are United States corporations will qualify for the dividends
received deduction.
SALE OF COMMON STOCK
A U.S. holder generally will recognize capital gain or loss on a sale
or exchange of our common stock. The U.S. holder's gain or loss will equal the
difference between the proceeds received by the holder and the holder's tax
basis in the common stock, which will generally be the fair market value of the
common stock at the time of the conversion. The proceeds received by a U.S.
holder will include the amount of any cash and the fair market value of any
other property received for the common stock. The gain or loss recognized by a
U.S. holder on a sale or exchange of common stock will be long-term capital gain
or loss if the holder's holding period for the common stock is more than one
year. Long-term capital gains of noncorporate taxpayers are generally taxed at a
lower maximum marginal tax rate than the maximum marginal tax rate applicable to
ordinary income. The deductibility of net capital losses by individuals and
corporations is subject to limitations.
49
If a U.S. holder is an individual, recently enacted legislation
generally reduces the maximum tax rate on such long-term capital gain to 15%.
However, there are exceptions to the reduced rates, including an exception for
amounts the U.S. holder takes into account as investment income under section
163(d)(4)(B) of the Code. The reduced rates apply only to tax years beginning on
or before December 31, 2008. Individuals should consult their tax advisors
regarding the extent, if any, to which any exceptions may apply to their
particular factual situation. Moreover, if such holder previously received, with
respect to such stock, one or more dividends that were taxed at the reduced rate
described above under " -- Dividends on Common Stock," any capital loss on a
subsequent disposition of the stock will, regardless of such holder's holding
period, be treated as long-term capital loss to the extent that the previous
dividends were extraordinary dividends within the meaning of section 1059(c) of
the Code.
TREATMENT OF NON-U.S. HOLDERS
OWNERSHIP AND DISPOSITION OF THE NOTES
All payments on the notes made to a Non-U.S. holder, including interest
payments, any payment in common stock pursuant to a conversion, and any gain
realized on a sale or exchange of the notes will be exempt from United States
income and withholding tax provided that: (i) such Non-U.S. holder does not own,
actually, indirectly or constructively, 10% or more of the total combined voting
power of all classes of our stock entitled to vote and is not a controlled
foreign corporation related, directly or indirectly, to us through stock
ownership, (ii) the statement requirement described below has been fulfilled
with respect to the beneficial owner, as discussed below, and (iii) such
payments and gain are not effectively connected with the conduct by such
Non-U.S. holder of a trade or business in the United States. However, if a
Non-U.S. holder were deemed to have received a constructive dividend (see " --
Treatment of U.S. Holders -- Constructive Dividends" above), the Non-U.S. holder
will generally be subject to United States federal withholding tax at a 30% rate
(or such lower rate provided by an applicable treaty) on the taxable amount of
such dividend (see " -- Ownership and Disposition of Common Stock" below).
The statement requirement referred to in the preceding paragraph will
be fulfilled if the beneficial owner of a note certifies on IRS Form W-8BEN (or
successor form), under penalties of perjury, that it is not a United States
person and provides its name and address or otherwise satisfies applicable
documentation requirements. If a Non-U.S. holder of the notes is engaged in a
trade or business in the United States, and if interest on the notes is
effectively connected with the conduct of such trade or business (and, if
required by a tax treaty, the dividends are attributable to a permanent
establishment maintained in the United States), the Non-U.S. holder, although
exempt from the withholding tax discussed in the preceding paragraph, will
generally be subject to regular United States federal income tax on interest and
on any gain realized on the sale, exchange, purchase by us at the holder's
option, conversion, redemption or retirement of the notes in the same manner as
if it were a U.S. holder. In lieu of the certificate described above, such a
Non-U.S. holder would be required to provide to the withholding agent a properly
executed IRS Form W-8ECI (or successor form) in order to claim an exemption from
withholding tax. In addition, if such a Non-U.S. holder is a foreign
corporation, such holder may be subject to a branch profits tax equal to 30% (or
such lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments.
OWNERSHIP AND DISPOSITION OF COMMON STOCK
If, after a Non-U.S. holder converts a note into common stock, we make
distributions on our common stock, the distributions will constitute a dividend
for United States federal income tax purposes to the extent of our current or
accumulated earnings and profits as determined under United States federal
income tax principles. Except as described below, dividends paid on common stock
held by a Non-U.S. holder will be subject to United States federal withholding
tax at a rate of 30% (or such lower rate provided by an applicable treaty). A
Non-U.S. holder generally will be required to satisfy certain IRS certification
requirements in order to claim a reduction of or exemption from withholding
under a tax treaty by filing IRS Form W-8BEN (or successor form) upon which the
Non-U.S. holder certifies, under penalties of perjury, its status as a non-U.S.
person and its entitlement to the lower treaty rate with respect to such
payments.
If dividends paid to a Non-U.S. holder are effectively connected with
the conduct of a United States trade or business by the Non-U.S. holder (and, if
required by a tax treaty, the dividends are attributable to a permanent
establishment maintained in the United States), we and other payors generally
are not required to withhold tax from
50
the dividends, provided that the Non-U.S. holder furnishes to us a valid IRS
Form W-8ECI (or successor form) certifying, under penalties of perjury, that the
holder is a non-U.S. person, and the dividends are effectively connected with
the holder's conduct of a United States trade or business and are includible in
the holder's gross income. Effectively connected dividends will be subject to
United States federal income tax on net income that applies to U.S. persons
generally (and, with respect to a Non-U.S. holder that is a foreign corporation,
under certain circumstances, the 30% branch profits tax).
A Non-U.S. holder generally will not be subject to United States
federal income or withholding tax on gain realized on the sale or other taxable
disposition of our common stock received upon conversion of a note unless (1)
such Non-U.S. holder is an individual who is present in the United States for
183 days or more in the taxable year of sale, exchange or other disposition, and
certain other conditions are met, or (2) such gain is effectively connected with
the conduct by the Non-U.S. holder of a trade or business in the United States
(and, if required by a tax treaty, is attributable to a permanent establishment
maintained in the United States).
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
A U.S. holder may be subject to United States federal backup
withholding tax at the applicable statutory rate with respect to payments of
principal, premium, if any, and interest (including original issue discount and
a payment in common stock pursuant to a conversion of the notes) on the notes,
the payments of dividends on our common stock, and the proceeds of dispositions
of the notes or our common stock, if the U.S. holder fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States backup withholding certification requirements. A Non-U.S. holder
may be subject to United States backup withholding tax on payments on the notes
or our common stock and the proceeds from a sale or other disposition of the
notes or our common stock unless the Non-U.S. holder complies with certification
procedures to establish that it is not a United States person. Any amounts so
withheld will be allowed as a credit against a holder's United States federal
income tax liability and may entitle a holder to a refund, provided the required
information is timely furnished to the IRS. Payments on the notes and our common
stock, as well as the proceeds from a sale or other disposition, may be subject
to information reporting. Holders of the notes should consult their tax advisors
concerning the application of the backup withholding and information reporting
rules in their particular circumstances.
51
SELLING SECURITY HOLDERS
The notes were originally issued by us and sold to Citigroup Global
Markets Inc., Deutsche Bank Securities Inc., Banc of America Securities LLC,
Credit Suisse First Boston LLC, J.P. Morgan Securities Inc., Wachovia Capital
Markets LLC, ABN AMRO Rothschild LLC, Banc One Capital Markets, Inc., Barclays
Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Commerzbank
Aktiengesellschaft and Scotia Capital (USA) Inc. (the "initial purchasers").
Citigroup Global Markets, Inc. and Deutsche Bank Securities Inc. acted as joint
book-runners and as representatives of the initial purchasers in the offering
The notes were resold by the initial purchasers in transactions exempt from the
registration requirements of the Securities Act of 1933 to persons reasonably
believed by the initial purchasers to be "qualified institutional buyers," as
defined by Rule 144A under the Securities Act of 1933, and outside the United
States to non-U.S. persons in accordance with Regulation S under the Securities
Act of 1933. The selling security holders, including their transferees,
pledgees, donees, assignees or successors, may from time to time offer and sell
pursuant to this prospectus any or all of the notes listed below and the shares
of common stock issued upon conversion of the notes.
The following table sets forth recent information about the principal
amount of notes beneficially owned by each selling security holder and the
number of shares of common stock issuable upon conversion of those notes that
may be offered from time to time pursuant to this prospectus. Selling security
holders may be deemed to be "underwriters" as defined in the Securities Act of
1933. Any profits realized by the selling security holders may be deemed to be
underwriting commissions.
The number of shares of common stock shown in the table below assumes
conversion of the full amount of notes held by such holder at the initial
conversion rate of 78.0640 shares per $1,000 principal amount of notes. This
conversion rate is subject to adjustment as described under "Description of the
Notes - Conversion Rights." Accordingly, the number of shares of common stock
issuable upon conversion of the notes may increase or decrease from time to
time. Under the terms of the indenture, fractional shares will not be issued
upon conversion of the notes. Cash will be paid instead of fractional shares, if
any.
The table below has been prepared based upon the information furnished
to us by the selling security holders as of April 29, 2004. The selling security
holders identified above may have sold, transferred or otherwise disposed of
some or all of their notes since the date on which the information in the
preceding table is presented in transactions exempt from or not subject to the
registration requirements of the Securities Act of 1933. Information concerning
the selling security holders may change from time to time and, if necessary, we
will supplement this prospectus accordingly. We cannot give an estimate as to
the amount of the notes or common stock issuable upon conversion thereof that
will be held by the selling security holders upon the termination of this
offering because the selling security holders may offer some or all of their
notes or common stock pursuant to the offering contemplated by this prospectus.
See "Plan of Distribution."
To our knowledge, other than their ownership of the securities
described below, none of the selling holders has, or has had within the past
three years, any position, office or other material relationship with us or any
of our predecessors or affiliates.
PRINCIPAL AMOUNT OF NUMBER OF SHARES
NOTES BENEFICIALLY PERCENTAGE OF OF COMMON STOCK PERCENTAGE OF
OWNED THAT MAY NOTES THAT COMMON STOCK
NAME BE SOLD OUTSTANDING MAY BE SOLD OUTSTANDING (1)
---- ------------------- ------------- ---------------- ---------------
AIG DKR SoundShore Holdings Ltd. (2).......... $2,256,000 * 176,112 *
Arbitex Master Fund L.P. (3).................. $5,000,000 1.96% 390,320 *
Associated Electric & Gas Insurance Services
Limited....................................... $1,000,000 * 78,064 *
BankAmerica Pension Plan...................... $2,500,000 * 195,160 *
Barclays Global Investors Limited............. $1,000,000 * 78,064 *
Barnet Partners Ltd........................... $2,000,000 * 156,218 *
Century Park Trust............................ $2,500,000 * 195,160 *
Citigroup Global Markets Inc. (4)............. $850,000 * 66,354 *
Citigroup Global Markets Ltd. (5)............. $5,000,000 1.96% 390,320 *
CNH CA Master Account, L.P.................... $1,000,000 * 78,064 *
Consulting Group Capital Market Funds......... $1,000,000 * 78,064 *
52
Context Convertible Arbitrage Fund, L.P. ..... $800,000 * 62,451 *
Context Convertible Arbitrage Offshore, Ltd. . $1,700,000 * 132,709 *
Convertible Securities Fund (6)............... $21,000 * 1,639 *
DKR SoundShore Opportunity Holding Fund Ltd. . $1,085,000 * 84,699 *
DKR SoundShore Strategic Holding Fund Ltd. ... $659,000 * 51,444 *
Duckbill & Co. ............................... $1,000,000 * 78,064 *
GMAM Group Pension Trust...................... $4,000,000 1.57% 312,256 *
Guggenheim Portfolio Company XV, LLC.......... $750,000 * 58,548 *
HBK Master Fund L.P.(7)....................... $17,000,000 6.67% 1,327,088 *
Highbridge International LLC (8).............. $25,000,000 9.80% 1,951,600 *
HSBC Trustee, Zola Managed Trust.............. $300,000 * 23,419 *
John Deere Pension Trust...................... $2,000,000 * 156,128 *
JMG Triton Offshore Fund, Ltd. ............... $2,000,000 * 156,128 *
KBC Financial Products USA Inc. (9)........... $2,000,000 * 156,128 *
Laurel Ridge Capital, LP...................... $2,000,000 * 156,218 *
Lehman Brothers Inc. (10)..................... $12,250,000 4.80% 956,284 *
Lyxor/Context Fund Ltd. ...................... $450,000 * 35,129 *
National Bank of Canada....................... $1,000,000 * 78,064 *
Nations Convertible Securities Fund (11)...... $2,979,000 1.17% 232,552 *
Peoples Benefit Life Insurance Company
Teamsters..................................... $5,000,000 1.96% 390,320 *
Ramius, LP.................................... $200,000 * 15,613 *
Ramius Master Fund, Ltd. ..................... $5,750,000 2.25% 448,868 *
RBC Alternative Assets Fund - Conv. Arb. ..... $125,000 * 9,758 *
RCG Baldwin, LP............................... $800,000 * 62,451 *
RCG Halifax Master Fund, Ltd. ................ $500,000 * 39,032 *
RCG Latitude Master Fund, Ltd. ............... $6,250,000 2.45% 487,900 *
RCG Multi Strategy Master Fund, Ltd. ......... $2,500,000 * 195,160 *
Retail Clerks Pension Trust................... $2,000,000 * 156,128 *
Royal Bank of Canada (Norshield).............. $450,000 * 35,129 *
St. Albans Partners Ltd. ..................... $16,000,000 6.27% 1,249,024 *
Thrivent Financial for Lutherans (12)......... $2,500,000 * 195,160 *
Triborough Partners International Ltd. ....... $4,200,000 1.65% 327,869 *
Triborough Partners LLC....................... $1,800,000 * 140,515 *
Univest Convertible Arbitrage Fund II Ltd.
(Norshield)................................... $300,000 * 23,419 *
Univest Multi-Strategy Fund - Conv. Arb. ..... $125,000 * 9,758 *
Waterstone Market Neutral Fund, LP (13)....... $564,000 * 44,028 *
Waterstone Market Neutral Offshore Fund
Ltd. (14)..................................... $3,936,000 1.54% 307,260 *
Whitebox Convertible Arbitrage Beta Master
Fund LP....................................... $8,000,000 3.14% 624,512 *
Whitebox Convertible Arbitrage Partners LP.... $34,000,000 13.33% 2,654,176 *
WPG Convertible Arbitrage Overseas Master
Fund.......................................... $150,000 * 11,710 *
WPG MSA Convertible Arbitrage Fund............ $100,000 * 7,806 *
Xavex Convertible Arbitrage S Fund............ $750,000 * 58,548 *
Yield Strategies Fund I, L.P. ................ $5,500,000 2.16% 429,352 *
Yield Strategies Fund II, L.P. ............... $5,500,000 2.16% 429,352 *
Zola Partners, L.P. .......................... $1,500,000 * 117,096 *
All other holders of notes or future
transferees, pledgees, donees or successors
of any such holder (15)....................... $51,900,000 20.35% 4,051,522 1.30%
Total......................................... $255,000,000 100% 19,906,320 6.48%
53
-------------
* Less than 1%
(1) Calculated using 307,072,860 shares of common stock outstanding as of
March 31, 2004. In calculating this amount for each holder, we treated
as outstanding the number of shares of common stock issuable upon
conversion of all of that holder's notes, but we did not assume
conversion of any other holder's notes.
(2) AIG DKR SoundShore Holdings Ltd. also beneficially owns $385,500
principal amount of our 3.75% Convertible Senior Notes due 2023.
(3) Arbitex Master Fund L.P. also beneficially owns $13,200,000 principal
amount of our 3.75% Convertible Senior Notes due 2023.
(4) Citigroup Global Markets Inc. was one of the initial purchasers in
connection with the private placement of the notes in December 2003. In
addition, Citigroup Global Markets Inc. was one of the initial
purchasers in connection with the private placement of our 3.75%
Convertible Senior Notes due 2023 in May 2003, and also beneficially
owns $2,804,000 principal amount of our 3.75% Convertible Senior Notes
due 2023.
(5) Citigroup Global Markets Ltd. is an affiliate of Citigroup Global
Markets Inc., who was one of the initial purchasers in connection with
the private placement of the notes in December 2003. Citigroup Global
Markets Ltd. also beneficially owns $10,925,000 principal amount of our
3.75% Convertible Senior Notes due 2023.
(6) Convertible Securities Fund also beneficially owns $75,000 principal
amount of our 3.75% Convertible Senior Notes due 2023.
(7) HBK Master Fund L.P. also beneficially owns 700 shares of our common
stock.
(8) Highbridge International LLC also beneficially owns $47,000,000
principal amount of our 3.75% Convertible Senior Notes due 2023.
(9) KBC Financial Products USA Inc. also beneficially owns $625,000
principal amount of our 3.75% Convertible Senior Notes due 2023.
(10) Lehman Brothers Inc. also beneficially owns $3,000,000 principal amount
of our 3.75% Convertible Senior Notes due 2023.
(11) Nations Convertible Securities Fund also beneficially owns $8,925,000
principal amount of our 3.75% Convertible Senior Notes due 2023.
(12) Thrivent Financial for Lutherans also beneficially owns (i) $8,500,000
principal amount of CERC's 7.875% Senior Notes due 2013, (ii)
$3,000,000 principal amount of CenterPoint Houston's 5.70% General
Mortgage Bonds, Series J, due 2013, (iii) $2,000,000 principal amount
of CenterPoint Houston's 5.60% General Mortgage Bonds, Series L, due
2023, (iv) $6,000,000 principal amount of CenterPoint Houston's 6.95%
General Mortgage Bonds, Series K, due 2033, (v) $3,000,000 principal
amount of our 3.75% Convertible Senior Notes due 2023, (vi) $7,000,000
principal amount of our 5.875% Senior Notes due 2008, Series B and
(vii) $8,000,000 principal amount of CERC's 7.75% Notes due 2011.
(13) Waterstone Market Neutral Fund, LP also beneficially owns $564,000
principal amount of our 3.75% Convertible Senior Notes due 2023.
(14) Waterstone Market Neutral Offshore Fund Ltd. also beneficially owns
$3,936,000 principal amount of our 3.75% Convertible Senior Notes due
2023.
(15) Information concerning other selling security holders of notes or
common stock issuable upon conversion thereof will be set forth in
prospectus supplements or post-effective amendments from time to time,
if required.
54
PLAN OF DISTRIBUTION
We have registered the notes and the common stock covered by this
prospectus to permit holders to conduct public secondary trading of these
securities from time to time after the date of this prospectus. We have agreed,
among other things, to bear all expenses, other than underwriting discounts,
selling commissions and transfer taxes, in connection with the registration and
sale of the notes and the common stock covered by this prospectus. We will not
receive any of the proceeds of the sale of the notes and the common stock
offered by this prospectus. The aggregate proceeds to the selling security
holders from the sale of the notes or common stock will be the purchase price of
the notes or common stock less any discounts and commissions. A selling security
holder reserves the right to accept and, together with their agents, to reject,
any proposed purchases of notes or common stock to be made directly or through
agents.
The notes and the common stock offered by this prospectus may be sold
from time to time to purchasers:
- directly by the selling security holders and their successors,
which includes their donees, pledgees or transferees or their
successors-in-interest, or
- through underwriters, broker-dealers or agents, who may
receive compensation in the form of discounts, commissions or
agent's commissions from the selling security holders or the
purchasers of the notes and the common stock. These discounts,
concessions or commissions may be in excess of those customary
in the types of transactions involved.
The selling security holders and any underwriters, broker-dealers or
agents who participate in the distribution of the notes and the common stock may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933.
As a result, any profits on the sale of the notes and the common stock by
selling security holders and any discounts, commissions or agent's commissions
received by any such broker-dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933. Selling security
holders who are "underwriters" within the meaning of the Securities Act of 1933
will be subject to prospectus delivery requirements of the Securities Act of
1933. If the selling security holders were deemed to be underwriters, the
selling security holders may be subject to certain statutory liabilities of the
Securities Act of 1933 and the Securities Exchange Act of 1934. If the notes and
the common stock are sold through underwriters, broker-dealers or agents, the
selling security holders will be responsible for underwriting discounts or
commissions or agent's commissions.
The notes and the common stock may be sold in one or more transactions
at:
- fixed prices,
- prevailing market prices at the time of sale,
- prices related to such prevailing market prices,
- varying prices determined at the time of sale, or
- negotiated prices.
These sales may be effected in one or more transactions:
- on any national securities exchange or quotation service on
which the notes and common stock may be listed or quoted at
the time of the sale,
- in the over-the-counter market,
- in transactions otherwise than on such exchanges or services
or in the over-the-counter market,
55
- through the writing of options (including the issuance by the
selling security holders of derivative securities), whether
the options or such other derivative securities are listed on
an options exchange or otherwise,
- through the settlement of short sales, or
- through any combination of the foregoing.
These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with the sales of the notes and the common stock issuable
upon conversion thereof or otherwise, the selling security holders may enter
into hedging transactions with broker-dealers or other financial institutions
which in turn may:
- engage in short sales of the notes or the common stock in the
course of hedging their positions,
- sell the notes and common stock short and deliver the notes
and common stock to close out short positions,
- loan or pledge notes or the common stock to broker-dealers or
other financial institutions that in turn may sell the notes
and the common stock,
- enter into option or other transactions with broker-dealers or
other financial institutions that require the delivery to the
broker-dealer or other financial institution of the notes or
the common stock, which the broker-dealer or other financial
institution may resell pursuant to the prospectus, or
- enter into transactions in which a broker-dealer makes
purchases as a principal for resale for its own account or
through other types of transactions.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling security holders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the common stock by
the selling security holders.
Our common stock trades on the New York Stock Exchange under the symbol
"CNP." We do not intend to apply for listing of the notes on any securities
exchange or for inclusion of the notes in any automated quotation system.
Accordingly, no assurances can be given as to the development of liquidity or
any trading market for the notes. See "Risk Factors - Risks Related to the Notes
- We cannot assure you that an active trading market will develop for the
notes."
There can be no assurance that any selling security holder will sell
any or all of the notes or the common stock pursuant to this prospectus.
Further, we cannot assure you that any such selling security holder will not
transfer, devise or gift the notes and the common stock by other means not
described in this prospectus. In addition, any notes or common stock covered by
this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the
Securities Act of 1933 may be sold under Rule 144 or Rule 144A rather than under
this prospectus. The notes or common stock covered by this prospectus may also
be sold to non-U.S. persons outside the United States in accordance with
Regulation S under the Securities Act of 1933 rather than pursuant to this
prospectus. The notes and the common stock may be sold in some states only
through registered or licensed brokers or dealers. In addition, in some states
the notes and common stock may not be sold unless they have been registered or
qualified for sale or an exemption from registration or qualification is
available and complied with.
The selling security holders and any other person participating in the
sale of notes or the common stock will be subject to the Securities Exchange Act
of 1934. The Securities Exchange Act of 1934 rules include, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
notes and the common stock by the selling security holders and any other such
person. In addition, Regulation M may restrict the ability of any person engaged
in the distribution of the notes and the common stock to engage in market-making
activities
56
with respect to the particular notes and the common stock being distributed.
This may affect the marketability of the notes and the common stock and the
ability of any person or entity to engage in market-making activities with
respect to the notes and the common stock.
We have agreed to indemnify the selling security holders against
certain liabilities, including liabilities under the Securities Act of 1933.
The notes were issued and sold in December 2003 in transactions exempt
from the registration requirements of the Securities Act of 1933 to persons
reasonably believed by the initial purchasers to be "qualified institutional
buyers," as defined by Rule 144A under the Securities Act of 1933, and outside
the United States to non-U.S. persons in accordance with Regulation S under the
Securities Act of 1933.
Prior to the private placement, there was no trading market for the
notes. Although the broker-dealers that acted as initial purchasers when the
notes were originally issued have advised us that they currently intend to make
a market in the notes, they are not obligated to do so and may discontinue
market-making activities at any time without notice. In addition, their
market-making activities will be subject to limits imposed by the Securities Act
of 1933 and the Securities Exchange Act of 1934. Although the notes issued in
the private placement are eligible for trading on the Portal Market, notes
resold using this prospectus will no longer be eligible for trading on the
Portal Market. We have not listed, and do not intend to list, the notes on any
securities exchange or automated quotation system. We cannot assure you that any
active market for the notes will develop or be sustained. If an active market is
not developed or sustained, the market price and liquidity of the notes may be
adversely affected.
We have agreed to pay substantially all of the expenses incidental to
the registration, offering and sale of the notes and common stock to the public
other than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
A person may only communicate or cause to be communicated an invitation
or inducement to engage in investment activity (within the meaning of Section 21
of the Financial Services and Markets Act 2000 (the "FSMA")) received by it in
connection with the issue and sale of any notes in circumstances in which
Section 21(1) of the FSMA does not apply to us.
This prospectus is being distributed to and is directed only at persons
who (1) are outside the United Kingdom, (2) are investment professionals falling
within Article 19(5) of the FSMA (Financial Promotion) Order 2001 (the "Order")
or (3) are persons falling within Article 49(2) (a) to (d) ("high net worth
companies, unincorporated associates, etc.") of the Order (all these persons
together being referred to as "relevant persons"). This prospectus must not be
acted on or relied on by persons who are not relevant persons. Any investment or
investment activity to which this prospectus relates is available only to
relevant persons and will be engaged in only with relevant persons.
57
VALIDITY OF SECURITIES
The validity of the notes and the common stock issuable upon conversion
thereof 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, 2002 and 2003, and for each of the three years
in the period ended December 31, 2003, incorporated by reference in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports (which reports express an unqualified opinion and
include explanatory paragraphs referring to the distribution of Reliant
Resources, Inc., the change in method of accounting for goodwill and certain
intangible assets and the recording of asset retirement obligations), and has
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
58