UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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CENTERPOINT ENERGY, INC.
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(Name of Registrant as Specified In Its Charter)
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[LOGO OF CENTERPOINT ENERGY, INC.]
CenterPoint Energy, Inc.
Notice of Annual Meeting of Shareholders
to be held on May 7, 2003
and Proxy Statement
Table of Contents
Page
----
Notice of Annual Meeting of Shareholders
Proxy Statement............................................................. 1
Voting Information....................................................... 1
Information About Directors.............................................. 2
Stock Ownership.......................................................... 6
Executive Compensation Tables............................................ 8
Retirement Plans, Related Benefits and Other Arrangements................ 12
Report of the Compensation Committee..................................... 15
Stock Performance Graph.................................................. 18
Proposal to Amend and Restate Stock Plan for Outside Directors........... 19
Report of the Audit Committee............................................ 21
Principal Accounting Firm Fees........................................... 22
Ratification of Appointment of Independent Auditors...................... 23
Shareholder Proposals.................................................... 23
Shareholder Proposals for 2004 Annual Meeting............................ 26
Director Nominations for 2004 Annual Meeting............................. 26
General Information...................................................... 26
Section 16(a) Beneficial Ownership Reporting Compliance.................. 26
Transactions and Arrangements between CenterPoint Energy and Texas Genco. 27
Annual Report to Shareholders............................................ 28
Appendix I--CenterPoint Energy, Inc. Stock Plan for Outside Directors....... I-1
Appendix II--CenterPoint Energy, Inc. Audit Committee Charter............... II-1
[LOGO]
Notice of Annual Meeting of Shareholders
Dear Shareholder:
You are cordially invited to attend the CenterPoint Energy, Inc. 2003 annual
meeting of shareholders. The meeting will be held in the auditorium at 1111
Louisiana, Houston, Texas, at 9:00 a.m. Central Time on Wednesday, May 7, 2003.
At the meeting, shareholders will be asked to:
. elect two Class I Directors for three-year terms;
. elect one Class III Director for a two-year term;
. consider a proposal to amend and restate CenterPoint Energy's Stock Plan
for Outside Directors;
. ratify the appointment of Deloitte & Touche LLP as independent auditors
for CenterPoint Energy, Inc. for 2003;
. consider two shareholder proposals, if presented to the meeting; and
. conduct other business if properly raised.
Shareholders of record at the close of business on March 10, 2003 are
entitled to vote. Each share entitles the holder to one vote. You may vote
either by attending the meeting or by proxy card. For specific voting
information, please see "Voting Information" on page 1. Even if you plan to
attend the meeting, please sign, date and return the enclosed proxy card.
Sincerely,
/s/ Scott E. Rozzell
Scott E. Rozzell
Executive Vice President,
General Counsel and
Corporate Secretary
Dated and first mailed
to shareholders
on April 4, 2003
CENTERPOINT ENERGY, INC.
1111 Louisiana
Houston, Texas 77002
(713) 207-1111
PROXY STATEMENT
Voting Information
Who may vote. Shareholders recorded in our stock register on March 10, 2003,
may vote at the meeting. As of that date, there were 305,214,431 shares of our
common stock outstanding, not including shares of common stock owned by
CenterPoint Energy. Each share of common stock has one vote.
Voting by proxy or in person. Your vote is important. You may vote in person
at the meeting or by proxy. We recommend you vote by proxy even if you plan to
attend the meeting. You may always change your vote at the meeting if you are a
holder of record or have a proxy from the record holder. Giving us your proxy
means that you authorize us to vote your shares at the meeting in the manner
you indicated on your proxy card. You may vote for all, some, or none of our
director candidates. You may also vote for or against the other proposals or
abstain from voting.
If you sign and return the enclosed proxy card but do not specify how to
vote, we will vote your shares in favor of the director candidates, in favor of
the proposal to amend and restate CenterPoint Energy's Stock Plan for Outside
Directors, in favor of the ratification of independent auditors and against the
shareholder proposals, if presented. If any other matters properly come before
the annual meeting, we will vote the shares in accordance with our best
judgment and discretion, unless you withhold authority to do so in the proxy
card.
Your proxy may be revoked before it is voted by submitting a new proxy with
a later date, by voting in person at the meeting, or by giving written notice
to Mr. Scott E. Rozzell, Corporate Secretary, at CenterPoint Energy's address
shown above.
If you plan to attend the meeting and your shares are held by banks, brokers
or investment plans (in "street name"), you will need proof of ownership to be
admitted to the meeting. A recent brokerage statement or letter from your
broker or bank are examples of proof of ownership.
Quorum needed. In order to carry on the business of the meeting, we must
have a quorum. This means at least a majority of the outstanding shares of
common stock eligible to vote must be represented at the meeting, either by
proxy or in person. Shares of common stock owned by CenterPoint Energy are not
voted and do not count for this purpose.
Votes needed. The director candidates in Class I and the director candidate
in Class III receiving the most votes will be elected to fill the open seats in
that respective class on the Board. Adoption of the proposal to amend and
restate the Stock Plan for Outside Directors requires the affirmative vote of a
majority of the shares of common stock voted for or against the matter,
provided the total votes cast for or against constitute 50% or more of the
shares entitled to vote. Ratification of the appointment of independent
auditors requires the favorable vote of a majority of the shares of common
stock voted for or against the matter. Approval of any shareholder proposal
presented at the meeting requires the favorable vote of a majority of the
shares of common stock represented at the meeting. Abstentions and broker
non-votes count for quorum purposes. For voting purposes, however, abstentions
and broker non-votes do not affect whether the proposal to amend and restate
the Stock Plan for Outside Directors is adopted or the appointment of
independent auditors is ratified but have the same effect as a vote against any
shareholder proposal submitted. Broker non-votes occur when a broker returns a
proxy but does not have authority to vote on a particular proposal.
Information About Directors
CenterPoint Energy's Board of Directors is divided into three classes having
staggered terms of three years each. The term of office of the directors in
Class I expires at this year's meeting. The terms of office of the Class II and
Class III directors will expire in 2004 and 2005, respectively. At each annual
meeting of shareholders, directors are elected to succeed the class of
directors whose term has expired.
In January 2003, the size of the Board of Directors was increased from seven
to eight directors, and the Board of Directors appointed Thomas F. Madison to
fill the newly created Class III directorship. Because Mr. Madison was
appointed to the Board of Directors to fill a directorship created by an
increase in the number of directors, his term expires at this year's meeting
even though he is a member of a class whose term does not expire this year. The
director elected to Class III at this year's meeting will be elected for a
two-year term that expires in 2005.
The Board's nominees for Class I directors are Derrill Cody and David M.
McClanahan, and the Board's nominee for Class III director is Thomas F.
Madison. Messrs. McClanahan and Madison are current directors of CenterPoint
Energy. Current Class I directors Robert J. Cruikshank and T. Milton Honea will
retire from the Board at the annual meeting at the expiration of their current
terms and the size of the Board will be set at seven. If any nominee becomes
unavailable for election, the Board of Directors can name a substitute nominee
and proxies will be voted for such substitute nominee pursuant to discretionary
authority, unless withheld.
Information about each of the nominees and the continuing directors is set
forth below. CenterPoint Energy was organized in 2001 as a subsidiary of
Reliant Energy, Incorporated. In a restructuring that took place on August 31,
2002, CenterPoint Energy became the parent holding company for Reliant Energy
and other subsidiaries. Unless otherwise indicated or the context otherwise
requires, when we refer to periods prior to September 1, 2002, CenterPoint
Energy should be understood to mean or include Reliant Energy. Similarly, when
we refer to the Board of Directors or board committees of CenterPoint Energy,
we include Reliant Energy's board of directors or its committees for periods
prior to September 1, 2002.
Nominees for Class I Directors--Term Expiring 2006
Derrill Cody, age 64, has not previously served as a director of CenterPoint
Energy. Mr. Cody is presently of counsel to the law firm of McKinney &
Stringer, P.C. in Oklahoma City, Oklahoma. Mr. Cody also serves as a director
of Texas Eastern Products Pipeline Company, LLC, the general partner of TEPPCO
Partners, L.P. Mr. Cody previously served as Executive Vice President of Texas
Eastern Corporation and as Chief Executive Officer of Texas Eastern Gas
Pipeline Company from 1987 to 1990.
David M. McClanahan, age 53, has served as a director and as President and
Chief Executive Officer of CenterPoint Energy since September 2002. He served
as Vice Chairman of Reliant Energy from October 2000 to September 2002 and as
President and Chief Operating Officer of Reliant Energy's Delivery Group from
1999 to September 2002. Previously, he served as President and Chief Operating
Officer of the Reliant Energy HL&P division from 1997 to 1999. He has served in
various executive officer capacities with Reliant Energy since 1986. Mr.
McClanahan also serves as Chairman of Texas Genco Holdings, Inc., an indirect
wholly owned subsidiary of CenterPoint Energy.
Nominee for Class III Director--Term Expiring 2005
Thomas F. Madison, age 67, has been a director since January 2003. He has
served as President and Chief Executive Officer of MLM Partners, a small
business consulting and investments company in Minneapolis, since 1993. He
previously served as President of US West Communications-Markets until December
1992. He later served as Vice Chairman of Minnesota Mutual Life Insurance
Company until September 1994, Chairman of Communication Holdings, Inc., a
communications and systems integrations company until March 1999, and as an
advisory director of CenterPoint Energy Minnegasco, a gas distribution unit of
CenterPoint Energy. He is a director of Valmont Industries, Inc., Delaware
Group of Funds, Digital River, Inc., ACI Telecentrics, Incorporated and Rimage
Corporation.
The Board of Directors recommends a vote FOR all nominees for Director.
2
Continuing Class II Directors--Term Expiring 2004
Milton Carroll, age 52, has been a director since 1992 and Chairman since
September 2002. Mr. Carroll is Chairman of Instrument Products, Inc., an
oil-tool manufacturing company in Houston, Texas. He also serves as Chairman of
Healthcare Service Corporation and a director of Ocean Energy Inc. and Texas
Eastern Products Pipeline Company, LLC, the general partner of TEPPCO Partners,
L.P.
John T. Cater, age 67, has been a director since 1983. Mr. Cater is
primarily engaged in managing his personal investments in Houston, Texas. Prior
to his retirement in 2000, he was Chairman of Compass Bank--Houston. He
previously served as President of Compass Bank--Houston, as Chairman and a
director of River Oaks Trust Company, and as President, Chief Operating Officer
and a director of MCorp, a Texas bank holding company.
Michael E. Shannon, age 66, has been a director since January 2003. He has
been President of MEShannon & Associates, Inc., a private firm specializing in
corporate financial advisory services and investments, since 2000. He served as
Chairman of the Board and Chief Financial and Administrative Officer of Ecolab,
Inc. (a specialty chemical company) from 1996 until his retirement in January
2000. Prior to that, he held senior management positions with Ecolab, Inc.,
Republic Steel and Gulf Oil Corp. Mr. Shannon is a director of Apogee
Enterprises, Inc., The Clorox Company, NACCO Industries, Inc., Pressure
Systems, Inc. and Retriever Payment Systems, Inc.
Continuing Class III Director--Term Expiring 2005
O. Holcombe Crosswell, age 62, has been a director since 1997. Mr. Crosswell
is President of Griggs Corporation, a real estate and investment company in
Houston, Texas.
Recent Corporate Transactions
On August 31, 2002, CenterPoint Energy became the parent holding company for
Reliant Energy and other subsidiaries. As part of its compliance with the Texas
electric restructuring law, on September 30, 2002, CenterPoint Energy
distributed its remaining equity interest in Reliant Resources, Inc. to its
shareholders. Reliant Resources, to which Reliant Energy had previously
transferred substantially all of its unregulated businesses, ceased to be
affiliated with CenterPoint Energy as of that date. As part of the
restructuring, Reliant Energy conveyed the formerly regulated electric
generating assets of its electric utility division, Reliant Energy HL&P, to its
indirect wholly owned subsidiary, Texas Genco Holdings, Inc. On January 6,
2003, CenterPoint Energy distributed approximately 19 percent of the common
stock it owned in Texas Genco to CenterPoint Energy shareholders. Reliant
Resources has an option exercisable in January 2004 to purchase all of the
shares of common stock of Texas Genco owned by CenterPoint Energy.
In connection with CenterPoint Energy's distribution of its remaining equity
interest in Reliant Resources to its shareholders, CenterPoint Energy directors
Milton Carroll, John T. Cater and Robert J. Cruikshank resigned from the board
of directors of Reliant Resources and Reliant Resources directors R. Steve
Letbetter and Laree E. Perez resigned from the CenterPoint Energy Board of
Directors, eliminating all common directorships between the newly unaffiliated
companies.
Board Organization and Committees
The Board of Directors directs the management of the business and affairs of
CenterPoint Energy. The Board appoints committees to help carry out its duties.
Last year, the Board met 22 times and the committees met a total of 26 times.
Each director attended more than 75% of the meetings of the Board of Directors
and the committees on which he served. As of the date of this proxy statement,
CenterPoint Energy had the following committees:
The Audit Committee has six non-employee director members: Mr. Crosswell
(Chairman), Mr. Carroll, Mr. Cruikshank, Mr. Honea, Mr. Madison and Mr.
Shannon. This committee oversees accounting and internal control matters. The
committee selects the firm of independent auditors to audit the financial
statements of
3
CenterPoint Energy and its subsidiaries and reviews and approves the plan and
scope of the independent auditors' audit and non-audit services and related
fees. Each of the members of the Audit Committee is independent as defined by
the listing standards of the New York Stock Exchange. The Audit Committee's
report begins on page 21. The Audit Committee met 15 times in 2002.
The Finance Committee has five non-employee director members: Mr. Cater
(Chairman), Mr. Crosswell, Mr. Honea, Mr. Madison and Mr. Shannon. This
committee reviews CenterPoint Energy's financial policies and strategies,
including capital structure, and approves specific debt and equity offerings
within limits set by the Board. The Finance Committee met three times in 2002.
The Compensation Committee has three non-employee director members: Mr.
Cruikshank (Chairman), Mr. Carroll and Mr. Cater. This committee oversees
compensation and benefits for CenterPoint Energy's senior officers, including
salary, bonus and incentive awards. The committee also administers incentive
compensation plans and reviews human resources programs. The Compensation
Committee's report on executive compensation begins on page 15. The
Compensation Committee met three times in 2002.
The Governance Committee has three non-employee director members: Mr.
Carroll (Chairman), Mr. Cater and Mr. Cruikshank. This committee recommends the
number of directors to comprise the Board, evaluates directors whose terms are
expiring, evaluates and recommends potential candidates for election to the
Board, reviews non-employee director compensation, reviews Board processes and
policies, and considers other corporate governance issues. In evaluating
potential director nominees, the committee will consider qualified persons
recommended by shareholders. Any shareholder wishing to make a recommendation
should write to the Corporate Secretary at CenterPoint Energy's address shown
above. The Governance Committee met five times in 2002.
Compensation of Directors
CenterPoint Energy employees receive no extra pay for serving as directors.
Compensation for each non-employee director, other than the Chairman, consists
of an annual retainer fee of $30,000, a fee of $1,200 for each Board and
committee meeting attended and an annual grant of 1,000 shares of CenterPoint
Energy common stock. The Chairman receives the compensation payable to other
non-employee directors plus a supplemental monthly retainer of $25,000. In
addition, in connection with his assuming the position of Chairman, Mr. Carroll
was granted 10,000 shares of CenterPoint Energy common stock in November 2002
and is to receive another 10,000 shares of common stock in October 2003. Please
refer to "Proposal to Amend and Restate Stock Plan for Outside Directors" for
information about proposed changes to stock-based compensation for directors
being submitted for approval by shareholders at the annual meeting.
Since 1985, CenterPoint Energy and its predecessors have had in effect
deferred compensation plans that permit directors to elect each year to defer
all or part of their annual retainer fees and meeting fees. Directors
participating in these plans may elect to receive distributions of their
deferred compensation and interest in three ways: (i) an early distribution of
either 50% or 100% of their account balance in any year that is at least four
years from the year of deferral up to the year in which they reach age 70, (ii)
a lump sum distribution payable in the year after they reach age 70 or upon
leaving the Board of Directors, whichever is later, or (iii) 15 annual
installments beginning on the first of the month coincident with or next
following age 70 or upon leaving the Board of Directors, whichever is later.
Interest accrues on deferrals made in 1989 and subsequent years at a rate equal
to the average annual yield of the Moody's Long-Term Corporate Bond Index plus
2%. Fixed rates of 19% to 24% were established for deferrals made in 1985
through 1988, as a result of then-higher prevailing rates and other factors.
Non-employee directors participate in a director benefits plan under which a
director who serves at least one full year will receive an annual cash amount
equal to the annual retainer (excluding any supplemental retainer) in effect
when the director terminates service. Benefits under this plan begin the
January following the later of the director's termination of service or
attainment of age 65, for a period equal to the number of full years of service
of the director.
4
Non-employee directors who were elected to the Board before 2001 participate
in CenterPoint Energy's executive life insurance plan described under
"Retirement Plans, Related Benefits and Other Arrangements." This plan provides
endorsement split-dollar life insurance with a death benefit equal to six times
the director's annual retainer, excluding any supplemental retainer, with
coverage continuing after the director's termination of service at age 65 or
later. The annual premiums due on the policies are payable solely by
CenterPoint Energy, and in accordance with the Internal Revenue Code, the
directors must recognize imputed income, which is currently based on the
policyholder's one-year term rates. The plan also provides for CenterPoint
Energy to make tax reimbursement payments to make the directors whole on an
after-tax basis for the liability associated with this imputed income. Upon the
death of the insured, the director's beneficiaries will receive the specified
death benefit, and CenterPoint Energy will receive any balance of the insurance
proceeds in excess of the death benefit. The plan is designed so that the
proceeds CenterPoint Energy ultimately receives are sufficient to cover the
cumulative premiums paid and the after-tax cost to CenterPoint Energy of the
tax reimbursement payments. Directors elected to the Board after 2000 may not
participate in this plan.
During the first five months of 2002, Mr. Carroll received fees of $71,178
from CenterPoint Energy's then subsidiary Reliant Resources for consulting in
connection with deregulation issues. Messrs. Carroll, Cater and Cruikshank and
former director Laree E. Perez also served as non-employee directors of Reliant
Resources during the period in 2002 when Reliant Resources remained a
subsidiary of CenterPoint Energy, and received retainer and meeting fees for
that service of $40,500, $22,200, $23,400 and $31,800, respectively.
5
Stock Ownership
The following table shows stock ownership of known beneficial owners of more
than 5% of CenterPoint Energy's common stock, each director or nominee for
director, the Chief Executive Officer, the other most highly compensated
executive officers, and the executive officers and directors as a group. Except
as otherwise indicated, information for the executive officers, directors and
nominees is given as of March 1, 2003. Pursuant to Securities and Exchange
Commission ("SEC") requirements, we also include comparable ownership
information for CenterPoint Energy's former Chief Executive Officer. The
directors and officers, individually and as a group, beneficially own less than
1% of CenterPoint Energy's outstanding common stock. For directors and
executive officers, stock ownership is also shown for CenterPoint Energy's
subsidiary Texas Genco. Beneficial ownership is determined in accordance with
Rule 13d-3 under the Securities Exchange Act, and except as otherwise indicated
the respective holders have sole voting and investment powers over such shares.
Number of Shares of Number of Shares of
CenterPoint Energy Texas Genco
Name Common Stock Common Stock
---- ------------------- -------------------
Northern Trust Corporation................................. 33,956,425/(1)/ N/A
50 South LaSalle Street
Chicago, Illinois 60675
Barrow, Hanley, Mewhinney & Strauss, Inc................... 27,097,158/(2)/ N/A
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204
Putnam, LLC d/b/a Putnam Investments....................... 19,245,536/(3)/ N/A
One Post Office Square
Boston, Massachusetts 02109
Vanguard Windsor Funds--Vanguard Windsor II Fund........... 15,899,700/(4)/ N/A
100 Vanguard Blvd.
Malvern, Pennsylvania 19355
Milton Carroll............................................. 15,000 750
John T. Cater.............................................. 10,000/(5)/ 250
Derrill Cody............................................... 10,000 -0-
O. Holcombe Crosswell...................................... 11,595 579
Robert J. Cruikshank....................................... 7,000/(6)/ 350
T. Milton Honea............................................ 62,101 3,104
R. Steve Letbetter/(7)/.................................... 958,430/(8)/ -0-
Thomas F. Madison.......................................... 2,500/(9)/ -0-
David M. McClanahan........................................ 442,916/(8)(10)/ 3,085/(11)/
Scott E. Rozzell........................................... 131,623/(8)(10)/ 494/(11)/
Stephen C. Schaeffer....................................... 221,925/(8)(10)/ 3,259/(11)/
Michael E. Shannon......................................... 2,000/(12)/ -0-
Thomas R. Standish......................................... 97,804/(8)(10)(13)/ 1,022/(11)/
Gary L. Whitlock........................................... 49,091/(8)(10)/ 713/(11)/
All of the above officers and directors and other executive
officers as a group (16 persons)......................... 2,196,289/(8)(10)/ 16,191/(11)/
--------
(1) This information is as of December 31, 2002 and is based on a Schedule
13G/A filed with the SEC on February 13, 2003 by Northern Trust Corporation
and certain of its subsidiaries. This represents 11.16% of the outstanding
common stock of CenterPoint Energy. The Schedule 13G/A reports sole voting
power for 833,152 shares of common stock, shared voting power for
33,101,374 shares of common stock, sole dispositive power for 1,289,351
shares of common stock and shared dispositive power for 40,990 shares of
common stock. CenterPoint Energy understands that the shares reported
include 32,099,870 shares of common stock held as trustee of CenterPoint
Energy's savings plan.
6
(2) This information is as of December 31, 2002 and is based on a Schedule 13G
filed with the SEC on February 13, 2003 by Barrow, Hanley, Mewhinney &
Strauss, Inc. This represents 8.90% of the outstanding common stock of
CenterPoint Energy. The 13G reports sole voting power for 8,353,158 shares
of common stock, shared voting power for 18,744,000 shares of common stock
and sole dispositive power for 27,097,158 shares of common stock.
(3) This information is as of December 31, 2002 and is based on a Schedule
13G/A filed with the SEC on February 14, 2003 by Putnam, LLC d/b/a Putnam
Investments on behalf of itself and Marsh & McLennan Companies, Inc.,
Putnam Investment Management, LLC and The Putnam Advisory Company, LLC.
This represents 6.3% of the outstanding common stock of CenterPoint Energy.
The 13G/A reports that Putnam Investment Management, LLC holds shared
dispositive power for 18,093,932 shares of common stock and that The Putnam
Advisory Company, LLC holds shared voting power for 409,080 shares of
common stock and shared dispositive power for 1,151,604 shares of common
stock.
(4) This information is as of December 31, 2002 and is based on a Schedule 13G
filed with the SEC on February 13, 2003 by Vanguard Windsor Funds -
Vanguard Windsor II Fund. This represents 5.22% of the outstanding common
stock of CenterPoint Energy. The 13G reports sole voting power and shared
dispositive power for 15,899,700 shares of common stock.
(5) Mr. Cater owned 5,000 shares of CenterPoint Energy common stock as of March
1, 2003. Subsequent to March 1, 2003, Mr. Cater acquired an additional
5,000 shares.
(6) Includes shares held jointly with spouse.
(7) Mr. Letbetter served as Chairman, President and Chief Executive Officer of
CenterPoint Energy from August 31, 2002 until the distribution of Reliant
Resources common stock on September 30, 2002. Prior to that time he served
in those capacities with Reliant Energy.
(8) Includes shares covered by CenterPoint Energy stock options that are
exercisable within 60 days as follows: Mr. Letbetter, 863,437 shares; Mr.
McClanahan, 376,425 shares; Mr. Rozzell, 118,864 shares; Mr. Schaeffer,
148,938 shares; Mr. Standish, 73,906 shares; Mr. Whitlock, 34,371 shares;
and the group, 1,734,334 shares.
(9) Mr. Madison acquired the above-listed shares of CenterPoint Energy common
stock subsequent to March 1, 2003.
(10) Includes shares of CenterPoint Energy common stock held under CenterPoint
Energy's savings plan, for which the participant has sole voting power
(subject to such power being exercised by the plan's trustee in the same
proportion as directed shares in the savings plan are voted in the event
the participant does not exercise voting power).
(11) Includes shares of Texas Genco common stock held under CenterPoint
Energy's savings plan, as to which the participants do not have voting
power but retain dispositive power.
(12) Mr. Shannon acquired the above-listed shares of CenterPoint Energy common
stock subsequent to March 1, 2003.
(13) Includes shares held by spouse.
7
Executive Compensation Tables
These tables show compensation information for the Chief Executive Officer
and the four other most highly compensated executive officers. Also included is
compensation of the former Chief Executive Officer who served during a portion
of 2002. Reported compensation includes compensation paid by both CenterPoint
Energy and, for the former Chief Executive Officer, Reliant Resources during
the period it was a subsidiary of CenterPoint Energy.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------------- ----------------------------------
Awards Payouts
---------------------- -----------
Restricted Securities
Other Annual Stock Underlying LTIP
Name and Principal Position Year Salary/(1)/ Bonus/(1)/ Compensation/(2)/ Awards/(3)/ Options/(4)/ Payouts/(5)/
--------------------------- ---- ---------- ---------- ---------------- ---------- ----------- -----------
David M. McClanahan........... 2002 $575,000 $ 646,875 $ 1,074 $ -- 191,700 $134,424
President and Chief 2001 535,000 545,700 976 -- 101,720 302,693
Executive Officer 2000 405,000 445,500 686 -- 80,000 104,449
Scott E. Rozzell/(7)/......... 2002 360,500 270,375 680 -- 77,800 --
Executive Vice 2001 291,667 131,250 594 50,454 112,890 --
President, General
Counsel and
Corporate Secretary.........
Gary L. Whitlock/(8)/......... 2002 334,000 250,500 48,607 -- 72,200 --
Executive Vice 2001 143,316 146,250 64,108 -- 25,000 --
President and Chief
Financial Officer
Stephen C. Schaeffer.......... 2002 322,500 241,875 653 -- 70,000 98,581
Executive Vice 2001 307,500 146,063 1,025 -- 52,390 239,001
President and Group 2000 282,500 247,190 505 -- 45,000 83,162
President--Gas Distribution
and Sales
Thomas R. Standish............ 2002 264,750 177,510 466 -- 51,000 57,003
President and Chief 2001 248,750 114,000 404 -- 28,190 131,440
Operating Officer, 2000 225,500 153,340 766 -- 30,109 44,104
CenterPoint Energy
Houston Electric, LLC
R. Steve Letbetter............ 2002 708,333 -- 1,990 -- 700,000 379,079
Former Chairman, 2001 983,750 1,739,270 2,514 1,690,000 850,000 812,479
President and Chief 2000 913,750 2,101,620 393 -- 400,000 213,166
Executive Officer
All Other
Name and Principal Position Compensation/(6)/
--------------------------- ----------------
David M. McClanahan........... $ 76,297
President and Chief 92,126
Executive Officer 55,876
Scott E. Rozzell/(7)/......... 77,040
Executive Vice 74,233
President, General
Counsel and
Corporate Secretary.........
Gary L. Whitlock/(8)/......... 22,737
Executive Vice 85,208
President and Chief
Financial Officer
Stephen C. Schaeffer.......... 32,067
Executive Vice 51,077
President and Group 43,731
President--Gas Distribution
and Sales
Thomas R. Standish............ 22,747
President and Chief 34,320
Operating Officer, 25,806
CenterPoint Energy
Houston Electric, LLC
R. Steve Letbetter............ 205,117
Former Chairman, 315,542
President and Chief 121,472
Executive Officer
--------
(1) The amount's shown include salary and bonus earned as well as earned but
deferred.
(2) The amounts shown include tax reimbursement payments related to imputed
income under the executive life insurance plan for Messrs. McClanahan,
Rozzell, Whitlock, Schaeffer and Standish. They also include the discount
for shares of Reliant Resources stock purchased under the Reliant Resources
employee stock purchase plan for Mr. Letbetter during the period Reliant
Resources remained a subsidiary and other tax reimbursement payments during
2001 and 2002 in connection with the initial employment of Mr. Whitlock.
(3) On May 4, 2001, Mr. Letbetter was granted an award of Reliant Resources
restricted stock of 50,000 shares. The amount shown is based on the closing
prices of the underlying shares on May 4, 2001. The aggregate value of Mr.
Letbetter's unvested restricted stock holdings as of December 31, 2002,
based on the closing sales prices of the underlying shares on that date,
was $160,000. On March 30, 2001, Mr. Rozzell was granted an award of 1,115
shares of Reliant Energy restricted stock, which vest in equal installments
on the first, second and third anniversaries of the date of grant. The
amount shown is based on the closing price of the underlying shares on that
date. The aggregate value of Mr. Rozzell's unvested CenterPoint Energy
restricted stock as of December 31, 2002, based on the closing sales price
of the underlying shares on that date, was $6,324. Both restricted stock
grants provide for accrual of dividend equivalents in the event dividends
are paid on the underlying common stock.
(4) Securities underlying options are shares of CenterPoint Energy common
stock, except for grants in 2001 and 2002 to Mr. Letbetter, which are
shares of common stock of Reliant Resources.
(5) Amounts shown represent the dollar value of CenterPoint Energy common stock
paid out in that year based on the achievement of performance goals for the
cycle ending in the prior year plus dividend equivalent accruals during the
performance period.
8
(6) 2002 amounts include: (a) matching contributions to the savings plan and
accruals under the related savings restoration plan, as follows: Mr.
McClanahan, $50,431; Mr. Rozzell, $22,129; Mr. Whitlock, $21,611; Mr.
Schaeffer, $21,085; Mr. Standish, $15,919; and Mr. Letbetter, $148,556; (b)
the term portion of the premiums paid under the executive life insurance
plan, as follows: Mr. McClanahan, $1,668; Mr. Rozzell, $1,056; Mr.
Whitlock, $977; Mr. Schaeffer, $1,014; and Mr. Standish, $724; (c) accrued
interest on deferred compensation that exceeds 120% of the applicable
federal long-term rate, as follows: Mr. McClanahan, $24,198; Mr. Whitlock,
$149; Mr. Schaeffer, $9,968; Mr. Standish, $6,104; and Mr. Letbetter,
$56,561.
(7) Mr. Rozzell was not employed by CenterPoint Energy prior to March 2001.
CenterPoint Energy extended a loan to Mr. Rozzell in the amount of $250,000
in connection with his initial employment. The loan bears interest at a
rate of 8% and principal and interest are to be forgiven in semi-monthly
installments through February 28, 2006 so long as Mr. Rozzell remains
employed by CenterPoint Energy or one of its subsidiaries as of each
relevant anniversary of his employment date. The amount of loan and
interest forgiveness is included in the "All Other Compensation" column.
(8) Mr. Whitlock was not employed by CenterPoint Energy prior to July 2001.
CENTERPOINT ENERGY OPTION GRANTS IN 2002
Shares % of 2002 Exercise/Base
Underlying Employee Purchase Grant Date
Options Option Price Per Expiration Present
Name Granted/(1)(2)/ Grants Share/(2)/ Date Value/(3)/
---- -------------- --------- ------------- ---------- ----------
David M. McClanahan. 191,700 6.15% $6.83 03/04/2012 $268,380
Scott E. Rozzell.... 77,800 2.50% 6.83 03/04/2012 108,920
Gary L. Whitlock.... 72,200 2.32% 6.83 03/04/2012 101,080
Stephen C. Schaeffer 70,000 2.25% 6.83 03/04/2012 98,000
Thomas R. Standish.. 51,000 1.64% 6.83 03/04/2012 71,400
--------
(1) Option grants vest in one-third increments per year generally from the date
of grant (so long as the officer remains an employee of CenterPoint
Energy). All options would immediately vest upon a change in control, as
defined in CenterPoint Energy's long-term incentive plan. A "change in
control" generally is deemed to have occurred if (a) any person or group
becomes the direct or indirect beneficial owner of 30% or more of
CenterPoint Energy's outstanding voting securities, unless acquired
directly from CenterPoint Energy; (b) a majority of the Board members
changes; (c) there is a merger or consolidation of, or involving,
CenterPoint Energy (a "transaction") unless, (i) more than 70% of the
surviving corporation's outstanding voting securities is owned by former
shareholders of CenterPoint Energy, (ii) if the transaction involves
CenterPoint Energy's acquisition of another entity, then the total fair
market value of such consideration, plus long-term debt of the entity or
business being acquired, does not exceed 50% of the total fair market value
of CenterPoint Energy's outstanding voting securities, plus the CenterPoint
Energy's consolidated long-term debt (determined immediately prior to the
consummation of the transaction by a majority of the incumbent Board),
(iii) no person is the direct or indirect beneficial owner of 30% or more
of the then outstanding shares of voting stock of the parent corporation
resulting from the transaction and (iv) a majority of the members of the
board of directors of the parent corporation resulting from the transaction
were members of the Board immediately prior to consummation of the
transaction; or (d) the sale or disposition of 70% or more of CenterPoint
Energy's assets (an "asset sale") unless (i) individuals and entities that
were beneficial owners of CenterPoint Energy's outstanding voting
securities immediately prior to the asset sale are the direct or indirect
beneficial owners of more than 70% of the then outstanding voting
securities of CenterPoint Energy (if it continues to exist) and of the
entity that acquires the largest portion of the assets (or the entity, if
any, that owns a majority of the outstanding voting stock of such acquiring
entity), and (ii) a majority of the members of Board (if CenterPoint Energy
continues to exist) and of the entity that acquires the largest portion of
the assets (or the entity, if any, that owns a majority of the outstanding
voting stock of such acquiring entity) were members of the Board
immediately prior to the asset sale.
(2) In January 2003 the number of shares subject to all outstanding CenterPoint
Energy options, and the per share exercise price, were adjusted to give
effect to the distribution of Texas Genco common stock to CenterPoint
Energy's shareholders, in accordance with a formula designed to preserve
the intrinsic value of the options.
(3) Grant date present value is calculated using a Black-Scholes option pricing
model assuming a five-year term, volatility of 48.95%, the then-current
annual dividend of $.64 per share and a risk-free interest rate of 2.83%.
Actual gains, if any, will be dependent on future performance of the common
stock.
9
CENTERPOINT ENERGY YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Name/(1)/ December 31, 2002 December 31, 2002/(2)/
-------- ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
David M. McClanahan. 219,486 311,913 $ -- $320,139
Scott E. Rozzell.... 43,053 163,911 -- 129,926
Gary L. Whitlock.... 8,333 88,867 -- 120,574
Stephen C. Schaeffer 77,966 133,180 -- 116,900
Thomas R. Standish.. 29,664 86,962 -- 85,170
R. Steve Letbetter.. 551,455 266,666 -- --
--------
(1) None of the named executive officers exercised any options in 2002.
(2) Based on the average of the high and low sales prices of the common stock
of CenterPoint Energy on the New York Stock Exchange Composite Tape, as
reported in The Wall Street Journal for December 31, 2002.
CENTERPOINT ENERGY LONG-TERM INCENTIVE PLAN--AWARDS IN 2002/(1)/
Estimated Future Payouts Under
Non-Stock Price-Based Plans/(2)/
--------------------------------
Performance Threshold Target Maximum
Number Period Until Number Number Number
Name of Shares Payout of Shares of Shares of Shares
---- --------- ------------ --------- --------- ---------
David M. McClanahan. 35,900 12/31/2004 17,950 35,900 53,850
Scott E. Rozzell.... 14,600 12/31/2004 7,300 14,600 21,900
Gary L. Whitlock.... 13,500 12/31/2004 6,750 13,500 20,250
Stephen C. Schaeffer 13,100 12/31/2004 6,550 13,100 19,650
Thomas R. Standish.. 9,600 12/31/2004 4,800 9,600 14,400
--------
(1) Amounts shown are potential payouts of awards in cash, common stock, or a
combination thereof under CenterPoint Energy's long-term incentive plan.
These awards have a three-year performance cycle. Payouts will be based on
a total shareholder return measure (compared to a peer group of companies
in which at least 80% of revenues are generated from regulated operations)
and operating cash flow weighted 40% and 60%, respectively. If a change in
control occurs (as described in footnote (1) to the CenterPoint Energy
Option Grants in 2002 table), such amounts will be paid in cash at the
maximum level, without regard to the achievement of performance goals.
(2) The table does not reflect dividend equivalent accruals during the
performance period.
RELIANT RESOURCES OPTION GRANTS IN 2002
The following table presents information regarding a grant made by the
Compensation Committee of Reliant Resources' board of directors on March 1,
2002 to CenterPoint Energy's former Chief Executive Officer of options to
acquire common stock of Reliant Resources, during the period Reliant Resources
was a subsidiary of CenterPoint Energy.
% of
Shares 2002 Exercise/Base
Underlying Employee Purchase Grant Date
Options Option Price Per Expiration Present
Granted/(1)/ Grants Share Date Value/(2)/
----------- -------- ------------- ---------- ----------
R. Steve Letbetter 700,000 9.82% $10.90 02/29/2012 $3,563,000
--------
(1) The option grant vests in equal increments on the first, second and third
anniversaries of the date of grant, subject to conditions related to
continued employment, and also vest upon the occurrence of a "change in
control" defined in a manner generally similar to the definition in
CenterPoint Energy's long-term incentive plan.
(2) Grant date present value is calculated using a Black-Scholes option pricing
model assuming a five-year term, volatility of 46.99%, no annual dividends
and a risk-free interest rate of 4.43%. Actual gains, if any, will be
dependent on future performance of the common stock.
10
RELIANT RESOURCES YEAR-END OPTION VALUES
The following table presents year-end option value information related to
the former Chief Executive Officer's holdings of options to purchase stock of
Reliant Resources.
Value of Unexercised
Number of Unexercised In-the-Money Options at
Name/(1)/ Options at December 31, 2002 December 31, 2002/(2)/
-------- ---------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ----------- ------------- ----------- -------------
R. Steve Letbetter 823,354 1,371,814 $ -- $ --
--------
(1) Mr. Letbetter did not exercise any options in 2002.
(2) Based on the average of the high and low sales prices of the common stock
of Reliant Resources on the New York Stock Exchange Composite Tape, as
reported in The Wall Street Journal for December 31, 2002.
RELIANT RESOURCES LONG-TERM INCENTIVE PLAN--AWARDS IN 2002/(1)/
The following table presents information on awards to the former Chief
Executive Officer based on the performance of Reliant Resources, made at a time
during 2002 when Reliant Resources remained a subsidiary.
Estimated Future Payouts Under
Non-Stock Price-Based Plans/(2)/
- --------------------------------
Performance Threshold Target Maximum
Number Period Until Number Number Number
Name of Shares Payout of Shares of Shares of Shares
---- --------- ------------ --------- --------- ---------
R. Steve Letbetter 125,000 12/31/2004 62,500 125,000 187,500
--------
(1) Amounts shown are potential payouts in cash, common stock, or a combination
thereof of an award under Reliant Resources' long-term incentive plan. The
award has a three-year performance cycle and provides for payouts based
entirely on Reliant Resources' total shareholder return compared to a peer
group of companies which participate in the unregulated segments of the
domestic power and gas industries. The plan provides that if a change in
control (as defined in the plan) occurs, payout will be made in cash at the
maximum level, without regard to the achievement of performance goals.
(2) This table does not reflect dividend equivalent accruals, if any, during
the performance period.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about CenterPoint Energy's common
stock that may be issued under our existing equity compensation plans as of
December 31, 2002.
(a) (b) (c)
----------------------- ----------------------- -----------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan category warrants and rights warrants and rights/(1)/ column(a))
------------- ----------------------- ----------------------- -----------------------
Equity compensation plans approved by
security holders/(2)/.................. 13,670,799/(3)/ $16.97 10,905,381/(4)/
Equity compensation plans not approved by
security holders/(5)/.................. 395,567/(5)/ 19.15 364,699/(6)/
---------- ------ ----------
Total.................................... 14,066,366 $17.03 11,270,080
========== ====== ==========
--------
(1) The weighted average exercise price applies to outstanding options, without
taking into account performance units and performance shares which do not
have an exercise price.
(2) These plans consist of the 1989 and 1994 Long-term Incentive Compensation
Plans, the 2001 Long-term Incentive Plan and the Stock Plan for Outside
Directors. No future grants may be made under the 1989 and 1994 Long-term
Incentive Compensation Plans.
11
(3) Includes, in addition to shares underlying options, an aggregate of 453,822
shares issuable upon settlement of outstanding grants of performance shares
and 1,070,078 shares issuable upon settlement of outstanding performance
units, assuming maximum performance is achieved and payment of outstanding
performance units is made in shares based on the average closing price of
the common stock during the fourth quarter of 2002. Does not include 5,318
shares subject to issuance upon exercise of options, having an average
exercise price of $6.80 per share, assumed in the 1997 merger in which
NorAm Energy Corp. was acquired.
(4) The securities remaining available for issuance may be issued in the form
of stock options, stock appreciation rights, restricted stock awards,
performance units and performance shares. The shares remaining available
for issuance may be used for any of these types of awards, except that the
Stock Plan for Outside Directors provides only for awards of common stock.
(5) Plans not approved by shareholders include the Common Stock Participation
Plan for Designated New Employees and Non-officer Employees and an
authorization for each director of CenterPoint Energy to receive a grant of
500 shares of common stock per year in addition to the grants under the
Stock Plan for Outside Directors referred to in footnote (2). Outstanding
awards under the Common Stock Participation Plan, in which participation is
limited to new employees and existing employees who are not officers of
CenterPoint Energy, consist of stock options covering 307,665 shares of
common stock which generally vest in equal annual increments over three
years from the grant date and awards of 87,902 restricted stock awards
which generally vest two or three years after grant. Future awards under
the Common Stock Participation Plan are limited to stock options, with the
terms to be established for each grant by the committee administering the
plan. Performance-based stock awards under the Common Stock Participation
Plan become payable in cash, without regard to otherwise applicable vesting
provisions, in the event of a change of control (as defined in a manner
generally the same as set forth in footnote (1) to the CenterPoint Energy
Option Grants in 2002 table).
(6) The supplemental award for outside directors is currently formula-based as
described in footnote (5) and does not set forth a fixed number of shares
available for future issuance. The number included in the table for the
supplemental awards is the number of shares issuable to each director
during the then-current term for which the director has been elected,
determined as of December 31, 2002. The supplemental awards would be
terminated upon approval of the proposal described in "Proposal to Amend
and Restate Stock Plan for Outside Directors." The number shown also
includes 362,699 shares which may be made the subject of future stock
option grants under the Common Stock Participation Plan.
Retirement Plans, Related Benefits and Other Arrangements
PENSION PLAN TABLE/(1)/
Cash Balance Participants with Prior Plan Grandfather Benefit
Estimated Annual Pension Based on Years of Service/(2)/
-------------------------------------------------------
Final Average
Annual
Compensation 35 or
At Age 65 15 20 25 30 more
--------- -------- -------- -------- -------- -----------
$ 250,000 $ 69,848 $ 93,131 $116,414 $139,696 $ 162,979
500,000 142,598 190,131 237,664 285,196 332,729
750,000 215,348 287,131 358,914 430,696 502,479
1,000,000 288,098 384,131 480,164 576,196 672,229
1,250,000 360,848 481,131 601,414 721,696 841,979
1,500,000 433,598 578,131 722,664 867,196 1,011,729
Cash Balance Participants without Prior Plan Grandfather Benefit
Estimated Annual Pension Based on Years of Service/(2)/
-------------------------------------------------------
Final Average
Annual
Compensation
At Age 65 5 10 15 20 25
--------- -------- -------- -------- -------- -----------
$ 250,000 $ 4,324 $ 8,640 $ 12,947 $ 17,247 $ 21,538
500,000 8,648 17,279 25,895 34,493 43,076
750,000 12,972 25,919 38,842 51,740 64,613
1,000,000 17,296 34,559 51,789 68,986 86,151
1,250,000 21,620 43,199 64,736 86,233 107,689
1,500,000 25,944 51,838 77,684 103,480 129,227
1,750,000 30,268 60,478 90,631 120,726 150,764
2,000,000 34,592 69,118 103,578 137,973 172,302
12
--------
(1) Effective January 1, 1999, the retirement plan provides for benefit
accruals based on a cash balance formula. Under the cash balance formula,
participants accumulate a retirement benefit based upon 4% of eligible
earnings and current interest credits. Prior to January 1, 1999, the
retirement plan accrued benefits based on a participant's years of service,
final average pay and covered compensation (final average pay formula).
Final average annual compensation means the highest compensation for 36
consecutive months out of the 120 consecutive months immediately preceding
retirement, based solely on base salary and bonus amounts. For purposes of
the first table above, final average compensation is frozen as of December
31, 2008 pursuant to the terms of the retirement plan. Retirement benefits
for persons who were employees as of December 31, 1998 are based on the
higher of the benefit calculated under the final average pay formula or the
cash balance formula (prior plan grandfather benefit). Based on their hire
dates, Messrs. McClanahan, Schaeffer, and Standish are eligible for the
prior plan grandfather benefit. Since it is anticipated that under the
prior plan grandfather benefit the final average pay formula will provide
the higher benefit, the benefits reflected in the table entitled "Cash
Balance Participants with Prior Plan Grandfather Benefit" are based on the
final average pay formula. Mr. McClanahan's, Mr. Schaeffer's and Mr.
Standish's benefits are not expected to exceed the amounts reflected in
that table. Messrs. Rozzell and Whitlock were first employed after January
1, 1999 and thus their benefits are based solely on the cash balance
formula. Mr. Rozzell's and Mr. Whitlock's benefits are not expected to
exceed the benefits reflected in the table entitled "Cash Balance
Participants without Prior Plan Grandfather Benefit," which are based on
the cash balance formula. Regarding years of credited benefit service under
the retirement plan as of December 31, 2002, Mr. McClanahan had 28 years,
Mr. Rozzell had two years, Mr. Schaeffer had 33 years, Mr. Standish had 21
years and Mr. Whitlock had one year. In some circumstances, Mr. McClanahan
is entitled to up to three additional years of credited benefit service
under a supplemental agreement.
(2) Amounts are determined on a single-life annuity basis and are not subject
to any deduction for Social Security or other offsetting amounts. The
qualified retirement plan limits compensation and benefits in accordance
with provisions of the Internal Revenue Code. Pension benefits based on
compensation above the qualified plan limit or in excess of the limit on
annual benefits are provided through the benefit restoration plan.
CenterPoint Energy maintains an executive benefits plan that provides
certain salary continuation, disability and death benefits to certain key
officers of CenterPoint Energy and certain of its subsidiaries. Messrs.
McClanahan, Schaeffer and Standish participate in this plan pursuant to
individual agreements that generally provide for (a) a salary continuation
benefit of 100% of the officer's current salary for 12 months after death
during active employment and then 50% of salary for nine years or until the
deceased officer would have attained age 65, if later, and (b) if the officer
retires after attainment of age 65, an annual postretirement death benefit of
50% of the officer's preretirement annual salary payable for six years.
Coverage under this plan has not been provided to persons attaining executive
officer status after July 1, 1996. During the portion of 2002 during which
Reliant Resources was a subsidiary of CenterPoint Energy, Reliant Resources
maintained an executive benefit plan essentially identical to that described
above for CenterPoint Energy, in which Mr. Letbetter participated pursuant to
an individual agreement.
CenterPoint Energy has an executive life insurance plan providing
split-dollar life insurance in the form of a death benefit for designated
officers. This plan provides endorsement split-dollar life insurance, with
coverage continuing after the officer's termination of service at age 65 or
later. The death benefit coverage for each officer varies in proportion to
current salary. Messrs. McClanahan, Rozzell, Whitlock, Schaeffer and Standish
have single-life coverage equal to two times current salary. The annual
premiums are payable solely by CenterPoint Energy. In accordance with the
Internal Revenue Code, the officers must recognize imputed income currently
based on the policyholder's one-year term rates, and the plan provides for
CenterPoint Energy to make tax reimbursement payments to make the officers
whole on an after-tax basis for the liability associated with the imputed
income. Upon the death of the insured, the officer's beneficiaries will receive
the specified death benefit, and CenterPoint Energy will receive any balance of
the insurance proceeds payable in excess of the specified death benefit. This
plan is designed so that the proceeds received are expected to be sufficient to
cover cumulative outlays to pay premiums and the after-tax cost of the tax
reimbursement payments. There is no arrangement or understanding under which
any covered individual will receive or be allocated any interest in any cash
surrender value under any policy. Persons who become officers of CenterPoint
Energy after 2001 are not eligible to participate in this plan. During the
portion of 2002 during which Reliant Resources was a subsidiary of CenterPoint
Energy, Reliant Resources maintained a similar plan under which premiums were
paid solely by Reliant Resources. Mr. Letbetter had second-to-die coverage
under Reliant Resources' plan that is based on the amount of premium that could
have provided single-life coverage equal to four times salary at the time of
purchase.
Since 1985, CenterPoint Energy and its predecessors have had in effect
deferred compensation plans that permit eligible participants to elect each
year to currently defer a percentage of that year's salary and up to 100%
13
of that year's annual bonus. In addition to salary and bonus deferrals,
effective in 2002, eligible participants could also commence deferrals into the
current plan once they reached the qualified savings plan compensation limit or
the defined contribution annual addition limit under the Internal Revenue Code.
Participants in these plans may elect to receive distributions of their
deferred compensation and interest in three ways: (i) an early distribution of
either 50% or 100% of their account balance in any year that is at least four
years from the year of deferral up to the year in which they reach age 65; (ii)
a lump sum distribution payable in the year after they reach age 65 or upon
leaving the Company, whichever is later; or (iii) 15 annual installments
beginning on the first of the month coincident with or next following age 65 or
upon leaving the Company, whichever is later. Interest generally accrues on
deferrals made in 1989 and subsequent years at a rate equal to the average
annual yield of the Moody's Long-Term Corporate Bond Index plus 2%. Fixed rates
of 19% to 24% were established for deferrals made in 1985 through 1988, as a
result of then-higher prevailing rates and other factors. Current accruals of
the above-market portion of the interest on deferred compensation amounts are
included in the "All Other Compensation" column of the Summary Compensation
Table.
CenterPoint Energy maintains a trust agreement with an independent trustee
establishing a "rabbi trust" for the purpose of funding benefits payable to
participants (including each of its named executive officers) under CenterPoint
Energy's deferred compensation plans, executive incentive compensation plans,
benefit restoration plan and savings restoration plan, also referred to as the
"Designated Plans." The trust is a grantor trust, irrevocable except in the
event of an unfavorable ruling by the Internal Revenue Service as to the tax
status of the trust or certain changes in tax law. It is currently funded with
a nominal amount of cash. Future contributions will be made to the grantor
trust if and when required by the provisions of the Designated Plans or when
required by CenterPoint Energy's Benefits Committee. The Benefits Committee
consists of officers of CenterPoint Energy designated by the Board of Directors
and has general responsibility for funding decisions, selection of investment
managers for CenterPoint Energy's retirement plan and other administrative
matters in connection with other employee benefit plans of CenterPoint Energy.
If there is a change in control (defined in a manner generally the same as the
comparable definition in CenterPoint Energy's long-term incentive plan), the
grantor trust must be fully funded, within 15 days following the change in
control, with an amount equal to the entire benefit to which each participant
would be entitled under the Designated Plans as of the date of the change in
control (calculated on the basis of the present value of the projected future
benefits payable under the Designated Plans). The assets of the grantor trust
are required to be held separate and apart from the other funds of CenterPoint
Energy and its subsidiaries, but remain subject to claims of general creditors
under applicable state and federal law.
Under the terms of the separation of CenterPoint Energy from Reliant
Resources, Reliant Resources assumed the obligations of CenterPoint Energy to
the participants in the Designated Plans, the split-dollar life insurance plan
and employment agreements of individuals who became employees of Reliant
Resources. In connection with the assumption of liabilities under some of the
Designated Plans, CenterPoint Energy transferred to Reliant Resources
approximately $28 million in January 2003.
Mr. McClanahan and Mr. Schaeffer were parties to severance agreements with
Reliant Energy that expired in September 2000. The expired agreements provided,
in general, for the payment of certain benefits in the event of a covered
termination of employment occurring within three years after the occurrence of
a change of control of Reliant Energy. A covered termination occurred if the
officer's employment was terminated for reasons other than death, disability,
termination on or after age 65, termination for cause, or resignation by the
officer (except in specified circumstances involving a change in control).
Under the agreements, an officer that experienced a covered termination was
entitled to a payment of three times the sum of his annual salary and his
target annual bonus as well as certain welfare and other benefits. CenterPoint
Energy is currently considering authorizing new severance agreements for the
CenterPoint Energy officers named in the Summary Compensation Table.
14
Report of the Compensation Committee
Compensation Policy
It is the executive compensation policy of CenterPoint Energy to have
compensation programs that:
. strengthen the relationship between executives and shareholder interests
by encouraging equity ownership;
. attract, retain and encourage the development of highly qualified and
experienced executives;
. strengthen the relationship between individual pay and performance;
. promote overall corporate performance; and
. provide compensation that is externally competitive and internally
equitable.
CenterPoint Energy retains an independent consulting firm each year to
review the executive compensation practices of companies considered peer
companies in terms of size and type of business. These companies were used to
review the competitiveness of CenterPoint Energy's base pay, annual incentive
and long-term incentive targets. A broader group of both utility and other
industrial companies was used to verify the appropriate mix of base pay, annual
incentive and long-term incentives for CenterPoint Energy executives. The
companies included in the compensation review are not identical to the
companies referred to in the Stock Performance Graph on page 18 because the
Compensation Committee believes that CenterPoint Energy's most direct
competitors for executive talent are not limited to the companies included in
the Performance Graph. In establishing individual compensation targets, the
Compensation Committee considers the level and nature of responsibility,
experience and its own subjective assessment of performance. In making these
determinations, the Compensation Committee also takes into account the Chief
Executive Officer's evaluations of the performance of other executive officers.
The Compensation Committee generally considers that the objectives of
CenterPoint Energy's pay philosophy are best served when total compensation for
its executives approximates the 50/th/ to 75/th/ percentile of the market
represented by the companies included in the review.
Common stock ownership guidelines, applicable to all of the officers of
CenterPoint Energy, consist of a value of two times salary.
The Compensation Committee periodically evaluates executive compensation
programs in light of Section 162(m) of the Internal Revenue Code. This Section
generally disallows the deductibility of compensation in excess of $1 million
for certain executive officers, but excludes from the limitation certain
qualifying performance-based compensation. The Compensation Committee intends
to structure its compensation programs in a manner that maximizes tax
deductibility. However, it recognizes that there may be situations in which the
best interests of shareholders are served by administering some elements of
compensation such that they occasionally may not meet the requirements for
exclusion under Internal Revenue Code Section 162(m).
The key elements of CenterPoint Energy's executive compensation program are
base salary, annual incentive awards and long-term incentive awards. The
Compensation Committee evaluates each element of compensation separately and in
relation to the other elements of an executive's total compensation package.
The percentage of an executive's compensation that is variable or
performance-based generally increases with higher levels of total compensation.
The result is that the majority of the executive officers' compensation is
considered at risk. The ultimate value of this at-risk compensation is
determined based on the performance of the company and its stock price.
Base Salaries. The Compensation Committee's annual recommendations to the
Board concerning each executive officer's base salary are based on its analysis
of salary levels for executive officer positions among comparable companies,
and its subjective evaluation of and management's evaluation of each executive
officer's individual performance and level of responsibility. Mr. McClanahan's
performance is evaluated solely by the Committee.
15
Annual Incentive Compensation. Annual bonuses are paid pursuant to
CenterPoint Energy's annual incentive compensation plan, which provides for
cash bonuses based on achievement over the course of the year of performance
objectives approved by the Compensation Committee at the commencement of the
year. Target annual incentives established at the beginning of the year 2002
for executive officers ranged from 40% to 75% of base salary. Depending on the
performance objectives achieved each year, performance-based payouts can vary
from 0% to 200% of the targeted amount. The performance goals for 2002 were
based entirely on consolidated earnings per share for the executive officers,
excluding Mr. Standish and another executive officer. Goals for Mr. Standish
and another executive officer consisted primarily of consolidated earnings per
share and certain business unit performance goals. Earnings per share
performance for 2002 was attained at 150% and resulted in payments ranging from
134% to 150% of targeted annual bonuses for these officers. Mr. McClanahan's
achievement was 150%.
Long-Term Incentive Compensation. The current approach to long-term
incentives consists of grants of stock options, restricted stock, performance
shares and performance units. Under the plans, officers receive awards of
performance shares or performance units based on financial objectives
measurable over a three-year performance cycle. Payout levels for the
performance shares or performance units are calculated by determining the
percentage of achievement for each objective and can range from 0% to 150% of
target.
For the performance cycle that began in 2002, CenterPoint Energy's goals
generally consisted of total shareholder return in relation to a peer group of
companies (representing those in which at least 80% of revenues are generated
from regulated operations) and operating cash flow, weighted 40% and 60%,
respectively. Goals for officers of Texas Genco consisted of total shareholder
return and certain business unit performance goals, weighted 25% and 75%,
respectively.
In connection with the 2002 spin-off of Reliant Resources, all outstanding
performance shares for the performance cycle ending in 2002 were converted to
time-based restricted shares of CenterPoint Energy common stock at the maximum
level of performance with the exception of those awarded to Mr. McClanahan, Mr.
Letbetter and certain other former officers of CenterPoint Energy. Mr.
McClanahan's and Mr. Letbetter's awards were 56.25% of target, which reflected
actual performance. The holders of these time-based restricted shares also were
entitled to shares of Reliant Resources common stock as of the date of the
spin-off in the same manner as other holders of CenterPoint Energy common
stock. All such shares vested if the officer holding the restricted shares
remained employed with CenterPoint Energy or Reliant Resources through December
31, 2002.
In addition to the performance shares or units, annual grants of stock
options under CenterPoint Energy's long-term incentive plan are made at an
option price not less than the fair market value of the respective common stock
on the date of grant. This design is intended to focus executive officers on
the creation of shareholder value over the long term and encourage equity
ownership. Information concerning option grants in the year 2002, including
grant date present values, is shown in the table CenterPoint Energy Option
Grants in 2002 on page 9. The treatment of outstanding options following the
distribution of Texas Genco is discussed in the footnotes to that table.
Executive compensation determinations or recommendations for the 2002
compensation of the former Chief Executive Officer included in the Summary
Compensation Table were made by the compensation committee of Reliant Resources
rather than by this Committee.
16
Chief Executive Officer Compensation
CenterPoint Energy's outside compensation consultants prepared an
independent report on its Chief Executive Officer's compensation, which took
into consideration CenterPoint Energy's size and complexity, and the markets in
which it competes for talent. In evaluating Mr. McClanahan's total
compensation, the Compensation Committee considered his contributions to the
overall success of CenterPoint Energy through his leadership and individual
performance. While Mr. McClanahan's current compensation is below competitive
norms, the Compensation Committee believes that Mr. McClanahan's compensation
package, in conjunction with anticipated future base pay increases, is
sufficient to ensure his continuing focus on creating substantial improvements
in shareholder value. During 2002, the Compensation Committee set Mr.
McClanahan's base salary at $575,000. His annual incentive target was set at
75% of base salary. When Mr. McClanahan's base salary reaches market levels,
his long-term incentive target, when combined with his annual cash
compensation, is intended to position Mr. McClanahan's total direct
compensation between the 50/th/ and 75/th/ percentile of the competitive
market, based on the achievement of incentive plan performance objectives.
Robert J. Cruikshank, Chairman
Milton Carroll
John T. Cater
17
Stock Performance Graph
The following graph shows the yearly percentage change in the cumulative
total shareholder return on the common stock of CenterPoint Energy and its
predecessor, Reliant Energy, the S&P 500 Electric Utilities Index and the S&P
500 Index for the period from December 31, 1997 to December 31, 2002. Standard
& Poor's has replaced the S&P 500 Electric Companies Index that CenterPoint
Energy used in previous years as an industry-specific index with the S&P 500
Electric Utilities Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
CENTERPOINT ENERGY, THE S&P 500 ELECTRIC UTILITIES INDEX AND THE S&P 500 INDEX
FOR THE FISCAL YEAR ENDED DECEMBER 31/(1)(2)/
[Performance Graph appears here]
December 31,
-----------------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
CenterPoint Energy and Reliant Energy $100 $126 $ 95 $190 $121 $ 50
S&P 500 Electric Utilities Index..... 100 116 97 150 125 106
S&P 500 Index........................ 100 129 156 141 125 97
--------
(1) Assumes that the value of the investment in the common stock and each index
was $100 on December 31, 1997 and that all dividends were reinvested. The
distribution of Reliant Resources common stock in 2002 is treated as a
$1.38 per share cash distribution.
(2) Historical stock price performance is not necessarily indicative of future
price performance.
18
Proposal to Amend and Restate Stock Plan for Outside Directors
The Board of Directors adopted and holders of the common stock at the annual
meeting of shareholders held on May 22, 1996 approved the Houston Industries
Incorporated Stock Plan for Outside Directors (Director Stock Plan). The Board
of Directors has approved, subject to approval by holders of the common stock
at the Annual Meeting, the amendment and restatement of the Director Stock Plan
in the form of the CenterPoint Energy, Inc. Stock Plan for Outside Directors.
The vote required for approval of the proposal is the affirmative vote of the
holders of a majority of the shares of common stock voted for or against the
matter, provided the total votes cast constitute 50% or more of the shares
entitled to vote. If the amendment and restatement of the Directors Stock Plan
is not so approved, it will not become effective, and the Director Stock Plan
will continue in effect in its current form.
The purpose of the Director Stock Plan is to provide for a method of
compensation for the members of the Board of Directors who are not employees of
CenterPoint Energy or any of its subsidiaries that will strengthen the
alignment of their financial interests with those of CenterPoint Energy
shareholders. The Director Stock Plan is intended to (i) enhance CenterPoint
Energy's ability to maintain a competitive position in attracting and retaining
qualified outside directors who contribute, and are expected to contribute,
materially to the success of CenterPoint Energy; (ii) provide a means of
compensating outside directors whereby the compensation received will have a
value dependent on the price of the common stock; and (iii) enhance the
interest of the outside directors in CenterPoint Energy's continued success and
progress by further aligning each outside director's interests with those of
shareholders. Stock awards under the plan are in addition to the annual
retainer fee and meeting fees earned by outside directors. The number of
non-employee director participants to whom the Director Stock Plan initially
would apply after its amendment and restatement is six, assuming all director
candidates are elected.
The following is a summary of the principal provisions of the Director Stock
Plan, a copy of which is attached to this proxy statement as Appendix I. This
summary is qualified in its entirety by express reference to the complete text
of the Director Stock Plan.
The Director Stock Plan currently provides for an automatic annual grant of
500 shares of common stock to each outside director. Each year's grants have
been made on the first business day of the month immediately following that
year's annual meeting of shareholders. In May 2000 the Board of Directors
approved annual grants of 500 shares for each non-employee director
supplemental to those made under the Director Stock Plan, increasing the total
annual grant to 1,000 shares of common stock for each non-employee director.
The amendment and restatement of the Director Stock Plan provides for an annual
grant of the right to receive up to but not to exceed 5,000 shares of common
stock for each outside director as determined by the Board of Directors. The
first new grant, assuming approval of the amendment and restatement of the
Director Stock Plan at the annual meeting, and subject to Board determination,
will occur on June 2, 2003. In addition, the amended and restated Director
Stock Plan provides that on or after the date an individual first becomes an
outside director, he or she may be granted a one-time initial grant of the
right to receive up to but not to exceed 5,000 shares of common stock as
determined by the Board of Directors. Directors eligible for discretionary
one-time grants include non-employee directors currently in office as well as
newly elected or appointed non-employee directors. Each outside director will
continue to be eligible to receive an annual grant of common stock as long as
the director has the status of outside director on the applicable grant date,
subject to termination or amendment of the Director Stock Plan as described
below.
If the amendment and restatement of the Director Stock Plan is approved, the
500 share per year annual grants supplemental to those made under the Director
Stock Plan will be discontinued.
Prior to the amendment and restatement of the Director Stock Plan, no
vesting or similar conditions were applicable to shares following the
applicable grant. Under the amended and restated Director Stock Plan, all
annual and initial grants will vest in one-third increments per year generally
from the date of grant so long as the
outside director remains a director of CenterPoint Energy. For this purpose,
the service of a director who attains
19
age 70 while in office is deemed to continue until the last day of the year in
which he or she ceases to be a director. In addition, all grants under the
Director Stock Plan would immediately vest upon the death of an outside
director while serving on the Board of Directors or upon the occurrence of a
change in control, which is defined in a manner generally the same as set forth
in footnote (1) to the CenterPoint Energy Option Grants in 2002 table on page 9.
Grants under the Director Stock Plan may be made out of the authorized but
unissued shares of common stock or by transfer of shares of common stock
previously reacquired by CenterPoint Energy.
The original aggregate number of shares of common stock which may be granted
during the term of the Director Stock Plan is 100,000, of which 57,500 remain
available for grant. As amended and restated, the Director Stock Plan provides
that the aggregate number of shares of common stock that may be granted during
the term of the Director Stock Plan be increased by 250,000 shares, resulting
in a total of 307,500 shares available for grant. To the extent shares subject
to a grant are not issued or delivered as a consequence of termination of
service prior to vesting, the shares will be added back to those available for
grant. The number of shares issuable in connection with any annual or initial
grant and the aggregate number of shares remaining available for issuance under
the Director Stock Plan will be proportionately adjusted to reflect any
subdivision or combination of the outstanding shares of common stock or
dividend payable in shares of common stock. As of March 26, 2003, the closing
price of a share of common stock was $6.85.
The Director Stock Plan will continue until the available number of shares
authorized under the plan is exhausted unless and until it is terminated prior
to that time by action of the Board of Directors. The Board of Directors may
from time to time amend, modify, or suspend the Director Stock Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law except that no amendment or alteration shall be
effective prior to approval by the shareholders to the extent such approval is
then required by applicable legal requirements. Except for the limitation based
on legal requirements, the Director Stock Plan does not restrict the nature of
amendments that may be made without shareholder approval, including amendments
that would increase the cost of the plan to CenterPoint Energy. Under a
proposed rule of the New York Stock Exchange, material revisions to equity
compensation plans would be subject to shareholder approval. CenterPoint Energy
intends to comply with the rules of the New York Stock Exchange to the extent
they are applicable to amendments of the Director Stock Plan.
The Board of Directors recommends a vote FOR this proposal.
20
Report of the Audit Committee
The Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and
financial reporting practices of CenterPoint Energy. During 2002, the Audit
Committee met 15 times, including meetings to discuss the interim financial
information contained in each quarterly earnings announcement with the Chief
Accounting Officer and Deloitte & Touche, LLP, CenterPoint Energy's independent
auditors, prior to public release.
In discharging its oversight responsibility as to the audit process, the
Audit Committee (a) obtained from the independent auditors a formal written
statement describing all relationships between the auditors and CenterPoint
Energy that might bear on the auditors' independence consistent with
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees" and (b) discussed with the auditors any relationships that
may impact their objectivity and independence. The Audit Committee also
discussed with management and the independent auditors the quality and adequacy
of CenterPoint Energy's internal controls. The Audit Committee reviewed with
the independent auditors their audit plans, audit scope, and identification of
audit risks.
The Audit Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and discussed and reviewed the results of
the independent auditors' examination of the financial statements. The Audit
Committee also discussed the results of the internal audit examinations.
The Audit Committee reviewed the audited financial statements of CenterPoint
Energy as of and for the fiscal year ended December 31, 2002, with management
and the independent auditors. Management has the responsibility for the
preparation of CenterPoint Energy's financial statements and the independent
auditors have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Audit Committee recommended to the Board that
CenterPoint Energy's audited financial statements be included in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2002, for filing
with the Securities and Exchange Commission. The Audit Committee also
reappointed, subject to ratification, Deloitte & Touche as CenterPoint Energy's
independent auditors. On March 4, 2003, the Audit Committee adopted an amended
and restated charter, a copy of which is attached as Appendix II.
O. Holcombe Crosswell, Chairman
Milton Carroll
Robert J. Cruikshank
T. Milton Honea
Thomas F. Madison
Michael E. Shannon
21
Principal Accounting Firm Fees
Aggregate fees billed to CenterPoint Energy as a consolidated entity during
the fiscal years ending December 31, 2002 and 2001 by CenterPoint Energy's
principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte
Touche Tohmatsu, and their respective affiliates, which includes Deloitte
Consulting (collectively, "Deloitte & Touche"), are set forth below. Fees in
the year ended December 31, 2002 include fees related to services provided to
Reliant Resources for the period from January 1, 2002 through September 30,
2002, the date on which Reliant Resources ceased to be affiliated with
CenterPoint Energy. The Audit Committee has considered whether the provision of
the non-audit services described below is compatible with maintaining the
principal accountant's independence.
Year Ended December 31, 2002
CenterPoint
Energy-- CenterPoint
Continuing Reliant Energy
Operations Resources Consolidated
----------- ----------- ------------
Audit fees............................ $2,557,000 $ 2,446,460 $ 5,003,460
Audit-related fees.................... 479,920/(1)/ 324,993/(1)/ 804,913
---------- ----------- -----------
Total audit and audit-related fees. 3,036,920 2,771,453 5,808,373
Tax fees.............................. 179,280/(2)/ 268,481/(2)/ 447,761
All other fees........................ -- 3,882,382/(3)/ 3,882,382
---------- ----------- -----------
Total fees..................... $3,216,200 $ 6,922,316 $10,138,516
========== =========== ===========
Year Ended December 31, 2001
CenterPoint
Energy-- CenterPoint
Continuing Reliant Energy
Operations Resources Consolidated
----------- ----------- ------------
Audit fees............................ $2,000,550 $ 2,809,780 $ 4,810,330
Audit-related fees.................... 525,375/(4)/ 1,342,353/(4)/ 1,867,728
---------- ----------- -----------
Total audit and audit-related fees. 2,525,925 4,152,133 6,678,058
Tax fees.............................. 1,432,347/(2)/ 128,504/(2)/ 1,560,851
All other fees........................ -- 24,936,733/(5)/ 24,936,733
---------- ----------- -----------
Total fees..................... $3,958,272 $29,217,370 $33,175,642
========== =========== ===========
--------
(1) Includes fees for employee benefit plan audits, due diligence related to
acquisition activity, consultations concerning financial accounting and
reporting standards, separate subsidiary financial audits not required by
statute or SEC regulations, various agreed-upon-procedure reports and
audit-related services provided by Deloitte & Touche Enterprise Risk
Services.
(2) Includes fees for tax compliance, tax planning and tax advice.
(3) Includes fees related to business insurance claims consulting and the
facilitation of the development of information technology security
policies. Includes $3,463,682 in fees for services provided by Deloitte
Consulting relating to the implementation of a customer care system for
retail operations.
(4) Includes fees for employee benefit plan audits, consultations concerning
financial accounting and reporting standards, services related to the
assessment, design and implementation of risk management controls and
internal control reviews.
(5) Includes fees related to document management support, business insurance
claims consulting and internal audit and other support services. Includes
$22,996,370 in fees for services provided by Deloitte Consulting relating
to the implementation of a customer care system for retail operations, call
center technology support and other share service consulting.
22
Ratification of Appointment of Independent Auditors
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Deloitte & Touche LLP as independent auditors to conduct the annual
audit of CenterPoint Energy's accounts for the year 2003. Deloitte & Touche LLP
(and their predecessors) have served as independent auditors for CenterPoint
Energy and its predecessors since 1932. Ratification requires the affirmative
vote of a majority of shares of common stock voted for or against the matter.
If the appointment is not ratified by the shareholders, the Board will
reconsider the appointment.
Representatives of Deloitte & Touche LLP will be present at the annual
meeting and will have an opportunity to make a statement if they wish. They
will be available to respond to appropriate questions from shareholders at the
meeting.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Deloitte & Touche LLP as independent auditors.
Shareholder Proposals
CenterPoint Energy has been notified that shareholders intend to present two
proposals for consideration at the annual meeting. The address and stock
ownership of the proponents identified below will be furnished by the Corporate
Secretary of CenterPoint Energy to any person, orally or in writing as
requested, promptly upon receipt of an oral or written request.
Shareholder Proposal No. 1: CenterPoint Energy has been notified that a
representative of the Sheet Metal Workers' National Pension Fund intends to
present the following proposal for consideration at the annual meeting:
"RESOLVED, that the shareholders of CenterPoint Energy (the "Company")
request that the Board of Directors adopt an executive compensation policy
that all future stock option grants to senior executives shall be
performance-based. For the purposes of this resolution, a stock option is
performance-based if the option exercise price is indexed or linked to an
industry peer group stock performance index so that the options have value
only to the extent that the Company's stock price performance exceeds the
peer group performance level.
"Statement of Support: As long-term shareholders of the Company, we support
executive compensation policies and practices that provide challenging
performance objectives and serve to motivate executives to achieve long-term
corporate value maximization goals. While salaries and bonuses compensate
management for short-term results, the grant of stock and stock options has
become the primary vehicle for focusing management on achieving long-term
results. Unfortunately, stock option grants can and do often provide levels
of compensation well beyond those merited. It has become abundantly clear
that stock option grants without specific performance-based targets often
reward executives for stock price increases due solely to a general stock
market rise, rather than to extraordinary company performance.
"Indexed stock options are options whose exercise price moves with an
appropriate peer group index composed of a company's primary competitors.
The resolution requests that the Company's Board ensure that future senior
executive stock option plans link the options exercise plan to an industry
performance index associated with a peer group of companies selected by the
Board, such as those companies used in the Company's proxy statement to
compare 5 year stock price performance.
"Implementing an indexed stock option plan would mean that our Company's
participating executives would receive payouts only if the Company's stock
price performance was better then that of the peer group average. By tying
the exercise price to a market index, indexed options reward participating
executives for outperforming the competition. Indexed options would have
value when our Company's stock price rises in
23
excess of its peer group average or declines less than its peer group
average stock price decline. By downwardly adjusting the exercise price of
the option during a downturn in the industry, indexed options remove
pressure to reprice stock options. In short, superior performance would be
rewarded.
"At present, stock options granted by the Company are not indexed to peer
group performance standards. As long-term owners, we feel strongly that our
Company would benefit from the implementation of a stock option program that
rewarded superior long-term corporate performance. In response to strong
negative public and shareholder reactions to the excessive financial rewards
provided executives by non-performance based option plans, a growing number
of shareholder organizations, executive compensation experts, and companies
are supporting the implementation of performance-based stock option plans
such as that advocated in this resolution. We urge your support for this
important governance reform."
The Board of Directors recommends a vote AGAINST this proposal. The Board of
Directors and its Compensation Committee endorse compensation policies under
which significant elements of compensation are determined based on performance
compared with industry peers. The Board nonetheless recommends a vote against
this proposal because the proposal calls for a compensation policy which the
Board believes is inflexible and flawed as to specifics. Moreover, the proposal
fails to take into account that CenterPoint Energy's compensation policies
currently contain substantial components that are indexed to peer group
performance.
The proposal urges that all stock option grants to senior executives be
indexed to industry peer group performance in a way such that they would have
no value at all if stock performance is below a peer group average, no matter
how small the difference. CenterPoint Energy believes performance indexing can
appropriately include a proportionate formula in which compensation increases
for above-average performance and decreases for performance that is
below-average.
CenterPoint Energy has historically used peer group performance goals as a
component of its long term compensation program, under which compensation is
based on performance over a performance cycle (generally three years) in
relation to peer group performance. Thus, the general principles of determining
compensation by performance relative to a peer group are currently incorporated
in another element of CenterPoint Energy's compensation practices.
CenterPoint Energy's Board of Directors believes it is appropriate for its
Compensation Committee to retain the flexibility also to use certain
stock-based compensation that is not to be subject to indexing. The Board
believes it appropriate for there to be elements of stock-based compensation in
which employees are able to realize the full benefits of positive market
performance and experience the effects of negative market performance, as do
shareholders.
CenterPoint Energy's Compensation Committee periodically reassesses and
reevaluates its compensation policies. It is not opposed to performance-based
elements of long-term compensation and will continue to consider them in its
overall compensation mix. However, it believes it is advantageous to retain
flexibility in this regard rather than to commit to a particular proposal the
specifics of which it believes are not optimal. For these reasons, the Board of
Directors recommends a vote AGAINST this proposal.
-----------------
Shareholder Proposal No. 2: CenterPoint Energy has been notified that a
representative of the New York City Employees' Retirement System and the New
York City Teachers' Retirement System intends to present the following proposal
for consideration at the annual meeting:
"WHEREAS: Reliant Energy, Inc. does not explicitly prohibit discrimination
based on sexual orientation in its written employment policy,
"Our industry competitors and peers Aquila, Calpine, Cinergy, CMS Energy
Services, Consolidated Edison, Entergy, Exelon, FPL Group, Northeast
Utilities System, NSTAR, Otter Tail Power, PG&E Corp., Progress Energy,
Public Service Enterprise Group and Wisconsin Energy do explicitly prohibit
this form on discrimination in their written policies;
24
"According to the Human Rights Campaign, a national advocacy group, more
than half of the Fortune 500 companies have adopted written
nondiscrimination policies prohibiting harassment and discrimination on the
basis of sexual orientation, as have more than 75% of Fortune 100 companies;
"A 2000 study by Hewitt Associates, a compensation and management consulting
firm, found that 64 percent of large employers prohibited discrimination on
the basis of sexual orientation;
"The hundreds of corporations with nondiscrimination that reference sexual
orientation have a competitive advantage in recruiting and retaining
employees from the widest talent pool;
"According to a recent survey by Harris Interactive and Witeck-Combs, 41% of
gay and lesbian workers in the United States report facing some form of
hostility or harassment on the job; almost one out of every 10 gay or
lesbian adults also stated that they had been fired or dismissed unfairly
from a previous job, or pressured to quit a job because of their sexual
orientation.
"Atlanta, San Francisco, Seattle and Los Angeles have adopted legislation
restricting business with companies that do not guarantee equal treatment
for lesbian and gay employees, and similar legislation is pending in other
jurisdictions;
"Our company has operations in, and makes sales to, institutions in states
and cities that prohibit discrimination on the basis of sexual orientation;
"National public opinion polls consistently find more than three-quarters of
the American people support equal rights in the workplace for gay men,
lesbians and bisexuals; for example, in a Gallup poll conducted in June
2001, 85% of respondents favored equal opportunity in employment for gays
and lesbians.
"RESOLVED: The Shareholders request that Reliant Energy, Inc. amend its
written equal employment opportunity policy to explicitly prohibit
discrimination based on sexual orientation and to substantially implement
that policy.
"STATEMENT: Employment discrimination on the basis of sexual orientation
diminishes employee morale and productivity. Because state and local laws
are inconsistent with respect to employment discrimination, our company
would benefit by a consistent, corporate-wide policy to enhance efforts to
prevent discrimination, resolve complains internally, and ensure a
respectful and supportive atmosphere for all employees. Reliant Energy, Inc.
will enhance its competitive edge by joining the growing ranks of companies
guaranteeing equal opportunity for all employees."
The Board of Directors recommends a vote AGAINST this proposal. CenterPoint
Energy is committed to operating its businesses in full compliance with all
applicable laws and regulations, and shares the proponent's interest in
preventing discrimination in the workplace. Toward this goal, written policies
and codes of conduct have been adopted and implemented that require fair
treatment of all employees under applicable federal, state and local law. These
broad policies, along with employee communication and training, are designed to
ensure that a fully compliant workplace is achieved.
In addition to CenterPoint Energy's equal employment opportunity policy, our
workforce diversity policy statement and Standards of Conduct/Business Ethics
policy recognize that diversity among employees is a valuable asset of the
Company and require that all employees treat one another with dignity and
fairness. The Executive Diversity Steering Committee and Workforce Diversity
Council have also been established to oversee diversity initiatives under the
supervision of the human resources department. The proposed addition to
CenterPoint Energy's policies is not needed because existing policies already
prohibit harassment and discrimination and demand fair treatment of all
employees. For these reasons, the Board of Directors recommends a vote AGAINST
this proposal.
25
Shareholder Proposals for 2004 Annual Meeting
Any shareholder who intends to present a proposal at the 2004 annual meeting
of shareholders and who requests inclusion of the proposal in CenterPoint
Energy's 2004 proxy statement and form of proxy in accordance with applicable
SEC rules must file such proposal with CenterPoint Energy by December 6, 2003.
CenterPoint Energy's bylaws also require advance notice of other proposals
by shareholders to be presented for action at an annual meeting. In the case of
the 2004 annual meeting, the required notice must be received by CenterPoint
Energy's Corporate Secretary between November 9, 2003 and February 7, 2004. The
bylaws require that the proposal must constitute a proper subject to be brought
before the meeting and that the notice must contain prescribed information,
including a description of the proposal and the reasons for bringing it before
the meeting, proof of the proponent's status as a shareholder and the number of
shares held and a description of all arrangements and understandings between
the proponent and anyone else in connection with the proposal as well as other
procedural requirements. If the proposal is for an amendment of the bylaws, the
notice must also include the text of the proposal and be accompanied by an
opinion of counsel to the effect the proposal would not conflict with
CenterPoint Energy's Restated Articles of Incorporation or Texas law. A copy of
the bylaws describing the requirements for notice of shareholder proposals may
be obtained by writing Mr. Scott E. Rozzell, Corporate Secretary, at
CenterPoint Energy's address shown above.
Director Nominations for 2004 Annual Meeting
CenterPoint Energy's bylaws provide that a shareholder may nominate a
director for election if the shareholder sends a notice to CenterPoint Energy's
Corporate Secretary identifying any other person making such nomination with
the shareholder and providing proof of shareholder status. This notice must be
received at CenterPoint Energy's principal executive offices between November
9, 2003 and February 7, 2004. The shareholder must also provide the information
about the nominee that would be required to be disclosed in the proxy
statement. CenterPoint Energy is not required to include any shareholder
proposed nominee in the proxy statement. A copy of the bylaws describing the
requirements for nomination of director candidates by shareholders may be
obtained by writing Mr. Scott E. Rozzell, Corporate Secretary, at CenterPoint
Energy's address shown above.
General Information
CenterPoint Energy began mailing this proxy statement and the accompanying
proxy card to shareholders on April 4, 2003. The proxy statement and proxy card
are being furnished at the direction of the Board of Directors. CenterPoint
Energy will pay all solicitation costs, including the fee of Morrow & Co., who
will help CenterPoint Energy solicit proxies for $9,500, plus expenses.
CenterPoint Energy will reimburse brokerage firms, nominees, fiduciaries,
custodians, and other agents for their expenses in distributing proxy material
to the beneficial owners of CenterPoint Energy's common stock. In addition,
certain of CenterPoint Energy's directors, officers, and employees may solicit
proxies by telephone and personal contact.
The Board of Directors does not intend to bring any other matters before the
meeting and has not been informed that any other matters are to be properly
presented to the meeting by others. If other business is properly raised, your
proxy card authorizes the people named as proxies to vote as they think best,
unless you withhold authority to do so in the proxy card.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers, and holders of more than 10% of CenterPoint Energy's common
stock to file with the SEC initial reports of ownership and
26
reports of changes in ownership of CenterPoint Energy's common stock. Except
for one Form 4 for each of Messrs. McClanahan, Rozzell, Schaeffer, Standish and
Whitlock that was filed late due to a company administrative error, we believe
that during the fiscal year ended December 31, 2002, our officers and directors
complied with these filing requirements.
Transactions and Arrangements between CenterPoint Energy and Texas Genco
For 2002, Texas Genco derived revenues from sales and services to
CenterPoint Energy and its affiliates totaling $53 million, primarily relating
to power sales during January 2002. Also during 2002, CenterPoint Energy and
its affiliates derived revenues from sales of natural gas to Texas Genco
totaling $41 million.
CenterPoint Energy also provides some corporate services to Texas Genco. The
costs of these services have been directly charged to Texas Genco using methods
that management believes are reasonable. These methods include negotiated usage
rates, dedicated asset assignment, and proportionate corporate formulas based
on assets, operating expenses and employees. These charges are not necessarily
indicative of those that would have been incurred had Texas Genco not been an
affiliate of CenterPoint Energy. Amounts charged to Texas Genco for these
services were $47 million for 2002.
In connection with the distribution of a portion of Texas Genco's common
stock to CenterPoint Energy's shareholders, CenterPoint Energy and Texas Genco
entered into a separation agreement. This agreement contains provisions
governing Texas Genco's relationship with CenterPoint Energy following the
distribution and specifies the related ancillary agreements between Texas Genco
and CenterPoint Energy. In addition, the separation agreement provides for
cross-indemnities intended to place sole financial responsibility on Texas
Genco and its subsidiaries for all liabilities associated with the current and
historical business and operations Texas Genco conducts, regardless of the time
those liabilities arose, and to place sole financial responsibility for
liabilities associated with CenterPoint Energy's other businesses with
CenterPoint Energy and its other subsidiaries. The separation agreement also
contains indemnification provisions under which Texas Genco and CenterPoint
Energy each indemnify the other with respect to breaches by the indemnifying
party of the separation agreement or any ancillary agreements.
CenterPoint and Texas Genco have also entered into a transition services
agreement under which CenterPoint Energy provides Texas Genco, through the
earlier of such time as all services under the agreement are terminated or
CenterPoint Energy ceases to own a majority of Texas Genco's common stock,
various corporate support services that include accounting, finance, investor
relations, planning, legal, communications, governmental and regulatory affairs
and human resources, as well as information technology services and other
previously shared services such as corporate security, facilities management,
accounts receivable, accounts payable and payroll, office support services and
purchasing and logistics. These services consist generally of the same types of
services as have been provided on an intercompany basis prior to this
distribution. The charges Texas Genco pays for these services is on a basis
generally intended to allow CenterPoint Energy to recover the fully allocated
direct and indirect costs of providing the services, plus all out-of-pocket
costs and expenses, but without any profit to CenterPoint Energy, except to the
extent routinely included in traditional utility cost of capital. Pursuant to a
separate lease agreement, CenterPoint Energy has agreed to lease office space
in its principal office building in Houston, Texas to Texas Genco for an
interim period expected to end no later than December 31, 2004.
Texas Genco is a member of CenterPoint Energy's consolidated group for tax
purposes, and Texas Genco will continue to file a consolidated federal income
tax return with CenterPoint Energy while CenterPoint Energy retains its 81%
interest in Texas Genco. Accordingly, Texas Genco has entered into a tax
allocation agreement with CenterPoint Energy to govern the allocation of U.S.
income tax liabilities and to set forth agreements with respect to certain
other tax matters. CenterPoint Energy will be responsible for preparing and
filing any U.S. income tax returns required to be filed for any company or
group of companies of the CenterPoint Energy
27
consolidated group, including all tax returns for Texas Genco for so long as it
is a member of CenterPoint Energy's consolidated group. CenterPoint Energy will
also be responsible for paying the taxes related to the returns it is
responsible for filing. Texas Genco will be responsible for paying CenterPoint
Energy its allocable share of such taxes. CenterPoint Energy will determine all
tax elections for tax periods during which Texas Genco is a member of
CenterPoint Energy's consolidated group. Generally, if there are tax
adjustments related to Texas Genco which relate to a tax return filed for a
period when Texas Genco was a member of the CenterPoint Energy consolidated
group, the Company will be responsible for any increased taxes and Texas Genco
will receive the benefit of any tax refunds.
From time to time, Texas Genco has advanced money to, or borrowed money
from, CenterPoint Energy or its subsidiaries. As of December 31, 2002, Texas
Genco had outstanding $86.2 million in short-term working capital borrowings
and $19.0 million in long-term working capital borrowings from CenterPoint
Energy and its subsidiaries. Interest expense associated with the borrowings
for 2002 was $7.0 million. The effective interest rate on the borrowings was
6.20%. In addition, through August 31, 2002 (the date on which CenterPoint
Energy became the parent holding company for Reliant Energy and other
subsidiaries), $25.2 million of interest expense was allocated to Texas Genco
related to the remaining electric utility debt not specifically identified with
CenterPoint Energy's transmission and distribution utility upon deregulation.
In addition, Texas Genco had net accounts payable to CenterPoint Energy and
affiliates of $23 million as of December 31, 2002.
Annual Report to Shareholders
The Summary Annual Report to Shareholders, together with a copy of
CenterPoint Energy's annual report on Form 10-K, which contains our
consolidated financial statements for the year ended December 31, 2002,
accompany the proxy material being mailed to all shareholders. The Summary
Annual Report and the annual report on Form 10-K are not part of the proxy
solicitation material.
By Order of the Board of
Directors,
/s/ Milton Carroll /s/ David M. McClanahan
Milton Carroll David M. McClanahan
Chairman of the Board President and Chief
Executive Officer
April 4, 2003
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APPENDIX I
CENTERPOINT ENERGY, INC.
STOCK PLAN FOR OUTSIDE DIRECTORS
(As Amended and Restated Effective May 7, 2003)
-----------------
ARTICLE I
PURPOSE
The purpose of this CenterPoint Energy, Inc. Stock Plan for Outside
Directors, as amended and restated effective May 7, 2003 (the "Plan") is to
provide for a method of compensation of Outside Directors of CenterPoint
Energy, Inc. and any successor thereto (the "Company") that will strengthen the
alignment of their financial interests with those of the Company's shareholders
through increased ownership of shares of the Company's Common Stock by such
Outside Directors. The Plan is intended to (i) enhance the Company's ability to
maintain a competitive position in attracting and retaining qualified Outside
Directors who contribute, and are expected to contribute, materially to the
success of the Company and its Subsidiaries; (ii) provide a means of
compensating such Outside Directors whereby the compensation received will have
a value dependent on the price of the Common Stock; and (iii) enhance the
interest of such Outside Directors in the Company's continued success and
progress by further aligning each Outside Director's interests with those of
the Company's shareholders. Stock Awards under this Plan shall be in addition
to the annual retainer fee and meeting fees earned by Outside Directors of the
Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the terms set forth below shall have the following
meanings:
"Annual Award Date" means the first business day of the month immediately
following each Annual Meeting of Shareholders, commencing with the June 2nd
following the May 7, 2003 Annual Meeting of Shareholders of the Company.
"Board" means the Board of Directors of the Company.
A "Change of Control" shall be deemed to have occurred upon the
occurrence of any of the following events:
(a) 30% Ownership Change: Any Person makes an acquisition of
Outstanding Voting Stock and is, immediately thereafter, the beneficial
owner of 30% or more of the then Outstanding Voting Stock, unless such
acquisition is made directly from the Company in a transaction approved
by a majority of the Incumbent Directors; or any group is formed that is
the beneficial owner of 30% or more of the Outstanding Voting Stock; or
(b) Board Majority Change: Individuals who are Incumbent Directors
cease for any reason to constitute a majority of the members of the
Board; or
(c) Major Mergers and Acquisitions: Consummation of a Business
Combination unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities that were the
beneficial owners of the Outstanding Voting Stock immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 70% of the then outstanding shares of voting stock of the parent
corporation resulting from such Business Combination in substantially
the same relative proportions as their ownership, immediately prior to
such Business
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Combination, of the Outstanding Voting Stock, (ii) if the Business
Combination involves the issuance or payment by the Company of
consideration to another entity or its shareholders, the total fair
market value of such consideration plus the principal amount of the
consolidated long-term debt of the entity or business being acquired (in
each case, determined as of the date of consummation of such Business
Combination by a majority of the Incumbent Directors) does not exceed
50% of the sum of the fair market value of the Outstanding Voting Stock
plus the principal amount of the Company's consolidated long-term debt
(in each case, determined immediately prior to such consummation by a
majority of the Incumbent Directors), (iii) no Person (other than any
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 30% or more of the then outstanding shares of
voting stock of the parent corporation resulting from such Business
Combination and (iv) a majority of the members of the board of directors
of the parent corporation resulting from such Business Combination were
Incumbent Directors of the Company immediately prior to consummation of
such Business Combination; or
(d) Major Asset Dispositions: Consummation of a Major Asset
Disposition unless, immediately following such Major Asset Disposition,
(i) individuals and entities that were beneficial owners of the
Outstanding Voting Stock immediately prior to such Major Asset
Disposition beneficially own, directly or indirectly, more than 70% of
the then outstanding shares of voting stock of the Company (if it
continues to exist) and of the entity that acquires the largest portion
of such assets (or the entity, if any, that owns a majority of the
outstanding voting stock of such acquiring entity) and (ii) a majority
of the members of the board of directors of the Company (if it continues
to exist) and of the entity that acquires the largest portion of such
assets (or the entity, if any, that owns a majority of the outstanding
voting stock of such acquiring entity) were Incumbent Directors of the
Company immediately prior to consummation of such Major Asset
Disposition.
For purposes of the foregoing,
(1) the term "Person" means an individual, entity or group;
(2) the term "group" is used as it is defined for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act");
(3) the term "beneficial owner" is used as it is defined for purposes
of Rule 13d-3 under the Exchange Act;
(4) the term "Outstanding Voting Stock" means outstanding voting
securities of the Company entitled to vote generally in the election of
directors; and any specified percentage or portion of the Outstanding
Voting Stock (or of other voting stock) shall be determined based on the
combined voting power of such securities;
(5) the term "Incumbent Director" means a director of the Company (x)
who was a director of the Company on May 7, 2003 or (y) who becomes a
director subsequent to such date and whose election, or nomination for
election by the Company's shareholders, was approved by a vote of a
majority of the Incumbent Directors at the time of such election or
nomination, except that any such director shall not be deemed an
Incumbent Director if his or her initial assumption of office occurs as
a result of an actual or threatened election contest or other actual or
threatened solicitation of proxies by or on behalf of a Person other
than the Board;
(6) the term "election contest" is used as it is defined for purposes
of Rule 14a-11 under the Exchange Act;
(7) the term "Business Combination" means (x) a merger or
consolidation involving the Company or its stock or (y) an acquisition
by the Company, directly or through one or more subsidiaries, of another
entity or its stock or assets;
(8) the term "parent corporation resulting from a Business
Combination" means the Company if its stock is not acquired or converted
in the Business Combination and otherwise means the entity
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which as a result of such Business Combination owns the Company or all
or substantially all the Company's assets either directly or through one
or more subsidiaries; and
(9) the term "Major Asset Disposition" means the sale or other
disposition in one transaction or a series of related transactions of
70% or more of the assets of the Company and its subsidiaries on a
consolidated basis; and any specified percentage or portion of the
assets of the Company shall be based on fair market value, as determined
by a majority of the Incumbent Directors.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, subject to the provisions of Section 7.3, the
presently authorized common stock, $0.01 par value, of the Company.
"Company" means CenterPoint Energy, Inc., a Texas corporation, and any
successor thereto.
"Dividend Equivalents" means, with respect to shares of Common Stock
issued or delivered at the end of the Restriction Period applicable to a
Stock Award, an amount equal to all dividends and other distributions (or
the economic value thereof) that are payable to shareholders of record
during the Restriction Period on a like number of shares of Common Stock.
"Outside Director" means a person who is a member of the Board on an
Annual Award Date and who is not a current employee of the Company or a
Subsidiary.
"Plan" means the CenterPoint Energy, Inc. Stock Plan for Outside
Directors, as set forth herein and as from time to time amended.
"Restriction Period" means the period of time beginning as of the grant
date of a Stock Award and ending on the third anniversary of the grant date
or such earlier time at which the Common Stock subject to such Stock Award
is no longer subject to forfeiture provisions as provided in Section 5.3.
"Stock Award" means an award of the right to receive shares of Common
Stock granted by the Company to an Outside Director pursuant to, and subject
to the terms, conditions and limitations specified in, Article V.
"Subsidiary" means a subsidiary corporation of the Company as defined in
Section 424(f) of the Code.
ARTICLE III
SHAREHOLDER APPROVAL, RESERVATION OF SHARES
AND PLAN ADMINISTRATION
3.1 Shareholder Approval: This Plan was originally effective as of May 22,
1996, and approved by the shareholders of the Company at the May 22, 1996
Annual Meeting of Shareholders ("Prior Plan"). The Plan, as amended and
restated, shall become effective as of May 7, 2003, only if approved by the
affirmative vote, in person or by proxy, of the holders of a majority of the
shares of Common Stock present and entitled to vote at the May 7, 2003 Annual
Meeting of Shareholders. This Plan, as amended and restated, shall
automatically terminate should such shareholder approval not be obtained (and
the Prior Plan as in effect immediately prior to May 7, 2003, shall continue in
operation as then in effect).
3.2 Shares Reserved Under Plan: The aggregate number of shares of Common
Stock which may be issued or delivered under this Plan shall not exceed 350,000
shares, subject to adjustment as hereinafter provided.
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All or any part of such 350,000 shares may be issued pursuant to Stock Awards.
The shares of Common Stock which may be granted pursuant to Stock Awards may
consist of either authorized but unissued shares of Common Stock or shares of
Common Stock which have been issued and which shall have been heretofore or are
hereafter reacquired by the Company. The number of shares of Common Stock that
are subject to Stock Awards under this Plan that are forfeited or terminated
shall again immediately become available for Stock Awards hereunder. The Board
may from time to time adopt and observe such procedures concerning the counting
of shares against the Plan maximum as it may deem appropriate. The total number
of shares authorized under this Plan shall be subject to increase or decrease
in order to give effect to the adjustment provision of Section 7.3 and to give
effect to any amendment adopted as provided in Section 6.1.
3.3 Plan Administration:
(a) This Plan shall be administered by the Board. Subject to the
provisions hereof, the Board shall have full and exclusive power and
authority to administer this Plan and to take all actions that are
specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. The Board shall also have full
and exclusive power to interpret this Plan and to adopt such rules,
regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan.
The Board may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Stock Award in the manner and to the
extent the Board deems necessary or desirable. Any decision of the Board in
the interpretation and administration of this Plan shall lie within its sole
and absolute discretion and shall be final, conclusive and binding on all
parties concerned. The Board may engage in or authorize the engagement of a
third party administrator to carry out administrative functions under the
Plan.
(b) No member of the Board or officer of the Company to whom the Board
has delegated authority in accordance with the provisions of this Section
shall be liable for anything done or omitted to be done by him or her, by
any member of the Board or by any officer of the Company in connection with
the performance of any duties under this Plan, except for his or her own
willful misconduct or as expressly provided by statute.
ARTICLE IV
PARTICIPATION IN PLAN
4.1 Eligibility to Receive Stock Awards: Stock Awards under this Plan
shall be granted only to persons who are Outside Directors who are eligible to
receive awards under Section 5.1 and/or 5.2.
4.2 Participation Not a Guarantee of Continuing Service as a Member of the
Board: Nothing in this Plan shall in any manner be construed to (a) limit in
any way the right or power of the Company's stockholders to remove an Outside
Director, without regard to the effect of such removal on any rights such
Outside Director would otherwise have under this Plan, or (b) give any right to
such an Outside Director (i) to be nominated for reelection or to be reelected
as such and/or (ii) after ceasing to be an Outside Director, to receive any
shares of Common Stock of the Company under this Plan to which such Outside
Director is not entitled under the express provisions of this Plan.
ARTICLE V
STOCK AWARDS
5.1 Initial Awards: On or after the date an individual first becomes an
Outside Director, at the discretion of the Board, such Outside Director may be
granted a one-time, initial Stock Award consisting of the right to receive up
to, but not to exceed, 5,000 shares of Common Stock, as determined by the
Board, with such award
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subject to the terms, conditions and limitations set forth in this Plan;
provided, however, that such Outside Director is then in office as of the grant
date of such initial Stock Award. Any Stock Award under this Section 5.1 shall
be in addition to, and not in lieu of, any Stock Award granted under Section
5.2.
5.2 Annual Awards: As of each Annual Award Date, at the discretion of the
Board, each Outside Director then in office may be granted a Stock Award
consisting of the right to receive up to, but not to exceed, 5,000 shares of
Common Stock, as determined by the Board, with such awards subject to the
terms, conditions and limitations set forth in this Plan.
5.3 Vesting of Stock Awards: Each Stock Award granted under this Plan
shall be subject to a Restriction Period and shall vest in increments of
one-third (1/3) of the total number of shares of Common Stock that are subject
thereto on the first, second and third anniversaries of the grant date of the
Stock Award such that all shares of Common Stock that are subject thereto shall
be fully vested on the third anniversary of such grant date. Notwithstanding
the foregoing, a Stock Award shall become immediately vested in full with
respect to all shares of Common Stock that are subject to a Stock Award as of
such date (a) if the Outside Director terminates his or her status as a member
of the Board by reason of the Outside Director's death or (b) upon the date of
a Change of Control. If an Outside Director's service on the Board is
terminated for any reason whatsoever, other than due to death or a Change of
Control, all rights to the unvested portion of his or her Stock Award(s) as of
such termination date shall be immediately and completely forfeited as of such
termination date. For purposes of this Plan, an Outside Director's service on
the Board shall be deemed to have terminated at the close of business on the
day preceding the first date on which he or she ceases to be a member of the
Board, unless his or her termination of service on the Board occurs on or after
attaining age 70, in which case the Outside Director's termination date shall
be deemed to be the last day of the year in which such termination occurs.
5.4 Form of Award: Upon vesting in accordance with Section 5.3, the number
of vested shares of Common Stock subject to the Stock Award shall be registered
in the name of the Outside Director and certificates representing such Common
Stock (unless the Company shall elect to use uncertificated shares) shall be
delivered to the Outside Director as soon as practicable after the date upon
which the Outside Director's right to such shares vested. Upon delivery of the
vested shares of Common Stock pursuant to this Section, the Outside Director
shall also be entitled to receive a cash payment equal to the sum of all
Dividend Equivalents, if any.
ARTICLE VI
AMENDMENT AND TERMINATION OF PLAN
6.1 Amendment, Modification, Suspension or Termination: The Board may from
time to time amend, modify, suspend or terminate the Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law except that no amendment or alteration shall be
effective prior to approval by the Company's shareholders to the extent such
approval is determined to be required by applicable legal requirements or the
listing standards of the New York Stock Exchange.
6.2 Termination: Subject to satisfaction of the requirements of Section
3.1, this Plan shall continue indefinitely until all shares of Common Stock
authorized for issuance or delivery hereunder by Section 3.2 hereof have been
issued, except the Board may at any time terminate this Plan as of any date
specified in a resolution adopted by the Board. No Stock Awards may be granted
after this Plan has terminated. The termination of the Plan shall not affect
the applicability of any provision of the Plan to Stock Awards made prior to
such termination.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Restrictions Upon Grant of Stock Awards: The listing on the New York
Stock Exchange or the registration or qualification under any federal or state
law of any shares of Common Stock to be granted pursuant to this Plan (whether
to permit the grant of Stock Awards or the resale or other disposition of any
such shares of Common Stock by or on behalf of the Outside Directors receiving
such shares) may be necessary or desirable and, in any such event, if the
Company so determines, issuance or delivery of such shares of Common Stock
shall not be made until such listing, registration or qualification shall have
been completed. In such connection, the Company agrees that it will use its
best efforts to effect any such listing, registration or qualification,
provided, however, that the Company shall not be required to use its best
efforts to effect such registration under the Securities Act of 1933, as
amended, other than on Form S-8, as presently in effect, or other such forms as
may be in effect from time to time calling for information comparable to that
presently required to be furnished under Form S-8.
7.2 Restrictions Upon Resale of Unregistered Stock: If the shares of
Common Stock that have been transferred to an Outside Director pursuant to the
terms of this Plan are not registered under the Securities Act of 1933, as
amended, pursuant to an effective registration statement, such Outside
Director, if the Company deems it advisable, may be required to represent and
agree in writing (a) that any shares of Common Stock acquired by such Outside
Director pursuant to this Plan will not be sold except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or
pursuant to an exemption from registration under said Act and (b) that such
Outside Director is acquiring such shares of Common Stock for such Outside
Director's own account and not with a view to the distribution thereof.
7.3 Adjustments: In the event of any subdivision or combination of
outstanding shares of Common Stock or declaration of a dividend payable in
shares of Common Stock or other stock split, then (a) the number of shares of
Common Stock reserved under this Plan and (b) the number of shares delivered
under Section 5.4 on any date occurring after the applicable record date or
effective date shall be proportionately adjusted to reflect such transaction.
7.4 Withholding of Taxes: Unless otherwise required by applicable federal
or state laws or regulations, the Company shall not withhold or otherwise pay
on behalf of any Outside Director any federal, state, local or other taxes
arising in connection with a Stock Award under this Plan. The payment of any
such taxes shall be the sole responsibility of each Outside Director.
7.5 Governing Law: This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the internal laws of the State of Texas,
except as federal law may apply.
7.6 Unfunded Status of Plan; Establishment of Stock Award Account: This
Plan shall be an unfunded plan. The grant of shares of Common Stock pursuant to
a Stock Award under this Plan shall be implemented by a credit to a bookkeeping
account maintained by the Company evidencing the accrual in favor of the
Outside Director of the unfunded and unsecured right to receive shares of
Common Stock of the Company, which right shall be subject to the terms,
conditions and restrictions set forth in the Plan. Such accounts shall be used
merely as a bookkeeping convenience. The Company shall not be required to
establish any special or separate fund or reserve or to make any other
segregation of assets to assure the issuance of any shares of Common Stock
granted under this Plan. Except as otherwise provided in this Plan, the shares
of Common Stock credited to the Outside Director's bookkeeping account may not
be sold, assigned, transferred, pledged or otherwise encumbered until the
Outside Director has been registered as the holder of such shares of Common
Stock on the records of the Company as provided in Section 5.4. Neither the
Company nor the Board shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.
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7.7 No Assignment or Transfer: No rights to receive Stock Awards under the
Plan shall be assignable or transferable by an Outside Director except by will
or the laws of descent and distribution.
CENTERPOINT ENERGY, INC.
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APPENDIX II
CENTERPOINT ENERGY, INC.
AUDIT COMMITTEE CHARTER
Purpose: The primary function of the Audit Committee is to assist the Board
of Directors in fulfilling its oversight responsibility for
. the integrity of the Company's financial statements
. the qualifications, independence and performance of the Company's
independent auditors
. the performance of the Company's internal audit function
. compliance by the Company with legal and regulatory requirements
. the system of disclosure controls and the system of internal controls
regarding finance, accounting, legal compliance, and ethics that
management and the Board have established.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "SEC") to be included in the Company's
annual proxy statement. The Audit Committee shall have and may exercise all the
powers of the Board of Directors, except as may be prohibited by law, with
respect to all matters encompassed by this Charter, and all the power and
authority required under the Sarbanes-Oxley Act of 2002.
Membership: The Audit Committee shall consist of at least three members,
each of whom shall be independent. The Company will seek to have at least one
member of the Audit Committee who is an "audit committee financial expert" as
defined by the SEC.
Meetings and Structure: The Audit Committee shall meet as often as its
members deem necessary or appropriate but at least four times during each year.
The Board of Directors shall appoint one member of the Audit Committee as
chairperson. The Audit Committee will maintain regular liaison with the Chief
Executive Officer, the Chief Financial Officer, the Chief Accounting Officer,
the lead audit partner of the Company's independent auditors and the Company's
Director of Audit Services.
Private Discussions/Investigations: The Audit Committee shall provide on a
regular basis opportunities for private discussion with the independent
auditors, the Chief Financial Officer, the Chief Accounting Officer, the
Company's Director of Audit Services, and the Company's General Counsel and
outside counsel when appropriate. The Audit Committee may investigate any
matter brought to its attention.
Accountability of the Independent Auditors and Audit Committee Authority and
Responsibility: The independent auditors are accountable to the Audit Committee
and the Board of Directors. The Audit Committee shall have the sole authority
to appoint and, where appropriate, replace the Company's independent auditors
and to approve all audit engagement fees and terms./1/ The Audit Committee
shall be directly responsible for the compensation and oversight of the work of
the independent auditors (including resolution of disagreements between
management and the independent auditors regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work or performing
other audit, review or attest services for the Company. The independent
auditors shall report directly to the Audit Committee.
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/1/ It is the Company's customary practice to seek shareholder ratification of
the appointment of the Company's independent auditors.
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At least annually, the Audit Committee shall review the independent
auditor's internal quality-controls and independence.
The Audit Committee shall preapprove all audit, review or attest engagements
and permissible non-audit services, including the fees and terms thereof, to be
performed by the independent auditors, subject to the de minimis exception for
non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange
Act of 1934 and the applicable rules and regulations of the SEC. The Audit
Committee may form and delegate authority to subcommittees consisting of one or
more members when appropriate, including the authority to grant preapprovals of
audit and permissible non-audit services.
In addition to the responsibilities set forth in the preceding paragraphs,
the Audit Committee shall:
Financial Reporting Processes and Accounting Policies
. Review and assess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval.
. Review the annual audited financial statements with management and the
independent auditors, as well as disclosures made in management's
discussion and analysis of financial condition and results of operations.
. Recommend to the Board of Directors whether the Company's annual audited
financial statements and accompanying notes should be included in the
Company's Annual Report on Form 10-K.
. Review with management and the independent auditors the Company's
quarterly financial statements, and disclosures made in management's
discussion and analysis of financial condition and results of operations,
including the results of the independent auditors' reviews of the
quarterly financial statements.
. Review and discuss with management and the independent auditors:
. major issues regarding accounting principles and financial statement
presentations, including significant changes in the selection or
application of accounting principles, any major issues concerning the
adequacy of the Company's internal controls and special steps adopted
in light of material control deficiencies.
. analyses prepared by management and/or the independent auditors
setting forth significant financial reporting issues and judgments
made in connection with the preparation of the Company's financial
statements, including analyses of the effects of alternative GAAP
methods on the financial statements.
. In consultation with the independent auditors and the internal auditors,
review the integrity of the Company's financial reporting processes and
the internal control structure (including disclosure controls).
. Meet with representatives of the disclosure committee on a periodic basis
to confirm that the disclosure committee's quarterly process is serving
its intended purpose of assisting the CEO and CFO in their Sarbanes-Oxley
Act of 2002 Section 302 certifications.
. Review with management the Company's earnings press releases, with
particular emphasis on the use of any "non-GAAP financial measures," as
well as financial information and earnings guidance provided to analysts
and rating agencies. Such discussion may be done generally (covering, for
example, the types of information to be disclosed and the type of
presentation to be made).
. Review with management and the independent auditors the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
II-2
. Discuss with the independent auditors the matters required to be
communicated by the independent auditors pursuant to Statement on
Auditing Standards No. 61 relating to the conduct of the audit, including
any problems or difficulties encountered in the course of the audit work
and management's response, any restrictions on the scope of activities or
access to requested information and any significant disagreements with
management.
. Review other relevant reports or financial information as determined by
the Audit Committee to be necessary, advisable or appropriate.
Internal Audit
. Review the appointment and replacement of the Director of Audit Services.
. Review activities, organizational structure, and qualifications of the
internal audit function.
. Review the significant reports to management prepared by the audit
services department and management's responses.
. Review with management and the independent auditors the responsibilities,
budget and staffing of the internal auditors and any recommended changes
in the planned scope of the internal audit.
. Obtain information from management, the Company's Director of Audit
Services and the independent auditors related to compliance by the
Company and its subsidiaries with applicable legal requirements and the
Company's Code of Business Conduct.
Other Matters
. Advise the Board of Directors with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations and
with the Company's Code of Business Conduct.
. Obtain from the independent auditors assurance that Section 10A(b) of the
Securities Exchange Act of 1934 has not been implicated.
. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters.
. Meet with management at least annually to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures, including the Company's policies and
guidelines concerning risk assessment and risk management.
. Review with the Company's General Counsel at least annually legal matters
that may have a material impact on the financial statements, the
Company's compliance policies and any material reports or inquiries
received from regulators or governmental agencies.
. Review annually the Audit Committee's own performance.
. Make regular reports to the Board of Directors.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
The Audit Committee shall have the authority to retain and obtain advice and
assistance from current or independent legal, accounting or other advisors
without seeking approval of the Board of Directors. The Audit Committee may
request any officer or employee of the Company or the Company's outside counsel
or
II-3
independent auditors to attend a meeting of the Audit Committee or to meet with
any members of, or advisors to, the Audit Committee. The Company shall provide
for appropriate funding, as determined by the Audit Committee, for payment of
compensation to the independent auditors for the purpose of rendering or
issuing an audit report and to any advisors employed by the Audit Committee.
The Audit Committee will make itself available to the independent auditors
and the internal auditors of the Company as requested. Reports of meetings of
the Audit Committee shall be made to the Board of Directors at its next
regularly scheduled meeting following the Audit Committee meeting, accompanied
by any recommendations to the Board of Directors approved by the Audit
Committee.
II-4
CENTERPOINT ENERGY, INC.
Proxy Common Stock
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints John T. Cater, O. Holcombe Crosswell and David
M. McClanahan, and each of them, as proxies, with full power of substitution, to
vote as designated on the reverse side all shares of common stock held by the
undersigned at the annual meeting of shareholders of CenterPoint Energy, Inc. to
be held May 7, 2003, at 9 a. m. (CDT) in the Reliant Energy Plaza auditorium,
1111 Louisiana, Houston, Texas, or any adjournments thereof, and with
discretionary authority to vote on all other matters that may properly come
before the meeting (unless such discretionary authority is withheld).
If you wish to vote in accordance with the
recommendations of the Board of Directors,
you may just sign and date below and mail in
the postage-paid envelope provided. Specific
choices may be made on the reverse side. In
the absence of instructions to the contrary,
the shares represented will be voted in
accordance with the Board's recommendation.
Dated:________________________________, 2003
Signature:__________________________________
Signature:__________________________________
Note: Please sign exactly as name(s) appears
hereon. Joint owners should each sign. When
signing as attorney, executor,
administrator, trustee or guardian, please
give full title.
--------------------------------------------------------------------------------
Detach and Mail Card
CENTERPOINT ENERGY, INC.
2003 Annual Meeting of Shareholders
The nominees for Class I directors are Derrill Cody and David M. McClanahan. The
term of Class I directors will expire in 2006. The nominee for Class III
director is Thomas F. Madison. The term of Class III directors will expire in
2005. Your Board of Directors recommends that you vote FOR the nominees for
director, FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2003, FOR approval of the amendment and restatement of
the Stock Plan for Outside Directors, AGAINST the shareholder proposal
requesting that the Board adopt an executive compensation policy that future
stock options to senior executive officers be indexed, and AGAINST the
shareholder proposal requesting that the Company amend its equal employment
opportunity policy to explicitly prohibit discrimination based on sexual
orientation.
WITH- FOR ALL
FOR HOLD EXCEPT
1. Election of nominees [ ] [ ] [ ]
for Class I directors.
Exception:
----------------------
FOR WITHHOLD
2. Election of nominee [ ] [ ]
for Class III director.
FOR AGAINST ABSTAIN
3. Approve the amendment and [ ] [ ] [ ]
restatement of the Stock
Plan for Outside Directors
FOR AGAINST ABSTAIN
4. Ratification of the Appointment [ ] [ ] [ ]
of Deloitte & Touche LLP as
independent auditors for 2003.
FOR AGAINST ABSTAIN
5. Shareholder proposal relating to [ ] [ ] [ ]
stock option indexing.
FOR AGAINST ABSTAIN
6. Shareholder proposal relating to the [ ] [ ] [ ]
amendment of the Company's written
equal employment opportunity policy.
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [ ]
Please check this box if you plan to attend the Annual Meeting. [ ]
--------------------------------------------------------------------------------
Detach and Mail Card
[Map Appears Here]
CENTERPOINT ENERGY, INC. N
Voting Directions to Trustee - Common Stock
This card relates to the solicitation on behalf of the Board of Directors
The undersigned hereby appoints the Trustee of the CenterPoint Energy, Inc.
Savings Plan to vote as designated on the reverse side all shares of common
stock attributable to the account of the undersigned at the annual meeting of
shareholders of CenterPoint Energy, Inc. to be held May 7, 2003, at 9 a. m.
(CDT) in the Reliant Energy Plaza auditorium, 1111 Louisiana, Houston, Texas, or
any adjournments thereof, and with discretionary authority to vote on all other
matters that may properly come before the meeting (unless such discretionary
authority is withheld).
If you wish to vote in accordance with the recommendations
of the Board of Directors, you may just sign and date below
and mail in the postage-paid envelope provided. Specific
choices may be made on the reverse side. In the absence of
instructions to the contrary, the shares represented will be
voted in accordance with the Board's recommendation.
Dated:______________________________________________, 2003
Signature:__________________________________________________
Note: Please sign exactly as name appears hereon. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title.
--------------------------------------------------------------------------------
Detach and Mail Card
CENTERPOINT ENERGY, INC.
2003 Annual Meeting of Shareholders
The nominees for Class I directors are Derrill Cody and David M. McClanahan. The
term of Class I directors will expire in 2006. The nominee for Class III
director is Thomas F. Madison. The term of Class III directors will expire in
2005. Your Board of Directors recommends that you vote FOR the nominees for
director, FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2003, FOR approval of the amendment and restatement of
the Stock Plan for Outside Directors, AGAINST the shareholder proposal
requesting that the Board adopt an executive compensation policy that future
stock options to senior executive officers be indexed, and AGAINST the
shareholder proposal requesting that the Company amend its equal employment
opportunity policy to explicitly prohibit discrimination based on sexual
orientation.
FOR WITHHOLD FOR ALL
EXCEPT
1. Election of nominees [ ] [ ] [ ]
for Class I directors.
Exception: _______________________________________________
2. Election of nominee FOR WITHHOLD
for Class III director. [ ] [ ]
3. Approve the amendment FOR AGAINST ABSTAIN
and restatement of the [ ] [ ] [ ]
Stock Plan for Outside
Directors
4. Ratification of the FOR AGAINST ABSTAIN
Appointment of Deloitte [ ] [ ] [ ]
& Touche LLP as independent
auditors for 2003.
5. Shareholder proposal FOR AGAINST ABSTAIN
relating to stock option [ ] [ ] [ ]
indexing.
6. Shareholder proposal FOR AGAINST ABSTAIN
relating to the amendment [ ] [ ] [ ]
of the Company's written
equal employment opportunity
policy.
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [ ]
--------------------------------------------------------------------------------
Detach and Mail Card
Voting Directions to Trustee S
CenterPoint Energy, Inc. - Common Stock
This card relates to the solicitation on behalf of the Board of Directors
The undersigned hereby appoints the Trustee of the STP Nuclear Operating Company
Savings Plan to vote as designated on the reverse side all shares of common
stock attributable to the account of the undersigned at the annual meeting of
shareholders of CenterPoint Energy, Inc. to be held May 7, 2003, at 9 a. m.
(CDT) in the Reliant Energy Plaza auditorium, 1111 Louisiana, Houston, Texas, or
any adjournments thereof, and with discretionary authority to vote on all other
matters that may properly come before the meeting (unless such discretionary
authority is withheld).
If you wish to vote in accordance with the recommendations
of the Board of Directors, you may just sign and date below
and mail in the postage-paid envelope provided. Specific
choices may be made on the reverse side. In the absence of
instructions to the contrary, the shares represented will be
voted in accordance with the Board's recommendation.
Dated:______________________________________________, 2003
Signature:__________________________________________________
Note: Please sign exactly as name appears hereon. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title.
--------------------------------------------------------------------------------
Detach and Mail Card
CENTERPOINT ENERGY, INC.
2003 Annual Meeting of Shareholders
The nominees for Class I directors are Derrill Cody and David M. McClanahan. The
term of Class I directors will expire in 2006. The nominee for Class III
director is Thomas F. Madison. The term of Class III directors will expire in
2005. Your Board of Directors recommends that you vote FOR the nominees for
director, FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2003, FOR approval of the amendment and restatement of
the Stock Plan for Outside Directors, AGAINST the shareholder proposal
requesting that the Board adopt an executive compensation policy that future
stock options to senior executive officers be indexed, and AGAINST the
shareholder proposal requesting that the Company amend its equal employment
opportunity policy to explicitly prohibit discrimination based on sexual
orientation.
FOR WITH- FOR ALL
HOLD EXCEPT
1. Election of nominees [ ] [ ] [ ]
for Class I directors.
Exception: _______________________________________________
2. Election of nominee FOR WITHHOLD
for Class III director. [ ] [ ]
3. Approve the amendment FOR AGAINST ABSTAIN
and restatement of the [ ] [ ] [ ]
Stock Plan for Outside
Directors
4. Ratification of the FOR AGAINST ABSTAIN
Appointment of Deloitte [ ] [ ] [ ]
& Touche LLP as independent
auditors for 2003.
5. Shareholder proposal FOR AGAINST ABSTAIN
relating to stock option [ ] [ ] [ ]
indexing.
6. Shareholder proposal relating FOR AGAINST ABSTAIN
to the amendment of the [ ] [ ] [ ]
Company's written equal
employment opportunity policy.
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [ ]
--------------------------------------------------------------------------------
Detach and Mail Card
Voting Directions to Trustee U
CenterPoint Energy, Inc. - Common Stock
This card relates to the solicitation on behalf of the Board of Directors
The undersigned hereby appoints the Trustee of the Reliant Resources, Inc.
Savings Plan to vote as designated on the reverse side all shares of common
stock attributable to the account of the undersigned at the annual meeting of
shareholders of CenterPoint Energy, Inc. to be held May 7, 2003, at 9 a. m.
(CDT) in the Reliant Energy Plaza auditorium, 1111 Louisiana, Houston, Texas, or
any adjournments thereof, and with discretionary authority to vote on all other
matters that may properly come before the meeting (unless such discretionary
authority is withheld).
If you wish to vote in accordance with the recommendations
of the Board of Directors, you may just sign and date below
and mail in the postage-paid envelope provided. Specific
choices may be made on the reverse side. In the absence of
instructions to the contrary, the shares represented will be
voted in accordance with the Board's recommendation.
Dated:______________________________________________, 2003
Signature:__________________________________________________
Note: Please sign exactly as name appears hereon. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title.
--------------------------------------------------------------------------------
Detach and Mail Card
CENTERPOINT ENERGY, INC.
2003 Annual Meeting of Shareholders
The nominees for Class I directors are Derrill Cody and David M. McClanahan. The
term of Class I directors will expire in 2006. The nominee for Class III
director is Thomas F. Madison. The term of Class III directors will expire in
2005. Your Board of Directors recommends that you vote FOR the nominees for
director, FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2003, FOR approval of the amendment and restatement of
the Stock Plan for Outside Directors, AGAINST the shareholder proposal
requesting that the Board adopt an executive compensation policy that future
stock options to senior executive officers be indexed, and AGAINST the
shareholder proposal requesting that the Company amend its equal employment
opportunity policy to explicitly prohibit discrimination based on sexual
orientation.
FOR WITH- FOR ALL
HOLD EXCEPT
1. Election of nominees [ ] [ ] [ ]
for Class I directors.
Exception: _______________________________________________
2. Election of nominee FOR WITHHOLD
for Class III director. [ ] [ ]
3. Approve the amendment FOR AGAINST ABSTAIN
and restatement of the [ ] [ ] [ ]
Stock Plan for Outside
Directors
4. Ratification of the FOR AGAINST ABSTAIN
Appointment of Deloitte [ ] [ ] [ ]
& Touche LLP as independent
auditors for 2003.
5. Shareholder proposal FOR AGAINST ABSTAIN
relating to stock option [ ] [ ] [ ]
indexing.
6. Shareholder proposal relating FOR AGAINST ABSTAIN
to the amendment of the [ ] [ ] [ ]
Company's written equal
employment opportunity policy.
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [ ]
--------------------------------------------------------------------------------
Detach and Mail Card
Voting Directions to Trustee V
CenterPoint Energy, Inc. - Common Stock
This card relates to the solicitation on behalf of the Board of Directors
The undersigned hereby appoints the Trustee of the Reliant Resources, Inc.
Non-Union Savings Plan to vote as designated on the reverse side all shares of
common stock attributable to the account of the undersigned at the annual
meeting of shareholders of CenterPoint Energy, Inc. to be held May 7, 2003, at 9
a. m. (CDT) in the Reliant Energy Plaza auditorium, 1111 Louisiana, Houston,
Texas, or any adjournments thereof, and with discretionary authority to vote on
all other matters that may properly come before the meeting (unless such
discretionary authority is withheld).
If you wish to vote in accordance with the recommendations
of the Board of Directors, you may just sign and date below
and mail in the postage-paid envelope provided. Specific
choices may be made on the reverse side. In the absence of
instructions to the contrary, the shares represented will be
voted in accordance with the Board's recommendation.
Dated:______________________________________________, 2003
Signature:__________________________________________________
Note: Please sign exactly as name appears hereon. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title.
--------------------------------------------------------------------------------
Detach and Mail Card
CENTERPOINT ENERGY, INC.
2003 Annual Meeting of Shareholders
The nominees for Class I directors are Derrill Cody and David M. McClanahan. The
term of Class I directors will expire in 2006. The nominee for Class III
director is Thomas F. Madison. The term of Class III directors will expire in
2005. Your Board of Directors recommends that you vote FOR the nominees for
director, FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2003, FOR approval of the amendment and restatement of
the Stock Plan for Outside Directors, AGAINST the shareholder proposal
requesting that the Board adopt an executive compensation policy that future
stock options to senior executive officers be indexed, and AGAINST the
shareholder proposal requesting that the Company amend its equal employment
opportunity policy to explicitly prohibit discrimination based on sexual
orientation.
FOR WITHHOLD FOR ALL
EXCEPT
1.Election of nominees [ ] [ ] [ ]
for Class I directors.
Exception: _______________________________________________
2. Election of nominee FOR WITHHOLD
for Class III director. [ ] [ ]
3. Approve the amendment FOR AGAINST ABSTAIN
and restatement of the [ ] [ ] [ ]
Stock Plan for Outside
Directors
4. Ratification of the FOR AGAINST ABSTAIN
Appointment of Deloitte [ ] [ ] [ ]
& Touche LLP as independent
auditors for 2003.
5. Shareholder proposal FOR AGAINST ABSTAIN
relating to stock option [ ] [ ] [ ]
indexing.
6. Shareholder proposal FOR AGAINST ABSTAIN
relating to the amendment [ ] [ ] [ ]
of the Company's written
equal employment opportunity
policy.
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [ ]
--------------------------------------------------------------------------------
Detach and Mail Card