FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-108925
PROSPECTUS
$922,000,000
CENTERPOINT ENERGY RESOURCES CORP.
OFFER TO EXCHANGE
7.875% SENIOR NOTES DUE 2013, SERIES B 5.95% SENIOR NOTES DUE 2014, SERIES B
FOR ALL OUTSTANDING FOR ALL OUTSTANDING
7.875% SENIOR NOTES DUE 2013, SERIES A 5.95% SENIOR NOTES DUE 2014, SERIES A
THE EXCHANGE OFFER FOR SERIES A NOTES (THE "OLD NOTES") OF EACH SERIES:
- will expire at 5:00 p.m., New York City time, January 7, 2004,
unless extended; and
- is not conditioned upon any minimum aggregate principal amount of
old notes of that series being tendered for exchange or upon
consummation of the exchange offer for old notes of any other
series.
THE SERIES B NOTES (THE "NEW NOTES"):
- will be freely tradable;
- are substantially identical to the old notes for which they may
be exchanged; and
- will not be listed on any securities exchange or on any automated
dealer quotation system, but may be sold in the over-the-counter
market, in negotiated transactions or through a combination of
those methods.
YOU SHOULD NOTE THAT:
- we will exchange all old notes of a series that are validly
tendered and not validly withdrawn for an equal principal amount
of new notes of that series that we have registered under the
Securities Act of 1933;
- you may withdraw tenders of old notes at any time prior to the
expiration of the exchange offer; and
- the exchange of old notes for new notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 17 OF
THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is December 3, 2003.
TABLE OF CONTENTS
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS.
SEE "WHERE YOU CAN FIND MORE INFORMATION" BEGINNING ON PAGE 57 FOR A LISTING OF
DOCUMENTS WE INCORPORATE BY REFERENCE. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED TO CENTERPOINT ENERGY RESOURCES
CORP., C/O CENTERPOINT ENERGY, INC., ATTN: INVESTOR SERVICES, P.O. BOX 4567,
HOUSTON, TEXAS 77210-4567, TELEPHONE: (713) 207-3060. TO ENSURE TIMELY DELIVERY
OF ANY OF OUR FILINGS, AGREEMENTS OR OTHER DOCUMENTS, YOU MUST MAKE YOUR REQUEST
TO US NO LATER THAN DECEMBER 30, 2003. THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON JANUARY 7, 2004.
Cautionary Statement Regarding Forward Looking Information............. ii
Prospectus Summary..................................................... 1
Risk Factors........................................................... 17
Private Placement...................................................... 21
Use of Proceeds........................................................ 21
Capitalization......................................................... 22
The Exchange Offer..................................................... 23
Description of the Notes............................................... 33
Registration Rights.................................................... 46
Book Entry Delivery and Settlement..................................... 48
Certain U.S. Federal Income Tax Considerations......................... 51
Plan of Distribution................................................... 55
Transfer Restrictions.................................................. 56
Legal Matters.......................................................... 56
Experts................................................................ 57
Where You Can Find More Information.................................... 57
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. The letters of transmittal state that, by so
acknowledging and delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act of
1933. This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of new notes received
in exchange for old notes where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities. We have
agreed that, for a period of 180 days after the expiration date of the exchange
offer, we will make this prospectus available to any broker-dealer for use in
connection with the resale of new notes.
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
From time to time we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements that are not historical facts. These
statements are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those expressed or implied by these statements. In some cases, you can
identify our forward-looking statements by the words "anticipate," "believe,"
"continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may,"
"objective," "plan," "potential," "predict," "projection," "should," "will," or
other similar words.
We have based our forward-looking statements on our management's
beliefs and assumptions based on information available at the time the
statements are made. We caution you that assumptions, beliefs, expectations,
intentions and projections about future events may and often do vary materially
from actual results. Therefore, we cannot assure you that actual results will
not differ materially from those expressed or implied by our forward-looking
statements.
Some of the factors that could cause actual results to differ from
those expressed or implied by our forward-looking statements are described under
"Risk Factors" beginning on page 17 of this prospectus. Other such factors are
described in other documents we file with the SEC and incorporate by reference
into this prospectus.
You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement.
ii
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus or incorporated by reference herein. This summary is not complete and
does not contain all the information that you should consider before investing
in the new notes. You should read carefully the entire prospectus, including the
risk factors, financial data and financial statements included or incorporated
by reference herein and the other information and documents we have incorporated
by reference in this prospectus.
Unless the context requires otherwise, the terms "CERC," "our company,"
"we," "our," "ours" and "us" refer to CenterPoint Energy Resources Corp.; the
term "CenterPoint Energy" refers to CenterPoint Energy, Inc., our indirect
parent; and the term "Reliant Energy" refers to Reliant Energy, Incorporated. We
refer to our 7.875% Senior Notes due 2013, Series A as the "2013 old notes," our
5.95% Senior Notes due 2014, Series A as the "2014 old notes," and the 2013 old
notes and 2014 old notes together as the "old notes." We refer to our 7.875%
Senior Notes due 2013, Series B offered hereby as the "2013 new notes," our
5.95% Senior Notes due 2014, Series B offered by this prospectus as the "2014
new notes," and the 2013 new notes and 2014 new notes together as the "new
notes." We sometimes refer to the old notes and the new notes collectively as
the "notes."
OUR COMPANY
We own gas distribution systems that together form one of the United
States' largest natural gas distribution operations in terms of the number of
customers served. Through wholly owned subsidiaries, we also own two interstate
natural gas pipelines and gathering systems and provide pipeline services.
We are an indirect wholly owned subsidiary of CenterPoint Energy, a
public utility holding company that became the parent of Reliant Energy and its
subsidiaries on August 31, 2002 as part of a corporate restructuring of Reliant
Energy. CenterPoint Energy's other principal subsidiary is CenterPoint Energy
Houston Electric, LLC ("CenterPoint Houston"), a regulated utility engaged in
the transmission and distribution of electric energy. CenterPoint Energy also
owns an approximately 81% interest in Texas Genco Holdings, Inc. ("Texas
Genco"), which owns and operates the Texas generating plants that were formerly
part of the integrated electric utility that was part of Reliant Energy.
CenterPoint Energy distributed to its shareholders approximately 19% of the
outstanding common stock of Texas Genco on January 6, 2003.
Reliant Energy completed the separation of the generation, transmission
and distribution, and retail sales functions of its Texas electric operations
(the "Restructuring") in August 2002. To effect the Restructuring, Reliant
Energy:
- conveyed its Texas electric generation assets to Texas Genco;
- became an indirect, wholly owned subsidiary of CenterPoint
Energy;
- was converted into a Texas limited liability company and renamed
CenterPoint Energy Houston Electric, LLC; and
- distributed the capital stock of its operating subsidiaries to
CenterPoint Energy.
As part of the Restructuring, each share of Reliant Energy common stock
was converted into one share of CenterPoint Energy common stock. Prior to the
Restructuring, Reliant Energy's subsidiary, Reliant Resources, Inc. ("Reliant
Resources"), conducted non-utility wholesale and retail energy operations. As a
result of the Restructuring, CenterPoint Energy became the owner of
approximately 83% of the stock of Reliant Resources. On September 30, 2002,
CenterPoint Energy distributed this stock to its shareholders on a pro rata
basis.
CenterPoint Energy is a registered public utility holding company under
the Public Utility Holding Company Act of 1935 ("1935 Act"). The 1935 Act and
related rules and regulations impose a number of restrictions on the activities
of CenterPoint Energy and its subsidiaries. The 1935 Act, among other things,
generally limits the ability of CenterPoint Energy and its subsidiaries to issue
debt and equity securities without
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prior authorization, restricts the source of dividend payments to current and
retained earnings without prior authorization, regulates sales and acquisitions
of certain assets and businesses and governs affiliate transactions.
The general corporate structure of CenterPoint Energy is described in
the diagram below.
CENTERPOINT ENERGY CORPORATE STRUCTURE
[DIAGRAM OF CORPORATE STRUCTURE]
OUR BUSINESS
NATURAL GAS DISTRIBUTION
Our Natural Gas Distribution business segment engages in intrastate
natural gas sales to, and natural gas transportation for, residential,
commercial and industrial customers in Arkansas, Louisiana, Minnesota,
Mississippi, Oklahoma and Texas and some non-rate regulated retail gas marketing
operations. We currently conduct intrastate natural gas sales to, and natural
gas transportation for, residential, commercial and industrial customers through
three unincorporated divisions: CenterPoint Energy Arkla ("Arkla"), CenterPoint
Energy Entex ("Entex") and CenterPoint Energy Minnegasco ("Minnegasco"). These
operations are regulated as natural gas utility operations in the jurisdictions
served by these divisions.
- Arkla - provides natural gas distribution services in over 245
communities in Arkansas, Louisiana, Oklahoma and Texas. The
largest metropolitan areas served by Arkla are Little Rock,
Arkansas and Shreveport, Louisiana. In 2002, approximately 65% of
Arkla's total throughput was attributable to retail sales of
natural gas and approximately 35% was attributable to
transportation services.
- Entex - provides natural gas distribution services in over 500
communities in Louisiana, Mississippi and Texas. The largest
metropolitan area served by Entex is
[MAP OF NATURAL GAS DISTRIBUTION SERVICE TERRITORY]
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Houston. In 2002, approximately 95% of Entex's total throughput
was attributable to retail sales of natural gas and approximately
5% was attributable to transportation services.
- Minnegasco - provides natural gas distribution services in over
240 communities in Minnesota. The largest metropolitan area
served by Minnegasco is Minneapolis. In 2002, approximately 93%
of Minnegasco's total throughput was attributable to retail sales
of natural gas and approximately 7% was attributable to
transportation services. Additionally, Minnegasco provides
heating, ventilating and air conditioning ("HVAC") equipment and
appliance repair services, HVAC and hearth equipment sales and
home security monitoring which are unregulated services.
Commercial and Industrial Sales
Our commercial and industrial sales group ("C&I group") provides
comprehensive natural gas products and services to commercial and industrial
customers in the Gulf Coast and Midwestern regions of the United States. Most
services provided by the C&I group are not subject to rate regulation.
Supply and Transportation
- Arkla - In 2002, Arkla purchased approximately 56% of its natural
gas supply pursuant to third-party term contracts with terms
ranging from three months to one year, 29% of its natural gas
supply from Reliant Energy Services, a former affiliate, under a
contract which expired in March 2003 and 15% on the spot market.
Arkla's major third-party natural gas suppliers in 2002 included
Oneok Gas Marketing Company, BP Energy Company, Aquila Energy
Marketing and Cross Timbers Energy Services.
- Entex - In 2002, Entex purchased virtually all of its natural gas
supply pursuant to third-party term contracts, with terms varying
from one to five years. Entex's major third-party natural gas
suppliers in 2002 included AEP Gas Marketing, Kinder Morgan Texas
Pipeline, L.P., Gulf Energy Marketing, Island Fuel Trading and
Entergy Koch Trading.
- Minnegasco - In 2002, Minnegasco purchased approximately 74% of
its natural gas supply pursuant to third-party term contracts,
with terms varying from five months to ten years, with more than
20 different suppliers. Minnegasco purchased the remaining 26% on
the daily or spot market. Minnegasco purchased approximately 60%
of its natural gas requirements from three third-party suppliers
in 2002: Tenaska Marketing Ventures, BP Canada Energy Marketing
and Mirant Americas Energy Marketing. Purchases from Reliant
Energy Services represented 10% of Minnegasco's total natural gas
purchases in 2002.
Purchased Gas Adjustment Provisions
Generally, the regulations of the states in which our natural gas
distribution business operates allow us to pass through changes in the costs of
natural gas to our customers through purchased gas adjustment provisions in our
tariffs. There is, however, a timing difference between our purchases of natural
gas and the ultimate recovery of these costs. Consequently, we may incur
carrying costs as a result of this timing difference that are not recoverable
from our customers.
Competition
We compete primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other gas
distributors and marketers also compete directly for gas sales to end-users. In
addition, as a result of federal regulatory changes affecting interstate
pipelines, natural gas marketers operating on these pipelines may be able to
bypass our facilities and markets and sell and/or transport natural gas directly
to commercial and industrial customers.
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PIPELINES AND GATHERING
Our Pipelines and Gathering business segment operates two interstate
natural gas pipelines as well as gas gathering facilities and also provides
pipeline services.
We own and operate gas transmission lines primarily located in
Missouri, Illinois, Arkansas, Louisiana, Oklahoma and Texas. Our pipeline
operations are primarily conducted by two wholly owned interstate pipeline
subsidiaries: CenterPoint Energy Gas Transmission Company ("CEGT") and
CenterPoint Energy - Mississippi River Transmission Corporation ("MRT").
- CEGT is an interstate pipeline that provides natural gas
transportation, natural gas storage and pipeline services to
customers principally in Oklahoma, Arkansas and Louisiana.
- MRT is an interstate pipeline that provides natural gas
transportation, natural gas storage and pipeline services to
customers principally in Arkansas and Missouri.
[MAP OF PIPELINES AND GATHERING SERVICE TERRITORY]
In 2002, approximately 27% of our total operating revenues from
pipelines and gathering was attributable to services provided to Arkla, and
approximately 11% was attributable to services to Laclede Gas Company
("Laclede"), an unaffiliated distribution company that provides natural gas
utility service to the greater St. Louis metropolitan area in Illinois and
Missouri. An additional 8% of our operating revenues from pipelines and
gathering was attributable to the transportation of gas marketed by Reliant
Energy Services. Services to Arkla and Laclede are provided under several
long-term firm storage and transportation agreements. Contracts for firm
transportation in Arkla's major service areas are currently scheduled to expire
in 2005. Our agreement with Laclede expires in 2007.
Our gathering operations are conducted by a wholly owned gas gathering
subsidiary, CenterPoint Energy Field Services, Inc. ("CEFS"). CEFS is a natural
gas gathering and processing business serving natural gas fields in the
Midcontinent basin of the United States that interconnect with CEGT and MRT as
well as other interstate and intrastate pipelines. CEFS operates gathering
pipelines, which collect natural gas from more than 300 separate systems located
in major producing fields in Arkansas, Louisiana, Oklahoma and Texas.
Our Pipelines and Gathering business competes with other interstate and
intrastate pipelines and gathering companies in the transportation and storage
of natural gas. Principal elements of competition among pipelines are from
rates, terms of service, and flexibility and reliability of service. Our
Pipelines and Gathering business competes indirectly with other forms of energy,
including electricity, coal, and fuel oils. However, price is the primary
competitive factor for customers. Changes in the availability of energy and
pipeline capacity, the level of business activity, conservation and governmental
regulations, the capability to convert to alternative fuels, and other factors,
including weather, affect the demand for natural gas in areas we serve and the
level of competition for transportation and storage services. In addition,
competition for our gathering operations is impacted by commodity pricing levels
because of their influence on the level of drilling activity.
REGULATION
We are subject to regulation by various federal, state and local
governmental agencies, including the regulations described below.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
As a subsidiary of a registered public utility holding company, we are
subject to a comprehensive regulatory scheme imposed by the SEC in order to
protect customers, investors and the public interest. Although the SEC does not
regulate rates and charges under the 1935 Act, it does regulate the structure,
financing, lines of business and internal transactions of public utility holding
companies and their system companies. In order to obtain
4
financing, acquire additional public utility assets or stock, or engage in other
significant transactions, we are required to obtain approval from the SEC under
the 1935 Act.
We received an order from the SEC relating to our financing activities
on June 30, 2003 (the "June 2003 Financing Order"), which is effective until
June 30, 2005. The June 2003 Financing Order establishes limits on the amount of
external debt we can issue without additional authorization. We are in
compliance with the authorized limits. We obtained an additional order from the
SEC in October 2003 authorizing us to issue additional debt securities that we
utilized in connection with retiring our 6 3/8% Term Enhanced ReMarketable
Securities (the "TERMS"). The June 2003 Financing Order permits the following
additional financing activities:
- refinancings of our existing external debt;
- utilization of the undrawn portion of our bank facility; and
- the issuance of an aggregate $250 million of preferred stock and
preferred securities.
The June 2003 Financing Order requires that if we issue any securities
that are rated by a nationally recognized statistical rating organization
(NRSRO), the security to be issued must obtain an investment grade rating from
at least one NRSRO and, as a condition to such issuance, all outstanding rated
securities of ours and of CenterPoint Energy must be rated investment grade by
at least one NRSRO. The June 2003 Financing Order also contains certain
requirements for interest rates, maturities, issuance expenses and use of
proceeds. The SEC has reserved jurisdiction over the issuance of $450 million of
additional debt by us. We would need an additional order from the SEC for
authority to issue this debt. Under the June 2003 Financing Order, our common
equity as a percentage of total capitalization must be at least 30%.
The United States Congress is currently considering legislation which
has a provision that would repeal the 1935 Act. We cannot predict at this time
whether this legislation or any variation thereof will be adopted, or if
adopted, the effect of such law on our business.
FEDERAL ENERGY REGULATORY COMMISSION
The transportation and sale or resale of natural gas in interstate
commerce is subject to regulation by the Federal Energy Regulatory Commission
("FERC") under the Natural Gas Act and the Natural Gas Policy Act of 1978, as
amended. FERC has jurisdiction over, among other things, the construction of
pipeline and related facilities used in the transportation and storage of
natural gas in interstate commerce, including the extension, expansion or
abandonment of these facilities. The rates charged by interstate pipelines for
interstate transportation and storage services are also regulated by FERC.
Our natural gas pipeline subsidiaries may periodically file
applications with FERC for changes in their generally available maximum rates
and charges designed to allow them to recover their costs of providing service
to customers (to the extent allowed by prevailing market conditions), including
a reasonable rate of return. These rates are normally allowed to become
effective after a suspension period and, in some cases, are subject to refund
under applicable law until such time as FERC issues an order on the allowable
level of rates.
FERC Contract Inquiry. On September 15, 2003, FERC issued a Show Cause
Order to CEGT, in which FERC contends that CEGT has failed to file with FERC and
post on the internet certain information relating to negotiated rate contracts
that CEGT had entered into pursuant to 1996 FERC orders. Those orders authorized
CEGT to enter into negotiated rate contracts that deviate from the rates
prescribed under its filed FERC tariffs. FERC also alleges that certain of the
contracts contain provisions that CEGT was not authorized to negotiate under the
terms of the 1996 orders.
FERC initially required CEGT to file a response explaining why its
failure to post all of the non-conforming terms and conditions in its negotiated
rate contracts did not violate Section 4 of the Natural Gas Act and would not
warrant FERC: (i) suspending or revoking CEGT's authority to enter into
negotiated rate contracts; (ii) requiring CEGT to file all negotiated rate
contracts for preapproval before they become effective; and (iii) requiring CEGT
to provide to all customers on its system the preferential non-conforming terms
and conditions that were not
5
reported. FERC may also require CEGT to implement a strict compliance plan to
ensure that future non-conforming contracts are reported to FERC. In its Show
Cause Order, FERC did not propose any fine or other monetary sanction for the
alleged violations. At the time it issued its Show Cause Order, FERC also
initiated proceedings to review certain pending contracts between CEGT and
members of Arkansas Gas Consumers, Inc. which FERC alleged contain similar
non-conforming provisions. In that order, FERC directed CEGT to modify those
contracts and make additional filings regarding them to conform to its
conclusions in the Show Cause Order, including making certain provisions
available on a generally applicable basis, unless CEGT can provide an acceptable
explanation of why such modifications and filings are not required.
Subsequently, CEGT met with members of FERC's staff and provided
additional information relating to FERC's Show Cause Order. CEGT was granted an
extension of the response period to December 15, 2003 in order to allow
additional time for further discussion with staff members. In light of
continuing discussions with FERC's staff, it is possible that CEGT will seek
additional extensions of time beyond December 15, 2003.
CEGT believes that its past filings with FERC conformed to FERC's
filing requirements at the time the various contracts were negotiated and that
it will be able to demonstrate to FERC that it has complied with the applicable
policy in all material respects. Nevertheless, CEGT intends to cooperate fully
with FERC and will comply with applicable FERC requirements for filing and
posting information relating to those contracts. CEGT believes at this time that
the ultimate resolution of this matter would not have a material adverse effect
on the financial condition or results of operations of either CERC or CEGT. The
negotiated rate contracts in question are a subset of all of the CEGT
transportation agreements. Even if it were ultimately precluded from using
negotiated rate contracts, CEGT would still be able to provide firm and
interruptible transportation services to its customers under its existing
tariff.
STATE AND LOCAL REGULATION
In almost all communities in which we provide natural gas distribution
services, we operate under franchises, certificates or licenses obtained from
state and local authorities. The terms of the franchises, with various
expiration dates, typically range from 10 to 30 years. None of our material
franchises expires before 2005. We expect to be able to renew expiring
franchises. In most cases, franchises to provide natural gas utility services
are not exclusive.
Substantially all of our retail natural gas sales are subject to
traditional cost-of-service regulation at rates regulated by the relevant state
public service commissions and, in Texas, by the Railroad Commission of Texas
("Railroad Commission") and municipalities we serve.
Arkla Rate Increase Filing. On November 13, 2003, Arkla filed a rate
increase with the Louisiana Public Service Commission which, if approved, is
expected to yield approximately $15.8 million in additional annual revenue. We
expect that new rates will become effective in this jurisdiction by the third
quarter of 2004.
Entex Rate Increase Filing. On June 13, 2003, Entex filed a rate
increase with the City of Houston which, if approved, is expected to yield
approximately $17 million in additional annual revenue. Entex is seeking a
return on common equity of 11.25% and an overall return of 8.87% on its rate
base. The filing does not affect the rates under special contracts with certain
industrial customers. The City has suspended the rate request while it
negotiates a settlement with Entex. Upon resolution of its rate filing with the
City of Houston, Entex will seek to implement new rates in adjacent cities and
their surrounding areas that are similar to those ultimately approved by the
City of Houston. We expect that new rates will become effective in these
jurisdictions by the first quarter of 2004.
City of Tyler, Texas, Gas Costs Review. By letter to Entex dated July
31, 2002, the City of Tyler, Texas, forwarded various computations of what it
believes to be excessive costs ranging from $2.8 million to $39.2 million for
gas purchases by Entex for resale to residential and small commercial customers
in that city under supply agreements in effect since 1992. Entex's gas costs for
its Tyler system are recovered from customers pursuant to tariffs approved by
the city and filed with both the city and the Railroad Commission. Pursuant to
an agreement, on January 29, 2003, Entex and the city filed a Joint Petition for
Review of Charges for Gas Sales with the Railroad Commission. The Joint Petition
requests that the Railroad Commission determine whether Entex has properly and
lawfully charged and collected for gas service to its residential and commercial
customers in its Tyler distribution system for the period beginning November 1,
1992, and ending October 31, 2002. We believe that all costs for
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Entex's Tyler distribution system have been properly included and recovered from
customers pursuant to Entex's filed tariffs and that the city has no legal or
factual support for the statements made in its letter.
DEPARTMENT OF TRANSPORTATION
In December 2002, Congress enacted the Pipeline Safety Improvement Act
of 2002. This legislation applies to our interstate pipelines as well as our
intra-state pipelines and local distribution companies. The legislation imposes
several requirements related to ensuring pipeline safety and integrity. It
requires companies to assess the integrity of their pipeline transmission and
distribution facilities in areas of high population concentration and further
requires companies to perform remediation activities, in accordance with the
requirements of the legislation, over a 10-year period.
In January 2003, the U.S. Department of Transportation published a
notice of proposed rulemaking to implement provisions of the legislation. The
Department of Transportation is expected to issue final rules by the end of
2003. While we anticipate that increased capital and operating expenses will be
required to comply with the legislation, we will not be able to quantify the
level of spending required until the Department of Transportation's final rules
are issued.
MISCELLANEOUS
Our principal executive offices are located at 1111 Louisiana, Houston,
Texas 77002, and our telephone number is (713) 207-1111.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On March 25, 2003 we completed the original private offering of the
2013 old notes. We received proceeds, after deducting the discount to the
initial purchasers, of $641,875,000 from the original sale of the 2013 old
notes. On April 14, 2003 we completed the private offering of additional 2013
old notes. We received proceeds, after deducting the discount to the initial
purchasers, of $117,545,120 from the sale of additional 2013 old notes. On
November 3, 2003 we completed the private offering of the 2014 old notes. We
received proceeds, after deducting the discount to the initial purchasers, of
approximately $158,092,800 from the sale of the 2014 old notes.
In connection with the offerings of the old notes, we entered into
registration rights agreements with the initial purchasers of the old notes in
which we agreed to deliver to you this prospectus and to use our reasonable
commercial efforts to complete the exchange offer for the old notes within 315
days after the respective dates of issuance of each series of the old notes. In
the exchange offer, you are entitled to exchange your old notes of a series for
new notes of that series, with substantially identical terms, that are
registered with the SEC. You should read the discussion under the headings " --
Summary of the Terms of the New Notes" beginning on page 13 and "Description of
the Notes" beginning on page 33 for further information about the new notes.
After the exchange offer is complete, you will no longer be entitled to any
exchange or registration rights for your old notes.
We have summarized the terms of the exchange offer below. You should
read the discussion under the heading "The Exchange Offer" beginning on page 23
for further information about the exchange offer and resale of the new notes.
The Exchange Offer....................... We are offering to exchange:
- up to $762,000,000
aggregate principal amount
of outstanding 7.875% Senior
Notes due 2013, Series A,
for up to $762,000,000
aggregate principal amount
of 7.875% Senior Notes due
2013, Series B; and
- up to $160,000,000 aggregate
principal amount of
outstanding 5.95% Senior
Notes due 2014, Series A,
for up to $160,000,000
aggregate principal amount
of 5.95% Senior Notes due
2014, Series B.
Old notes may be exchanged only
in integral multiples of $1,000.
The terms of each series of new
notes are identical in all
material respects to those of the
old notes for which they may be
exchanged except the new notes
will not contain provisions with
respect to transfer restrictions,
registration rights or additional
interest for failure to fulfill
certain obligations under the
applicable registration rights
agreement. The new notes of a
series will vote together with
outstanding old notes of that
series not exchanged on all
matters on which holders of such
series of old notes or new notes
are entitled to vote.
OLD NOTES THAT ARE NOT TENDERED
FOR EXCHANGE WILL CONTINUE TO BE
SUBJECT TO TRANSFER RESTRICTIONS
AND WILL NOT HAVE REGISTRATION
RIGHTS. THEREFORE, THE MARKET FOR
SECONDARY RESALES OF OLD NOTES
THAT ARE NOT TENDERED FOR
EXCHANGE IS LIKELY TO BE MINIMAL.
Resale................................... Based on interpretation of the
Staff of the Division of
Corporation Finance of the SEC
(the "Staff") in no-action
letters issued to third parties,
we believe that the new notes
issued pursuant to the exchange
offer in exchange for old notes
may be offered for resale, resold
and
8
otherwise transferred by you
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act of 1933 if:
- you are not our "affiliate"
within the meaning of Rule
405 under the Securities Act
of 1933;
- you acquire such new notes
in the ordinary course of
your business; and
- you are not engaged in, and
do not intend to engage in,
and have no arrangement or
understanding with any
person to participate in, a
distribution of new notes.
Each participating broker-dealer
that receives new notes for its
own account pursuant to the
exchange offer in exchange for
old notes that were acquired as a
result of market-making or other
trading activity must acknowledge
that it will deliver a prospectus
in connection with any resale of
the new notes. Please read "Plan
of Distribution" beginning on
page 55.
Expiration Date.......................... The exchange offer for each
series of old notes will expire
at 5:00 p.m., New York City time,
on January 7, 2004, or such later
date and time to which we may
extend it at our discretion. We
may extend the expiration date
for each series of old notes
independently. Please read "The
Exchange Offer -- Extensions,
Delay in Acceptance, Termination
or Amendment" beginning on page
25 for more information about an
extension of the expiration date.
Withdrawal of Tenders.................... You may withdraw your tender of
old notes at any time prior to
the expiration date. We will
return to you, without charge,
promptly after the expiration or
termination of the exchange offer
any old notes that you tendered
but that were not accepted for
exchange.
Conditions to the Exchange Offer......... We will not be required to accept
old notes for exchange:
- if the exchange offer would
be unlawful or would violate
any interpretation of the
Staff; or
- if any legal action has been
instituted or threatened
that would impair our
ability to proceed with the
exchange offer.
The exchange offer for old notes
of each series is not conditioned
upon any minimum aggregate
principal amount of old notes of
such series being tendered for
exchange or upon consummation of
the exchange offer for old notes
of any other series. The exchange
offer is subject to customary
conditions, which we may waive in
our sole discretion. Please read
"The Exchange Offer -- Conditions
to the Exchange Offer" beginning
on page 25 for more information
about the conditions to the
exchange offer.
Procedures for Tendering Old Notes....... If you wish to participate in the
exchange offer, you must
complete, sign and date the
accompanying letter of
transmittal or a facsimile of the
letter of transmittal and mail or
deliver the letter of
transmittal, together with your
old notes, to the exchange agent.
If your old notes are held
through The Depository Trust
Company ("DTC") you may
9
effect delivery of the old notes
by book-entry transfer.
In the alternative, if your old
notes are held through DTC and
you wish to participate in the
exchange offer, you may do so
through DTC's automated tender
offer program. If you tender
under this program, you will
agree to be bound by the letter
of transmittal that we are
providing with this prospectus as
though you had signed the letter
of transmittal. By signing or
agreeing to be bound by the
letter of transmittal, you will
represent to us that, among other
things:
- any new notes that you
receive are being acquired
in the ordinary course of
your business;
- you have no arrangement or
understanding with any
person to participate in the
distribution (within the
meaning of the Securities
Act of 1933) of the old
notes or the new notes;
- you are not our "affiliate,"
as defined in Rule 405 under
the Securities Act of 1933,
or, if you are our
affiliate, you will comply
with the registration and
prospectus delivery
requirements of the
Securities Act of 1933 to
the extent applicable;
- if you are not a
broker-dealer, you are not
engaged in, and do not
intend to engage in, a
distribution of the new
notes;
- if you are a broker-dealer,
you are not tendering old
notes acquired directly from
us or one of our affiliates;
- if you are a broker-dealer,
you will receive the new
notes for your own account
in exchange for old notes
that you acquired as a
result of market-making
activities or other trading
activities, and you will
deliver a prospectus in
connection with any resale
of such new notes; and
- you are not acting on behalf
of any person who could not
truthfully and completely
make the foregoing
representations.
Special Procedures for Beneficial
Owners................................... If you beneficially own old notes
that are registered in the name
of a broker, dealer, commercial
bank, trust company or other
nominee and you wish to tender
the old notes in the exchange
offer, please contact the
registered holder as soon as
possible and instruct the
registered holder to tender on
your behalf.
If you wish to tender your old
notes on your own behalf, you
must either arrange to have old
notes registered in your name or
obtain a properly completed bond
power from the registered holder
before completing and executing
the letter of transmittal and
delivering your old notes. The
transfer of registered ownership
may take considerable time.
Guaranteed Delivery Procedures........... You must tender your old notes
according to the guaranteed
delivery procedures described in
"The Exchange Offer -- Guaranteed
Delivery Procedures" beginning on
page 29 if any of the following
apply:
- you wish to tender your old
notes but they are not
immediately
10
available;
- you cannot deliver your old
notes, the letter of
transmittal or any other
required documents to the
exchange agent prior to the
expiration date; or
- you cannot comply with the
applicable procedures under
DTC's automated tender offer
program prior to the
expiration date.
Consequences of Failure to Exchange
Your Old Notes........................... If you do not exchange your old
notes in the exchange offer, you
will no longer be entitled to
registration rights. You will not
be able to offer or sell the old
notes unless they are later
registered, sold pursuant to an
exemption from registration or
sold in a transaction not subject
to the Securities Act of 1933 or
state securities laws. Except as
specified in the registration
rights agreements, we are not
obligated to, nor do we currently
anticipate that we will register
the old notes under the
Securities Act of 1933. Please
read "The Exchange Offer --
Consequences of Failure to
Exchange" beginning on page 32.
Certain U.S. Federal Income Tax
Considerations........................... The exchange of old notes for new
notes in the exchange offer
should not be a taxable event for
U.S. federal income tax purposes.
Please read "Certain U.S. Federal
Income Tax Considerations"
beginning on page 51.
Use of Proceeds.......................... We will not receive any cash
proceeds from the issuance of new
notes in the exchange offer.
11
THE EXCHANGE AGENT
We have appointed JPMorgan Chase Bank as exchange agent for the
exchange offer. Please direct questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent. If you are
not tendering under DTC's automated tender offer program, you should send the
letter of transmittal and any other required documents to the exchange agent as
follows:
JPMORGAN CHASE BANK
By Hand Or Overnight Courier:
JPMorgan Chase Bank
2001 Bryan Street, 9th Floor
Registered Bond Processing Dept.
Dallas, Texas 75201
By Mail (Registered Or Certified Mail Recommended):
JPMorgan Chase Bank
P.O. Box 2320
Attn: Registered Bond Processing Dept.
Dallas, Texas 75221-2320
By Facsimile Transmission (Eligible Institutions Only):
(214) 468-6494
Attention: Frank Ivins
Confirm By Telephone:
(800) 275-2048
12
SUMMARY OF THE TERMS OF THE NEW NOTES
Each series of the new notes will be freely tradable and otherwise
substantially identical to the old notes of that series. The new notes will not
have registration rights or provisions for additional interest. Each series of
the new notes will evidence the same debt as the old notes of that series, and
both new notes and old notes are governed by the same indenture. Each series of
new notes will vote together with the old notes of that series not exchanged on
all matters on which holders of each series of old notes and new notes are
entitled to vote.
Notes Offered............................ $762,000,000 aggregate principal
amount of 7.875% Senior Notes due
2013, Series B; and
$160,000,000 aggregate principal
amount of 5.95% Senior Notes due
2014, Series B.
Maturity Date............................ April 1, 2013 for the 2013 new
notes; and
January 15, 2014 for the 2014 new
notes.
Interest Payment Dates................... April 1 and October 1 with the
initial interest payment date
following the consummation of the
exchange offer being April 1,
2004 for the 2013 new notes, and
January 15 and July 15, with the
initial interest payment date
following the consummation of the
exchange offer being July 15,
2004 for the 2014 new notes.
Ranking.................................. The new notes will:
- be unsecured;
- rank equally with all of our
other unsecured and
unsubordinated indebtedness,
including the old notes; and
- effectively rank below all
existing and future
indebtedness and other
liabilities of our
subsidiaries.
As of October 31, 2003, our
subsidiaries had no outstanding
third-party debt.
Optional Redemption...................... We may redeem all or a part of
the new notes at any time and
from time to time as specified
under the heading "Description of
the Notes -- Optional Redemption"
beginning on page 34.
Significant Covenants.................... We will issue the new notes under
an indenture containing certain
restrictive covenants for your
benefit. These covenants, which
are described under "Description
of the Notes" beginning on page
33, restrict our ability, with
some exceptions, to:
- incur certain debt secured
by liens;
- engage in sale/leaseback
transactions; and
- merge, consolidate or
transfer substantially all
of our assets.
13
Lack of Public Markets for the
New Notes................................ There is no existing market for
the new notes. We cannot provide
any assurance about:
- the liquidity of any markets
that may develop for the new
notes;
- your ability to sell the new
notes; and
- the prices at which you will
be able to sell the new
notes.
Future trading prices of the new
notes will depend on many
factors, including:
- prevailing interest rates;
- our operating results;
- the ratings of the new
notes; and
- the market for similar
securities.
We do not intend to apply for
listing of the new notes on any
securities exchange or for
quotation of the new notes in any
automated dealer quotation
system.
Risk Factors............................. You should consider carefully all
the information set forth in this
prospectus and, in particular,
you should evaluate the specific
factors set forth under "Risk
Factors" beginning on page 17
before deciding whether to invest
in the new notes.
Governing Law............................ The indenture and the new notes
are governed by, and construed in
accordance with, the laws of the
State of New York.
Further Issues........................... The 2013 new notes are initially
limited to $762,000,000 in
aggregate principal amount. The
2014 new notes are initially
limited to $160,000,000 in
aggregate principal amount.
However, we may issue additional
notes of each series from time to
time, without the consent of the
holders.
14
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data
for the years ended December 31, 1998, 1999, 2000, 2001 and 2002 and the nine
months ended September 30, 2002 and 2003. This table should be read in
conjunction with "Management's Narrative Analysis of the Results of Operations,"
the consolidated financial statements and the related notes and the report of
our independent auditors included in Exhibits 99.1 and 99.2 of our June 16, 2003
Form 8-K that is incorporated by reference in this prospectus, and "Management's
Narrative Analysis of the Results of Operations of CenterPoint Energy Resources
Corp. and Subsidiaries," the unaudited financial statements and the related
notes included in our Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2003 (our "Third Quarter 2003 Form 10-Q") that is
incorporated by reference in this prospectus. In addition, the years ended
December 31, 1998 and 1999 presented below contain certain reclassifications
from amounts originally disclosed to reflect the adoption in January 2003 of
Emerging Issues Task Force ("EITF") Issue No. 02-03, "Issues Related to
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" ("EITF No. 02-03").
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------------------- --------------------------
1998(a) 1999(a) 2000(a) 2001 2002 2002 2003
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
REVENUES ................ $ 2,696,545 $ 3,321,321 $ 6,356,608 $ 5,044,419 $ 4,207,836 $ 2,847,667 $ 4,075,794
----------- ----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Natural gas and
purchased power ... 1,542,106 2,092,718 4,938,826 3,781,200 2,900,682 1,925,437 3,072,667
Operation and
maintenance ....... 539,985 625,392 758,824 657,515 666,502 483,589 503,783
Depreciation and
amortization ...... 191,891 198,664 214,259 207,203 167,456 124,648 132,967
Taxes other than
income taxes ...... 112,258 103,192 112,951 132,560 119,911 85,168 94,525
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total ............. 2,386,240 3,019,966 6,024,860 4,778,478 3,854,551 2,618,842 3,803,942
----------- ----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME ........ 310,305 301,355 331,748 265,941 353,285 228,825 271,852
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense and
distribution on
trust preferred
securities ........ (111,969) (119,857) (142,890) (154,993) (153,713) (113,611) (128,200)
Other, net ........... 7,318 11,154 2,642 14,583 8,131 6,206 4,028
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total ............. (104,651) (108,703) (140,248) (140,410) (145,582) (107,405) (124,172)
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES ...... 205,654 192,652 191,500 125,531 207,703 121,420 147,680
Income Tax Expense ... 111,830 88,781 93,272 58,287 87,643 49,896 55,083
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS ........ 93,824 103,871 98,228 67,244 120,060 71,524 92,597
Loss from Discontinued
Operations (b) .... -- (3,670) (23,861) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME .............. $ 93,824 $ 100,201 $ 74,367 $ 67,244 $ 120,060 $ 71,524 $ 92,597
=========== =========== =========== =========== =========== =========== ===========
OTHER DATA:
Cash Provided by (Used
in) Operating
Activities ........ 285,959 151,710 (22,117) 500,785 528,199 391,030 233,970
Cash Used in Investing
Activities (c) .... (245,904) (302,043) (281,523) (262,135) (244,081) (184,829) (196,044)
Cash Provided by (Used
in) Financing
Activities ........ (49,161) 203,884 246,089 (244,801) (291,306) (125,355) (29,145)
15
AS OF DECEMBER 31, AS OF
------------------------------------------------------------ SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Total Assets......... $6,607,535 $ 7,521,425 $6,575,765 $ 5,992,406 $ 6,043,519 $ 5,998,450
Total Debt (d)....... 2,016,727 2,040,101 2,255,148 2,313,566 2,379,975 2,402,787
- ------------------
(a) The 1998, 1999 and 2000 summary consolidated financial data from continuing
operations includes the results of operations of Reliant Energy Services,
Reliant Energy Services International, Inc. and Arkla Finance Corporation,
which were transferred to Reliant Resources on December 31, 2000 and
contain certain reclassifications from amounts originally disclosed to
reflect the adoption of EITF No. 02-03.
(b) The loss from discontinued operations is the result of the transfer of all
of the outstanding stock of Reliant Energy Europe Trading & Marketing, Inc.
("RE Europe Trading") to Reliant Resources on December 31, 2000. There were
no operations of RE Europe Trading in 1998.
(c) Capital expenditures represent $254 million, $288 million, $291 million,
$263 million, $266 million, $188 million and $190 million of cash used in
investing activities for the years ended December 31, 1998, 1999, 2000,
2001 and 2002 and the nine months ended September 30, 2002 and 2003,
respectively.
(d) Includes notes payable to affiliates, short-term borrowings, current
portion of long-term debt and long-term debt.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for
each of the periods indicated, calculated pursuant to SEC rules:
YEAR ENDED DECEMBER 31,
---------------------------- NINE MONTHS ENDED
1998 1999 2000 2001 2002 SEPTEMBER 30, 2003(a)
---- ---- ---- ---- ---- ---------------------
Ratio of earnings to fixed charges..... 2.71 2.47 2.24 1.76 2.28 2.09
- ----------------
(a) We do not believe that the ratio for the nine-month period is necessarily
indicative of the ratio for the twelve-month period because of the seasonal
nature of our business.
16
RISK FACTORS
There are many risks that may affect your investment in the new notes.
Some of these risks, but not all of them, are listed below. You should carefully
consider these risks as well as the other information included or incorporated
by reference in this prospectus before exchanging your old notes.
RISK FACTORS RELATING TO THE EXCHANGE OFFER
IF YOU FAIL TO EXCHANGE YOUR OLD NOTES, THE EXISTING TRANSFER RESTRICTIONS
WILL REMAIN IN EFFECT AND THE MARKET VALUE OF YOUR OLD NOTES MAY BE
ADVERSELY AFFECTED BECAUSE THEY MAY BE MORE DIFFICULT TO SELL.
If you do not exchange your old notes for new notes under the exchange
offer, then you will continue to be subject to the existing transfer
restrictions on the old notes. In general, the old notes may not be offered or
sold unless they are registered or exempt from registration under the Securities
Act of 1933 and applicable state securities laws. Except in connection with this
exchange offer or as required by the registration rights agreements, we do not
intend to register resales of the old notes under the Securities Act of 1933.
Tenders of old notes under the exchange offer will reduce the aggregate
principal amount of the unregistered notes outstanding. This may have an adverse
effect upon, and increase the volatility of, the market price of any old notes
that you continue to hold following completion of the exchange offer due to a
reduction in liquidity.
PRINCIPAL RISK FACTORS ASSOCIATED WITH OUR BUSINESSES
OUR BUSINESSES MUST COMPETE WITH ALTERNATIVE ENERGY SOURCES, AND OUR
PIPELINES AND GATHERING BUSINESSES MUST COMPETE DIRECTLY WITH OTHERS IN THE
TRANSPORTATION AND STORAGE OF NATURAL GAS.
We compete primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other natural gas
distributors and marketers also compete directly with us for natural gas sales
to end-users. In addition, as a result of federal regulatory changes affecting
interstate pipelines, natural gas marketers operating on these pipelines may be
able to bypass our facilities and market, sell and/or transport natural gas
directly to commercial and industrial customers. Any reduction in the amount of
natural gas marketed, sold or transported by us as a result of competition may
have an adverse impact on our results of operations, financial condition and
cash flows.
Our two interstate pipelines and our gathering systems compete with
other interstate and intrastate pipelines and gathering systems in the
transportation and storage of natural gas. The principal elements of competition
are rates, terms of service, and flexibility and reliability of service. They
also compete indirectly with other forms of energy, including electricity, coal
and fuel oils. The primary competitive factor is price. The actions of our
competitors could lead to lower prices, which may have an adverse impact on our
results of operations, financial condition and cash flows.
OUR NATURAL GAS DISTRIBUTION BUSINESS IS SUBJECT TO FLUCTUATIONS IN NATURAL
GAS PRICING LEVELS.
We are subject to risk associated with price movements of natural gas.
Movements in natural gas prices might affect our ability to collect balances due
from our customers and could create the potential for uncollectible accounts
expense to exceed the recoverable levels built into our tariff rates. In
addition, a sustained period of high natural gas prices could apply downward
demand pressure on natural gas consumers in our service territory. Additionally,
increasing gas prices could create the need for us to provide collateral in
order to purchase gas.
WE MAY INCUR CARRYING COSTS ASSOCIATED WITH PASSING THROUGH CHANGES IN THE
COSTS OF NATURAL GAS.
Generally, the regulations of the states in which we operate allow us
to pass through changes in the costs of natural gas to our customers through
purchased gas adjustment provisions in the applicable tariffs. There is,
however, a timing difference between our purchases of natural gas and the
ultimate recovery of these costs. Consequently, we may incur carrying costs as a
result of this timing difference that are not recoverable from our
17
customers. The failure to recover those additional carrying costs may have an
adverse effect on our results of operations, financial condition and cash flows.
IF WE FAIL TO EXTEND CONTRACTS WITH TWO OF OUR SIGNIFICANT INTERSTATE
PIPELINES' CUSTOMERS, THERE COULD BE AN ADVERSE IMPACT ON OUR OPERATIONS.
Contracts with two of our interstate pipelines' significant customers,
CenterPoint Energy Arkla and Laclede Gas Company, are currently scheduled to
expire in 2005 and 2007, respectively. To the extent the pipelines are unable to
extend these contracts or the contracts are renegotiated at rates substantially
different than the rates provided in the current contracts, there could be an
adverse effect on our results of operations, financial condition and cash flows.
OUR INTERSTATE PIPELINES ARE SUBJECT TO FLUCTUATIONS IN THE SUPPLY OF GAS.
Our interstate pipelines largely rely on gas sourced in the various
supply basins located in the Midcontinent region of the United States. To the
extent the availability of this supply is substantially reduced, it could have
an adverse effect on our results of operations, financial condition and cash
flows.
OUR REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.
A substantial portion of our revenues is derived from natural gas sales
and transportation. Thus, our revenues and results of operations are subject to
seasonality, weather conditions and other changes in natural gas usage, with
revenues being higher during the winter months.
RISK FACTORS ASSOCIATED WITH OUR FINANCIAL CONDITION
IF WE ARE UNABLE TO ARRANGE FUTURE FINANCINGS ON ACCEPTABLE TERMS, OUR
ABILITY TO FUND FUTURE CAPITAL EXPENDITURES AND REFINANCE EXISTING
INDEBTEDNESS COULD BE LIMITED.
As of September 30, 2003, we had $2.4 billion of outstanding
indebtedness. Approximately $658 million principal amount of this debt must be
paid through 2006. Included in the approximately $658 million is $140 million
principal amount of TERMS that were retired in November 2003. In addition, the
capital constraints and other factors currently impacting our parent company's
and our businesses may require our future indebtedness to include terms that are
more restrictive or burdensome than those of our current or historical
indebtedness. These terms may negatively impact our ability to operate our
business or adversely affect our financial condition and results of operations.
The success of our future financing efforts may depend, at least in part, on:
- general economic and capital market conditions,
- credit availability from financial institutions and other
lenders,
- investor confidence in us and the markets in which we operate,
- maintenance of acceptable credit ratings by us and by
CenterPoint Energy,
- market expectations regarding our future earnings and probable
cash flows,
- market perceptions of our ability to access capital markets on
reasonable terms,
- our exposure to Reliant Resources in connection with its
indemnification obligations arising in connection with its
separation from CenterPoint Energy,
- provisions of relevant tax and securities laws, and
- our ability to obtain approval of financing transactions under
the 1935 Act.
18
Our current credit ratings are discussed in "Management's Narrative
Analysis of the Results of Operations of CenterPoint Energy Resources Corp. and
Subsidiaries -- Liquidity -- Impact on Liquidity of a Downgrade in Credit
Ratings" in Item 2 of Part I of our Third Quarter 2003 Form 10-Q. We cannot
assure you that these credit ratings will remain in effect for any given period
of time or that one or more of these ratings will not be lowered or withdrawn
entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities. Each rating should be
evaluated independently of any other rating. Any future reduction or withdrawal
of one or more of our credit ratings could have a material adverse impact on our
ability to access capital on acceptable terms.
THE FINANCIAL CONDITION AND LIQUIDITY OF OUR PARENT COMPANY COULD AFFECT
OUR ACCESS TO CAPITAL, OUR CREDIT STANDING AND OUR FINANCIAL CONDITION.
Our ratings and credit may be impacted by CenterPoint Energy's credit
standing. CenterPoint Energy and its subsidiaries other than us have
approximately $3.2 billion principal amount of debt required to be paid through
2006. This amount excludes amounts related to capital leases, securitization
debt and indexed debt securities obligations. On October 7, 2003, Moody's
Investors Services, Inc. placed CenterPoint Energy's senior unsecured credit
rating on review for downgrade, reflecting concerns that may lead to a
downgrade. We cannot assure you that CenterPoint Energy and its other
subsidiaries will be able to pay or refinance these amounts. If CenterPoint
Energy were to experience a deterioration in its credit standing or liquidity
difficulties, our access to credit and our ratings could be adversely affected.
WE ARE A WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY. CENTERPOINT ENERGY
CAN EXERCISE SUBSTANTIAL CONTROL OVER OUR DIVIDEND POLICY AND BUSINESS AND
OPERATIONS AND COULD DO SO IN A MANNER THAT IS ADVERSE TO OUR INTERESTS.
We are managed by officers and employees of CenterPoint Energy. Our
management will make determinations with respect to the following:
- our payment of dividends,
- decisions on our financings and our capital raising
activities,
- mergers or other business combinations, and
- our acquisition or disposition of assets.
There are no contractual restrictions on our ability to pay dividends
to CenterPoint Energy. Our management could decide to increase our dividends to
CenterPoint Energy to support its cash needs. This could adversely affect our
liquidity. Under the 1935 Act, our ability to pay dividends is restricted by the
SEC's requirement that common equity as a percentage of total capitalization
must be at least 30% after the payment of any dividend.
OTHER RISKS
WE, AS A SUBSIDIARY OF CENTERPOINT ENERGY, A PUBLIC UTILITY HOLDING
COMPANY, ARE SUBJECT TO REGULATION UNDER THE 1935 ACT. THE 1935 ACT AND
RELATED RULES AND REGULATIONS IMPOSE A NUMBER OF RESTRICTIONS ON OUR
ACTIVITIES.
CenterPoint Energy and certain of its subsidiaries, including us, are
subject to regulation by the SEC under the 1935 Act. The 1935 Act, among other
things, limits the ability of a holding company and its subsidiaries to issue
debt and equity securities without prior authorization, restricts the source of
dividend payments to current and retained earnings without prior authorization,
regulates sales and acquisitions of certain assets and businesses and governs
affiliate transactions.
CenterPoint Energy and its subsidiaries, including us, received an
order from the SEC under the 1935 Act on June 30, 2003 relating to financing
activities, which is effective until June 30, 2005. We must seek a new order
before the expiration date. Although authorized levels of financing, together
with current levels of liquidity, are
19
believed to be adequate during the period the order is effective, unforeseen
events could result in capital needs in excess of authorized amounts,
necessitating further authorization from the SEC. Approval of filings under the
1935 Act can take extended periods.
The United States Congress is currently considering legislation which
has a provision that would repeal the 1935 Act. We cannot predict at this time
whether this legislation or any variation thereof will be adopted or, if
adopted, the effect of any such law on our business.
OUR INSURANCE COVERAGE MAY NOT BE SUFFICIENT. INSUFFICIENT INSURANCE
COVERAGE AND INCREASED INSURANCE COSTS COULD ADVERSELY IMPACT OUR RESULTS
OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS.
We currently have general liability and property insurance in place to
cover certain of our facilities in amounts that we consider appropriate. Such
policies are subject to certain limits and deductibles and do not include
business interruption coverage. We cannot assure you that insurance coverage
will be available in the future on commercially reasonable terms or that the
insurance proceeds received for any loss of or any damage to any of our
facilities will be sufficient to restore the loss or damage without negative
impact on our results of operations, financial condition and cash flows. The
costs of our insurance coverage have increased significantly in recent months
and may continue to increase in the future.
OUR REVENUES AND RESULTS OF OPERATIONS ARE SUBJECT TO RISKS THAT ARE BEYOND
OUR CONTROL, INCLUDING BUT NOT LIMITED TO FUTURE TERRORIST ATTACKS OR
RELATED ACTS OF WAR.
The cost of repairing damage to our facilities due to storms, natural
disasters, wars, terrorist acts and other catastrophic events, in excess of
reserves established for such repairs, may adversely impact our results of
operations, financial condition and cash flows. The occurrence or risk of
occurrence of future terrorist activity may impact our results of operations,
financial condition and cash flows in unpredictable ways. These actions could
also result in adverse changes in the insurance markets and disruptions of power
and fuel markets. In addition, our natural gas distribution and pipeline and
gathering facilities could be directly or indirectly harmed by future terrorist
activity. The occurrence or risk of occurrence of future terrorist attacks or
related acts of war could also adversely affect the United States economy. A
lower level of economic activity could result in a decline in energy
consumption, which could adversely affect our revenues and margins and limit our
future growth prospects. Also, these risks could cause instability in the
financial markets and adversely affect our ability to access capital.
RISKS RELATED TO THE NEW NOTES
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NEW
NOTES.
The new notes will be new securities for which currently there is no
established trading market. We cannot assure you that a trading market will
develop for each series of new notes. Even if a market for each series of new
notes does develop, we cannot assure you that there will be liquidity in that
market, or that each series of new notes might not trade for less than their
original value or face amount. If a liquid market for each series of new notes
does not develop, you may be unable to resell such each series of new notes for
a long period of time, if at all. This means you may not be able to readily
convert your new notes into cash, and the new notes may not be accepted as
collateral for a loan.
Even if a market for each series of new notes develops, trading prices
could be higher or lower than the initial offering prices. The prices of each
series of new notes will depend on many factors, including prevailing interest
rates, our operating results and the market for similar securities. Declines in
the market prices for debt securities generally may also materially and
adversely affect the liquidity of each series of new notes, independent of our
financial performance.
20
PRIVATE PLACEMENT
We issued $650,000,000 aggregate principal amount of the 2013 old notes
on March 25, 2003, $112,000,000 aggregate principal amount of the 2013 old notes
on April 14, 2003 and $160,000,000 aggregate principal amount of the 2014 old
notes on November 3, 2003 to the initial purchasers of those respective series
of old notes. We issued each series of old notes to the initial purchasers in
transactions exempt from or not subject to registration under the Securities Act
of 1933. The initial purchasers then offered and resold the old notes to
qualified institutional buyers or non-U.S. persons in compliance with Regulation
S under the Securities Act of 1933 initially at the price of 100% of the
principal amount in the March 25, 2003 offering, 105.826% of the principal
amount in the April 14, 2003 offering and 99.508% of the principal amount in the
November 3, 2003 offering.
We received net proceeds, after deducting the initial purchasers'
discount and our estimated expenses, of approximately $641.3 million from the
sale of 2013 old notes on March 25, 2003. We used those proceeds to:
- refinance $260 million aggregate principal amount ($266.6
million book value) of the TERMS and finance approximately $41
million of costs associated with the refinancing, and
- repay $340.3 million of outstanding indebtedness under our
then existing $350 million bank revolving credit facility
which was scheduled to terminate on March 31, 2003.
We received net proceeds, after deducting the initial purchasers'
discount and our estimated expenses, of approximately $117.4 million from the
sale of additional 2013 old notes on April 14, 2003. We used those proceeds to
refinance $100 million aggregate principal amount of the TERMS, finance
approximately $15 million of costs associated with the refinancing and pay $2.4
million of the $2.9 million of interest accrued on the refinanced TERMS as of
the April 14, 2003 closing date.
We received net proceeds, after deducting the initial purchasers'
discount and our estimated expenses, of approximately $157.8 million from the
sale of 2014 old notes on November 3, 2003. We accepted $140 million aggregate
principal amount of the TERMS and $1,250,800 as consideration for the 2014 old
notes. We retired the TERMS and used the cash proceeds to pay issuance costs of
the 2014 old notes and for general corporate purposes.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new
notes. In consideration for issuing the new notes of each series, we will
receive in exchange a like principal amount of old notes of that series. The old
notes surrendered in exchange for the new notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the new notes will not result in
any change in our capitalization.
21
CAPITALIZATION
The following table sets forth our short-term debt and capitalization
as of September 30, 2003: (1) on an actual basis; and (2) on an as adjusted
basis, after giving effect to the issuance of the 2014 old notes and the use of
proceeds therefrom as if these transactions had occurred as of September 30,
2003. This table should be read in conjunction with our consolidated financial
statements and related notes thereto and "Management's Narrative Analysis of the
Results of Operations" included in Exhibits 99.2 and 99.1 of our June 16, 2003
Form 8-K that is incorporated by reference in this prospectus, and the unaudited
financial statements and related notes thereto and "Management's Narrative
Analysis of the Results of Operations of CenterPoint Energy Resources Corp. and
Subsidiaries" included in our Third Quarter 2003 Form 10-Q that is incorporated
by reference in this prospectus.
SEPTEMBER 30, 2003
----------------------------------------
ACTUAL AS ADJUSTED %
------------ ------------- -----
(in thousands)
Short-Term Debt:
Short-term borrowings......................................... $ 55,000 $ 55,000 1.2
Current portion of long-term debt............................. -- -- --
------------ ------------- -----
Total short-term debt.................................... 55,000 55,000 1.2
Long-Term Debt:
Existing long-term debt....................................... 2,347,787 2,206,929 48.6
5.95% Senior Notes due 2014................................... -- 159,213 3.5
------------ ------------- -----
Total long-term debt..................................... 2,347,787 2,366,142 52.1
------------ ------------- -----
Total Debt........................................................ 2,402,787 2,421,142 53.3
Stockholder's Equity.............................................. 2,118,526 2,118,526 46.7
------------ ------------- -----
Total Capitalization and Short-Term Debt.......................... $ 4,521,313 $ 4,539,668 100.0%
============ ============= =====
22
THE EXCHANGE OFFER
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult your financial
and tax advisors in making your own decision on what action to take.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of each series of old notes, we entered
into registration rights agreements with the initial purchasers of such series
of old notes. In each such agreement, we agreed to file a registration statement
relating to an offer to exchange each series of old notes for the new notes of
that series. We also agreed to use our reasonable commercial efforts to complete
the exchange offer within 315 days after the date of issuance of each series of
old notes. We are offering each series of the new notes under this prospectus in
an exchange offer for the old notes of that series to satisfy our obligations
under the registration rights agreements. We refer to our offer to exchange each
series of the new notes for the old notes of that series as the "exchange
offer."
The exchange offer consists of separate, independent offers for each
series of old notes. The new notes of a series will have terms substantially
identical to the old notes of that series, except that the new notes will not
contain terms with respect to transfer restrictions, registration rights and
additional interest for failure to observe certain obligations under the
relevant registration rights agreement. The new notes of a series will vote
together with the old notes of that series not exchanged on all matters on which
holders of the old notes and new notes of such series are entitled to vote. The
2013 old notes were issued on March 25, 2003 and April 14, 2003, and the 2014
old notes were issued on November 3, 2003.
RESALE OF NEW NOTES
Based on interpretations of the Staff in "no-action letters" to third
parties, we believe that each new note issued in the exchange offer may be
offered for resale, resold and transferred by you without compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933
if:
- you are not our "affiliate" within the meaning of Rule 405
under the Securities Act of 1933,
- you acquire such new notes in the ordinary course of your
business, and
- you are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to
participate in, a distribution of new notes.
The SEC has not, however, considered the legality of our exchange offer
in the context of a "no-action letter," and there can be no assurance that the
Staff would make a similar determination with respect to our new notes as it has
in other interpretations to other parties.
If you tender your old notes with the intention of participating in any
manner in a distribution of the new notes, you:
- cannot rely on the interpretations of the Staff, and
- must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with
a secondary resale transaction of the old notes.
Unless an exemption from registration is otherwise available, the
resale by any noteholder intending to distribute new notes should be covered by
an effective registration statement under the Securities Act of 1933 containing
the selling noteholder's information required by Item 507 or Item 508, as
applicable, of Regulation S-K under the Securities Act of 1933. This prospectus
may be used for an offer to resell, resale or other retransfer of new notes only
as specifically described in this prospectus. Failure to comply with the
registration and prospectus delivery requirements by a holder subject to these
requirements should result in that holder incurring liability for which it is
not indemnified by us. With respect to broker-dealers, only those that acquired
the old notes for their
23
own account as a result of market-making activities or other trading activities
may participate in the exchange offer. Each broker-dealer that receives new
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. Please read "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this
prospectus and in the letter of transmittal, we will accept for exchange any old
notes of a series properly tendered and not withdrawn prior to the expiration
date of the exchange offer for new notes of that series. We will issue $1,000
principal amount of new notes of the relevant series in exchange for each $1,000
principal amount of old notes of that series surrendered under the exchange
offer. Old notes may be tendered only in integral multiples of $1,000.
The exchange offer for old notes of each series is not conditioned upon
any minimum aggregate principal amount of old notes being tendered for exchange
or upon the consummation of the exchange offer for old notes of any other
series.
As of the date of this prospectus, $922 million principal amount of old
notes are outstanding. This prospectus and the letter of transmittal are being
sent to all registered holders of old notes. There will be no fixed record date
for determining registered holders of old notes entitled to participate in the
exchange offer.
We intend to conduct the exchange offer in accordance with the
provisions of the registration rights agreements, the applicable requirements of
the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules
and regulations of the SEC. Old notes that are not tendered for exchange in the
exchange offer:
- will remain outstanding,
- will continue to accrue interest, and
- will be entitled to the rights and benefits that holders have
under the indenture relating to the notes and, if applicable,
the relevant registration rights agreement.
However, these old notes will not be freely tradable. Except as specified in the
registration rights agreements, we are not obligated to, nor do we currently
anticipate that we will, register the old notes under the Securities Act of
1933. Please read " -- Consequences of Failure to Exchange" below.
We will be deemed to have accepted for exchange properly tendered old
notes when we have given oral or written notice of the acceptance to the
exchange agent and complied with the applicable provisions of the relevant
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender old notes in the exchange offer, you will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the exchange offer. It is important that you
read " -- Fees and Expenses" for more details about fees and expenses incurred
in the exchange offer.
We will return any old notes that we do not accept for exchange for any
reason without expense to the tendering holder as promptly as practicable after
the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer for old notes of each series will expire at 5:00
p.m., New York City time, on January 7, 2004, unless in our sole discretion we
extend it.
24
EXTENSIONS, DELAY IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or from time to time, at
our discretion, to extend the period of time during which the exchange offer for
any series of old notes is open. We may extend that period for each series
independently. We may delay acceptance for exchange of any old notes of a series
by giving oral or written notice of the extension to their holders. During any
such extensions, all old notes of that series you have previously tendered will
remain subject to the exchange offer for that series, and we may accept them for
exchange.
To extend the exchange offer, we will notify the exchange agent orally
or in writing of any extension. We also will make a public announcement of the
extension no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
If any of the conditions described below under " -- Conditions to the
Exchange Offer" has not been satisfied with respect to the exchange offer for
any series of old notes, we reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes of that series,
- to extend the exchange offer for that series, or
- to terminate the exchange offer for that series.
We will give oral or written notice of such delay, extension or
termination to the exchange agent. Subject to the terms of the registration
rights agreements, we also reserve the right to amend the terms of the exchange
offer for any series in any manner.
Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes of the series affected. If we amend the exchange
offer in a manner that we determine to constitute a material change, we will
promptly disclose that amendment by means of a prospectus supplement. We will
distribute the supplement to the registered holders of the old notes of the
series affected. Depending upon the significance of the amendment and the manner
of disclosure to the registered holders, we will extend the exchange offer if
the exchange offer would otherwise expire during such period.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required
to accept for exchange, or exchange any new notes of a series for any old notes
of that series, and we may terminate the exchange offer for that series as
provided in this prospectus before accepting any old notes of that series for
exchange, if in our reasonable judgment:
- the exchange offer for that series, or the making of any
exchange by a holder of old notes of that series, would
violate any applicable law or any applicable interpretation of
the Staff, or
- any action or proceeding has been instituted or threatened in
any court or by or before any governmental agency with respect
to the exchange offer for that series that, in our judgment,
would reasonably be expected to impair our ability to proceed
with that exchange offer.
In addition, we will not be obligated to accept for exchange the old
notes of any holder that has not made to us:
25
- the representations described under " -- Procedures for
Tendering" and "Plan of Distribution" and in the letter of
transmittal, and
- such other representations as may be reasonably necessary
under applicable SEC rules, regulations or interpretations to
make available to us an appropriate form for registering the
new notes under the Securities Act of 1933.
We expressly reserve the right to amend or terminate the exchange offer
for any series of old notes, and to reject for exchange any old notes not
previously accepted for exchange in that exchange offer, upon the occurrence of
any of the conditions to that exchange offer specified above. We will give oral
or written notice of any extension, amendment, non-acceptance or termination to
the holders of the old notes of the series affected as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or
waive them in whole or in part at any time or at various times in our sole
discretion. Our failure at any time to exercise any of these rights will not
mean that we have waived our rights. Each right will be deemed an ongoing right
that we may assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered,
and will not issue new notes in exchange for any such old notes, if at such time
any stop order has been threatened or is in effect with respect to the
registration statement of which this prospectus forms a part or the
qualification of the indenture relating to the new notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
HOW TO TENDER GENERALLY
Only a holder of old notes may tender such old notes in the exchange
offer. To tender in the exchange offer, a holder must either (1) comply with the
procedures for physical tender or (2) comply with the automated tender offer
program procedures of The Depository Trust Company, or DTC, described below.
To complete a physical tender, a holder must:
- complete, sign and date the letter of transmittal or a
facsimile of the letter of transmittal,
- have the signature on the letter of transmittal guaranteed if
the letter of transmittal so requires,
- mail or deliver the letter of transmittal or facsimile to the
exchange agent prior to the expiration date, and
- deliver the old notes to the exchange agent prior to the
expiration date or comply with the guaranteed delivery
procedures described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents at
its address provided above under "Prospectus Summary -- The Exchange Agent"
prior to the expiration date.
To complete a tender through DTC's automated tender offer program, the
exchange agent must receive, prior to the expiration date, a timely confirmation
of book-entry transfer of such old notes into the exchange agent's account at
DTC according to the procedure for book-entry transfer described below or a
properly transmitted agent's message.
The tender by a holder that is not withdrawn prior to the expiration
date and our acceptance of that tender will constitute an agreement between the
holder and us in accordance with the terms and subject to the conditions
described in this prospectus and in the letter of transmittal.
26
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. YOU MAY REQUEST YOUR BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the old notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
DTC's system may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. If you are unable to deliver confirmation of
the book-entry tender of your old notes into the exchange agent's account at DTC
or all other documents required by the letter of transmittal to the exchange
agent on or prior to the expiration date, you must tender your old notes
according to the guaranteed delivery procedures described below.
TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial
institution that is a participant in DTC's system may use DTC's automated tender
offer program to tender its old notes. Accordingly, participants in the program
may, instead of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, transmit their acceptance of the exchange
offer electronically. They may do so by causing DTC to transfer the old notes to
the exchange agent in accordance with its procedures for transfer. DTC will then
send an agent's message to the exchange agent.
An "agent's message" is a message transmitted by DTC to and received by
the exchange agent and forming part of the book-entry confirmation, stating
that:
- DTC has received an express acknowledgment from a participant
in DTC's automated tender offer program that is tendering old
notes that are the subject of such book-entry confirmation,
- the participant has received and agrees to be bound by the
terms of the letter of transmittal or, in the case of an
agent's message relating to guaranteed delivery, the
participant has received and agrees to be bound by the
applicable notice of guaranteed delivery, and
- we may enforce the agreement against such participant.
HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own old notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender those notes, you should contact the registered holder as soon as possible
and instruct the registered holder to tender on your behalf. If you are a
beneficial owner and wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and delivering your old
notes, either:
- make appropriate arrangements to register ownership of the old
notes in your name, or
- obtain a properly completed bond power from the registered
holder of your old notes.
The transfer of registered ownership may take considerable time and may
not be completed prior to the expiration date.
27
SIGNATURES AND SIGNATURE GUARANTEES
You must have signatures on a letter of transmittal or a notice of
withdrawal described below under "--Withdrawal of Tenders" guaranteed by an
eligible institution unless the old notes are tendered:
- by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal and the new notes
are being issued directly to the registered holder of the old
notes tendered in the exchange for those new notes, or
- for the account of an eligible institution.
An "eligible institution" is a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, in each case, that is a member of one
of the recognized signature guarantee programs identified in the letter of
transmittal.
WHEN ENDORSEMENTS OR BOND POWERS ARE NEEDED
If a person other than the registered holder of any old notes signs the
letter of transmittal, the old notes must be endorsed or accompanied by a
properly completed bond power. The registered holder must sign the bond power as
the registered holder's name appears on the old notes. An eligible institution
must guarantee that signature.
If the letter of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, or
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, they also must submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the
validity, form, eligibility, time of receipt, acceptance of tendered old notes
and withdrawal of tendered old notes. Our determination will be final and
binding. We reserve the absolute right to reject any old notes not properly
tendered or any old notes our acceptance of which, in the opinion of our
counsel, might be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of the exchange offer as to particular old notes.
Our interpretation of the terms and conditions of the exchange offer, including
the instructions in the letter of transmittal, will be final and binding on all
parties.
Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within such time as we determine. Neither we, the
exchange agent nor any other person will be under any duty to give notification
of defects or irregularities with respect to tenders of old notes, nor will we
or those persons incur any liability for failure to give such notification.
Tenders of old notes will not be deemed made until such defects or
irregularities have been cured or waived. Any old notes received by the exchange
agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
WHEN WE WILL ISSUE NEW NOTES
In all cases, we will issue new notes of a series for the old notes of
that series that we have accepted for exchange in the exchange offer only after
the exchange agent timely receives:
- such old notes or a timely book-entry confirmation of transfer
of such old notes into the exchange agent's account at DTC,
and
- a properly completed and duly executed letter of transmittal
and all other required documents or a properly transmitted
agent's message.
28
RETURN OF OLD NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered old notes of a series for exchange for
any reason described in the terms and conditions of the exchange offer or if old
notes are submitted for a greater principal amount than the holder desires to
exchange, we will return the unaccepted or non-exchanged old notes of that
series without expense to their tendering holder. In the case of old notes of a
series tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described below, such non-exchanged old notes will
be credited to an account maintained with DTC. These actions will occur as
promptly as practicable after the expiration or termination of the exchange
offer.
YOUR REPRESENTATIONS TO US
By signing or agreeing to be bound by the letter of transmittal, you
will represent to us that, among other things:
- any new notes that you receive are being acquired in the
ordinary course of your business,
- you have no arrangement or understanding with any person to
participate in the distribution (within the meaning of the
Securities Act of 1933) of the old notes or the new notes,
- you are not our "affiliate," as defined in Rule 405 under the
Securities Act of 1933, or, if you are our affiliate, you will
comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 to the extent
applicable,
- if you are not a broker-dealer, you are not engaged in, and do
not intend to engage in, a distribution of the new notes,
- if you are a broker-dealer, you are not tendering old notes
acquired directly from us or one of our affiliates,
- if you are a broker-dealer, you will receive the new notes for
your own account in exchange for old notes that you acquired
as a result of market-making activities or other trading
activities, and you will deliver a prospectus in connection
with any resale of such new notes, and
- you are not acting on behalf of any person who could not
truthfully and completely make the foregoing representations.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes but they are not immediately
available or if you cannot deliver your old notes, the letter of transmittal or
any other required documents to the exchange agent or comply with the applicable
procedures under DTC's automated tender offer program prior to the expiration
date, you may tender if:
- the tender is made through an eligible institution,
- prior to the expiration date, the exchange agent receives from
such eligible institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile
transmission, mail or hand delivery or a properly transmitted
agent's message and notice of guaranteed delivery:
- stating your name and address, the registered
number(s) of your old notes and the principal amount
of old notes tendered,
- stating that the tender is being made thereby, and
29
- guaranteeing that, within three New York Stock
Exchange trading days after the expiration date, the
letter of transmittal or facsimile thereof or agent's
message in lieu thereof, together with the old notes
or a book-entry confirmation, and any other documents
required by the letter of transmittal will be
deposited by such eligible institution with the
exchange agent, and
- the exchange agent receives such properly completed and
executed letter of transmittal or facsimile or agent's
message, as well as all tendered old notes in proper form for
transfer or a book-entry confirmation, and all other documents
required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
If you wish to tender old notes pursuant to the guaranteed delivery
procedures described in the letter of transmittal, you must ensure that the
exchange agent receives the notice of guaranteed delivery prior to 5:00 p.m.,
New York City time, on the applicable expiration date. Upon request to the
exchange agent, the exchange agent will send a notice of guaranteed delivery to
you if you wish to tender your old notes according to the guaranteed delivery
procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal
at one of the addresses listed above under "Prospectus
Summary--The Exchange Agent," or
- the withdrawing holder must comply with the appropriate
procedures of DTC's automated tender offer program.
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to
be withdrawn,
- identify the old notes to be withdrawn, including the
registration number or numbers and the principal amount of
such old notes,
- be signed by the person who tendered the old notes in the same
manner as the original signature on the letter of transmittal
used to deposit those old notes or be accompanied by documents
of transfer sufficient to permit the trustee to register the
transfer in the name of the person withdrawing the tender, and
- specify the name in which such old notes are to be registered,
if different from that of the person who tendered the old
notes.
If old notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility
and time of receipt of notice of withdrawal, and our determination shall be
final and binding on all parties. We will deem any old notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any old notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at DTC according to the procedures described above,
such old notes will be credited to an
30
account maintained with DTC for the old notes. This return or crediting will
take place as soon as practicable after withdrawal. You may retender properly
withdrawn old notes by following one of the procedures described under
"--Procedures for Tendering" above at any time on or prior to 5:00 p.m., New
York City time, on the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional solicitation
by facsimile, e-mail, telephone or in person by our officers and regular
employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus, letters of transmittal
and related documents to the beneficial owners of the old notes and in handling
or forwarding tenders for exchange.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees for the new notes,
- fees and expenses of the exchange agent and trustee,
- accounting and legal fees,
- printing costs, and
- related fees and expenses.
TRANSFER TAXES
If you tender your old notes for exchange, you will not be required to
pay any transfer taxes. We will pay or cause to be paid all transfer taxes, if
any, applicable to the exchange of old notes in the exchange offer. The
tendering holder will, however, be required to pay any transfer taxes, whether
imposed on the registered holder or any other person, if:
- certificates representing new notes or old notes for principal
amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person
other than the registered holder of old notes tendered,
- tendered old notes are registered in the name of any person
other than the person signing the letter of transmittal, or
- a transfer tax is imposed for any reason other than the
exchange of old notes for new notes in the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a
tendering holder is not submitted with the letter of transmittal, the amount of
such transfer taxes will be billed directly to that tendering holder. The
exchange agent will retain possession of new notes with a face amount equal to
the amount of the transfer taxes due until it receives payment of the taxes.
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CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your old notes for new notes in the exchange
offer, or if you tender your old notes but subsequently withdraw them, you will
remain subject to the existing restrictions on transfer of the old notes. In
general, you may not offer or sell the old notes unless either the offer and
sale is registered under the Securities Act of 1933 or the offer or sale is
exempt from or not subject to registration under the Securities Act of 1933 and
applicable state securities laws. Except as required by the registration rights
agreements, we do not intend to register resales of the old notes under the
Securities Act of 1933.
The tender of old notes of a series in the exchange offer will reduce
the outstanding principal amount of the old notes of that series. Due to the
corresponding reduction in liquidity, this may have an adverse effect upon, and
increase the volatility of, the market price of any old notes of that series
that you continue to hold.
ACCOUNTING TREATMENT
We will amortize our expenses of the exchange offer relating to each
series of old notes over the term of the new notes of that series under
generally accepted accounting principles.
OTHER
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult your financial
and tax advisors in making your decision on what action to take. In the future,
we may seek to acquire untendered old notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. We
have no present plan to acquire any old notes that are not tendered in the
exchange offer or to file a registration statement to permit resales of any
untendered old notes, except as required by the registration rights agreements.
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DESCRIPTION OF THE NOTES
We will issue the new notes, and we issued the old notes, under an
indenture, dated as of February 1, 1998, as supplemented (the "indenture"),
between us and JPMorgan Chase Bank (formerly Chase Bank of Texas, National
Association), as trustee. We sometimes refer to the old notes and the new notes
in this prospectus collectively as the "notes." The following description is a
summary of the material provisions of the notes and the indenture. This summary
is not complete and is qualified in its entirety by reference to the indenture
and the notes. For a complete description of the notes, you should refer to the
indenture and the supplemental indentures establishing the terms of the notes,
which we have filed with the SEC. Please read "Where You Can Find More
Information."
We may issue debt securities from time to time in one or more series
under the indenture. There is no limitation on the amount of debt securities we
may issue under the indenture. As of September 30, 2003, approximately $2.1
billion aggregate principal amount of debt securities, including the old notes,
were outstanding under the indenture.
The old notes of a series and the new notes of that series will
constitute a single series of debt securities under the indenture. If the
exchange offer for notes of a series is consummated, holders of old notes of
that series who do not exchange their old notes for new notes of that series
will vote together with holders of the new notes of that series for all relevant
purposes under the indenture. Accordingly, in determining whether the required
holders have given any notice, consent or waiver or taken any other action
permitted under the indenture, any old notes of a series that remain outstanding
after the exchange offer will be aggregated with the new notes of that series,
and the holders of those old notes and new notes will vote together as a single
series. All references in this prospectus to specified percentages in aggregate
principal amount of old notes of a series means, at any time after the exchange
offer is consummated, the percentages in aggregate principal amount of the old
notes of that series and the new notes of that series collectively then
outstanding.
We have included cross-references in the summary below to refer you to
the section numbers of the indenture we are describing.
RANKING OF THE NEW NOTES
The new notes will:
- be general unsecured obligations,
- rank equally with all of our other unsecured and
unsubordinated indebtedness, including the old notes, and
- with respect to the assets and earnings of our subsidiaries,
effectively rank below all of the liabilities of our
subsidiaries.
Subject to the exceptions, and subject to compliance with the
applicable requirements, set forth in the indenture, we may discharge our
obligations under the indenture with respect to the notes as described below
under "--Defeasance and Covenant Defeasance."
PRINCIPAL, MATURITY AND INTEREST
The 2013 notes will mature on April 1, 2013. The 2013 notes are
initially limited to $762,000,000 in aggregate principal amount. The 2014 notes
will mature on January 15, 2014. The 2014 notes are initially limited to
$160,000,000 in aggregate principal amount. However, we may issue additional
notes of each series from time to time, without the consent of the holders of
the notes.
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Interest on the notes will:
- accrue at the respective rates shown on the cover page of this
prospectus from the latest date to which interest shall have
been paid on the old note surrendered in exchange therefor or,
if no interest has been paid on such old note, from the date
of original issuance of such old note,
- be payable semi-annually in arrears on each April 1 and
October 1, with the initial interest payment date following
the consummation of the exchange offer being April 1, 2004,
for the 2013 new notes, and on each January 15 and July 15,
with the initial interest payment date following the
consummation of the exchange offer being July 15, 2004, for
the 2014 new notes,
- be payable to the person in whose name the notes are
registered at the close of business on the March 15 and
September 15, for the 2013 new notes, and on the January 1 and
July 1, for the 2014 new notes, immediately preceding the
applicable interest payment date, which we refer to with
respect to the notes as "regular record dates,"
- be computed on the basis of a 360-day year comprised of twelve
30-day months, and
- be payable on overdue interest to the extent permitted by law
at the same rate as interest is payable on principal.
If any interest payment date, the maturity date or any redemption date falls on
a day that is not a business day, the payment will be made on the next business
day with the same force and effect as if made on the relevant interest payment
date, maturity date or redemption date. Unless we default on a payment, no
interest will accrue for the period from and after the applicable maturity date
or redemption date.
OPTIONAL REDEMPTION
We may redeem each series of notes, in whole or in part, at our option
exercisable at any time and from time to time upon not less than 30 and not more
than 60 days' notice as provided in the indenture, on any date prior to their
maturity at a redemption price equal to:
- 100% of the principal amount of the notes redeemed, plus
- accrued and unpaid interest thereon, if any, and additional
interest (as described in "Registration Rights") thereon, if
any, to, but excluding, the redemption date, plus
- the make-whole premium described below, if any.
The redemption price will never be less than 100% of the principal amount of the
notes redeemed plus accrued and unpaid interest thereon, if any, to, but
excluding, the redemption date.
The amount of the make-whole premium with respect to any note to be
redeemed will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the redemption
date, of:
- each interest payment that, but for such redemption, would
have been payable on the note or portion thereof being
redeemed on each interest payment date occurring after the
redemption date (excluding any accrued and unpaid interest for
the period prior to the redemption date), and
- the principal amount that, but for such redemption, would have
been payable at the final maturity of the note or portion
thereof being redeemed, over
(2) the principal amount of the note being redeemed.
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The present values of interest and principal payments referred to in
clause (1) above will be determined in accordance with generally accepted
principles of financial analysis. These present values will be calculated by
discounting the amount of each payment of interest or principal from the date
that each such payment would have been payable, but for the redemption, to the
redemption date at a discount rate equal to the comparable treasury yield (as
defined below) plus 50 basis points in the case of the 2013 notes and 35 basis
points in the case of the 2014 notes.
The make-whole premium will be calculated by an independent investment
banking institution of national standing appointed by us. If we fail to appoint
an independent investment banking institution at least 45 days prior to the
redemption date, or if the independent investment banking institution we appoint
is unwilling or unable to calculate the make-whole premium, the calculation will
be made by Citigroup Global Markets Inc. for the 2013 notes and by Barclays
Capital Inc. or Credit Suisse First Boston LLC for the 2014 notes. If Citigroup
Global Markets Inc. or Barclays Capital Inc. and Credit Suisse First Boston LLC,
as applicable, are unwilling or unable to make the calculation, we will appoint
a different independent investment banking institution of national standing to
make the calculation.
For purposes of determining the make-whole premium, "comparable
treasury yield" means a rate of interest per annum equal to the weekly average
yield to maturity of United States Treasury Securities that have a constant
maturity that corresponds to the remaining term to maturity of the notes to be
redeemed, calculated to the nearest 1/12th of a year. The comparable treasury
yield will be determined as of the third business day immediately preceding the
applicable redemption date.
The weekly average yields of United States Treasury Securities will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release. If this statistical release sets forth a weekly
average yield for United States Treasury Securities having a constant maturity
that is the same as the remaining term calculated as set forth above, then the
comparable treasury yield will be equal to such weekly average yield. In all
other cases, the comparable treasury yield will be calculated by interpolation
on a straight-line basis, between the weekly average yields on the United States
Treasury Securities that have a constant maturity closest to and greater than
the remaining term and the United States Treasury Securities that have a
constant maturity closest to and less than the remaining term (in each case as
set forth in the H.15 statistical release or any successor release). Any weekly
average yields calculated by interpolation will be rounded to the nearest
1/100th of 1%, with any figure of 1/200th of 1% or above being rounded upward.
If weekly average yields for United States Treasury Securities are not available
in the H.15 statistical release or otherwise, then the comparable treasury yield
will be calculated by interpolation of comparable rates selected by an
independent investment banking institution selected in the manner described in
the second preceding paragraph.
If we redeem any series of notes in part, the trustee will select the
notes for redemption on a pro rata basis, by lot or by such other method as the
trustee in its sole discretion deems fair and appropriate. We will only redeem
notes in multiples of $1,000 in original principal amount. If any note is to be
redeemed in part only, the notice of redemption will state the portion of the
principal amount to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued upon the cancellation of
the original note.
SINKING FUND
We are not obligated to make mandatory redemption or sinking fund
payments with respect to the notes.
RESTRICTIVE COVENANTS
The indenture does not limit the amount of indebtedness or other
obligations that we may incur and does not contain provisions that would give
holders of the notes the right to require us to repurchase their notes in the
event of a change in control of us, or in the event we enter into one or more
highly leveraged transactions, regardless of whether a rating decline results
therefrom, or in the event we dispose of one or more of our business units, nor
are any such events deemed to be events of default under the terms of the
indenture.
The indenture contains certain covenants for the benefit of the holders
of the notes which we have summarized below and refer to as the "restrictive
covenants."
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Limitations on Liens. We will not, and we will not permit any
subsidiary (as defined below) to, pledge, mortgage or hypothecate, or permit to
exist, except in our favor or in favor of any subsidiary, any lien (as defined
below) upon any principal property (as defined below) or any equity interest (as
defined below) in any significant subsidiary (as defined below) owning any
principal property, at any time owned by us or by a subsidiary, to secure any
indebtedness (as defined below), unless effective provision is made whereby
outstanding notes will be secured equally and ratably therewith (or prior
thereto), and with any other indebtedness similarly entitled to be equally and
ratably secured. This restriction will not apply to or prevent the creation or
existence of:
- liens on any property held or used by us or a subsidiary in
connection with the exploration for, development of or
production of, oil, gas, natural gas (including liquefied gas
and storage gas), other hydrocarbons, helium, coal, metals,
minerals, steam, timber, geothermal or other natural resources
or synthetic fuels, such properties to include, but not be
limited to, our or a subsidiary's interest in any mineral fee
interests, oil, gas or other mineral leases, royalty,
overriding royalty or net profits interests, production
payments and other similar interests, wellhead production
equipment, tanks, field gathering lines, leasehold or field
separation and processing facilities, compression facilities
and other similar personal property and fixtures,
- liens on oil, gas, natural gas (including liquefied gas and
storage gas), other hydrocarbons, helium, coal, metals,
minerals, steam, timber, geothermal or other natural resources
or synthetic fuels produced or recovered from any property, an
interest in which is owned or leased by us or a subsidiary,
- liens (or certain extensions, renewals or refundings thereof)
upon any property acquired, constructed or improved before or
after the date the notes are first issued, which liens were or
are created at the later of the time of acquisition or
commercial operation thereof, or within one year thereafter to
secure all or a portion of the purchase price thereof or the
cost of construction or improvement, or existing thereon at
the date of acquisition, provided that every such mortgage,
pledge, lien or encumbrance applies only to the property so
acquired or constructed and fixed improvements thereon,
- liens upon any property of any entity acquired by any entity
that is or becomes a subsidiary after the date the notes are
first issued, each of which we refer to as an "acquired
entity," provided that every such mortgage, pledge, lien or
encumbrance:
- will either:
- exist prior to the time the acquired entity
becomes a subsidiary, or
- be created at the time the acquired entity
becomes a subsidiary or within one year
thereafter to secure payment of the
acquisition price thereof, and
- will only apply to those properties owned by the
acquired entity at the time it becomes a subsidiary
or thereafter acquired by it from sources other than
us or any other subsidiary,
- pledges of current assets, in the ordinary course of business,
to secure current liabilities,
- deposits, including among others, good faith deposits in
connection with tenders, leases of real estate or bids or
contracts, or liens, including among others, liens reserved in
leases and mechanics' or materialmen's liens, to secure
certain duties or public or statutory obligations,
- liens upon any office, data processing or transportation
equipment,
- liens created or assumed in connection with the issuance of
debt securities, the interest on which is excludable from
gross income of the holder of such security pursuant to the
Internal Revenue Code, for the purpose of financing the
acquisition or construction of property to be used by us or a
subsidiary,
36
- pledges or assignments of accounts receivable or conditional
sales contracts or chattel mortgages and evidence of
indebtedness secured thereby, received in connection with the
sale of goods or merchandise to customers, or
- certain liens for taxes, judgments and attachments.
Notwithstanding the foregoing, we or a subsidiary may issue, assume or
guarantee indebtedness secured by a mortgage which would otherwise be subject to
the foregoing restrictions in an aggregate amount which, together with all of
our other indebtedness or indebtedness of a subsidiary secured by a mortgage
(not including secured indebtedness permitted under the foregoing exceptions)
and the value of all sale and leaseback transactions (as defined below) existing
at such time (other than sale and leaseback transactions which, if a lien, would
have been permitted under the third or fourth bullet points above), does not at
the time such indebtedness is incurred exceed 5% of consolidated net tangible
assets (as defined below), as shown on our most recent audited consolidated
balance sheet preceding the date of determination. For purposes of this
"Limitation on Liens" covenant, subsidiary does not include a project finance
subsidiary.
Limitation on Sale and Leaseback Transactions. We will not, and we will
not permit any subsidiary to, engage in a sale and leaseback transaction of any
principal property unless the net proceeds of such sale are at least equal to
the fair value of such principal property (as determined by our board of
directors) and either:
- we or such subsidiary would be entitled under the indenture to
incur indebtedness secured by a lien on the principal property
to be leased, without equally and ratably securing the notes,
pursuant to the exceptions provided in the third and fourth
bullet points of the second sentence of "--Limitations on
Liens" above, or
- within 120 days after the sale or transfer of the principal
property, we apply an amount not less than the fair value of
such property:
- to the payment or other retirement of our long-term
indebtedness or long-term indebtedness of a
subsidiary, in each case ranking senior to or on
parity with the notes, or
- to the purchase at not more than the fair value of
principal property (other than that involved in such
sale and leaseback transaction).
For purposes of this "Limitation on Sale and Leaseback Transactions" covenant,
subsidiary does not include a project finance subsidiary.
DEFINED TERMS
"Capital lease" means a lease that, in accordance with accounting
principles generally accepted in the United States, would be recorded as a
capital lease on the balance sheet of the lessee.
"Consolidated net tangible assets" means the total amount of our
assets, including the assets of our subsidiaries less, without duplication:
- total current liabilities (excluding indebtedness due within
12 months),
- all reserves for depreciation and other asset valuation
reserves, but excluding reserves for deferred federal income
taxes,
- all intangible assets such as goodwill, trademarks, trade
names, patents and unamortized debt discount and expense
carried as an asset, and
- all appropriate adjustments on account of minority interests
of other persons holding common stock of any subsidiary, all
as reflected in our most recent audited consolidated balance
sheet preceding the date of such determination.
37
"Equity interests" means any capital stock, partnership, joint venture,
member or limited liability or unlimited liability company interest, beneficial
interest in a trust or similar entity or other equity interest or investment of
whatever nature.
"Indebtedness," as applied to us or any subsidiary, means bonds,
debentures, notes and other instruments or arrangements representing obligations
created or assumed by us or any such subsidiary, including any and all:
- obligations for money borrowed, other than unamortized debt
discount or premium,
- obligations evidenced by a note or similar instrument given in
connection with the acquisition of any business, properties or
assets of any kind,
- obligations as lessee under a capital lease, and
- amendments, renewals, extensions, modifications and refundings
of any such indebtedness or obligation listed in the three
immediately preceding bullet points.
All indebtedness secured by a lien upon property owned by us or any subsidiary
and upon which indebtedness we or any such subsidiary customarily pays interest,
although we or any such subsidiary has not assumed or become liable for the
payment of such indebtedness, is also deemed to be indebtedness of us or any
such subsidiary. All indebtedness for borrowed money incurred by other persons
which is directly guaranteed as to payment of principal by us or any subsidiary
will for all purposes of the indenture be deemed to be indebtedness of us or any
such subsidiary, but no other contingent obligation of us or any such subsidiary
in respect of indebtedness incurred by other persons shall be deemed
indebtedness of us or any such subsidiary.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, charge, security interest, encumbrance or lien
of any kind whatsoever (including any capital lease).
"Non-recourse debt" means (i) any indebtedness for borrowed money
incurred by any project finance subsidiary to finance the acquisition,
improvement, installation, design, engineering, construction, development,
completion, maintenance or operation of, or otherwise to pay costs and expenses
relating to or providing financing for, any project, which indebtedness for
borrowed money does not provide for recourse against us or any of our
subsidiaries (other than a project finance subsidiary and such recourse as
exists under a performance guaranty) or any property or asset of us or any of
our subsidiaries (other than equity interests in, or the property or assets of,
a project finance subsidiary and such recourse as exists under a performance
guaranty) and (ii) any refinancing of such indebtedness for borrowed money that
does not increase the outstanding principal amount thereof (other than to pay
costs incurred in connection therewith and the capitalization of any interest or
fees) at the time of the refinancing or increase the property subject to any
lien securing such indebtedness for borrowed money or otherwise add additional
security or support for such indebtedness for borrowed money.
"Performance guaranty" means any guaranty issued in connection with any
non-recourse debt that (i) if secured, is secured only by assets of or equity
interests in a project finance subsidiary, and (ii) guarantees to the provider
of such non-recourse debt or any other person (a) performance of the
improvement, installation, design, engineering, construction, acquisition,
development, completion, maintenance or operation of, or otherwise affects any
such act in respect of, all or any portion of the project that is financed by
such non-recourse debt, (b) completion of the minimum agreed equity or other
contributions or support to the relevant project finance subsidiary, or (c)
performance by a project finance subsidiary of obligations to persons other than
the provider of such non-recourse debt.
"Principal property" means any natural gas distribution property,
natural gas pipeline or gas processing plant located in the United States,
except any such property that in the opinion of our board of directors is not of
material importance to the total business conducted by us and our consolidated
subsidiaries. "Principal property" shall not include any oil or gas property or
the production or proceeds of production from an oil or gas producing property
or the production or any proceeds of production of gas processing plants or oil
or gas or petroleum products in any pipeline or storage field.
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"Project finance subsidiary" and "project finance subsidiaries" means
any of our subsidiaries designated by us whose principal purpose is to incur
non-recourse debt and/or construct, lease, own or operate the assets financed
thereby, or to become a direct or indirect partner, member or other equity
participant or owner in a person created for such purpose, and substantially all
the assets of which subsidiary or person are limited to (x) those assets being
financed (or to be financed), or the operation of which is being financed (or to
be financed), in whole or in part by non-recourse debt, or (y) equity interests
in, or indebtedness or other obligations of, one or more other such subsidiaries
or persons, or (z) indebtedness or other obligations of us or our subsidiaries
or other persons. At the time of designation of any project finance subsidiary,
the sum of the net book value of the assets of such subsidiary and the net book
value of the assets of all other project finance subsidiaries then existing
shall not in the aggregate exceed 10 percent of the consolidated net tangible
assets.
"Sale and leaseback transaction" means any arrangement entered into by
us or any subsidiary with any person providing for the leasing to us or any
subsidiary of any principal property (except for temporary leases for a term,
including any renewal thereof, of not more than three years and except for
leases between us and a subsidiary or between subsidiaries), which principal
property has been or is to be sold or transferred by us or such subsidiary to
such person.
"Significant subsidiary" means any subsidiary of ours, other than a
project finance subsidiary, that is a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X under the Securities Act of 1933 and the Securities
Exchange Act of 1934, as such regulation is in effect on the date of issuance of
the notes.
"Subsidiary" of any entity means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (i) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (ii) the interest in the capital or profits of such limited
liability company, partnership, joint venture or other entity or (iii) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such entity, by such entity and one or more of
its other subsidiaries or by one or more of such entity's other subsidiaries.
PAYMENT AND PAYING AGENT
We will pay interest on the notes to the persons in whose names the
notes are registered at the close of business on the regular record date for
each interest payment. However, we will pay the interest payable on the notes at
their stated maturity to the persons to whom we pay the principal amount of the
notes. (Section 307)
We will pay principal, premium, if any, and interest on the notes at
the offices of the paying agents we designate. However, except in the case of a
global security, we may pay interest by:
- check mailed to the address of the person entitled to the
payment as it appears in the security register, or
- by wire transfer in immediately available funds to the place
and account designated in writing by the person entitled to
the payment as specified in the security register.
We have designated the trustee as the sole paying agent for the notes. At any
time, we may designate additional paying agents or rescind the designation of
any paying agents. However, we are required to maintain a paying agent in each
place of payment for the notes at all times. (Sections 307 and 1002)
Any money deposited with the trustee or any paying agent for the
payment of principal, premium, if any, and interest on the notes that remains
unclaimed for two years after the date the payments became due, may be repaid to
us upon our request. After we have been repaid, holders entitled to those
payments may only look to us for payment as our unsecured general creditors. The
trustee and any paying agents will not be liable for those payments after we
have been repaid. (Section 1003)
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CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with or merge into, or convey, transfer or lease
our properties and assets substantially as an entirety, to any person, referred
to as a "successor person," and we may not permit any person to consolidate with
or merge into, or convey, transfer or lease its properties and assets
substantially as an entirety to us, unless:
- the successor person, if any, is a corporation, partnership,
trust or other entity organized and validly existing under the
laws of the United States of America or any state thereof or
the District of Columbia,
- the successor person expressly assumes our obligations with
respect to the notes and the indenture,
- immediately after giving effect to the transaction, no event
of default, and no event which, after notice or lapse of time
or both, would become an event of default, would occur and be
continuing, and
- we have delivered to the trustee the certificates and opinions
required under the indenture. (Section 801)
EVENTS OF DEFAULT
Each of the following is an event of default under the indenture with
respect to the notes of a series:
- our failure to pay principal or premium, if any, on the notes
of that series when due,
- our failure to pay any interest on the notes of that series
for 30 days,
- our failure to perform, or our breach in any material respect
of, any other covenant or warranty in the indenture, other
than a covenant or warranty included in the indenture solely
for the benefit of another series of our debt securities
issued under the indenture, for 90 days after either the
trustee or holders of at least 25% in principal amount of the
outstanding notes of that series have given us written notice
of the breach in the manner required by the indenture,
- the default by us or any subsidiary, other than a project
finance subsidiary, of ours in the payment, when due, after
the expiration of any applicable grace period, of principal of
indebtedness for money borrowed, other than non-recourse debt,
in the aggregate principal amount then outstanding of $50
million or more, or acceleration of any indebtedness for money
borrowed in such aggregate principal amount so that it becomes
due and payable prior to the date on which it would otherwise
have become due and payable and such acceleration is not
rescinded or such default is not cured within 30 days after
notice to us in accordance with the indenture, and
- specified events involving bankruptcy, insolvency or
reorganization,
provided, however, that no event described in the third, fourth or fifth bullet
points above will be an event of default until an officer of the trustee,
assigned to and working in the trustee's corporate trust department, has actual
knowledge of the event or until the trustee receives written notice of the event
at its corporate trust office, and the notice refers to the notes generally, us
or the indenture. (Section 501)
If an event of default occurs and is continuing with respect to notes
of a series, either the trustee or the holders of at least 25% in principal
amount of the outstanding notes of that series may declare the principal amount
of the notes of that series due and immediately payable. In order to declare the
principal amount of the notes of that series due and immediately payable, the
trustee or the holders must deliver a notice that satisfies the requirements of
the indenture. Upon a declaration by the trustee or the holders, we will be
obligated to pay the principal amount of the notes of that series.
40
This right does not apply if an event of default described in the fifth
bullet point above occurs. If one of the events of default described in the
fifth bullet point above occurs and is continuing, the notes then outstanding
under the indenture shall be due and payable immediately.
After any declaration of acceleration of the notes, but before a
judgment or decree for payment, the holders of a majority in principal amount of
the outstanding notes of that series may, under certain circumstances, rescind
and annul the declaration of acceleration if all events of default, other than
the non-payment of principal, have been cured or waived as provided in the
indenture. (Section 502) For information as to waiver of defaults, please refer
to " -- Modification and Waiver" below.
If an event of default occurs and is continuing, the trustee will
generally have no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless the holders
offer reasonable indemnity to the trustee. (Section 603) The holders of a
majority in principal amount of the outstanding notes of any series will
generally have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee for the notes, provided that:
- the direction is not in conflict with any law or the
indenture,
- the trustee may take any other action it deems proper which is
not inconsistent with the direction, and
- the trustee will generally have the right to decline to follow
the direction if an officer of the trustee determines, in good
faith, that the proceeding would involve the trustee in
personal liability or would otherwise be contrary to
applicable law. (Section 512)
A holder of a note of any series may only pursue a remedy under the
indenture if:
- the holder has previously given the trustee written notice of
a continuing event of default for the notes of that series,
- holders of at least 25% in principal amount of the outstanding
notes of that series have made a written request to the
trustee to pursue that remedy,
- the holders have offered reasonable indemnity to the trustee,
- the trustee fails to pursue that remedy within 60 days after
receipt of the request, and
- during that 60-day period, the holders of a majority in
principal amount of the notes of that series do not give the
trustee a direction inconsistent with the request. (Section
507)
However, these limitations do not apply to a suit by a holder of a note
demanding payment of the principal, premium, if any, or interest on a note on or
after the date the payment is due. (Section 508)
We will be required to furnish to the trustee annually a statement by
some of our officers regarding our performance or observance of any of the terms
of the indenture and specifying all of our known defaults, if any. (Section
1004)
MODIFICATION AND WAIVER
We may enter into one or more supplemental indentures with the trustee
without the consent of the holders of any of the notes in order to:
- evidence the succession of another corporation to us, or
successive successions and the assumption of our covenants,
agreements and obligations by a successor,
- add to our covenants for the benefit of the holders or to
surrender any of our rights or powers,
41
- add events of default for any series of debt securities issued
under the indenture,
- add or change any provisions of the indenture to the extent
necessary to issue any series of debt securities in bearer
form,
- add to, change or eliminate any provision of the indenture
applying to one or more series of debt securities, provided
that if such action adversely affects the interests of any
holders of debt securities of any series, the addition, change
or elimination will become effective with respect to that
series only when no security of that series remains
outstanding,
- convey, transfer, assign, mortgage or pledge any property to
or with the trustee or to surrender any right or power
conferred upon us by the indenture,
- establish the form or terms of any series of debt securities,
- provide for uncertificated securities in addition to
certificated securities,
- evidence and provide for successor trustees or to add or
change any provisions to the extent necessary to appoint a
separate trustee or trustees for a specific series of debt
securities,
- correct any ambiguity, defect or inconsistency under the
indenture, provided that such action does not adversely affect
the interests of the holders of debt securities of any series,
- supplement any provisions of the indenture necessary to
defease and discharge any series of debt securities, provided
that such action does not adversely affect the interests of
the holders of any series of debt securities,
- comply with the rules or regulations of any securities
exchange or automated quotation system on which any debt
securities are listed or traded, or
- add, change or eliminate any provisions of the indenture in
accordance with any amendments to the Trust Indenture Act of
1939, provided that the action does not adversely affect the
rights or interests of any holder of debt securities.
(Section 901)
We may enter into one or more supplemental indentures with the trustee
in order to add to, change or eliminate provisions of the indenture or to modify
the rights of the holders of one or more series of debt securities, including
the notes, if we obtain the consent of the holders of a majority in principal
amount of the outstanding debt securities of each series affected by the
supplemental indenture, treated as one class. However, without the consent of
the holders of each outstanding debt security affected by the supplemental
indenture, we may not enter into a supplemental indenture that:
- changes the stated maturity of the principal of, or any
installment of principal of or interest on, any debt security,
except to the extent permitted by the indenture,
- reduces the principal amount of, or any premium or interest
on, any debt security,
- reduces the amount of principal of an original issue discount
security or any other debt security payable upon acceleration
of the maturity thereof,
- changes the place or currency of payment of principal,
premium, if any, or interest,
- impairs the right to institute suit for the enforcement of any
payment on any debt security,
- reduces the percentage in principal amount of outstanding debt
securities of any series, the consent of whose holders is
required for modification or amendment of the indenture,
42
- reduces the percentage in principal amount of outstanding debt
securities of any series necessary for waiver of compliance
with certain provisions of the indenture or for waiver of
certain defaults,
- makes certain modifications to such provisions with respect to
modification and waiver,
- makes any change that adversely affects the right to convert
or exchange any note or decrease the conversion or exchange
rate or increases the conversion price of any convertible or
exchangeable debt security, or
- changes the terms and conditions pursuant to which any series
of debt securities that is secured in a manner adverse to the
holders of the debt securities. (Section 902)
Holders of a majority in principal amount of the outstanding notes of a
series may waive past defaults or compliance with restrictive provisions of the
indenture with respect to that series. However, the consent of holders of each
outstanding note of a series is required to:
- waive any default in the payment of principal, premium, if
any, or interest on any note of that series, or
- waive any covenants and provisions of the indenture that may
not be amended without the consent of the holder of each
outstanding note of that series. (Sections 513 and 1006)
In order to determine whether the holders of the requisite principal
amount of the outstanding debt securities have taken an action under the
indenture as of a specified date:
- the principal amount of an "original issue discount security"
that will be deemed to be outstanding will be the amount of
the principal that would be due and payable as of such date
upon acceleration of the maturity to such date,
- if, as of such date, the principal amount payable at the
stated maturity of a debt security is not determinable, for
example, because it is based on an index, the principal amount
of such debt security deemed to be outstanding as of such date
will be an amount determined in the manner prescribed for such
debt security,
- the principal amount of a debt security denominated in one or
more foreign currencies or currency units that will be deemed
to be outstanding will be the $U.S. equivalent, determined as
of such date in the manner prescribed for such debt security,
of the principal amount of such debt security or, in the case
of a debt security described in the two preceding bullet
points, of the amount described above, and
- debt securities owned by us or any other obligor upon the debt
securities or any of their affiliates will be disregarded and
deemed not to be outstanding.
An "original issue discount security" means a debt security issued under the
indenture which provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration of maturity. Some debt
securities, including those for whose payment or redemption money has been
deposited or set aside in trust for the holders and those that have been fully
defeased pursuant to Section 1402, will not be deemed to be outstanding.
(Section 101)
We will generally be entitled to set any day as a record date for
determining the holders of outstanding notes of a series entitled to give or
take any direction, notice, consent, waiver or other action under the indenture.
In limited circumstances, the trustee will be entitled to set a record date for
action by holders of outstanding notes of a series. If a record date is set for
any action to be taken by holders, the action may be taken only by persons who
are holders of outstanding notes of the relevant series on the record date. To
be effective, the action must be taken by holders of the requisite principal
amount of notes of that series within a specified period following the record
date. For any particular record date, this period will be 180 days or such
shorter period as we may specify, or the trustee may specify, if it set the
record date. This period may be shortened or lengthened by not more than 180
days. (Section 104)
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DEFEASANCE AND COVENANT DEFEASANCE
The provisions of the indenture relating to defeasance and discharge of
indebtedness, or defeasance of restrictive covenants, will apply to the notes of
each series. (Section 1401)
Defeasance and Discharge. We will be discharged from all of our
obligations with respect to the notes of a series, except for certain
obligations to exchange or register the transfer of notes of that series, to
replace stolen, lost or mutilated notes of that series, to maintain paying
agencies and to hold moneys for payment in trust, upon the deposit in trust for
the benefit of the holders of the notes of that series of money or U.S.
government obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal, premium, if any, and interest on
the notes of that series on the stated maturity of such notes in accordance with
the terms of the indenture and such notes. Such defeasance or discharge may
occur only if, among other things, we have delivered to the trustee an opinion
of counsel to the effect that we have received from, or there has been published
by, the United States Internal Revenue Service a ruling, or there has been a
change in tax law, in either case to the effect that holders of the notes of
that series will not recognize gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge were not to occur.
(Sections 1402 and 1404)
Defeasance of Certain Covenants. In certain circumstances, we may omit
to comply with specified restrictive covenants, and that in those circumstances
the occurrence of certain events of default, which are described in the third
bullet point under " -- Events of Default" above, with respect to such
restrictive covenants, and those described in the fourth bullet point under " --
Events of Default" above, will be deemed not to be or result in an event of
default, in each case with respect to the notes of a series. We, in order to
exercise such option, will be required to deposit, in trust for the benefit of
the holders of the notes of that series, money or U.S. government obligations,
or both, which, through the payment of principal and interest in respect thereof
in accordance with their terms, will provide money in an amount sufficient to
pay the principal, premium, if any, and interest on such notes on the stated
maturity in accordance with the terms of the indenture and such notes. We will
also be required, among other things, to deliver to the trustee an opinion of
counsel to the effect that holders of the notes of that series will not
recognize gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain obligations and will be subject to federal
income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit and defeasance were not to occur. In the
event we exercise this option with respect to any notes of a series and such
notes were declared due and payable because of the occurrence of any event of
default, the amount of money and U.S. government obligations so deposited in
trust would be sufficient to pay amounts due on such notes at the time of their
stated maturity, but might not be sufficient to pay amounts due on such notes
upon any acceleration resulting from the event of default. In such case, we
would remain liable for those payments. (Sections 1403 and 1404)
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding if (1) all outstanding debt securities issued under the indenture
have become due and payable, (2) all outstanding debt securities issued under
the indenture have or will become due and payable at their scheduled maturity
within one year or (3) all outstanding debt securities issued under the
indenture are scheduled for redemption in one year, and in each case, we have
deposited with the trustee an amount sufficient to pay and discharge all
outstanding debt securities issued under the indenture on the date of their
scheduled maturity or the scheduled date of redemption.
EXCHANGE AND TRANSFER OF THE NOTES
We will issue the notes in registered form, without coupons. We will
only issue notes in denominations of integral multiples of $1,000.
Holders may present notes for exchange or for registration of transfer
at the office of the security registrar or at the office of any transfer agent
we designate for that purpose. The security registrar or designated transfer
agent will exchange or transfer the notes if it is satisfied with the documents
of title and identity of the person making the request. We will not charge a
service charge for any exchange or registration of transfer of notes. However,
we may require payment of a sum sufficient to cover any tax or other
governmental charge payable for the
44
registration of transfer or exchange. The trustee will serve as the security
registrar. (Section 305) At any time we may:
- designate additional transfer agents,
- rescind the designation of any transfer agent, or
- approve a change in the office of any transfer agent.
However, we are required to maintain a transfer agent in each place of payment
for the notes at all times. (Sections 305 and 1002)
In the event we elect to redeem the notes of any series, neither we nor
the trustee will be required to register the transfer or exchange of notes of
that series:
- during the period beginning at the opening of business 15 days
before the day we mail the notice of redemption for such notes
and ending at the close of business on the day the notice is
mailed, or
- if we have selected such notes for redemption, in whole or in
part, except for the unredeemed portion of such notes.
(Section 305)
NOTICES
Holders of the notes will receive notices by mail at their addresses as
they appear in the security register. (Sections 101 and 106)
TITLE
We may treat the person in whose name a note is registered on the
applicable record date as the owner of the note for all purposes, whether or not
it is overdue. (Section 309)
GOVERNING LAW
New York law will govern the indenture and the notes. (Section 112)
REGARDING THE TRUSTEE
JPMorgan Chase Bank is the trustee, security registrar and paying agent
under the indenture for the notes. As of October 31, 2003, the trustee serves as
trustee for approximately $2.2 billion aggregate principal amount of our debt
securities. In addition, the trustee serves as trustee or fiscal agent for debt
securities of our affiliates aggregating approximately $7 billion as of October
31, 2003.
The trustee and its affiliates are parties to credit agreements under
which we and our affiliates have bank lines of credit. We and our affiliates
maintain depository and other banking, investment banking and investment
management relationships with the trustee and its affiliates.
45
REGISTRATION RIGHTS
In connection with the sale of each series of old notes, we entered
into registration rights agreements with the initial purchasers of each series
of old notes pursuant to which we agreed, for the benefit of the holders of such
series of old notes at our cost, to use our reasonable commercial efforts:
- to file with the SEC a registration statement under the
Securities Act of 1933 relating to an exchange offer for each
series of old notes within 180 days after the date of issuance
of the relevant series of old notes,
- to cause the exchange offer registration statement to be
declared effective under the Securities Act of 1933 within 270
days after the date of issuance of the relevant series of old
notes, and to keep the exchange offer registration statement
effective until the expiration of the exchange offer, and
- unless the exchange offer would not be permitted by applicable
law or SEC policy, to cause the exchange offer to be
consummated within 315 days after the date of issuance of the
relevant series of old notes.
We agreed that upon the registration statement of which this prospectus
forms a part being declared effective, we would offer the new notes of a series
in exchange for surrender of the old notes of that series. We agreed to keep the
exchange offer open for not less than 20 business days (or longer if required by
applicable law) after the date on which notice of the exchange offer is mailed
to the registered holders of the old notes. For each old note of a series
validly tendered to us pursuant to the exchange offer for that series and not
withdrawn by the holder thereof, the holder of such old note will receive a new
note of that series having a principal amount equal to that of the surrendered
old note. Interest on each new note will accrue from the last interest payment
date on which interest was paid on the old note surrendered in exchange therefor
or, if no interest has been paid on an old note, from the date of the original
issuance of such old note. The new notes of a series will vote together with the
old notes of that series that are not exchanged on all matters on which holders
of such series of old notes and new notes of such series are entitled to vote.
Each holder, other than certain specified holders, who wishes to
exchange its old notes of a series for new notes of that series pursuant to the
exchange offer for that series will be required to make to us the
representations described under "The Exchange Offer -- Your Representations to
Us" to participate in that exchange offer.
In addition, in connection with any resales of new notes, any
broker-dealer who acquired old notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act of 1933. Please read "The
Exchange Offer -- Resale of New Notes."
In the event that:
- we reasonably determine that changes in law or the applicable
interpretations of the Staff do not permit us to effect the
exchange offer,
- the exchange offer for any series of notes is not consummated
on or prior to the 315th day following the issuance of the old
notes of that series, or
- any initial purchaser notifies us within 20 business days
following consummation of the exchange offer (i) that it is
not permitted by applicable law or SEC policy to participate
in the exchange offer, (ii) that it may not resell new notes
with this prospectus, or (iii) that it is a broker-dealer and
owns old notes acquired directly from us or one of our
affiliates,
then we will at our cost in lieu of effecting (or, in the case of such a request
by an initial purchaser, in addition to effecting) the registration of the new
notes of the affected series pursuant to the registration statement of which
this prospectus forms a part:
46
- as promptly as practicable, file with the SEC a "shelf"
registration statement to cover resales of the old notes of
the affected series,
- use our reasonable commercial efforts to cause the shelf
registration statement to be declared effective under the
Securities Act of 1933 no later than 345 days after the date
of issuance of the affected series of old notes, and
- use our reasonable commercial efforts to keep effective the
shelf registration statement until two years after the date of
issuance of the affected series of old notes or until all of
the old notes covered by the shelf registration statement have
been sold.
We will have the ability to suspend the availability of the shelf
registration statement during certain "black out" periods.
In the event of the filing of the shelf registration statement, we will
provide to each relevant holder of old notes copies of the prospectus which
forms a part of the shelf registration statement and notify each such holder
when the shelf registration statement has become effective. A holder of old
notes that sells old notes pursuant to the shelf registration statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act of 1933 in
connection with such sales and will be bound by the provisions of the respective
registration rights agreement that is applicable to such a holder (including
certain indemnification obligations). In addition, each holder of old notes will
be required to deliver to us information to be used in connection with the shelf
registration statement and to provide comments to us on the shelf registration
statement in order to have such holder's old notes included in the shelf
registration statement and to benefit from the provisions regarding the increase
in the interest rate borne by the old notes described in the following
paragraph.
In the event that:
- the registration statement of which this prospectus forms a
part is not declared effective by the SEC on or prior to the
270th day following the date of issuance of the relevant
series of old notes,
- the exchange offer is not consummated or the shelf
registration statement with respect to the old notes is not
declared effective on or prior to the 315th day following the
date of issuance of the relevant series of old notes, or
- any required exchange offer registration statement or shelf
registration statement relating to the old notes is filed and
declared effective but shall thereafter either be withdrawn by
us or becomes subject to an effective stop order suspending
the effectiveness of such registration statement (except as
specifically permitted in the registration rights agreements)
without being succeeded within 30 days by an amendment thereto
or an additional registration statement filed and declared
effective, each such event listed in the three bullet points
above, referred to as a "registration default",
then the interest rate borne by the affected series of old notes will be
increased by .25% per annum upon the occurrence of each registration default,
which rate will increase by an additional .25% per annum if such registration
default has not been cured within 90 days after the occurrence thereof and
continuing until all registration defaults for such series of old notes have
been cured, provided that the aggregate amount of any such increase in the
interest rate on such series of old notes shall in no event exceed .50% per
annum; and provided, further, that if the registration statement of which this
prospectus forms a part is not declared effective on or prior to the 270th day
following the date of issuance of any series of old notes, and we shall request
holders of old notes of the affected series to provide the information called
for by the relevant registration rights agreement for inclusion in the shelf
registration statement, then old notes of the affected series owned by holders
who do not deliver such information to us or who do not provide comments to us
on the shelf registration statement when required pursuant to the relevant
registration rights agreement will not be entitled to any such increase in the
interest rate for any day after the 315th day following the date of issuance of
such series of old notes. All accrued additional interest will be paid to
holders of old notes in the same manner and at the same time as regular payments
of interest on the old notes. Following the
47
cure of all registration defaults for the affected series of old notes, the
accrual of additional interest on such series will cease and the interest rate
will revert to the original rate.
New York law governs each of the registration rights agreements. The
foregoing is a summary description of material provisions of each of the
registration rights agreements. Because it is a summary, it does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the registration rights agreements, copies of which are
filed as exhibits to the registration statement of which this prospectus forms a
part. You should read the relevant registration rights agreement carefully and
in its entirety because it, and not this description, defines your rights as a
holder of the relevant series of old notes.
The information set forth above concerning certain interpretations of
and positions taken by the Staff is not intended to constitute legal advice, and
prospective investors should consult their own legal advisors with respect to
these matters.
BOOK ENTRY DELIVERY AND SETTLEMENT
We will issue the new notes in the form of one or more permanent global
notes in definitive, fully registered, book-entry form. The global notes will be
deposited with or on behalf of DTC and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the trustee in accordance with
the FAST Balance Certificate Agreement between DTC and the trustee. The global
notes will be deposited on behalf of the acquirors of the new notes for credit
to the respective accounts of the acquirors or to such other accounts as they
may direct at DTC. Please read "The Exchange Offer -- Procedures for Tendering
- -- Book-Entry Transfer."
CERTIFICATED NOTES
Certificated notes will be issued to each person that DTC identifies as
the beneficial owner of the notes represented by the global notes, upon
surrender by DTC of the global notes, if (i) we notify the trustee in writing
that DTC or any successor depositary (the "depositary") is no longer willing or
able to act as a depositary for the global notes or DTC ceases to be registered
as a clearing agency under the Securities Exchange Act of 1934 and a successor
depositary is not appointed within 90 days of such notice or cessation, (ii) we,
at our option, notify the trustee in writing that we elect to cause the issuance
of new notes in definitive form under the indenture or (iii) upon the occurrence
of certain other events as provided pursuant to the indenture.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear
Bank S.A./N.V., as operator of the Euroclear System ("Euroclear"), and
Clearstream Banking, societe anonyme ("Clearstream Banking"), set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to change by them from time to time. Neither we nor the initial
purchasers take any responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
Regarding DTC. According to DTC, the following information with respect
to DTC has been provided to the industry for informational purposes only and is
not intended to serve as a representation, warranty, or contract modification of
any kind. We have obtained the information in this section concerning DTC and
the DTC's book-entry system from sources that we believe are reliable. However,
we take no responsibility for the accuracy of this information.
DTC is:
- a limited-purpose trust company organized under the New York
Banking Law,
- a "banking organization" within the meaning of the New York
Banking Law,
- a member of the Federal Reserve System,
48
- a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and
- a "clearing agency" registered under Section 17A of the
Securities Exchange Act of 1934.
DTC holds and provides asset servicing for over 2 million issues of
U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money
market instruments from over 85 countries that DTC's participants ("direct
participants") deposit with DTC. DTC also facilitates the post-trade settlement
among direct participants of sales and other securities transactions in
deposited securities, through electronic computerized book-entry transfers and
pledges between direct participants' accounts. This eliminates the need for
physical movement of securities certificates. Direct participants include:
- both U.S. and non-U.S. securities brokers and dealers,
- banks,
- trust companies,
- clearing corporations, and
- certain other organizations.
DTC is a wholly owned subsidiary of The Depository Trust & Clearing
Corporation, which is owned by a number of direct participants of DTC and
members of the National Securities Clearing Corporation, Government Securities
Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing
Corporation, as well as by the New York Stock Exchange, Inc., the American Stock
Exchange LLC, and the National Association of Securities Dealers, Inc. Access to
the DTC system is also available to others such as both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly ("indirect participants"). DTC
has Standard & Poor's highest rating: AAA. The DTC rules applicable its
participants are on file with the SEC. More information about DTC can be found
at http://www.dtcc.com.
Purchases of new notes under the DTC system must be made by or through
direct participants, which will receive a credit for the notes on DTC's records.
The ownership interest of each actual purchaser of each new note, referred to as
a beneficial owner, is in turn to be recorded on the direct and indirect
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchase. Beneficial owners are, however, expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the new notes are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interests in new notes,
except in the event that use of the book-entry system for the new notes is
discontinued. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in a global
security.
Neither we nor the trustee shall be liable for any delay by the
depositary, its nominee or any direct or indirect participant in identifying the
beneficial owners of the related new notes, and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the depositary or nominee for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the new
notes to be issued).
So long as the depositary for the global notes, or its nominee, is the
registered owner of the global notes, the depositary or its nominee, as the case
may be, will be considered the sole owner or holder of the new notes represented
by the global notes for all purposes under the indenture. Except as described
above, beneficial owners will not:
- be entitled to have new notes represented by the global notes
registered in their names,
49
- receive or be entitled to receive physical delivery of new
notes in definitive form, and
- be considered the owners or holders thereof under the
indenture.
To facilitate subsequent transfers, all new notes deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of new notes with DTC and their registration
in the name of Cede & Co. or such other DTC nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the new notes. DTC's records reflect only the identity of the direct
participants to whose accounts the new notes are credited, which may or may not
be the beneficial owners. The direct and indirect participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or
vote with respect to new notes unless authorized by a direct participant in
accordance with DTC's procedures. Under its usual procedures, DTC mails an
omnibus proxy to us as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the new notes are credited on the record date (identified in a
listing attached to the omnibus proxy).
Redemption proceeds, distributions, and dividend payments on the new
notes will be made to Cede & Co. or such other nominee as may be requested by an
authorized representative of DTC. DTC's practice is to credit direct
participants' accounts upon DTC's receipt of funds and corresponding detail
information from us on the payment date in accordance with their respective
holdings shown on DTC's records. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such participant
and not of DTC, its nominee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of redemption
proceeds, distributions, and dividend payments to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is our
responsibility, disbursement of such payments to direct participants will be the
responsibility of DTC, and disbursement of such payments to the beneficial
owners will be the responsibility of direct and indirect participants.
DTC may discontinue providing its services as depositary with respect
to the new notes at any time by giving us reasonable notice. Under such
circumstances, in the event that we do not obtain a successor securities
depositary, certificates for the new notes are required to be printed and
delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, certificates
for the new notes will be printed and delivered.
We cannot assure you that DTC will distribute payments on the new notes
made to DTC or its nominee as the registered owner or any redemption or other
notices to the participants, or that the participants or others will distribute
the payments or notices to the beneficial owners, or that they will do so on a
timely basis, or that DTC will serve and act in the manner described in this
prospectus. Beneficial owners should make appropriate arrangements with their
broker or dealer regarding distribution of information regarding the new notes
that may be transmitted by or through DTC.
Procedures for DTC and Cross Market Transfer. Transfers between
participants in DTC will be effected in accordance with DTC's procedures and
will be settled in same-day funds. Transfers between participants in Euroclear
or Clearstream Banking will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Cross-market transfers between the participants in DTC, on the one
hand, and Euroclear or Clearstream Banking participants, on the other hand, will
be effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream Banking, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream Banking, as the case may be, by the
50
counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Clearstream Banking, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global notes in DTC, and making or receiving payment
in accordance with normal procedures for same day funds settlement applicable to
DTC. Euroclear participants and Clearstream Banking participants may not deliver
instructions directly to the depositaries for Euroclear or Clearstream Banking.
Because of time zone differences, the new notes account of a Euroclear
or Clearstream Banking participant purchasing an interest in a global note from
a participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or Clearstream Banking participant, during the new
notes settlement processing day (which must be a business day for Euroclear and
Clearstream Banking) immediately following the settlement date of DTC. Cash
received in Euroclear or Clearstream Banking as a result of sales of interests
in a global note by or through a Euroclear or Clearstream Banking participant to
a participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Clearstream Banking cash
account only as of the business day for Euroclear or Clearstream Banking
following DTC's settlement date.
Although DTC, Euroclear and Clearstream Banking have agreed to the
foregoing procedures to facilitate transfers of interests in the global notes
among participants in DTC, Euroclear and Clearstream Banking, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC, Euroclear or Clearstream Banking
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of old notes for new notes
and the beneficial ownership and disposition of the new notes.
This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect, or different interpretations. This discussion only addresses tax
considerations for beneficial owners of the notes that hold the notes as
"capital assets," within the meaning of the Code. Moreover, this discussion is
for general information only and does not address all of the tax consequences
that may be relevant to specific beneficial owners of the notes in light of
their particular circumstances or to beneficial owners of the notes subject to
special treatment under U.S. federal income tax laws (such as banks, insurance
companies, tax-exempt entities, retirement plans, dealers in securities,
brokers, expatriates, partnerships or other pass-through entities, persons who
hold their notes as part of a straddle, hedge, conversion transaction or other
integrated investment, persons whose functional currency is not the U.S. dollar,
persons subject to the alternative minimum tax or persons deemed to sell the
notes under the constructive sale provisions of the Code). This discussion does
not address any U.S. state and local or non-U.S. tax considerations relating to
the purchase, ownership and disposition of the notes.
As used in this discussion, the term "U.S. Holder" means a beneficial
owner of a note that is, for U.S. federal income tax purposes:
- an individual who is a citizen or resident of the U.S.,
- a corporation created or organized in or under the laws of the
U.S. or of any State or political subdivision thereof or
therein, including the District of Columbia,
- an estate the income of which is subject to U.S. federal
income tax regardless of the source thereof, or
- a trust with respect to which a court within the U.S. is able
to exercise primary supervision over its administration and
one or more U.S. persons have the authority to control all of
its substantial
51
decisions, or certain electing trusts that were in existence
on August 19, 1996 and were treated as domestic trusts on that
date.
The term "Non-U.S. Holder" means a beneficial owner of a note that is,
for U.S. federal income tax purposes, a nonresident alien or a corporation,
trust or estate that is not a U.S. Holder. Purchasers of notes that are
partnerships or that would hold the notes through a partnership or similar
pass-through entity should consult their tax advisors regarding the U.S. federal
income tax consequences to them of holding the notes.
EXCHANGE OF NOTES
The exchange of new notes of a series for old notes of that series
pursuant to the exchange offer for that series will not constitute a taxable
event for U.S. federal income tax purposes. Consequently, no gain or loss will
be recognized by a holder of an old note of a series upon receipt of a new note
of that series. A holder's adjusted tax basis in the new note will be the same
as the adjusted tax basis in the old note exchanged therefor. A holder's holding
period of the new note will include the holding period of the old note exchanged
therefor.
U.S. HOLDERS
PAYMENT OF INTEREST
In general, interest payable on a note will be taxable to a U.S. Holder
as ordinary interest income at the time it is received or accrued, in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes.
MARKET DISCOUNT
Under the market discount rules of the Code, a U.S. Holder who
purchases a note at a market discount will generally be required to treat any
gain recognized on the sale, exchange, retirement or other taxable disposition
of the note as ordinary income to the extent of the accrued market discount that
has not been previously included in income. Market discount is generally defined
as the amount by which a U.S. Holder's purchase price for a note is less than
the note's stated redemption price at maturity (generally, the note's principal
amount) on the date of purchase, subject to a statutory de minimis exception. In
general, market discount accrues on a ratable basis over the remaining term of
the note unless a U.S. Holder makes an irrevocable election to accrue market
discount on a constant yield to maturity basis.
A U.S. Holder who acquires a note at a market discount may be required
to defer a portion of any interest expense that otherwise may be deductible on
any indebtedness incurred or continued to purchase or carry such note until the
U.S. Holder disposes of the note in a taxable transaction. A U.S. Holder who has
elected under the applicable Code provision to include market discount in income
annually as such discount accrues will not, however, be required to treat any
gain recognized as ordinary income or to defer any deductions for interest
expense under these rules. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the taxable year to which the election applies and may
not be revoked without the consent of the IRS.
Holders should consult their tax advisors as to the portion of any gain
that would be taxable as ordinary income under the market discount rules and any
other consequences of the market discount rules that may apply to them in
particular.
AMORTIZABLE BOND PREMIUM
A U.S. Holder who purchases a note for an amount in excess of its
principal amount will be considered to have purchased the note at a premium. A
U.S. Holder may elect to amortize the premium over the remaining term of the
note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the U.S. Holder's interest income from the note. A
U.S. Holder who elects to amortize the premium on a note must reduce its tax
basis in the note by the amount of the premium amortized in any year. An
election to amortize bond premium applies to all taxable debt obligations then
owned and thereafter acquired by the U.S. Holder and may be revoked
52
only with the consent of the IRS. Bond premium on a note held by a U.S. Holder
who does not make such an election will decrease the capital gain or increase
the capital loss otherwise recognized on the disposition of the note.
SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF THE NOTES
Upon the sale, exchange, retirement or other disposition of a note, a
U.S. Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued and unpaid interest, which will be taxable
as interest income (as described above)) and such U.S. Holder's adjusted tax
basis in the note. Subject to the market discount rules summarized above, such
gain or loss generally will be capital gain or loss and will be long-term
capital gain or loss if, at the time of the disposition, the U.S. Holder's
holding period for the note is more than one year. Long-term capital gains
recognized by an individual or non-corporate U.S. Holder are generally subject
to a reduced U.S. federal income tax rate. Capital losses are subject to limits
on deductibility.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, payments made on the notes and proceeds from the sale or
other disposition of the notes may be subject to backup withholding, currently
at a rate of 28% (increased to 31% beginning in 2011). In general, backup
withholding will apply to a non-corporate U.S. Holder if such U.S. Holder:
- fails to furnish, under penalties of perjury, its Taxpayer
Identification Number, or TIN (which for an individual is the
holder's Social Security number),
- furnishes an incorrect TIN,
- is notified by the IRS that it has failed to properly report
payments of interest and dividends, or
- under certain circumstances, fails to certify, under penalties
of perjury, that it has furnished a correct TIN and is a U.S.
person and has not been notified by the IRS that it is subject
to backup withholding due to underreporting of interest or
dividends, or otherwise fails to comply with applicable
requirements of the backup withholding rules.
Any amounts withheld under the backup withholding rules from a payment
to a U.S. Holder generally will be allowed as a refund or a credit against such
U.S. Holder's U.S. federal income tax liability, provided that the required
procedures are followed.
A U.S. Holder will also be subject to information reporting with
respect to payments on the notes and proceeds from the sale or other disposition
of the notes, unless such U.S. Holder is a corporation or other exempt recipient
and appropriately establishes an exemption.
NON-U.S. HOLDERS
For purposes of the following discussion, interest on the notes, and
gain on the sale, exchange, retirement or other disposition of the notes, will
be considered "U.S. trade or business income" of a Non-U.S. Holder if such
income or gain is effectively connected with the conduct of a trade or business
in the United States by such Non-U.S. Holder.
PAYMENT OF INTEREST
Subject to the discussion below concerning backup withholding, a
Non-U.S. Holder will not be subject to U.S. federal income or withholding tax in
respect of interest paid on the notes if the interest qualifies for the
"portfolio interest exemption." This will be the case if each of the following
requirements is satisfied:
- the interest is not U.S. trade or business income,
53
- the Non-U.S. Holder does not actually or constructively own
10% or more of the voting stock of the issuer,
- the Non-U.S. Holder is not a controlled foreign corporation,
within the meaning of the Code, that is actually or
constructively related to the issuer, and
- the Non-U.S. Holder provides the withholding agent with the
appropriate certification.
The certification requirement generally will be satisfied if the
Non-U.S. Holder provides the withholding agent with a statement on IRS Form
W-8BEN (or suitable substitute or successor form), together with all appropriate
attachments, signed under penalties of perjury, identifying the Non-U.S. Holder
and stating, among other things, that the Non-U.S. Holder is not a U.S. person.
Non-U.S. Holders should consult their tax advisors regarding alternative methods
for satisfying the certification requirement.
If the portfolio interest exemption is not satisfied with respect to a
Non-U.S. Holder, a 30% withholding tax will apply to interest paid on the notes
to such Non-U.S. Holder, unless another exemption is applicable. For example, an
applicable income tax treaty may reduce or eliminate such tax, in which event a
Non-U.S. Holder claiming the benefit of such treaty must provide the withholding
agent with a properly executed IRS Form W-8BEN (or suitable substitute or
successor form). Alternatively, an exemption applies if the interest is U.S.
trade or business income and the Non-U.S. Holder provides an appropriate
statement to that effect on IRS Form W-8ECI (or suitable substitute or successor
form). In the latter case, such Non-U.S. Holder generally will be subject to
U.S. federal income tax with respect to all income from the notes in the same
manner as U.S. Holders, as described above, unless an applicable income tax
treaty provides otherwise. Additionally, Non-U.S. Holders that are corporations
could be subject to a branch profits tax with respect to any such U.S. trade or
business income at a rate of 30% (or at a reduced rate under an applicable
income tax treaty).
SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF THE NOTES
Generally, a Non-U.S. Holder will not be subject to U.S. federal income
tax on gain realized upon the sale, exchange, retirement or other disposition of
a note, unless (i) such Non-U.S. Holder is an individual present in the United
States for 183 days or more in the taxable year of the sale, exchange,
retirement or other disposition and certain other conditions are met or (ii) the
gain is U.S. trade or business income. If the first exception applies, the
Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate
of 30% (or at a reduced rate under an applicable income tax treaty) on the
amount by which capital gains allocable to U.S. sources (including gains from
the sale, exchange, retirement or other disposition of the note) exceed capital
losses allocable to U.S. sources. If the second exception applies, the Non-U.S.
Holder generally will be subject to U.S. federal income tax with respect to such
gain in the same manner as U.S. Holders, as described above, unless an
applicable income tax treaty provides otherwise. Additionally, Non-U.S. Holders
that are corporations could be subject to a branch profits tax with respect to
gain that is U.S. trade or business income at a rate of 30% (or at a reduced
rate under an applicable income tax treaty).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain Non-U.S. Holders may be subject to information reporting and
backup withholding with respect to interest payments on the notes. Treasury
regulations provide that such information reporting and backup withholding
generally will not apply to interest payments on the notes to a Non-U.S. Holder
if such Non-U.S. Holder certifies that it is not a U.S. person under penalties
of perjury or otherwise establishes an exemption.
Additional information reporting and backup withholding requirements
with respect to the payment of the proceeds from the disposition of a note
(including a redemption) by a Non-U.S. Holder are as follows:
- If the proceeds are paid to or through the U.S. office of a
broker, they generally will be subject to information
reporting and backup withholding unless the Non-U.S. Holder
certifies that it is not a U.S. person under penalties of
perjury or otherwise establishes an exemption.
54
- If the proceeds are paid to or through a non-U.S. office of a
broker that is not a U.S. person and is not a foreign person
with certain specified U.S. connections (a "U.S. related
person"), they will not be subject to information reporting or
backup withholding.
- If the proceeds are paid to or through a non-U.S. office of a
broker that is a U.S. person or a U.S. related person, they
generally will be subject to information reporting (but not
backup withholding) unless the Non-U.S. Holder certifies that
it is not a U.S. person under penalties of perjury or
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder generally will be allowed as a refund or a credit against
such Non-U.S. Holder's U.S. federal income tax liability, provided that the
required procedures are followed.
In addition to the foregoing, the amount of interest paid on or with
respect to the notes held by each Non-U.S. Holder during each calendar year and
the amount of tax, if any, withheld from such payments must be reported to such
Non-U.S. Holder and the IRS. Copies of the information returns reporting such
interest and withholding also may be made available by the IRS to the tax
authorities in the country in which a Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES AND TAX SITUATION. A HOLDER SHOULD CONSULT SUCH HOLDER'S TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff in no-action letters issued to
third parties, we believe that you may transfer new notes issued in the exchange
offer in exchange for old notes if:
- you acquire such new notes in the ordinary course of your
business, and
- you are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to
participate in, a distribution of new notes.
We believe that you may not transfer new notes issued in the exchange
offer in exchange for old notes if you are:
- our affiliate within the meaning of Rule 405 under the
Securities Act of 1933,
- a broker-dealer that acquired old notes directly from us or
one of our affiliates, or
- a broker-dealer that acquired old notes as a result of
market-making or other trading activities without compliance
with the registration and prospectus delivery provisions of
the Securities Act of 1933.
The information described above concerning interpretations of and
positions taken by the Staff is not intended to constitute legal advice, and
broker-dealers should consult their own legal advisors with respect to these
matters.
If you wish to exchange your old notes for new notes in the exchange
offer, you will be required to make representations to us as described in "The
Exchange Offer--Your Representations to Us" and in the letter of transmittal. In
addition, if a broker-dealer receives new notes for its own account in exchange
for old notes that it acquired as a result of market-making activities or other
trading activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such new notes. A
broker-dealer may use this
55
prospectus, as we may amend or supplement it, in connection with these resales.
We have agreed that, for a period of 180 days after the expiration of the
exchange offer, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of the new notes by
broker-dealers. New notes that broker-dealers receive for their own account in
the exchange offer may be sold from time to time:
- in one or more transactions in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the new notes, or
- through a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of new notes. Any broker-dealer that resells new
notes that it received for its own account in the exchange offer and any broker
or dealer that participates in a distribution of the new notes may be deemed to
be an "underwriter" within the meaning of the Securities Act of 1933, and any
profit on any such resale of new notes and any commission or concessions that
these persons receive may be deemed to be underwriting compensation under the
Securities Act of 1933. The letter of transmittal states that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
For a period of 180 days after the expiration of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the noteholders, other
than commissions or concessions of any brokers or dealers. We will indemnify the
noteholders, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act of 1933.
TRANSFER RESTRICTIONS
The offer and sale of old notes of each series were not registered
under the Securities Act of 1933. Accordingly, we offered and sold the old notes
only in private sales exempt from or not subject to the registration
requirements of the Securities Act of 1933:
- to qualified institutional buyers under Rule 144A under the
Securities Act of 1933, or
- to non-U.S. persons outside the United States in compliance
with Regulation S under the Securities Act of 1933.
You may not offer or sell those old notes in the United States or to,
or for the account or benefit of, U.S. persons except in transactions exempt
from or not subject to the registration requirements of the Securities Act of
1933.
LEGAL MATTERS
The validity of the new notes of each series will be passed upon for us
by Baker Botts L.L.P., Houston, Texas.
56
EXPERTS
The consolidated financial statements of CERC and its subsidiaries as
of December 31, 2001 and 2002, and for each of the three years in the period
ended December 31, 2002, incorporated by reference in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports (which reports express an unqualified opinion and include an explanatory
paragraph referring to the change in CERC's method of accounting for goodwill
and certain intangible assets pursuant to the adoption of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets), which are
incorporated herein by reference from CERC's Current Report on Form 8-K filed on
June 16, 2003, and has been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the periodic reporting and informational requirements
of the Securities Exchange Act of 1934, as amended. You may read and copy any
document we file with the SEC at the SEC's public reference room located at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain further information
regarding the operation of the SEC's public reference room by calling the SEC at
1-800-SEC-0330. Our filings are also available to the public on the SEC's
Internet site located at http://www.sec.gov.
We are "incorporating by reference" into this prospectus information we
file with the SEC. This means we are disclosing important information to you by
referring you to the documents containing the information. The information we
incorporate by reference is considered to be part of this prospectus.
Information that we file later with the SEC that is deemed incorporated by
reference into this prospectus (but not information filed with or furnished to
the SEC and not deemed incorporated) will automatically update and supersede
information previously included.
We are incorporating by reference into this prospectus the documents
listed below and any subsequent filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (excluding
information deemed to be furnished and not filed with the SEC) until the date
the offering made in this prospectus terminates. The documents we incorporate by
reference are:
- our Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 (referred to in this prospectus as our "2002
Form 10-K");
- our Current Reports on Form 8-K dated March 18, 2003 and April
7, 2003;
- our Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2003;
- our Current Report on Form 8-K dated June 16, 2003 (referred
to in this prospectus as our "June 16, 2003 Form 8-K");
- our Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2003;
- Item 5 of our Current Report on Form 8-K dated September 15,
2003;
- our Current Report on Form 8-K dated October 29, 2003; and
- our Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2003 (referred to in this prospectus as
our "Third Quarter 2003 Form 10-Q").
Our June 16, 2003 Form 8-K contains "Management's Narrative Analysis of
the Results of Operations" and "Financial Statements and Supplementary Data of
the Company" from our 2002 Form 10-K with revisions to give effect to certain
accounting policies as described in our 2002 Form 10-K.
57
You may also obtain a copy of our filings with the SEC at no cost, by
writing to or telephoning us at the following address:
CenterPoint Energy Resources Corp.
c/o CenterPoint Energy, Inc.
Attn: Investor Services
P.O. Box 4567
Houston, Texas 77210-4567
(713) 207-3060
This prospectus is part of a registration statement that we have filed
with the SEC relating to the new notes. As permitted by SEC rules, this
prospectus does not contain all of the information included in the registration
statement and the accompanying exhibits and schedules we file with the SEC. You
should read the registration statement and the exhibits and schedules for more
information about us and the new notes.
58
================================================================================
$922,000,000
CENTERPOINT ENERGY RESOURCES CORP.
OFFER TO EXCHANGE
7.875% SENIOR NOTES DUE 2013, 5.95% SENIOR NOTES DUE 2014,
SERIES B SERIES B
FOR ALL OUTSTANDING FOR ALL OUTSTANDING
7.875% SENIOR NOTES DUE 2013, 5.95% SENIOR NOTES DUE 2014,
SERIES A SERIES A
PROSPECTUS
DECEMBER 3, 2003
================================================================================
