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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
RELIANT ENERGY, INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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[Reliant Energy Logo]
Reliant Energy, Incorporated
Notice of Annual Meeting of Shareholders
to be held on June 5, 2002
and Proxy Statement
Table of Contents
Page
----
Notice of Annual Meeting of Shareholders
Proxy Statement........................................................... 1
Voting Information...................................................... 1
Information About Directors............................................. 3
Stock Ownership......................................................... 7
Executive Compensation Tables........................................... 8
Retirement Plans, Related Benefits and Other Arrangements............... 11
Report of the Compensation Committee.................................... 15
Stock Performance Graphs................................................ 18
Report of the Audit Committee........................................... 20
Principal Accounting Firm Fees.......................................... 21
Ratification of Appointment of Independent Accountants and Auditors..... 21
Shareholder Proposals................................................... 21
Inclusion of Shareholder Proposals in Proxy Materials for 2003 Annual
Meeting................................................................ 24
Advance Notice Required for Proposals and Director Nominations.......... 25
General Information..................................................... 25
Section 16(a) Beneficial Ownership Reporting Compliance................. 26
Transactions and Arrangements Between Reliant Energy and Reliant
Resources.............................................................. 26
Annual Report to Shareholders........................................... 29
Appendix I--Reliant Energy, Incorporated Corporate Governance Guidelines.. A-1
[Reliant Energy Logo]
Notice of Annual Meeting of Shareholders
Dear Shareholder:
You are cordially invited to attend the Reliant Energy, Incorporated 2002
annual meeting of shareholders. The meeting will be held in the Auditorium of
Reliant Energy Plaza, 1111 Louisiana, Houston, Texas, at 9:00 a.m. Central
time, on Wednesday, June 5, 2002. At the meeting, shareholders will be asked
to:
. elect one Class III Director for a three-year term;
. ratify the appointment of Deloitte & Touche LLP as independent
accountants and auditors for Reliant Energy, Incorporated for 2002;
. consider two shareholder proposals, if presented to the meeting; and
. conduct other business if properly raised.
Shareholders of record at the close of business on April 12, 2002 are
entitled to vote. Each share entitles the holder to one vote. You may vote
either by attending the meeting or by proxy card. For specific voting
information, please see "Voting Information" on page 1. Even if you plan to
attend the meeting, please sign, date and return the enclosed proxy card.
Sincerely,
/s/ Hugh Rice Kelly
Hugh Rice Kelly
Executive Vice President,
General Counsel and
Corporate Secretary
Dated and first mailed
to Shareholders
on April 29, 2002
RELIANT ENERGY, INCORPORATED
1111 Louisiana
Houston, Texas 77002
(713) 207-3000
PROXY STATEMENT
Voting Information
Who may vote. Shareholders recorded in our stock register on April 12, 2002
may vote at the meeting. As of that date, there were 303,496,317 shares of our
common stock outstanding. Each share of common stock has one vote.
Voting by proxy or in person. Your vote is important. You may vote in person
at the meeting or by proxy. We recommend you vote by proxy even if you plan to
attend the meeting. You may always change your vote at the meeting. Giving us
your proxy means that you authorize us to vote your shares at the meeting in
the manner you indicated on your proxy card. You may vote for the nominee for
director or withhold authority to vote in the election. You may also vote for
or against the proposal to ratify the appointment of independent accountants
and any shareholder proposal presented, or you may abstain from voting.
If you sign and return the enclosed proxy card but do not specify how to
vote, we will vote your shares in favor of the director candidate, in favor of
the ratification of independent accountants and against the shareholder
proposals, if presented. If any other matters properly come before the annual
meeting, we will vote the shares in accordance with our best judgment and
discretion, unless authority to do so is withheld by you in the proxy card.
Your proxy may be revoked before it is voted by submitting a new proxy with
a later date, by voting in person at the meeting, or by giving written notice
to Hugh Rice Kelly, Corporate Secretary, at Reliant Energy's address shown
above.
If you plan to attend the meeting and your shares are held by banks, brokers
or investment plans (in "street name"), you will need proof of ownership to be
admitted to the meeting. A recent brokerage statement or letter from your
broker or bank are examples of proof of ownership.
Quorum needed. In order to carry on the business of the meeting, we must
have a quorum. This means at least a majority of the outstanding shares of
common stock eligible to vote must be represented at the meeting, either by
proxy or in person. Shares of common stock owned by Reliant Energy are not
voted and do not count for this purpose.
Votes needed. Under Reliant Energy's bylaws, the director candidate in Class
III receiving the most votes will be elected to fill the open seat in that
class on the Board. Ratification of the appointment of independent accountants
requires the favorable vote of a majority of the shares of common stock voted
for or against the matter. Approval of any shareholder proposal presented at
the meeting requires the favorable vote of a majority of the shares of common
stock represented at the meeting. Abstentions and broker non-votes count for
quorum purposes. For voting purposes, however, abstentions and broker non-
votes do not affect whether the appointment of independent accountants is
ratified but have the same effect as a vote against any shareholder proposal
submitted. Broker non-votes occur when a broker returns a proxy but does not
have authority to vote on a particular proposal.
Other actions related to holding company restructuring. Reliant Energy's
shareholders and its Board of Directors have approved a merger in which
Reliant Energy and its subsidiaries will become subsidiaries of a new holding
company, CenterPoint Energy, Inc. In the merger forming the holding company,
each outstanding share of Reliant Energy common stock will automatically be
converted into one share of common stock of CenterPoint Energy. Immediately
prior to the holding company formation, Reliant Energy (as the sole
shareholder of CenterPoint Energy) will take all actions necessary to elect
each of the then current directors of Reliant Energy to serve on the Board of
Directors of CenterPoint Energy.
Following the formation of CenterPoint Energy as the holding company,
Reliant Energy will continue as a subsidiary of CenterPoint Energy but will
convert to a limited liability company. As such, Reliant Energy will no longer
have a board of directors.
The completion of the holding company formation is subject to further
governmental approvals. It is not clear at this time when these approvals will
be obtained. As soon as the approvals are obtained, the holding company
formation will be completed. Following the holding company formation, we
expect that, subject to market and other conditions, CenterPoint Energy will
distribute to its shareholders all of the outstanding common stock it owns of
Reliant Resources, Inc., its 83%-owned subsidiary. In connection with the
holding company formation, David M. McClanahan, currently Vice Chairman of
Reliant Energy and President and Chief Operating Officer of its Reliant Energy
Delivery Group, is expected to become the President and Chief Executive
Officer of CenterPoint Energy and will be added to the Board of Directors of
CenterPoint Energy.
If the holding company formation occurs before the date of the annual
meeting, Reliant Energy, CenterPoint Energy and the directors of CenterPoint
Energy will take the actions necessary to elect to the Board of Directors of
CenterPoint Energy the directors elected by Reliant Energy's shareholders at
the annual meeting and to give effect at CenterPoint Energy to the vote of
Reliant Energy's shareholders on the other items voted on at the annual
meeting.
2
Information About Directors
Reliant Energy's Board of Directors is divided into three classes having
staggered terms of three years each. The term of office of the directors in
Class III expires at this year's meeting. The terms of office of the Class I
and Class II directors will expire in 2003 and 2004, respectively. At each
annual meeting of shareholders, directors are elected to succeed the class of
directors whose term has expired.
The Board's nominee for Class III director is O. Holcombe Crosswell, who is
a current director of Reliant Energy. Current Class III directors James A.
Baker, III and Richard E. Balzhiser will retire from the Board at the annual
meeting at the expiration of their current terms. Effective at the annual
meeting, the number of directors will be set at seven. Current director Laree
E. Perez is expected to resign from the Board of CenterPoint Energy at the
time of the distribution by CenterPoint Energy of its remaining shares of
Reliant Resources. If the nominee becomes unavailable for election, the Board
of Directors can name a substitute nominee and proxies will be voted for such
substitute nominee pursuant to discretionary authority, unless withheld.
Information about the nominee and each of the continuing directors is set
forth below.
Nominee for Class III Director--Term Expiring 2005
O. Holcombe Crosswell, age 61, has been a director since 1997. Mr. Crosswell
is President of Griggs Corporation, a real estate and investment company in
Houston, Texas.
The Board of Directors recommends a vote FOR the nominee for Director.
Continuing Class I Directors--Term Expiring 2003
Robert J. Cruikshank, age 71, has been a director since 1993. Mr. Cruikshank
is primarily engaged in managing his personal investments in Houston, Texas.
Prior to his retirement in 1993, he was a Senior Partner in the accounting
firm of Deloitte & Touche LLP. Mr. Cruikshank serves as a director of Kaiser
Aluminum Corporation, MAXXAM Inc., Texas Biotechnology Corporation and
Weingarten Realty Investors, and as an advisory director of Compass Bank--
Houston.
T. Milton Honea, age 69, has been a director since 1997. Mr. Honea was
Chairman of the Board, President and Chief Executive Officer of NorAm Energy
Corp. until its acquisition by Reliant Energy in 1997, having served in that
capacity since December 1992. He was Vice Chairman of the Board of NorAm
Energy from July 1992 through December 1992. He was Executive Vice President
of NorAm Energy from October 1991 until July 1992 and President and Chief
Operating Officer of Arkansas Louisiana Gas Company, a division of NorAm
Energy, from October 1984 to October 1991.
Laree E. Perez, age 48, has been a director since 2000. Ms. Perez is Vice
President of Loomis, Sayles & Company, L.P. in Albuquerque, New Mexico, an
investment management firm. Ms. Perez was co-founder, President and Chief
Executive Officer of Medallion Investment Company, Inc. until it was acquired
by Loomis Sayles in 1996. Ms. Perez is also a director of Reliant Energy's
subsidiary Reliant Resources, Inc.
Continuing Class II Directors--Term Expiring 2004
Milton Carroll, age 51, has been a director since 1992. Mr. Carroll is
Chairman, President and Chief Executive Officer of Instrument Products, Inc.,
an oil-tool manufacturing company in Houston, Texas. He is a director of
Health Care Service Corporation, Ocean Energy, Inc. and TEPPCO Partners, L.P.
He is also a director of Reliant Energy's subsidiary Reliant Resources, Inc.
John T. Cater, age 66, has been a director since 1983. Mr. Cater is
primarily engaged in managing his personal investments in Houston, Texas.
Prior to his retirement in 2000, he was Chairman of Compass Bank--
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Houston, Texas. He previously served as President of Compass Bank--Houston,
Texas, as Chairman and a director of River Oaks Trust Company, and as
President, Chief Operating Officer and a director of MCorp, a Texas bank
holding company.
R. Steve Letbetter, age 54, has been a director since 1995 and currently
serves as Chairman, President and Chief Executive Officer of Reliant Energy.
He has served as Chairman since January 2000 and as President and Chief
Executive Officer since June 1999. Since September 2000, he has been Chairman,
President and Chief Executive Officer of Reliant Resources, Inc., a provider
of electricity and energy services with a focus on the competitive segments of
the electric power industry in the United States and Europe. Since 1978, Mr.
Letbetter has held various positions as an executive officer of Reliant Energy
and its corporate predecessors.
Restructuring of Reliant Energy
The Board of Directors of Reliant Energy adopted a business separation plan
in response to the Texas Electric Choice Plan, which we refer to as the "Texas
electric restructuring law," adopted by the Texas legislature in June 1999.
The Texas electric restructuring law substantially amended the regulatory
structure governing electric utilities in Texas in order to allow retail
competition with respect to all customer classes beginning in January 2002.
The Texas electric restructuring law requires the separation of the
generation, transmission and distribution, and retail functions of electric
utilities into three different units. It also requires each electric utility
to file a business separation plan detailing its plan with the Public Utility
Commission of Texas to comply with the Texas electric restructuring law.
Under the business separation plan, Reliant Energy has restructured its
businesses into two distinct publicly traded companies in order to separate
its regulated and unregulated operations. In accordance with the plan, Reliant
Energy has transferred substantially all of its unregulated businesses to its
subsidiary, Reliant Resources. Reliant Resources completed the initial public
offering of nearly 20% of its common stock in May 2001. As part of the
business separation plan and upon receipt of certain regulatory approvals,
Reliant Energy intends to restructure its corporate organization into a
holding company structure, following which the holding company, CenterPoint
Energy, will distribute its remaining equity interest in the common stock of
Reliant Resources to CenterPoint Energy's shareholders. Reliant Energy also
intends to convey the regulated electric generating assets of its electric
utility division, Reliant Energy HL&P, to its indirect wholly owned
subsidiary, which we refer to as "Texas Genco." Reliant Energy expects Texas
Genco to conduct a public offering or distribution of nearly 20% of its common
stock in 2002. Reliant Energy has granted Reliant Resources an option
exercisable in January 2004 to purchase all of the shares of capital stock of
Texas Genco then owned by Reliant Energy (or by its successor after the
holding company formation). As a result of the holding company formation and
the Reliant Resources common stock distribution, Reliant Energy's wholly owned
subsidiary, CenterPoint Energy, will become its successor holding company and
will own essentially all of Reliant Energy's regulated businesses, and Reliant
Resources will become a separate unaffiliated company. Reliant Energy cannot
assure you that the holding company formation and the distribution will be
completed as described or within the period outlined above.
At the time the stock of Reliant Resources is distributed to shareholders,
Mr. Letbetter and the other executive officers of CenterPoint Energy will
resign their executive positions with CenterPoint Energy, and Mr. McClanahan
is expected to become the President and Chief Executive Officer of CenterPoint
Energy.
At the same time, Ms. Perez will resign as a director of CenterPoint Energy.
Subject to annual reelection by the Board as Chairman, Mr. Letbetter is
expected to remain as Chairman of the Board of Directors of CenterPoint Energy
until his term as a director of that company expires in 2004. Mr. Carroll will
serve as a member of both the CenterPoint Energy and Reliant Resources Boards
of Directors. As indicated above, Mr. McClanahan is expected to be added to
the Board of Directors of CenterPoint Energy in connection with the holding
company formation.
Unless the context otherwise requires, references in this proxy statement to
Reliant Energy should be understood to refer, after the holding company
formation, to CenterPoint Energy.
4
Board Organization and Committees
The Board of Directors directs the management of the business and affairs of
Reliant Energy. The Board appoints committees to help carry out its duties.
Last year, the Board met seven times and the committees met a total of 15
times. Each director attended more than 75% of the meetings of the Board of
Directors and the committees on which he or she served. Reliant Energy has the
following committees:
The Executive Committee has five members: Mr. Carroll, Mr. Cater, Mr.
Cruikshank, Mr. Honea and Mr. Letbetter. This committee reviews management
recommendations for organizational changes and consults on duties of executive
officers. The committee did not meet in 2001.
The Audit Committee has four non-employee director members: Dr. Balzhiser,
Mr. Crosswell, Mr. Cruikshank and Ms. Perez. This committee oversees
accounting and internal control matters. The committee recommends to the Board
of Directors the selection of the firm of independent public accountants to
audit the financial statements of Reliant Energy and its subsidiaries and
reviews and approves the plan and scope of the independent public accountants'
audit and non-audit services and related fees. The Audit Committee's report
begins on page 20. The committee met four times in 2001.
The Finance Committee has three non-employee director members: Mr. Cater,
Mr. Crosswell and Mr. Honea. This committee reviews Reliant Energy's financial
policies and strategies, including capital structure, and approves specific
debt and equity offerings within limits set by the Board. The committee met
five times in 2001.
The Compensation Committee has three non-employee director members: Dr.
Balzhiser, Mr. Cruikshank and Ms. Perez. This committee oversees compensation
and benefits for Reliant Energy's senior officers, including salary, bonus and
incentive awards. The committee also administers incentive compensation plans
and reviews human resources programs. The Compensation Committee's report on
executive compensation begins on page 15. The committee met two times in 2001.
The Governance Committee has four non-employee director members: Mr. Baker,
Mr. Carroll, Mr. Cater and Mr. Cruikshank. This committee recommends the
number of directors to comprise the Board, evaluates directors whose terms are
expiring, evaluates and recommends potential candidates for election to the
Board, reviews non-employee director compensation, reviews Board processes and
policies, and considers other corporate governance issues. In evaluating
potential director nominees, the committee will consider qualified persons
recommended by shareholders. Any shareholder wishing to make a recommendation
should write to the Corporate Secretary at Reliant Energy's address shown
above. The committee met one time in 2001.
The Business Separation Committee has seven members: Mr. Baker, Mr. Carroll,
Mr. Cater, Mr. Crosswell, Mr. Cruikshank, Mr. Honea and Mr. Letbetter. This
committee was established in late 2000 to review and make recommendations to
the Board regarding matters related to the restructuring of Reliant Energy.
The committee met two times in 2001.
Compensation of Directors
Reliant Energy employees receive no extra pay for serving as directors.
Compensation for each non-employee director consists of an annual retainer fee
of $30,000, a fee of $1,200 for each board and committee meeting attended and
an annual grant of 1,000 shares of Reliant Energy common stock. Directors may
defer all or part of their annual retainer fees and meeting fees under Reliant
Energy's deferred compensation plan. Directors participating in this plan are
entitled to receive distributions at age 70, or upon leaving the Board of
Directors, whichever is later. The deferred compensation plan currently
provides for accrual of interest on deferred director compensation at a rate
equal to the average annual yield on the Moody's Long-Term Corporate Bond
Index plus two percentage points.
5
Non-employee directors participate in a director benefits plan under which a
director who serves at least one full year will receive an annual cash amount
equal to the annual retainer in effect when the director terminates service.
Benefits under this plan begin the January following the later of the
director's termination of service or attainment of age 65, for a period equal
to the number of full years of service of the director.
Non-employee directors may also participate in Reliant Energy's executive
life insurance plan described under "Retirement Plans, Related Benefits and
Other Arrangements." This plan provides split-dollar life insurance with a
death benefit equal to six times the director's annual retainer with coverage
continuing after termination of service as a director. The plan also permits
Reliant Energy to provide for a tax reimbursement payment to make the
directors whole for any imputed income recognized with respect to the term
portion of the annual insurance premiums. Upon death, Reliant Energy will
receive the balance of the insurance proceeds payable in excess of the
specified death benefit. The plan is designed so that the proceeds received by
Reliant Energy are sufficient to cover Reliant Energy's cumulative outlays to
pay premiums and the after-tax cost to Reliant Energy of the tax reimbursement
payments.
Mr. Carroll performed consulting services for Reliant Energy and Reliant
Resources during 2001 in connection with deregulation and other issues, for
which he was paid $240,000 in 2001.
6
Stock Ownership
The following table shows stock ownership of beneficial owners of more than
5% of Reliant Energy's common stock, each director, the executive officers
named in the Summary Compensation Table on page 8, and the executive officers
and directors as a group, as of March 1, 2002. The directors and officers,
individually and as a group, beneficially own less than 1% of Reliant Energy's
outstanding common stock. For directors and executive officers, stock
ownership is also shown for Reliant Resources.
Number of Shares of Number of Shares of
Reliant Energy Reliant Resources
Name Common Stock Common Stock
---- ------------------- -------------------
Northern Trust
Corporation............ 34,928,822(/1/) N/A
50 South LaSalle Street
Chicago, Illinois 60675
Barrow, Hanley,
Mewhinney & Strauss,
Inc.................... 21,988,838(/2/) N/A
One McKinney Plaza
3232 McKinney Avenue,
15th Floor
Dallas, Texas 75204
James A. Baker, III..... 5,000 5,000
Richard E. Balzhiser.... 4,100 200
Milton Carroll.......... 0 11,000
John T. Cater........... 4,000(/3/) 2,000
O. Holcombe Crosswell... 13,595 0
Robert J. Cruikshank.... 6,000(/4/) 0
Robert W. Harvey........ 196,978(/5/)(/6/) 170,501(/6/)
T. Milton Honea......... 58,811 0
R. Steve Letbetter...... 783,966(/5/)(/6/) 334,167(/6/)
David M. McClanahan..... 259,740(/5/)(/6/) 0
Stephen W. Naeve........ 341,551(/5/)(/6/) 167,917(/6/)
Laree E. Perez.......... 2,000 0
Joe Bob Perkins......... 252,846(/5/)(/6/) 193,334(/6/)
All of the above
officers and directors
and other executive
officers as a group (15
persons)............... 2,310,680(/5/)(/6/) 966,114(/6/)
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(1) This information is as of December 31, 2001 and is based on a Schedule
13G/A filed with the Securities and Exchange Commission on February 14,
2002 by Northern Trust Corporation and certain of its subsidiaries. This
represents 11.72% of the outstanding common stock of Reliant Energy. The
Schedule 13G/A reports sole voting power for 902,195 shares of common
stock, shared voting power for 33,995,314 shares of common stock, sole
dispositive power for 1,227,253 shares of common stock and shared
dispositive power for 53,457 shares of common stock. Reliant Energy
understands that the shares reported include 33,505,474 shares of common
stock held as trustee of Reliant Energy's savings plans.
(2) This information is as of December 31, 2001 and is based on a Schedule 13G
filed with the Securities and Exchange Commission on February 7, 2002 by
Barrow, Hanley, Mewhinney & Strauss, Inc. This represents 7.43% of the
outstanding common stock of Reliant Energy. The Schedule 13G reports sole
voting power for 5,987,138 shares of common stock, shared voting power for
16,001,700 shares of common stock and sole dispositive power for
21,988,838 shares of common stock.
(3) Does not include 1,000 shares of common stock held by an adult child.
(4) Shares are owned jointly with spouse.
(5) Includes shares of common stock held under Reliant Energy's savings plan,
for which the participant has sole voting power (subject to such power
being exercised by the plan's trustee in the same proportion as directed
shares in the savings plan are voted in the event the participant does not
exercise voting power).
(6) Includes shares covered by Reliant Energy stock options that are
exercisable within 60 days, as follows: Mr. Harvey, 196,666 shares; Mr.
Letbetter, 684,787 shares; Mr. McClanahan, 206,621 shares; Mr. Naeve,
294,480 shares; Mr. Perkins, 236,666 shares; and the group, 1,889,200
shares. Also includes shares covered by Reliant Resources stock options
that are exercisable within 60 days, as follows: Mr. Harvey, 140,000
shares; Mr. Letbetter, 283,333 shares; Mr. Naeve, 140,000 shares; Mr.
Perkins, 140,000 shares; and the group, 782,659 shares.
7
Executive Compensation Tables
These tables show the compensation of the Chief Executive Officer and the
four other most highly compensated executive officers. Reported compensation
for Messrs. Letbetter, Harvey, Naeve and Perkins in 2001 was paid by Reliant
Resources and for prior years was paid by Reliant Energy.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
---------------------------------------- ------------------------------------
Awards Payouts
----------------------- ------------
Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary(/1/) Bonus(/1/) Compensation(/2/) Award(/3/) Options(/4/) Payouts(/5/) Compensation(/6/)
------------------ ---- ----------- ---------- ----------------- ---------- ------------ ------------ -----------------
R. Steve
Letbetter(/7/).... 2001 $983,750 $1,739,270 $2,514 $1,690,000 850,000 $812,479 $315,542
Chairman,
President and 2000 913,750 2,101,620 393 400,000 213,166 121,472
Chief Executive
Officer 1999 762,083 1,215,500 372 280,000 449,024 88,187
Robert W.
Harvey(/8/)(/9/).. 2001 568,750 773,500 2,720 901,345 420,000 -- 166,573
Vice Chairman 2000 537,500 752,500 613 175,000 -- 123,014
1999 291,667 272,484 -- 120,000 -- --
Stephen W.
Naeve(/9/)........ 2001 568,750 773,500 88 901,345 420,000 334,560 120,259
Vice Chairman and 2000 537,500 752,500 81 175,000 102,489 81,290
Chief Financial
Officer 1999 453,750 464,750 80 120,000 141,387 66,126
David M.
McClanahan(/10/).. 2001 535,000 545,700 976 -- 101,720 302,693 92,126
Vice Chairman;
President 2000 405,000 445,500 686 80,000 104,449 55,876
and Chief
Operating 1999 360,000 229,367 672 65,000 238,643 46,362
Officer, Reliant
Energy Delivery
Group
Joe Bob
Perkins(/9/)...... 2001 508,750 508,750 2,148 1,690,000 420,000 254,893 87,084
President and
Chief 2000 447,500 581,760 82 130,000 65,257 62,110
Operating Officer, 1999 387,500 396,286 95 100,000 135,757 50,343
Wholesale Group
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(1) The amounts shown include salary and bonus earned as well as earned but
deferred.
(2) The amounts shown include tax gross-ups paid to compensate for tax
consequences of imputed income under the executive life insurance plan and
the discount for any shares of Reliant Resources stock purchased under the
Reliant Resources employee stock purchase plan.
(3) On May 4, 2001, the following awards of restricted stock of Reliant
Resources were granted: Mr. Letbetter, 50,000 shares; Mr. Harvey, 26,667
shares; Mr. Naeve, 26,667 shares and Mr. Perkins, 50,000 shares. The
amounts shown are based on the closing prices of those shares on May 4,
2001. The aggregate value of restricted stock awards held as of December
31, 2001 based on closing sales prices of the underlying shares on that
date was $825,500 for Mr. Letbetter, $440,272 for Mr. Harvey, $440,272 for
Mr. Naeve and $825,500 for Mr. Perkins. In the event dividends are paid on
the underlying common stock, dividend equivalents accrue on the restricted
stock.
(4) Securities underlying options are shares of Reliant Energy, except for
grants in 2001 to Messrs. Letbetter, Harvey, Naeve and Perkins, which are
shares of Reliant Resources.
(5) Amounts shown represent the dollar value of Reliant Energy common stock
paid out in that year based on the achievement of performance goals for
the cycle ending in the prior year plus dividend equivalent accruals
during the performance period.
(6) 2001 amounts include (a) matching contributions to the savings plan and
accruals under the savings restoration plan for contributions, as follows:
Mr. Letbetter, $259,919; Mr. Harvey, $103,710; Mr. Naeve, $110,931; Mr.
McClanahan, $73,537 and Mr. Perkins, $63,813; (b) the term portion of the
premiums paid under split-dollar life insurance policies purchased in
connection with the executive life insurance plan, as follows: Mr.
Letbetter, $708; Mr. Harvey, $1,035; Mr. Naeve, $140; Mr. McClanahan,
$1,552 and Mr. Perkins, $125; (c) accrued interest on deferred
compensation that exceeds 120% of the applicable federal long-term rate,
as follows: Mr. Letbetter, $54,915; Mr. Harvey, $2,397; Mr. Naeve, $9,188;
Mr. McClanahan, $17,037 and Mr. Perkins, $23,146.
8
(7) Will resign as President and Chief Executive Officer of CenterPoint Energy
upon the distribution of Reliant Resources common stock to shareholders.
(8) Mr. Harvey was not employed by Reliant Energy prior to June 1999. Reliant
Energy also loaned Mr. Harvey $250,000 in connection with his initial
employment. The loan bears interest at a rate of 8% and principal and
interest are to be forgiven in annual installments through May 31, 2004 so
long as Mr. Harvey remains employed by Reliant Energy or one of its
subsidiaries as of each relevant anniversary of his employment date. The
amount of loan forgiveness for 2001 is included in the "All Other
Compensation" column. Upon the distribution of Reliant Resources common
stock to shareholders of CenterPoint Energy, the loan will be assigned to,
and annual loan forgiveness will be based on continuing employment with,
Reliant Resources.
(9) Will resign as an officer of CenterPoint Energy upon the distribution of
Reliant Resources common stock to shareholders.
(10) In connection with the holding company formation, Mr. McClanahan will
become President and Chief Executive Officer of CenterPoint Energy.
RELIANT ENERGY OPTION GRANTS IN 2001
Individual Grants
-------------------------------------------
Exercise/
Shares % of 2001 Base
Underlying Employee Purchase Grant Date
Options Option Price Per Expiration Present
Name Granted(/1/) Grants Share ($) Date Value ($)(/2/)
---- ------------ --------- --------- ---------- --------------
David M. McClanahan. 101,720 5.39% 46.80 03/05/2011 940,910
- --------
(1) Option grants vest in one-third increments per year generally from the
date of grant (so long as the officer remains an employee of Reliant
Energy). All options would immediately vest upon a change in control as
defined in Reliant Energy's long-term incentive compensation plan. A
"change in control" generally is deemed to have occurred if (a) any person
or group becomes the direct or indirect beneficial owner of 30% or more of
Reliant Energy's outstanding voting securities; (b) the majority of the
Board of Directors of Reliant Energy changes as a result of or in
connection with certain transactions; (c) as a result of a merger or
consolidation, less than 70% of the surviving corporation's outstanding
voting securities is owned by former shareholders of Reliant Energy
(excluding any party to the transaction or their affiliates); (d) a tender
offer or exchange offer is made and consummated for the ownership of 30%
or more of Reliant Energy's outstanding voting securities; or (e) Reliant
Energy transfers all or substantially all of its assets to another
corporation that is not wholly owned by Reliant Energy. The proposed
restructuring of Reliant Energy and the ensuing spin-off of Reliant
Resources will not be a "change in control" under the Reliant Energy long-
term incentive compensation plan. Upon the distribution of the stock of
Reliant Resources, however, the options reflected in the table will be
replaced with CenterPoint Energy stock options with the number of shares
and exercise price adjusted according to a formula designed to preserve
the intrinsic value of the options.
(2) Grant date value is based on the Black-Scholes option pricing model
assuming a five-year term, volatility of 31.91%, an annual dividend of
$1.50 per share and a risk-free interest rate of 4.87%. Actual gains, if
any, will be dependent on future performance of the common stock.
RELIANT RESOURCES OPTION GRANTS IN 2001
Individual Grants
-------------------------------------------
Exercise/
Shares % of 2001 Base
Underlying Employee Purchase Grant Date
Options Option Price Per Expiration Present
Name Granted(/1/) Grants Share ($) Date Value ($)(/2/)
---- ------------ --------- --------- ---------- --------------
R. Steve Letbetter.. 850,000 9.58% 30.00 03/05/2011 11,347,500
Robert W. Harvey.... 420,000 4.73% 30.00 03/05/2011 5,607,000
Stephen W. Naeve.... 420,000 4.73% 30.00 03/05/2011 5,607,000
Joe Bob Perkins..... 420,000 4.73% 30.00 03/05/2011 5,607,000
- --------
(1) Option grants vest in one-third increments per year generally from the
date of grant (so long as the officer remains an employee of Reliant
Resources). All options would immediately vest upon a change in control as
defined in Reliant Resources' long-term incentive plan. A "change in
control" generally is deemed to have occurred if (a) any person or group
becomes the direct or indirect beneficial owner of 30% or more of Reliant
Resources' outstanding voting securities, unless the acquisition is
directly from Reliant Resources and approved by the Board of Reliant
Resources; (b) the initial directors of Reliant Resources and individuals
approved by a majority of the initial directors (or their approved
successors) cease to constitute a majority of the Board; (c) a merger,
consolidation or acquisition involving Reliant Resources is carried out,
unless more than 70% of the surviving company's outstanding voting
securities is owned by former stockholders of Reliant Resources in
substantially the same proportion as before the transaction, any
consideration paid by Reliant Resources (including the amount of any long-
term debt assumed by the surviving company) does not exceed 50% of the
fair market value of Reliant Resources' outstanding voting securities
immediately prior to the transaction, no person or group
9
becomes the beneficial owner of 30% or more of the surviving company's
voting securities as a result of the transaction, and a majority of the
directors of the surviving company were directors of Reliant Resources
immediately prior to the transaction; or (d) Reliant Resources transfers
70% or more of its assets to another corporation that is not wholly owned
by Reliant Resources, unless after the transfer more than 70% of the
largest acquiring company's outstanding voting securities is owned by
former shareholders of Reliant Resources and a majority of the directors of
the largest acquiring company were directors of Reliant Resources
immediately prior to the transaction. The proposed restructuring of Reliant
Energy and the ensuing spin-off of Reliant Resources will not be a "change
in control" under Reliant Resources' long-term incentive plan and will have
no effect on the outstanding options of Reliant Resources.
(2) Grant date value is based on the Black-Scholes option pricing model
assuming a five-year term, volatility of 42.65%, no annual dividend and a
risk-free interest rate of 4.94%. Actual gains, if any, will be dependent
on future performance of the common stock.
2001 RELIANT ENERGY OPTION EXERCISES AND YEAR-END OPTION VALUES
Value of Unexercised In-
Number of Unexercised the-Money Options at
Options at December 31, December 31, 2001
Shares 2001 ($)(/1/)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
R. Steve Letbetter(/2/). 4,322 25,981 458,120 360,001 1,175,964 1,713,468
Robert W. Harvey........ -- -- 138,333 156,667 372,165 744,335
Stephen W. Naeve(/2/)... 1,794 11,230 202,813 156,668 507,162 748,668
David M.
McClanahan(/2/)........ 2,138 12,165 124,381 176,721 311,889 343,088
Joe Bob Perkins......... 3,042 70,917 159,999 120,001 322,495 557,268
- --------
(1) Based on the average of the high and low sales prices of the Common Stock
on the New York Stock Exchange Composite Tape for December 31, 2001.
(2) All options exercised were scheduled to expire if unexercised on January
6, 2002.
2001 RELIANT RESOURCES YEAR-END OPTION VALUES
Number of Value of Unexercised
Unexercised Options In-the-Money Options at
at December 31, 2001 December 31, 2001 ($)(/1/)
-------------------- --------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
R. Steve Letbetter......... -- 850,000 -- --
Robert W. Harvey........... -- 420,000 -- --
Stephen W. Naeve........... -- 420,000 -- --
Joe Bob Perkins............ -- 420,000 -- --
- --------
(1) Based on the average of the high and low sales prices of the Common Stock
on the New York Stock Exchange Composite Tape for December 31, 2001.
10
RELIANT ENERGY LONG-TERM INCENTIVE PLAN--AWARDS IN 2001(/1/)
Estimated Future Payouts Under
Non-Stock Price-Based Plans(/2/)
-------------------------------------------
Performance Target Maximum
Number Period Threshold Number Number
of Until Number of of of
Name Units Payout Units Units Units
---- ------ ----------- --------- ------ -------
David M. McClanahan................. 6,230 12/31/2003 3,115 6,230 9,345
- --------
(1) Amounts shown are potential payouts of awards in cash, common stock, or a
combination thereof under Reliant Energy's long-term incentive plan. Each
unit is assigned a target value of $100. These awards have a three-year
performance cycle. Payouts will be based on total shareholder return
measures and operating cash flow weighted 70% and 30%, respectively. If a
change in control (defined for Reliant Energy in generally the same manner
as for Reliant Resources in Reliant Resources' long-term incentive plan
described in footnote (1) to the table entitled "Reliant Resources Option
Grants in 2001" on page 9) occurs, such amounts will be paid in cash at
the maximum level, without regard to the achievement of performance goals.
The proposed restructuring of Reliant Energy and the ensuing spin-off of
Reliant Resources will not constitute a change in control for these
purposes. These performance unit grants will not be adjusted by the
proposed restructuring of Reliant Energy and the ensuing spin-off of
Reliant Resources.
(2) The table does not reflect dividend equivalent accruals during the
performance period.
RELIANT RESOURCES LONG-TERM INCENTIVE PLAN--AWARDS IN 2001(/1/)
Estimated Future Payouts Under
Non-Stock Price-Based Plans(/2/)
---------------------------------------------
Performance Target Maximum
Number Period Threshold Number Number
of Until Number of of of
Name Shares Payout Shares Shares Shares
---- ------- ----------- --------- ------- -------
R. Steve Letbetter................ 120,000 12/31/2003 60,000 120,000 180,000
Robert W. Harvey.................. 60,000 12/31/2003 30,000 60,000 90,000
Stephen W. Naeve.................. 60,000 12/31/2003 30,000 60,000 90,000
Joe Bob Perkins................... 60,000 12/31/2003 30,000 60,000 90,000
- --------
(1) Amounts shown are potential payouts of awards in cash, common stock, or a
combination thereof under Reliant Resources' long-term incentive plan.
These awards have a three-year performance cycle. Payouts will be based
entirely on total stockholder return measures. If a change in control
occurs, such amounts will be paid in cash at the maximum level, without
regard to the achievement of performance goals. The proposed restructuring
of Reliant Energy and the ensuing spin-off of Reliant Resources will not
constitute a change in control for these purposes or result in any
adjustment of these awards.
(2) The table does not reflect dividend equivalent accruals, if any, during
the performance period.
Retirement Plans, Related Benefits and Other Arrangements
PENSION PLAN TABLE
Estimated Annual Pension Based on Years of
Service(/2/)
--------------------------------------------------------
Final
Average
Annual
Compensation
At Age
65(/1/) 15 20 25 30 35 or more
------------ -------- -------- -------- ---------- ----------
$ 500,000 $142,897 $190,529 $238,161 $ 285,793 $ 333,426
750,000 215,647 287,529 359,411 431,293 503,176
1,000,000 288,397 384,529 480,661 576,793 672,926
1,250,000 361,147 481,529 601,911 722,293 842,676
1,500,000 433,897 578,529 723,161 867,793 1,012,426
1,750,000 506,647 675,529 844,411 1,013,293 1,182,176
2,000,000 579,397 772,529 965,661 1,158,793 1,351,926
- --------
(1) Effective January 1, 1999, the retirement plan provided a new cash balance
benefit formula in place of the final average pay formula on which the
benefits shown above are based. Retirement benefits for persons retiring
on or before December 31, 2008 are based on the higher of the benefit
calculated under the final average pay formula or the benefit calculated
under the new formula. Because
11
employees of Reliant Resources no longer participate in the retirement plan
after March 1, 2001, Mr. McClanahan is the only named executive officer
whose retirement benefits will continue to accrue under the amended
retirement plan. His benefits under the amended plan are not expected to
exceed the amounts reflected in the table. Final average annual
compensation means the highest compensation for 36 consecutive months out
of the 120 consecutive months immediately preceding retirement. It includes
only salary and bonus amounts. At December 31, 2001, Mr. McClanahan had 27
years of credited benefit service and is entitled in some circumstances to
up to three additional years of credited service under a supplemental
agreement.
(2) Amounts are determined on a single-life annuity basis and are not subject
to any deduction for Social Security or other offsetting amounts. The
qualified pension plan limits compensation and benefits in accordance with
provisions of the Internal Revenue Code. Pension benefits based on
compensation above the qualified plan limit or in excess of the limit on
annual benefits are provided through the nonqualified benefit restoration
plan.
Effective March 1, 2001, Reliant Energy amended its retirement plan to
provide that non-union employees of Reliant Resources and another subsidiary
may no longer participate in the plan and that those employees would be fully
vested in their cash balance accounts as of that date. The named executive
officers whose participation in the plan was terminated by this amendment and
their accrued benefits as of December 31, 2001 are as follows:
. Mr. Letbetter, $5,751,118,
. Mr. Harvey, $51,039,
. Mr. Naeve, $2,977,462, and
. Mr. Perkins, $270,231.
In addition, under the terms of his employment, Reliant Energy is obligated
to provide Mr. Harvey an additional $481,000 (equivalent to ten years of
service credit) if he remains employed until May 31, 2003.
Furthermore, as of March 1, 2001, an enhanced benefit was provided to some
employees who transferred to Reliant Resources and had attained age 42 with
five years of vesting service as of December 31, 2000. The enhanced benefit
increased the cash balance accounts of eligible employees but will not be
available until the stock of Reliant Resources is distributed to shareholders.
The named executive officers eligible for the enhanced benefit and the
additional cash balance account amounts resulting from that benefit as of
December 31, 2001 are:
. Mr. Letbetter, $8,210,817, and
. Mr. Naeve, $3,535,224.
These pension enhancements were provided primarily under Reliant Energy's
nonqualified benefit restoration plan.
Reliant Energy and Reliant Resources each maintain an executive benefits
plan that provides certain salary continuation, disability and death benefits
to certain key officers. Mr. Letbetter, Mr. Naeve and Mr. Perkins participate
in Reliant Resources' plan, and Mr. McClanahan participates in Reliant
Energy's plan, in each case pursuant to individual agreements that generally
provide for (a) a salary continuation benefit of 100% of the officer's current
salary for 12 months after death during active employment and then 50% of
salary for nine years or until the deceased officer would have attained age
65, if later, and (b) if the officer retires after attainment of age 65, an
annual postretirement death benefit of 50% of the officer's preretirement
annual salary payable for six years. Coverage under these plans has not been
provided to persons attaining executive officer status after July 1, 1996.
Reliant Energy and Reliant Resources each maintain an executive life
insurance plan providing split-dollar life insurance in the form of a death
benefit for officers. Benefits for Mr. Letbetter, Mr. Harvey, Mr. Naeve and
Mr. Perkins are provided under the Reliant Resources plan, and benefits for
Mr. McClanahan are provided under the Reliant Energy plan. The death benefit
coverage for each officer varies. Mr. Letbetter, Mr. Naeve and Mr. Perkins
have second-to-die coverage that is based on the amount of premium that could
have provided single-life
12
coverage equal to four times salary at the time of purchase for Mr. Letbetter
and two times salary at the time of purchase for Mr. Naeve and Mr. Perkins.
Mr. Harvey and Mr. McClanahan have single-life coverage equal to two times
current salary. The plans also provide that the employer may make payments to
the covered individuals to compensate for tax consequences of imputed income
that they must recognize for federal income tax purposes based on the term
portion of the annual premiums. If a covered executive retires at age 65 or at
an earlier age under circumstances approved by the Board of Directors, rights
under the plans vest so that coverage is continued based on the same death
benefit in effect at the time of retirement. Upon death, the appropriate
employer will receive the balance of the insurance proceeds payable in excess
of the specified death benefit, which is expected to be at least sufficient to
cover the employer's cumulative outlays to pay premiums and the after-tax cost
to the employer of the tax reimbursement payments. There is no arrangement or
understanding under which any covered individual will receive or be allocated
any interest in any cash surrender value under the policy.
Since 1985, Reliant Energy has had in effect deferred compensation plans
that permit eligible participants to elect each year to defer a percentage of
that year's salary (prior to December 1993, up to 25% or 40%, depending on
age, and beginning in December 1993, up to 100%) and up to 100% of that year's
annual bonus. In addition to salary and bonus deferrals, effective in 2002,
eligible Reliant Energy participants, including Mr. McClanahan, can also
commence deferrals into this plan once they reach the qualified savings plan
compensation limit or the defined contribution annual addition limit. In
general, employees who attain the age of 60 during employment and participate
in Reliant Energy's deferred compensation plans may elect to have their
deferred compensation amounts repaid in (a) fifteen equal annual installments
commencing at the later of age 65 or termination of employment or (b) a lump-
sum distribution following termination of employment. Interest generally
accrues on deferrals made in 1989 and subsequent years at a rate equal to the
average Moody's Long-Term Corporate Bond Index plus 2%, determined annually
until termination when the rate is fixed at the greater of the rate in effect
at age 64 or at age 65. Fixed rates of 19% to 24% were established for
deferrals made in 1985 through 1988, as a result of higher prevailing rates
and other factors. Current accruals of the above-market portion of the
interest on deferred compensation amounts are included in the "All Other
Compensation" column of the Summary Compensation Table. Effective in 2001,
Reliant Resources has assumed the liabilities relating to Reliant Resources
employees (including Messrs. Letbetter, Harvey, Naeve and Perkins) under the
Reliant Energy deferred compensation plans, as well as Reliant Energy's
nonqualified savings and benefit restoration plans. Reliant Resources will
provide these benefits under mirror plans or the new deferral plan described
below.
Since January 1, 2002, Reliant Resources has had a deferral plan under which
directors and eligible non-union employees, including Messrs. Letbetter,
Harvey, Naeve and Perkins, may defer up to 80% of salary and 100% of bonus
compensation. Deferred amounts are deemed invested in the plan's investment
alternatives in accordance with the participants' elections. Reliant
Resources' obligations to pay benefits under the deferral plan are general
unsecured obligations and are generally funded by Reliant Resources through a
"rabbi trust." Employees of Reliant Resources who are former employees of
Reliant Energy, including Messrs. Letbetter, Harvey, Naeve and Perkins, may
also transfer to the deferral plan accrued benefits under some nonqualified
benefit plans. In addition, savings restoration plan benefits for all Reliant
Resources participants are expected to be transferred to the new Reliant
Resources deferral plan.
Reliant Energy maintains a trust agreement with an independent trustee
establishing a "rabbi trust" for the purpose of funding benefits payable to
participants (including Mr. McClanahan) under Reliant Energy's deferred
compensation plans, executive incentive compensation plans, benefit
restoration plan and savings restoration plan, also referred to as the
"Designated Plans." The trust is a grantor trust, irrevocable except in the
event of an unfavorable ruling by the Internal Revenue Service as to the tax
status of the trust or certain changes in tax law. It is currently funded with
a nominal amount of cash. Future contributions will be made to the grantor
trust if and when required by the provisions of the Designated Plans or when
required by Reliant Energy's Benefits Committee. The Benefits Committee
consists of officers of Reliant Energy designated by the Board of Directors
and has general responsibility for funding decisions, selection of investment
managers for Reliant Energy's retirement plan and other administrative matters
in connection with other employee benefit plans of Reliant
13
Energy. If there is a change in control (defined in a manner generally the
same as the comparable definition in Reliant Energy's long-term incentive
compensation plan), the grantor trust must be fully funded, within 15 days
following the change in control, with an amount equal to the entire benefit to
which each participant would be entitled under the Designated Plans as of the
date of the change in control (calculated on the basis of the present value of
the projected future benefits payable under the Designated Plans). The assets
of the grantor trust are required to be held separate and apart from the other
funds of Reliant Energy and its subsidiaries, but remain subject to claims of
general creditors under applicable state and federal law. Reliant Resources
intends to establish a similar trust which will cover participants (including
Messrs. Letbetter, Harvey, Naeve and Perkins) in its plans which mirror the
Designated Plans.
Certain of Reliant Energy's executive officers, including Mr. Letbetter, Mr.
Naeve, Mr. McClanahan and Mr. Perkins, were parties to severance agreements
with Reliant Energy that expired in September 2000. The expired agreements
provided, in general, for the payment of certain benefits in the event of a
covered termination of employment occurring within three years after the
occurrence of a change in control of Reliant Energy. A covered termination
occurred if the officer's employment was terminated for reasons other than
death, disability, termination on or after age 65, termination for cause, or
resignation by the officer (except in specified circumstances involving a
change in control). Under the agreements, an officer that experienced a
covered termination was entitled to a payment of three times the sum of his
annual salary, his target annual bonus and (for some of the officers) an
amount based on the maximum payout under his long-term incentive compensation
plan restricted stock award, as well as certain welfare and other benefits.
Reliant Energy is currently considering authorizing new severance agreements
for certain executive officers including Mr. McClanahan.
14
Report of the Compensation Committee
Compensation Policy
It is the executive compensation policy of both Reliant Energy and Reliant
Resources to have compensation programs that:
. strengthen the relationship between pay and performance;
. attract, retain and encourage the development of highly qualified and
experienced executives;
. strengthen the relationship between executives and shareholder
interests by emphasizing equity compensation;
. promote overall corporate performance; and
. provide compensation that is both externally and internally equitable.
Executive compensation decisions for 2001 compensation reported in this
proxy statement, except for approving bonuses under the Reliant Resources
annual incentive program (which were approved by the Reliant Resources
Compensation Committee), were made by the Compensation Committee and Board of
Directors of Reliant Energy. Reported compensation for Reliant Resources for
2001 was paid under a compensation program established for Reliant Resources,
except that long-term incentive payouts were made under Reliant Energy's long-
term incentive compensation plan. The Compensation Committee for Reliant
Resources was established by the Board of Directors in June 2001 following
Reliant Resources' initial public offering, and currently, Reliant Energy and
Reliant Resources maintain separate compensation committees.
Executive compensation determinations, or recommendations to the Board of
Directors, for Reliant Resources in 2002 and going forward are being and will
continue to be made by the Reliant Resources Compensation Committee.
Both Reliant Energy and Reliant Resources retain an independent consulting
firm to review the executive compensation practices of companies considered
comparable in terms of size, type of business, performance and compensation
philosophy. Traditional utility companies and other industrial companies were
used for Reliant Energy's analysis. For Reliant Resources, primarily
integrated energy companies and other industrial companies were reviewed. The
companies included in the compensation review are not identical to the
companies referred to in the Stock Performance Graphs on pages 18 and 19
because the Compensation Committee believes that both Reliant Energy's and
Reliant Resources' most direct competitors for executive talent are not
limited to the companies included in the Stock Performance Graphs. The
Compensation Committee considers the compensation data obtained from the
comparable companies in establishing ranges for total compensation for
executive officers, as well as the mix of base salary and annual and long-term
incentives. In establishing individual compensation targets, the Compensation
Committee considers level and nature of responsibility, experience and its own
subjective assessment of performance. In making these determinations, the
Compensation Committee also takes into account the Chief Executive Officer's
evaluations of performance of other executive officers. The Compensation
Committee generally considers that the objectives of Reliant Energy's pay
philosophy are best served when total compensation for its executives is
targeted between the 50th and 75th percentile of the market represented by the
companies included in the review. For Reliant Resources, total compensation
for its executives is targeted nearer the 75th percentile of the market, in a
year of superior performance for Reliant Resources. Stock ownership guidelines
set goals for ownership of Reliant Resources common stock with a value of five
times base salary for the Chief Executive Officer, three times base salary for
the Executive Vice Presidents and two times salary for all other officers,
while Reliant Energy's guidelines for its common stock ownership consist of
two times salary for all of its officers.
The Compensation Committee periodically evaluates executive compensation
programs in light of Section 162(m) of the Internal Revenue Code (the "Code").
This Code section generally disallows the deductibility of compensation in
excess of $1 million for certain executive officers, but excludes from the
limitation certain
15
qualifying performance-based compensation. The Compensation Committee intends
to structure its compensation programs in a manner that maximizes tax
deductibility. The Compensation Committee recognizes, however, that in rare
situations, the best interests of Reliant Energy and its shareholders may be
better served by administering some elements of compensation in a manner that
occasionally may not meet the requirements for exclusion under Code Section
162(m).
Components of Compensation
The key elements of both Reliant Energy's and Reliant Resources' executive
compensation programs are base salary, annual incentive awards and long-term
incentive awards. The Compensation Committees consider each element of
compensation separately and in relation to the other elements of an
executive's total compensation package. The percentage of an executive's
compensation that is variable or performance-based generally increases with
higher levels of total compensation. The result is that the majority of the
executive officer's compensation is considered at risk. The ultimate value of
this at risk compensation is dependent on achievement of stock price
performance and other performance measures.
Base Salaries. The Compensation Committees' annual recommendations to their
respective Boards concerning each executive officer's base salary are based on
each Compensation Committee's analysis of salary levels for executive officer
positions among comparable companies, and its subjective evaluation of and
management's evaluation of each executive officer's individual performance and
level of responsibility. Mr. Letbetter's performance is evaluated solely by
the Compensation Committee. Reliant Resources generally targets base salaries
to the median of the competitive market, while Reliant Energy's base salaries
are targeted between the median and the 75th percentile.
Annual Incentive Compensation. Annual bonuses are paid pursuant to Reliant
Energy's and Reliant Resources' annual incentive compensation plan, which
provides for cash bonuses based on achievement over the course of the year of
performance objectives established at the commencement of the year. Target
annual incentives established at the beginning of the year 2001 for executive
officers ranged from 50% to 130% of base salary. Depending on the performance
objectives achieved each year, performance-based payouts can vary from 0% to
200% of the targeted amount. The performance goals for 2001 were based
entirely on Reliant Energy's consolidated earnings per share for the executive
officers, including Mr. Letbetter. Taking into account 2001 results, bonus
payments for 2001 ranged from 100% to 136% of targeted annual bonuses for
these officers. Mr. Letbetter's achievement was 136% of target.
Long-term Incentive Compensation. The current approach to long-term
incentives consists of grants of stock options and performance shares or
units. Under the plan, officers receive awards of performance shares or units
which result in payouts based on achievement of financial objectives
measurable over a three-year performance cycle. Payout levels for the
performance shares or units are calculated by determining the percentage of
achievement and can range from 0% to 150% of target. For the performance cycle
that began in 2001, Reliant Resources' performance goals consisted of total
stockholder return in relation to a select group of peer companies and the S&P
500 Index. Reliant Energy's goals for this performance cycle consisted of
total shareholder return in relation to a different select group of companies
and operating cash flow, weighted 30% and 70%, respectively. For the
performance period beginning in 2002, Reliant Resources' performance goals
will be based solely on Reliant Resources' total stockholder return compared
to the peer companies included in its Stock Performance Graph. Reliant
Energy's performance goals for the 2002 period will be based on Reliant
Energy's total shareholder return in relation to a select group of companies
and operating cash flow, weighted 40% and 60%, respectively.
During 2001, Reliant Resources executives who participated in the Reliant
Energy performance share plan for the performance period ending on December
31, 2000 received shares of Reliant Energy common stock based on performance
objectives set at the time of the award. Based on performance, Reliant Energy
achieved 150% of its targeted goal.
16
If the anticipated spin-off of Reliant Resources from Reliant Energy is
completed in 2002, all outstanding performance shares for the performance
cycle ending in 2002 will be converted to time-based restricted shares of
Reliant Energy based on an assumed maximum level of performance. All such
shares will vest if the officer holding such restricted shares remains
employed with Reliant Resources or Reliant Energy through December 31, 2002.
In addition to the performance shares, annual grants of stock options under
both Reliant Energy's and Reliant Resources' long-term incentive plans are
made at an option price not less than the fair market value of the common
stock on the date of grant. This design is intended to focus executive
officers on the creation of shareholder value over the long term and encourage
equity ownership in both Reliant Energy and Reliant Resources. Information
concerning option grants in the year 2001, including grant date present
values, is shown in the 2001 option grant tables on page 9. Treatment of
outstanding options when the contemplated spin-off of Reliant Resources occurs
is discussed in the footnotes to those tables.
In 2001, the long-term incentive grants under the program described above
were made at levels of approximately 150% of the level at which awards
otherwise would have been made in 2001 to the executives under the customary
granting methodology. These enhanced long-term incentive awards were intended
to provide increased shareholder alignment of the executives with the two
public companies and recognize the extraordinary effort in structuring and
carrying out Reliant Resources' initial public offering. Normal target grants
for the executive group range from 200% to 650% of base pay. Mr. Letbetter's
normal target is 650% of his base pay.
In 2001, Reliant Resources entered into retention agreements with some
executive officers under which restricted shares of Reliant Resources common
stock were granted. The restrictions lapse five years from the date of the
award, subject to earlier vesting in some circumstances, and the shares are
distributed following retirement. The shares are forfeited if the officer
leaves Reliant Resources prior to vesting. Information regarding these
restricted share grants is shown in the Restricted Stock Award column of the
Summary Compensation Table on page 8.
Chief Executive Officer Compensation
In March 2001, outside compensation consultants prepared an independent
report on the Chief Executive Officer's and other officers' compensation,
which took into consideration Reliant Resources' size and complexity, and the
markets in which it competes for talent. In evaluating Mr. Letbetter's total
compensation, the Reliant Energy Compensation Committee considered his
contributions to the overall success of both Reliant Energy and Reliant
Resources through his leadership and individual performance and expressed the
belief that Mr. Letbetter's compensation package will ensure his continuing
focus on creating substantial improvements in shareholder value. During 2001,
the Reliant Energy Compensation Committee set Mr. Letbetter's base salary at
$1 million. His annual incentive target was set at 130% of base salary. His
long-term incentive targets, when combined with his annual cash compensation,
are intended to position Mr. Letbetter's total direct compensation around the
50th percentile of the competitive market, when targeted incentive plan
performance expectations are met. Reliant Resources also entered into a
retention agreement with Mr. Letbetter under which he was awarded 50,000
restricted shares of Reliant Resources common stock under the arrangements
described above.
Robert J. Cruikshank, Chairman
Richard E. Balzhiser
Laree E. Perez
17
Stock Performance Graphs
The following graph shows the yearly percentage change in the cumulative
total shareholder return on Reliant Energy's common stock compared with the
cumulative total return of the S&P 500 Index and the S&P Electric Companies
Index for the period commencing December 31, 1996 and ending December 31,
2001. Reliant Energy common stock trades on the New York and Chicago stock
exchanges under the symbol "REI." Following the holding company formation
discussed above, CenterPoint Energy is expected to begin trading on those
exchanges under the symbol "CEP."
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
RELIANT ENERGY, INCORPORATED, THE S&P ELECTRIC COMPANIES INDEX
AND THE S&P 500 INDEX FOR FISCAL YEAR ENDED DECEMBER 31(/1/)(/2/)
[PERFORMANCE GRAPH APPEARS HERE]
December 31,
-----------------------------
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Reliant Energy, Incorporated..................... $100 $127 $160 $120 $240 $153
S&P Electric Companies Index..................... $100 $126 $146 $118 $180 $165
S&P 500 Index.................................... $100 $133 $171 $208 $189 $166
- --------
(1) Assumes that the value of the investment in the common stock and each
index was $100 on December 31, 1996 and that all dividends were
reinvested.
(2) Historical stock price performance is not necessarily indicative of future
price performance.
18
The following graph shows the quarterly change in the cumulative total
stockholder return on Reliant Resources' common stock since its initial public
offering in May 2001, as well as the S&P 500 Index, and a group of Reliant
Resources' peer companies comprised of Calpine Corp., Dominion Resources,
Inc., Duke Energy Corp., Dynegy, Inc., El Paso Corp., Exelon Corp., Mirant
Corp., TXU Corp., The Williams Companies, Inc. and Reliant Resources for the
same period. Reliant Resources common stock trades on the New York Stock
Exchange under the symbol "RRI."
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
RELIANT RESOURCES, INC., S&P 500 INDEX AND
PEER GROUP OF COMPANIES FOR EIGHT MONTHS ENDED DECEMBER 31, 2001(/1/)(/2/)
[PERFORMANCE GRAPH APPEARS HERE]
May 1, 2001 June 30, 2001 September 30, 2001 December 31, 2001
----------- ------------- ------------------ -----------------
Reliant Resources,
Inc.................... $100 $82.33 $54.00 $55.03
S&P 500 Index........... $100 $96.90 $82.68 $91.52
Peer Group.............. $100 $85.38 $67.81 $66.86
- --------
(1) Assumes that the value of the investment in the Reliant Resources common
stock and each index was $100 on May 1, 2001.
(2) Historical stock price performance is not necessarily indicative of future
price performance.
19
Report of the Audit Committee
In accordance with the written charter of the Audit Committee adopted by the
Board of Directors, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of Reliant Energy. During 2001, the
Audit Committee met four times, and the Audit Committee chair or other
representative of the Audit Committee met quarterly and discussed the interim
financial information contained in each quarterly earnings announcement with
the Chief Accounting Officer or Comptroller, and Deloitte & Touche LLP,
Reliant Energy's independent auditors, prior to public release.
In discharging its oversight responsibility as to the audit process, the
Audit Committee (a) obtained from the independent auditors a formal written
statement describing all relationships between the auditors and Reliant Energy
that might bear on the auditors' independence consistent with Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees" and (b) discussed with the auditors any relationships that may
impact their objectivity and independence. The Audit Committee also discussed
with management, the internal auditors and the independent auditors the
quality and adequacy of Reliant Energy's internal controls and the internal
audit function's organization, responsibilities, budget and staffing. The
Audit Committee reviewed with both the independent and the internal auditors
their audit plans, audit scope and identification of audit risks.
The Audit Committee discussed and reviewed with the independent auditors all
communications required by auditing standards generally accepted in the United
States, including those described in Statement on Auditing Standards No. 61,
as amended, "Communication with Audit Committees" and discussed and reviewed
the results of the independent auditors' examination of the financial
statements.
On February 5, 2002, Reliant Energy announced that it was restating its
earnings for the second and third quarters of 2001. As more fully described in
its March 15, 2002 Current Report on Form 8-K, the restatement related to a
correction by our subsidiary, Reliant Resources, in accounting treatment for a
series of four structured transactions that were inappropriately accounted for
as cash flow hedges for the period of May 2001 through September 2001, rather
than as derivatives with changes in fair value recognized through the income
statement.
At the time of Reliant Energy's public announcement of its intention to
restate its reporting of the structured transactions, the Audit Committee of
Reliant Energy instructed Reliant Energy to conduct an internal audit review
to determine whether there were any other transactions included in the asset
books as cash flow hedges that failed to meet the cash flow hedge requirements
under Statement of Financial Accounting Standards No. 133. This targeted
internal audit review found no other similar transactions.
The Audit Committee also directed an internal investigation by outside legal
counsel of the facts and circumstances leading to the restatement, which
investigation has been completed. In connection with the restatement and
related investigations, the Audit Committee has met eight times to hear and
assess reports from the investigative counsel regarding its investigation. To
address the issues identified in the investigation process, the Audit
Committee and management have begun analyzing and implementing remedial
actions, including, among other things, changes in organizational structure
and enhancement of internal controls and procedures.
The Audit Committee reviewed and discussed the audited financial statements
of Reliant Energy as of and for the fiscal year ended December 31, 2001, with
management and the independent auditors. Management has the responsibility for
the preparation of Reliant Energy's financial statements and the independent
auditors have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Audit Committee recommended to the Board that
Reliant Energy's audited financial statements be included in its Annual Report
on Form 10-K for the fiscal year ended December 31, 2001, for filing with the
Securities and Exchange Commission. The Audit Committee also recommended the
reappointment, subject to shareholder approval, of the independent auditors
and the Board concurred with such recommendation.
Richard E. Balzhiser, Chairman
O. Holcombe Crosswell
Robert J. Cruikshank
Laree E. Perez
20
Principal Accounting Firm Fees
Aggregate fees billed to Reliant Energy for the fiscal year ended December
31, 2001 by Reliant Energy's principal accounting firm, Deloitte & Touche LLP,
the member firms of Deloitte Touche Tohmatsu, and their respective affiliates,
which includes Deloitte Consulting (collectively, "Deloitte & Touche"), are as
follows:
Audit Fees............................................... $ 4,320,923
Financial Information Systems Design and Implementation
Fees.................................................... $ 5,611,155(a)(b)
All Other Fees
Audit Related Fees........................ $ 3,225,363(c)
Other Non-Audit Related Fees.............. $ 20,018,201(a)
------------
Total All Other Fees................................... $23,243,564(b)
-----------
Total Fees............................................... $33,175,642
- --------
(a) Financial Information Systems Design and Implementation Fees and Other
Non-Audit Related Fees include $5,476,155 and $17,520,215, respectively,
of fees for services provided by Deloitte Consulting. Deloitte & Touche
has recently announced its intent to separate Deloitte Consulting from
Deloitte & Touche LLP.
(b) The Audit Committee has considered whether the provision of these services
is compatible with maintaining the principal accountant's independence.
(c) Includes fees for consents and comfort letters, audits of Reliant Energy's
employee benefit plans, consultation with respect to certain registration
statements and consultation with respect to accounting processes.
Ratification of Appointment of Independent Accountants and Auditors
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Deloitte & Touche LLP as independent accountants and auditors to
conduct the annual audit of Reliant Energy's accounts for the year 2002.
Deloitte & Touche LLP (and their predecessors) have served as independent
accountants and auditors for Reliant Energy and its predecessors since 1932.
Ratification requires the affirmative vote of a majority of shares of common
stock voted for or against the matter. If the appointment is not ratified by
the shareholders, the Board will reconsider the appointment.
Representatives of Deloitte & Touche LLP will be present at the annual
meeting and will have an opportunity to make a statement if they wish. They
will be available to respond to appropriate questions from shareholders at the
meeting.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Deloitte & Touche LLP as independent accountants and auditors.
Shareholder Proposals
Reliant Energy has been notified that shareholders intend to present two
proposals for consideration at the annual meeting. The address and stock
ownership of the proponents identified below will be furnished by the
Corporate Secretary of Reliant Energy to any person, orally or in writing as
requested, promptly upon receipt of such request.
Shareholder Proposal 1. Reliant Energy has been notified that a
representative of the United Brotherhood of Carpenters and Joiners of America
Pension Fund intends to present the following proposal for consideration at
the annual meeting:
"Resolved, that the shareholders of Reliant Energy, Incorporated
("Company') request that the Board of Directors adopt a policy stating that
the public accounting firm retained by our Company to provide audit
services, or any affiliated company, should not also be retained to provide
non-audit services to the Company.
"Statement of Support: The role of independent auditors in ensuring the
integrity of the financial statements of public corporations is
fundamentally important to the efficient and effective operation of the
financial markets. The U.S. Securities and Exchange Commission recently
stated:
21
Independent auditors have an important public trust. Investors must be
able to rely on issuers' financial statements. It is the auditor's
opinion that furnishes investors with critical assurance that the
financial statements have been subjected to a rigorous examination by
an objective, impartial, and skilled professional, and that investors,
therefore, can rely on them. If investors do not believe that an
auditor is independent of a company, they will derive little confidence
from the auditor's opinion and will be far less likely to invest in
that public company's securities. (Division of Corporate Finance, Staff
Legal Bulletin #14, 7/13/01) ("Bulletin #14')
"It is critically important to the integrity of the auditing process and
the confidence of investors that those firms performing audits for public
corporations avoid business relationships that might compromise their
independence or raise the perception of compromised judgment. At the heart
of the challenge to auditor independence is the growing level of business
and financial relationships developing between audit firms and their
clients. Bulletin #14 identifies these growing business relationships that
threaten auditor independence:
Accounting firms have woven an increasingly complex web of business and
financial relationships with their audit clients. The nature of the
non-audit services that accounting firms provide to their audit clients
has changed, and the revenues from these services have dramatically
increased.
"The growth of non-audit revenues represents a trend that has been
accelerating dramatically in the last several years, with non-audit fees
for consulting or advisory services exceeding audit fees at many companies.
Our Company is in the category of companies that pays its audit firm more
for non-audit advisory services than it does for audit services. The
Company's most recent proxy statement indicated that during fiscal year
2000 Deloitte & Touche LLP billed the Company $3,608,700 for audit
services, while billing $18,464,200 for non-audit services rendered.
"We believe that this financial "web of business and financial
relationships' may at a minimum create the perception of a conflict of
interest that could result in a lack of owner and investor confidence in
the integrity of the Company's financial statements. As long-term
shareowners, we believe that the best means of addressing this issue is to
prohibit any audit firm retained by our Company to perform audit services
from receiving payment for any non-audit services performed by the firm. We
urge your support for this resolution designed to protect the integrity of
the Company's auditing and financial reporting processes."
The Board of Directors recommends a vote AGAINST this proposal. Reliant
Energy is sensitive to the concerns about the potential impact of non-audit
services on auditor independence and objectivity and on public confidence that
they will be maintained. Decisions to engage our independent auditors for non-
audit services are made only when the firm's particular expertise and
knowledge are believed to contribute significant efficiencies or other value
and when the determination has been made that the engagement is consistent
with auditor independence. The Audit Committee of the Board of Directors
intends to continue careful scrutiny of these matters.
Recently there has been heightened attention to and increased criticism of
non-audit services performed by accounting firms who also serve as independent
auditors for the same company. In November 2000, the Securities and Exchange
Commission adopted new rules relating to auditor independence, which among
other things limited the kinds of non-audit services an accounting firm could
provide for its audit clients and instituted new proxy statement disclosure
requirements about non-audit services provided by a company's auditors. Since
that time, some have suggested that the independence requirements should be
made more restrictive. The debate in public and regulatory arenas over matters
relating to auditor independence may go on for some time.
On February 6, 2002, Reliant Energy's independent public accountants,
Deloitte & Touche LLP, announced their intention to separate Deloitte
Consulting from Deloitte & Touche LLP. Deloitte & Touche LLP stated that the
purpose of the separation was to enable their audit clients to continue to
utilize the services of Deloitte Consulting without raising public concern
about auditor independence. Although we do not believe that performance of
non-audit services has compromised the independence of our auditors, this
separation should eliminate any independence-related concerns about the
consulting services performed by Deloitte Consulting. Of
22
the fees for non-audit services performed in 2001 and 2000, approximately 80%
and 76%, respectively, were attributable to services performed by Deloitte
Consulting which, as noted above, is proposed to be separated from Deloitte &
Touche LLP.
Contributing to the level of fees for non-audit services during 2000 and
2001 was significant work relating to the separation of our regulated and
unregulated businesses. Non-audit services provided in relation to the
separation of the regulated and unregulated businesses included financial
information systems design, implementation and other consulting fees related
to the retail customer care system, consulting services related to the
development of a shared services structure for the unregulated business and
accounting consultation related to certain registration statements filed by
the unregulated business. Fees for services provided relating to the
separation of the regulated and unregulated businesses were approximately 68%
and 34% of total fees for non-audit services in 2001 and 2000, respectively.
At present, Reliant Energy believes it is in its best interests for the
Board of Directors and the Audit Committee to be able to continue to make
determinations on matters relating to auditor independence without the
rigidity imposed by a complete prohibition on performance of non-audit
services by our independent auditors.
One reason a complete prohibition on non-audit services would be inadvisable
is that some services, although not considered "audit services" as defined by
the SEC, are so related to a company's financial statements that their
performance by a firm other than the firm engaged for the audit would be
either not feasible or very inefficient. These include statutory audits of
subsidiaries, benefit plan audits, acquisition due diligence, various attest
services under professional standards and assistance with registration
statements, comfort letters and consents. In addition, the discretion to
determine the best allocation of tasks among service providers enhances the
ability of the Board of Directors and the Audit Committee to discharge their
responsibilities to Reliant Energy and its shareholders.
Furthermore, in accordance with guidelines of the American Institute of
Certified Public Accountants, Deloitte & Touche LLP has processes in place
intended to ensure that audits are conducted in an objective and impartial
manner, including the mandatory rotation of the engagement partner, a
concurring partner review of each audit and periodic review by another major
accounting firm of its audit practices.
Given the measures already in place, the disclosures required when
independent auditors are selected for non-audit work, and the pending
separation of the audit and consulting businesses of our present auditors, we
believe there is no benefit to Reliant Energy or its shareholders from an
arbitrary limitation on the ability of management and the Board of Directors
to exercise business judgment in the selection of auditors or other outside
vendors.
----------------
Shareholder Proposal No. 2. Reliant Energy has been notified that a
representative of the Laborers' District Council of Western Pennsylvania
Pension Fund intends to present the following proposal for consideration at
the annual meeting:
"Resolved, that the shareowners of Reliant Energy, Incorporated ("Company")
hereby urge that the Board of Directors include in future proxy statements
a description of the Board's role in the development and monitoring of the
Company's long-term strategic plan. Specifically, the disclosure should
include the following: (1) A description of the Company's corporate
strategy development process, including timelines; (2) an outline of the
specific tasks performed by the Board in the strategy development and the
compliance monitoring processes, and (3) a description of the mechanisms in
place to ensure director access to pertinent information for informed
director participation in the strategy development and monitoring
processes.
"Statement of Support: The development of a well-conceived corporate
strategy is critical to the long-term success of a corporation. While
senior management of our Company is primarily responsible for development
of the Company's strategic plans, in today's fast-changing environment it
is more important than ever that the Board engage actively and continuously
in strategic planning and the ongoing assessment of business opportunities
and risks. It is vitally important that the individual members of the
Board, and the
23
Board as an entity, participate directly and meaningfully in the
development and continued assessment of our Company's strategic plan.
"A recent report by PricewaterhouseCoopers entitled "Corporate Governance
and the Board--What Works Best' examined the issue of director involvement
in corporate strategy development. The Corporate Governance Report found
that chief executives consistently rank strategy as one of their top
issues, while a poll of directors showed that board contributions to the
strategic planning process are lacking. It states: "Indeed, it is the area
most needing improvement. Effective boards play a critical role in the
development process, by both ensuring a sound strategic planning process
and scrutinizing the plan itself with the rigor required to determine
whether it deserves endorsement.'
"The Company's proxy statement, and corporate proxy statements generally,
provides biographical and professional background information on each
director, indicating his or her compensation, term of office, and board
committee responsibilities. While this information is helpful in assessing
the general capabilities of individual directors, it provides shareholders
no insight into how the directors, individually and as a team, participate
in the critically important task of developing the Company's operating
strategy. And while there is no one best process for board involvement in
the strategy development and monitoring processes, shareholder disclosure
on the Board's role in strategy development would provide shareholders
information with which to better assess the performance of the board in
formulating corporate strategy. Further, it would help to promote "best
practices' in the area of meaningful board of director involvement in
strategy development.
"We urge your support for this important corporate governance reform."
The Board of Directors recommends a vote AGAINST this proposal. We agree
that the Board has an important and meaningful role in Reliant Energy's
strategic planning process. In fact, in our Corporate Governance Guidelines,
which we published in our proxy statement two years ago and are including
again in this proxy statement, we address the Board's role in reviewing and
approving Reliant Energy's business plan and its long-term strategic and
financial goals, and in regularly monitoring Reliant Energy's performance with
respect to those goals. We intend to make our Corporate Governance Guidelines
available to shareholders, through including in our proxy statement or annual
report either the text of the Guidelines or a statement as to their
availability free of charge upon request.
We therefore think the current shareholder proposal is unnecessary.
Moreover, insofar as the specifics of the recommendation would mandate
inclusion of details such as timelines, outlines of specific tasks and
descriptions of mechanisms for access to information, we believe that the
proposal would call for an unnecessary level of specificity and detail about
matters that will vary from time to time and depending on the circumstances of
the strategic planning matters involved. We believe it is best for the Board
to retain flexibility and discretion as to how to present information
regarding its governance processes, including those relating to strategic
planning.
Inclusion of Shareholder Proposals in Proxy Materials for 2003 Annual Meeting
Rule 14a-8 under the Securities Exchange Act of 1934 addresses when a
company must include a shareholder's proposal in its proxy statement and
identify the proposal in its form of proxy when the company holds an annual or
special meeting of shareholders. In general, under Rule 14a-8 a proposal for a
regularly scheduled annual meeting must be received at the company's principal
executive offices not less than 120 calendar days before the date of the
company's proxy statement released to shareholders in connection with the
previous year's annual meeting or, if the company did not hold an annual
meeting the previous year, or if the date of the annual meeting has been
changed by more than 30 days from the date of the previous year's annual
meeting, a reasonable time before the company begins to print and mail its
proxy materials. For a special meeting, the deadline is a reasonable time
before the company begins to print and mail its proxy materials. In addition
to complying with the applicable deadline, shareholder proposals must also be
otherwise eligible for inclusion.
24
Reliant Energy expects to hold its 2003 annual meeting on or about May 7,
2003, which is a change of not more than 30 days from this year's annual
meeting. As a result, any shareholder who intends to present a proposal at the
2003 annual meeting of shareholders and who requests inclusion of the proposal
in Reliant Energy's or, if the restructuring has occurred, CenterPoint
Energy's 2003 proxy statement and form of proxy in accordance with applicable
SEC rules should file the proposal with us by December 30, 2002.
Advance Notice Required for Proposals and Director Nominations
Reliant Energy's bylaws and CenterPoint Energy's bylaws each require advance
notice of proposals by shareholders to be presented for action at an annual
meeting. In the case of the 2003 annual meeting, the required notice must be
received by our Corporate Secretary between December 7, 2002 and March 7,
2003. CenterPoint Energy's bylaws, however, provide that if the date of the
annual meeting is advanced more than 30 days prior to or delayed by more than
60 days after the anniversary of the preceding year's annual meeting, to be
timely the notice by the shareholder must be so received by our Corporate
Secretary not earlier than 180 days prior to such annual meeting and not later
than the last to occur of the close of business on (i) the 90th day prior to
such annual meeting or (ii) the 10th day following the day on which we first
make public announcement of the date of such meeting. Reliant Energy's bylaws
and CenterPoint Energy's bylaws each require that the proposal must constitute
a proper subject to be brought before the meeting and that the notice must
contain prescribed information, including a description of the proposal and
the reasons for bringing it before the meeting, proof of the proponent's
status as a shareholder and the number of shares held and a description of all
arrangements and understandings between the proponent and anyone else in
connection with the proposal as well as other procedural requirements. If the
proposal is for an amendment of the bylaws, the notice must also include the
text of the proposal and be accompanied by an opinion of counsel that the
proposal would not conflict with our charter or Texas law. A copy of Reliant
Energy's bylaws or CenterPoint Energy's bylaws describing the requirements for
notice of shareholder proposals may be obtained by writing Mr. Hugh Rice
Kelly, Corporate Secretary, at Reliant Energy's address shown above.
Reliant Energy's bylaws and CenterPoint Energy's bylaws each provide that a
shareholder may nominate a director for election if the shareholder sends a
notice to our Corporate Secretary identifying any other person making such
nomination with the shareholder and providing proof of shareholder status.
This notice must be received at our principal executive offices between
December 7, 2002 and March 7, 2003. CenterPoint Energy's bylaws, however,
provide that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 60 days after the anniversary of the
preceding year's annual meeting, notice by the shareholder to be timely must
be so received by our Corporate Secretary not earlier than 180 days prior to
such annual meeting and not later than the last to occur of the close of
business on (i) the 90th day prior to such annual meeting or (ii) the 10th day
following the day on which we first make public announcement of the date of
such meeting. The shareholder must also provide the information about the
nominee that would be required to be disclosed in the proxy statement. We are
not required to include any shareholder-proposed nominee in the proxy
statement. A copy of Reliant Energy's bylaws or CenterPoint Energy's bylaws
describing the requirements for nomination of director candidates by
shareholders may be obtained by writing Mr. Hugh Rice Kelly, Corporate
Secretary, at Reliant Energy's address shown above.
General Information
Reliant Energy began mailing this proxy statement and the accompanying proxy
card to shareholders on April 29, 2002. The proxy statement and proxy card are
being furnished at the direction of the Board of Directors. Reliant Energy
will pay all solicitation costs, including the fee of Morrow & Co., who will
help Reliant Energy solicit proxies for $9,500, plus expenses. Reliant Energy
will reimburse brokerage firms, nominees, fiduciaries, custodians, and other
agents for their expenses in distributing proxy material to the beneficial
owners of Reliant Energy's common stock. In addition, certain of Reliant
Energy's directors, officers, and employees may solicit proxies by telephone
and personal contact.
The Board of Directors does not intend to bring any other matters before the
meeting and has not been informed that any other matters are to be properly
presented to the meeting by others. If other business is
25
properly raised, your proxy card authorizes the people named as proxies to
vote as they think best, unless authority to do so is withheld by you in the
proxy card.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers, and holders of more than 10% of Reliant Energy's common
stock to file with the SEC initial reports of ownership and reports of changes
in ownership of Reliant Energy's common stock. We believe that during the
fiscal year ended December 31, 2001, our officers and directors complied with
these filing requirements except for (i) two Form 4's for Mr. Carroll that
were filed late and (ii) one Form 4 for Mr. McClanahan that was filed late due
to a company administrative error.
Transactions and Arrangements between Reliant Energy and Reliant Resources
Shortly before Reliant Resources' initial public offering, Reliant Energy
and Reliant Resources entered into a master separation agreement. The master
separation agreement provided for the separation of the assets and businesses
of Reliant Resources from those of Reliant Energy. It also contains agreements
governing the relationship between Reliant Resources and Reliant Energy after
the initial public offering and provides for other agreements described below.
The master separation agreement provides for cross-indemnities intended to
place sole financial responsibility on Reliant Resources and its subsidiaries
for all liabilities associated with the current and historical businesses and
operations Reliant Resources conducts after giving effect to the separation,
regardless of the time those liabilities arise, and to place sole financial
responsibility with Reliant Energy and its other subsidiaries for liabilities
associated with Reliant Energy's other businesses. Each party has also agreed
to assume and be responsible for some specified liabilities associated with
activities and operations of the other party and its subsidiaries to the
extent performed for or on behalf of the other party's current or historical
business.
Reliant Resources has entered into agreements with Reliant Energy under
which Reliant Energy provides Reliant Resources, on an interim basis, various
corporate support services, information technology services and other
previously shared services such as corporate security, facilities management,
accounts receivable, accounts payable and payroll, office support services and
purchasing and logistics. These arrangements will continue under a transition
services agreement providing for their continuation until December 31, 2004,
or, in the case of some corporate support services, until the distribution of
the stock of Reliant Resources, subject to termination at an earlier date. The
charges Reliant Resources pays Reliant Energy for these services are generally
intended to allow Reliant Energy to recover its fully allocated costs of
providing the services, plus out-of-pocket costs and expenses and are based on
methods including negotiated usage rates, dedicated asset assignment, and
proportionate corporate formulas based on assets, operating expenses and
employees. Amounts charged and allocated to Reliant Resources for these
services were $9 million for 2001. In addition, during 2001, Reliant Resources
incurred costs primarily related to corporate support services which were
billed to Reliant Energy and its affiliates of $27 million. Pursuant to lease
agreements, Reliant Energy leases to Reliant Resources office space in its
headquarters building and in various other locations in Houston, Texas, for an
interim period. During 2001, Reliant Resources incurred $16 million of rent
expense to Reliant Energy.
Under a retail agreement, during 2001 Reliant Resources provided customer
service call center operations, credit and collections and revenue accounting
services for Reliant Energy's electric utility division. Under that agreement,
a Reliant Resources subsidiary received and processed payments for the
accounts of Reliant Energy's electric utility division and two of Reliant
Energy's natural gas distribution divisions. Reliant Energy provided the
office space and certain equipment to perform these services. The charges
Reliant Energy paid Reliant Resources for these services, aggregating $53
million in 2001, were generally intended to allow Reliant Resources to recover
its fully allocated costs of providing the services, plus out-of-pocket costs
and expenses.
Reliant Energy was indebted to Reliant Resources, other than for purchases
subject to usual trade terms and for other transactions in the ordinary course
of business, in the amount of approximately $421 million as of
26
December 31, 2001, bearing interest at an average rate of approximately 4.75%.
The largest aggregate amount of such indebtedness owed to Reliant Resources by
Reliant Energy during 2001 was approximately $1.4 billion. This indebtedness
related primarily to advances made by Reliant Resources to a subsidiary of
Reliant Energy that provides cash management functions. Reliant Resources was
indebted to Reliant Energy, other than for purchases subject to usual trade
terms and for other transactions in the ordinary course of business, in the
amount of approximately $3 million as of December 31, 2001, bearing interest
at an average rate of approximately 4.75%. The largest aggregate amount of
such indebtedness owed to Reliant Energy by Reliant Resources during 2001 was
approximately $2 billion. This indebtedness related primarily to loans for the
financing of the Reliant Energy Mid-Atlantic Power Holdings, LLC and Reliant
Energy Power Generation Benelux N.V. acquisitions and general operating
expenses.
In March 2001, Reliant Resources repaid $236 million of debt owed to Reliant
Energy. In May 2001, Reliant Energy converted or contributed an aggregate of
$1.7 billion of indebtedness owed by Reliant Resources to Reliant Energy and
its subsidiaries to equity. In addition, in May 2001 Reliant Resources used
$147 million of the net proceeds from its initial public offering to repay
certain indebtedness owed to Reliant Energy. During 2001, excess cash
resulting from Reliant Resources' initial public offering was advanced to a
subsidiary of Reliant Energy on a short-term basis. As of December 31, 2001,
the amount of such advances was $390 million. During 2001, Reliant Energy or
its subsidiaries made equity contributions to Reliant Resources of $1.8
billion. These contributions primarily related to the conversion into equity
of debt owed to Reliant Energy and its subsidiaries and related interest
expense totaling $1.7 billion and the contribution of net benefit assets and
liabilities, net of deferred income taxes.
Reliant Resources purchases natural gas and transportation services from,
supplies natural gas to, and provides marketing and risk management services
to affiliates of Reliant Energy that are not part of Reliant Resources.
Purchases of transportation services and natural gas from Reliant Energy and
its subsidiaries were $188 million in 2001. During 2001, the sales and
services to Reliant Energy and its subsidiaries totaled $701 million.
Pursuant to the Texas electric restructuring law, Reliant Energy's electric
utility generation division ("Texas Genco") is required to sell at auction 15%
of the output of its installed generating capacity. This obligation continues
until January 1, 2007, unless before that date the Public Utility Commission
of Texas ("Texas Utility Commission") determines at least 40% of the quantity
of electric power consumed in 2000 by residential and small commercial
customers in the utility's service area is being served by retail electric
providers other than Reliant Resources. The master separation agreement
requires Texas Genco to auction all of its capacity that remains subsequent to
capacity auctioned pursuant to Texas Utility Commission rules and after
certain other deductions (the "Texas Genco remaining capacity"). Reliant
Resources has the right to purchase 50% (but not less than 50%) of the Texas
Genco remaining capacity that would otherwise be auctioned at the prices to be
established in the auction. Pursuant to these provisions of the master
separation agreement, during 2001 Reliant Resources participated in generation
capacity auctions by Texas Genco. Reliant Resources also exercised its option
included in the master separation agreement to purchase 50% of the capacity,
energy and ancillary services of Texas Genco not auctioned in the auctions, at
the prices established in the auctions. As of December 31, 2001, Reliant
Resources has minimum commitments to purchase capacity of Texas Genco
averaging 6,139 megawatts ("MW") per month in 2002 and 775 MW per month in
2003. Reliant Resources' payments related to its minimum obligations are $213
million in 2002 and $58 million in 2003. It is expected that Texas Genco will
have a total of six auctions in 2002 and 2003 in which Reliant Resources will
have the right to purchase 50% of Texas Genco's remaining capacity.
In connection with the separation of Reliant Resources' businesses from
those of Reliant Energy, Reliant Energy has granted Reliant Resources an
option to purchase, subject to the completion of the distribution of Reliant
Energy's remaining equity interest in Reliant Resources to Reliant Energy's
shareholders, all of the shares of capital stock of Texas Genco that will be
owned by Reliant Energy after the initial public offering or distribution
noted below. Reliant Energy has agreed either to issue and sell in an initial
public offering or to
27
distribute to its shareholders no more than 20% of the common stock of Texas
Genco by December 31, 2002. The Texas Genco option may be exercised between
January 10, 2004 and January 24, 2004. The per share exercise price under the
option will be the average daily closing price on the national exchange for
publicly held shares of common stock of Texas Genco for the 30 consecutive
trading days with the highest average closing price during the 120 trading
days immediately ending January 9, 2004, plus a control premium, up to a
maximum of 10%, to the extent a control premium is included in the valuation
determination made by the Texas Utility Commission relating to the market
value of Texas Genco's common stock equity. The exercise price is also subject
to adjustment based on the difference between the per share dividends paid
during the period there is a public ownership interest in Texas Genco and
Texas Genco's per share earnings during that period. If the disposition to the
public of common stock of Texas Genco is by means of a primary or secondary
public offering, the public offering may be of as little as 17% of Texas
Genco's outstanding common stock, in which case Reliant Energy will have the
right to subsequently reduce its interest to a level not less than 80%.
Reliant Resources has agreed that if it exercises the Texas Genco option and
purchases the shares of Texas Genco common stock, Reliant Resources will also
purchase all notes and other receivables from Texas Genco then held by Reliant
Energy, at their principal amount plus accrued interest. Similarly, if Texas
Genco holds notes or receivables from Reliant Energy, Reliant Resources will
assume Reliant Energy's obligations in exchange for a payment to Reliant
Resources by Reliant Energy of an amount equal to the principal plus accrued
interest.
Reliant Resources has entered into a support agreement with Reliant Energy,
pursuant to which Reliant Resources will provide engineering and technical
support services and environmental, safety and industrial health services to
support operations and maintenance of Texas Genco's facilities. Reliant
Resources will also provide systems, technical, programming and consulting
support services and hardware maintenance (but excluding plant-specific
hardware) necessary to provide dispatch planning, dispatch and settlement and
communication with the independent system operator. The fees charged for these
services will be designed to allow Reliant Resources to recover its fully
allocated direct and indirect costs and reimbursement of out-of-pocket
expenses. Expenses associated with capital investment in systems and software
that benefit both the operation of Texas Genco's facilities and Reliant
Resources' facilities in other regions will be allocated on an installed
megawatt basis. The term of this agreement will end on the first to occur of
(a) the closing date of Reliant Resources' exercise of the Texas Genco option,
(b) Reliant Energy's sale of Texas Genco, or all or substantially all of the
assets of Texas Genco, if Reliant Resources does not exercise the Texas Genco
option, or (c) May 31, 2005, provided the Texas Genco option is not exercised,
Texas Genco may extend the term of this agreement until December 31, 2005.
When Texas Genco is organized, it will become the beneficiary of the
decommissioning trust that has been established to provide funding for
decontamination and decommissioning of a nuclear electric generation station
in which Reliant Energy owns a 30.8% interest. The master separation agreement
provides that Reliant Energy will collect through rates or other authorized
charges to its electric utility customers amounts designated for funding the
decommissioning trust, and will pay the amounts to Texas Genco. Texas Genco
will in turn be required to deposit these amounts received from Reliant Energy
into the decommissioning trust. Upon decommissioning of the facility, in the
event funds from the trust are inadequate, Reliant Energy will be required to
collect, through rates or other authorized charges to customers as
contemplated by the Texas Utilities Code, all additional amounts required to
fund Texas Genco's obligations relating to the decommissioning of the
facility. Following the completion of the decommissioning, if surplus funds
remain in the decommissioning trust, the excess will be refunded to Reliant
Energy's ratepayers.
In connection with the separation of Reliant Resources' businesses from
those of Reliant Energy, Reliant Resources has also entered into other
agreements providing for, among other things, mutual indemnities and releases
with respect to Reliant Resources' respective businesses and operations,
matters relating to corporate governance, matters relating to responsibility
for employee compensation and benefits, and the allocation of tax liabilities.
In addition, Reliant Resources and Reliant Energy have entered into various
agreements relating to ongoing commercial arrangements, including, among other
things, the leasing of optical fiber and related maintenance activities, gas
purchasing and agency matters and subcontracting energy services under
existing contracts.
28
Reliant Resources has guaranteed, in the event Reliant Energy becomes
insolvent, certain nonqualified benefits of Reliant Energy's and its
subsidiaries' existing retirees at the time of the distribution of the Reliant
Resources stock, totaling approximately $55 million as of December 31, 2001.
Annual Report to Shareholders
Our Annual Report to Shareholders, which contains our consolidated financial
statements for the year ended December 31, 2001, accompanies the proxy material
being mailed to all shareholders. The Annual Report is not a part of the proxy
solicitation material.
By Order of the Board of Directors,
/s/ R. Steve Letbetter
R. Steve Letbetter
Chairman, President and Chief
Executive Officer
April 29, 2002
29
APPENDIX I
Reliant Energy, Incorporated
Corporate Governance Guidelines
as adopted November 3, 1999
Role of Board
The Board of Directors is the ultimate decision-making body of Reliant
Energy, Incorporated except with respect to those matters reserved to the
shareholders. It elects the executive management team, which is charged with
the conduct of the Company's business. Having elected the executive management
team, the Board acts as an advisor and counselor to executive management and
ultimately monitors its performance.
The principal duty of the Board of Directors and management of the Company
is to assure that the Company is well-managed in the interests of its
shareholders.
Board Structure
1. Number of Directors. The Board will normally consist of between nine and
eighteen directors, subject to the provisions of the Company's charter and
bylaws. The number of directors will be determined from time to time by the
Board, based upon the recommendation of the Governance Committee, in
consultation with the CEO. The Board currently has twelve directors.
The Board, in its discretion, may appoint from time to time a limited number
of advisory directors. The advisory directors will attend Board meetings but
will not vote and will not be considered to be directors in the restrictions
set forth above in this item and in the next item.
2. Board Composition. A significant majority of the directors will be
outside directors. Outside directors are individuals who:
. are not past or present members of management;
. do not have a close family relationship with a member of management;
and
. do not have any relationship with the Company which, in the opinion of
the Board, would adversely affect their ability to exercise independent
judgment as directors.
In addition, no less than two nor more than four voting directors will be
officers of the Company.
3. Selection of Directors. The Governance Committee, in consultation with
the CEO, will evaluate and recommend to the Board potential nominees for
election to the Board of Directors. All nominees shall meet the qualification
and eligibility requirements contained in the Company's bylaws. The CEO will,
upon approval of the Board, extend the offer to the candidate.
In nominating a slate of directors to shareholders, the Board's objective is
to select eligible individuals whose qualifications are such that they will
contribute to the formulation and implementation of the Company's strategic
direction. The Board will consider the need for a range among the directors of
business experience, diversity, professional skills, geographic background and
other qualities in light of the Company's business plan.
4. Board Leadership. The Chairman of the Board and the CEO shall be the
same person, except that it may be advisable during a CEO transition to have
the positions separated for a brief period.
5. Committees of the Board. The Governance Committee, based upon
recommendations of the CEO, will make the following recommendations to the
Board:
. membership of each committee, including chairs;
A-1
. responsibilities of each committee; and
. whether new committees should be formed and whether existing committees
should be continued, redirected or abolished.
The Audit, Compensation, and Governance Committees will consist solely of
outside directors. The CEO will be an ex officio non-voting member of the
Governance Committee. In the case of the Audit Committee and the Compensation
Committee, counsel will be consulted to confirm that each member satisfies any
eligibility requirements under applicable securities law, stock exchange,
federal income tax and other legal requirements. Each committee chair, in
consultation with committee members, will determine the frequency and length
of the meetings of the committee, except as otherwise provided in the
committee's charter.
6. Stock Ownership. Directors are encouraged to own a significant equity
interest in the Company within a reasonable period after initial election to
the Board. To more closely align the interests of directors and the Company's
shareholders, a portion of director compensation will be paid in the form of
common stock.
Board Functions
1. Chief Executive Officer Performance. The Board believes that the CEO's
performance should be evaluated annually, based on both qualitative and
quantitative factors, and as a regular part of any decision with respect to
the CEO's compensation.
The Board and the Compensation Committee will share this responsibility
jointly. The Board has delegated responsibility to the Compensation Committee
to evaluate the CEO's performance in the course of recommending the CEO's
compensation. During an executive session of the Board, the Chairman of the
Compensation Committee will report to the Board on the evaluation of the CEO's
performance. The Chairman of the Compensation Committee will review comments
of the Board with the CEO following the executive session, as appropriate.
2. Approval of Major Strategies and Financial Objectives. Each year the
Board will review and approve the Company's business plan, as well as its
long-term strategic and financial goals. The Board will regularly monitor the
Company's performance with respect to these plans and goals.
3. Board Evaluation. The Governance Committee, in consultation with the
CEO, will consider and recommend to the Board measures by which the Board can
evaluate the effectiveness of the Board and its committees. The Chairman of
the Governance Committee will present the recommendations to the Board.
4. Management Succession and Development. The Compensation Committee will
review annually with the CEO management succession planning and development.
The CEO and the Chairman of the Compensation Committee will report to the
Board on management succession and development.
5. Executive Compensation. The Compensation Committee will review and make
recommendations to the Board concerning all executive officer compensation,
including salary and non-incentive based compensation, and the design of the
Company's incentive compensation plans for executives.
The Company's executive compensation policy is to have compensation programs
that:
. strengthen the relationship between pay and performance;
. attract, retain and encourage the development of highly qualified and
experienced executives;
. promote overall corporate performance; and
. provide compensation that is competitive externally and equitable
internally.
6. Director Compensation. The Governance Committee, in consultation with
the CEO, will periodically review director compensation in comparison with
companies that are similarly situated to ensure that such compensation is
reasonable and competitive.
A-2
Board Operations
1. Review of Board Operations. The Governance Committee, in consultation
with the CEO, except that if the Chairman of the Board and the CEO are not the
same person, then with the Chairman and the CEO jointly, will periodically
review and make recommendations to the Board regarding Board processes and
policies, including the appropriateness of Board meeting agendas and the
frequency and location of Board meetings. Regular meetings of the Board are
now held seven times per year and special meetings are held as required.
2. Meeting Attendance. If a director's cumulative attendance falls below
66% of Board and committee meetings in the aggregate held over a three-year
period, the director shall offer his or her resignation. The Governance
Committee will make a recommendation to the Board whether the Board should
accept the resignation.
3. Selection of Agenda Items for Board Meetings. The CEO will establish the
agenda for each Board meeting, except that if the Chairman of the Board and
the CEO are not the same person, then the Chairman and the CEO will jointly
establish the agenda for each Board meeting. Each director is free to suggest
items for inclusion on the agenda, and each director is free to raise at any
Board meeting subjects that are not on the agenda for that meeting.
4. Pre-meeting Materials. To the extent feasible or appropriate,
information and data important to the directors' understanding of the matters
to be considered, including background summaries of presentations to be made
at the meeting, will be distributed prior to the meeting. Directors also will
routinely be sent monthly financial statements, earnings reports, press
releases, analyst reports and other information designed to keep them informed
of the material aspects of the Company's business, performance and prospects.
5. Conduct of Meetings. Board meetings will be conducted in a manner which
ensures open communication, meaningful participation and timely resolution of
issues.
6. Executive Sessions. Executive sessions or meetings of outside directors
without management present will be held at least once each year to review the
report of the outside auditors, the criteria upon which the performance of the
CEO is evaluated, the performance of the CEO against such criteria and the
compensation of the CEO. Additional executive sessions or meetings of outside
directors may be held from time to time as required. Executive sessions or
meetings are held from time to time with the CEO for a general discussion of
relevant subjects.
7. Board Access to Executive Management. Directors will have complete
access to the Company's executive management. It is assumed that directors
will use judgment to be sure that contact with management is not distracting
to the business operations of the Company.
Other Board Practices
1. Periodic Review of These Guidelines. These guidelines will be reviewed
periodically by the Governance Committee, in consultation with the CEO, and
any recommended revisions will be submitted to the full Board for action
thereon.
2. Orientation of New Directors. An orientation process for all new
directors will be maintained. This process includes comprehensive background
briefings by the Company's executive officers. The orientation program is the
responsibility of the CEO and is administered by the Corporate Secretary.
A-3
RELIANT ENERGY, INCORPORATED
Proxy Common Stock
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints R. Steve Letbetter, O. Holcombe Crosswell, and
Robert J. Cruikshank, and each of them, as proxies, with full power of
substitution, to vote as designated on the reverse side, all shares of common
stock held by the undersigned at the annual meeting of shareholders of Reliant
Energy, Incorporated to be held June 5, 2002, at 9 a.m. (CDT) in the Reliant
Energy Plaza auditorium, 1111 Louisiana Street, Houston, Texas, or any
adjournments thereof, and with discretionary authority to vote on all other
matters that may properly come before the meeting (unless such discretionary
authority is withheld).
If you wish to vote in accordance with the
recommendations of the Board of Directors, you
may just sign and date below and mail in the
postage-paid envelope provided. Specific
choices may be made on the reverse side. In
the absence of instructions to the contrary,
the shares represented will be voted in
accordance with the Board's recommendation.
Dated:__________________________________, 2002
Signature:____________________________________
Signature:____________________________________
Note: Please sign exactly as name(s) appears
hereon. Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title.
- --------------------------------------------------------------------------------
Detach and Mail Card
Fellow Shareholders:
This past year has been one of unprecedented change and challenge in the
energy industry. It was a year in which the industry experienced volatile
natural gas prices and unusual weather, a highly politicized wholesale
electricity market on the West Coast and the much-publicized failure of a
large energy trading company.
Despite these and a variety of other challenges, we spent 2001
finalizing preparations for deregulation of the retail electricity industry
in our core Texas market and taking steps to restructure Reliant Energy into
two publicly traded companies: CenterPoint Energy, a regulated energy
delivery company, and Reliant Resources, a competitive energy services
provider.
Reliant Energy expects to form CenterPoint Energy and complete the spin-
off of Reliant Resources later this year, after we receive final approval
from the Securities and Exchange Commission. The initial public offering of
Reliant Resources in May 2001 marked the first step in the separation of the
two companies. Shareholders approved the formation of the new holding
company in December. I am confident that both CenterPoint Energy and Reliant
Resources have very solid foundations on which to build value for our
shareholders.
Please join me at our 2002 Annual Meeting of Shareholders to learn more
about the events of the past year and our plans for the future. The meeting
will be held at 9:00 a.m. on June 5, 2002, in the Reliant Energy Plaza
auditorium. If you are unable to attend, please make your vote count by
signing and returning the enclosed proxy card as soon as possible.
/s/ R. Steve Letbetter
---------------------------------------
R. Steve Letbetter
Chairman, President and CEO
RELIANT ENERGY, INCORPORATED
2002 Annual Meeting of Shareholders
The nominee for Class III director is O. Holcombe Crosswell. The term of the
Class III director will expire in 2005. Your Board of Directors recommends that
you vote FOR the nominee for director, FOR ratification of the appointment of
Deloitte & Touche LLP as independent accountants and auditors for 2002, AGAINST
the shareholder proposal requesting that the Board adopt a policy that the
public accounting firm retained by the Company to provide audit services should
not be retained to provide non-audit services to the Company, and AGAINST the
shareholder proposal requesting that the Board include a description of the
Board's role in the development and monitoring of the Company's long-term
strategic plan in future proxy statements.
1. Election of nominee for Class III director.
FOR WITHHOLD
[_] [_]
2. Ratification of the Appointment of Deloitte & Touche LLP as independent
accountants and auditors for 2002.
FOR AGAINST ABSTAIN
[_] [_] [_]
3.Shareholder proposal relating to independent accountants.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Shareholder proposal relating to the Board's role in the Company's long-term
strategic plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [_]
Please check this box if you plan to attend the Annual Meeting. [_]
- --------------------------------------------------------------------------------
Detach and Mail Card
[Map appears here]
RELIANT ENERGY, INCORPORATED
VOTING DIRECTIONS TO TRUSTEE - COMMON STOCK
THIS CARD RELATES TO THE SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby directs the Trustee of the Reliant Energy, Incorporated
Savings Plan to vote as designated on the reverse side, all shares of common
stock attributable to the account of the undersigned at the annual meeting of
shareholders of Reliant Energy, Incorporated to be held June 5, 2002, at 9 a.m.
(CDT) in the Reliant Energy Plaza auditorium, 1111 Louisiana Street, Houston,
Texas, or any adjournments thereof, and with discretionary authority to vote on
all other matters that may properly come before the meeting (unless such
discretionary authority is withheld).
If you wish to vote in accordance with the
recommendations of the Board of Directors, you
may just sign and date below and mail in the
postage-paid envelope provided. Specific choices
may be made on the reverse side. In the absence
of instructions to the contrary, the shares
represented will be voted in accordance with the
Board's recommendation.
Dated:____________________________________, 2002
Signature:______________________________________
Note: Please sign exactly as the name appears
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title.
- --------------------------------------------------------------------------------
Detach and Mail Card
Fellow Shareholders:
This past year has been one of unprecedented change and challenge in the
energy industry. It was a year in which the industry experienced volatile
natural gas prices and unusual weather, a highly politicized wholesale
electricity market on the West Coast and the much-publicized failure of a large
energy trading company.
Despite these and a variety of other challenges, we spent 2001 finalizing
preparations for deregulation of the retail electricity industry in our core
Texas market and taking steps to restructure Reliant Energy into two publicly
traded companies: CenterPoint Energy, a regulated energy delivery company, and
Reliant Resources, a competitive energy services provider.
Reliant Energy expects to form CenterPoint Energy and complete the spin-off
of Reliant Resources later this year, after we receive final approval from the
Securities and Exchange Commission. The initial public offering of Reliant
Resources in May 2001 marked the first step in the separation of the two
companies. Shareholders approved the formation of the new holding company in
December. I am confident that both CenterPoint Energy and Reliant Resources have
very solid foundations on which to build value for our shareholders.
Please join me at our 2002 Annual Meeting of Shareholders to learn more
about the events of the past year and our plans for the future. The meeting will
be held at 9:00 a.m. on June 5, 2002, in the Reliant Energy Plaza auditorium. If
you are unable to attend, please make your vote count by signing and returning
the enclosed proxy card as soon as possible.
/s/ R. Steve Letbetter
------------------------------------
R. Steve Letbetter
Chairman, President and CEO
RELIANT ENERGY, INCORPORATED
2002 Annual Meeting of Shareholders
The nominee for Class III director is O. Holcombe Crosswell. The term of the
Class III director will expire in 2005. Your Board of Directors recommends that
you vote FOR the nominee for director, FOR ratification of the appointment of
Deloitte & Touche LLP as independent accountants and auditors for 2002, AGAINST
the shareholder proposal requesting that the Board adopt a policy that the
public accounting firm retained by the Company to provide audit services should
not be retained to provide non-audit services to the Company, and AGAINST the
shareholder proposal requesting that the Board include a description of the
Board's role in the development and monitoring of the Company's long-term
strategic plan in future proxy statements.
1. Election of nominee for Class III director.
FOR WITHHOLD
[_] [_]
2. Ratification of the Appointment of Deloitte & Touche LLP as independent
accountants and auditors for 2002.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Shareholder proposal relating to independent accountants.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Shareholder proposal relating to the Board's role in the Company's long-term
strategic plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [_]
- --------------------------------------------------------------------------------
Detach and Mail Card
RELIANT ENERGY, INCORPORATED
VOTING DIRECTIONS TO TRUSTEE - COMMON STOCK
THIS CARD RELATES TO THE SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS S
The undersigned hereby directs the Trustee of the STP Nuclear Operating Company
Savings Plan to vote as designated on the reverse side, all shares of common
stock attributable to the account of the undersigned at the annual meeting of
shareholders of Reliant Energy, Incorporated to be held June 5, 2002, at 9 a.m.
(CDT) in the Reliant Energy Plaza auditorium, 1111 Louisiana Street, Houston,
Texas, or any adjournments thereof, and with discretionary authority to vote on
all other matters that may properly come before the meeting (unless such
discretionary authority is withheld).
If you wish to vote in accordance with the
recommendations of the Board of Directors, you
may just sign and date below and mail in the
postage-paid envelope provided. Specific choices
may be made on the reverse side. In the absence
of instructions to the contrary, the shares
represented will be voted in accordance with the
Board's recommendation.
Dated:____________________________________, 2002
Signature:______________________________________
Note: Please sign exactly as the name appears
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title.
- --------------------------------------------------------------------------------
Detach and Mail Card
Fellow Shareholders:
This past year has been one of unprecedented change and challenge in the
energy industry. It was a year in which the industry experienced volatile
natural gas prices and unusual weather, a highly politicized wholesale
electricity market on the West Coast and the much-publicized failure of a large
energy trading company.
Despite these and a variety of other challenges, we spent 2001 finalizing
preparations for deregulation of the retail electricity industry in our core
Texas market and taking steps to restructure Reliant Energy into two publicly
traded companies: CenterPoint Energy, a regulated energy delivery company, and
Reliant Resources, a competitive energy services provider.
Reliant Energy expects to form CenterPoint Energy and complete the spin-off
of Reliant Resources later this year, after we receive final approval from the
Securities and Exchange Commission. The initial public offering of Reliant
Resources in May 2001 marked the first step in the separation of the two
companies. Shareholders approved the formation of the new holding company in
December. I am confident that both CenterPoint Energy and Reliant Resources have
very solid foundations on which to build value for our shareholders.
Please join me at our 2002 Annual Meeting of Shareholders to learn more
about the events of the past year and our plans for the future. The meeting will
be held at 9:00 a.m. on June 5, 2002, in the Reliant Energy Plaza auditorium. If
you are unable to attend, please make your vote count by signing and returning
the enclosed proxy card as soon as possible.
/s/ R. Steve Letbetter
------------------------------------
R. Steve Letbetter
Chairman, President and CEO
RELIANT ENERGY, INCORPORATED
2002 Annual Meeting of Shareholders
The nominee for Class III director is O. Holcombe Crosswell. The term of the
Class III director will expire in 2005. Your Board of Directors recommends that
you vote FOR the nominee for director, FOR ratification of the appointment of
Deloitte & Touche LLP as independent accountants and auditors for 2002, AGAINST
the shareholder proposal requesting that the Board adopt a policy that the
public accounting firm retained by the Company to provide audit services should
not be retained to provide non-audit services to the Company, and AGAINST the
shareholder proposal requesting that the Board include a description of the
Board's role in the development and monitoring of the Company's long-term
strategic plan in future proxy statements.
1. Election of nominee for Class III director.
FOR WITHHOLD
[_] [_]
2. Ratification of the Appointment of Deloitte & Touche LLP as independent
accountants and auditors for 2002.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Shareholder proposal relating to independent accountants.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Shareholder proposal relating to the Board's role in the Company's long-term
strategic plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
You may check this box to withhold granting of discretionary authority to vote
on all other matters that may properly come before the Annual Meeting. [_]
- --------------------------------------------------------------------------------
Detach and Mail Card
