CNP

Business Context and Reporting Period

This Form 8-K, dated July 21, 2004, reports a definitive agreement between CenterPoint Energy, Inc. and its 81%-owned subsidiary, Texas Genco Holdings, Inc., to sell Texas Genco to GC Power Acquisition LLC. GC Power Acquisition is a newly formed entity owned equally by affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P., and Texas Pacific Group.

Key Financial Metrics and Transaction Details

• Total Transaction Value: Approximately $3.65 billion in cash.
• CenterPoint Energy Proceeds: Approximately $2.9 billion total ($2.2 billion from Step 1 and $700 million from Step 2), equating to $45.25 per share on its 81% interest.
• Minority Shareholder Buyout: Public shares (approx. 19%) to be purchased at $47 per share.
• Financing Structure: Up to $2.5 billion in debt financing and up to $1.08 billion in equity funding committed by sponsors.
• Existing Debt: As of June 30, 2004, $1.6 billion principal amount of borrowings was outstanding under a credit facility secured by CenterPoint's interest in Texas Genco.

Material Changes and Transaction Structure

The transaction is structured in two steps:

1. Step 1 (Expected Q4 2004): Texas Genco will purchase public shares in a cash-out merger. Subsequently, a subsidiary owning coal, lignite, and gas-fired generation plants will merge with a GC Power Acquisition subsidiary.
2. Step 2 (Expected Q1 2005): Following Nuclear Regulatory Commission approval, Texas Genco (retaining its interest in the South Texas Project nuclear facility) will merge with another GC Power Acquisition subsidiary.

CenterPoint Energy intends to use net after-tax proceeds to pay down outstanding debt, specifically the $1.6 billion secured under its bank credit facility.

Guidance, Risks, and Contingencies

• Conditions to Closing: The transaction is subject to debt financing receipt, antitrust waiting periods (Hart-Scott-Rodino), and Federal Energy Regulatory Commission certification of the generation entity as an "exempt wholesale generator."
• Power Purchase Agreement: Texas Genco has entered a master power purchase and sale agreement with a Goldman Sachs group member to sell forward baseload capacity through 2008. These obligations continue regardless of whether the sale transaction is completed.
• Approvals: The transaction has been approved by the boards of both CenterPoint Energy and Texas Genco, with unanimous recommendation from a special committee of independent Texas Genco directors.

Investor Verification Checklist

• Verify the status of the Federal Energy Regulatory Commission's "exempt wholesale generator" certification.
• Confirm the receipt of the $2.5 billion debt financing commitment from sources including Goldman Sachs.
• Monitor the Nuclear Regulatory Commission approval timeline for the South Texas Project transfer in Q1 2005.
• Review the specific terms of the master power purchase agreement with the Goldman Sachs group to assess ongoing operational obligations.
• Confirm the exact timing of the minority shareholder buyout and the subsequent debt reduction by CenterPoint Energy.