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EXHIBIT 99(b)
DESCRIPTION OF RELIANT ENERGY, INCORPORATED CAPITAL STOCK
COMMON STOCK
The authorized capital stock of Reliant Energy, Incorporated ("Reliant
Energy") consists of (i) 700,000,000 shares of Common Stock, without par value,
10,000,000 shares of Preferred Stock, without par value, and 10,000,000 shares
of Preference Stock, without par value.
VOTING RIGHTS. Holders of Common Stock are entitled to one vote for
each share at all meetings of shareholders. Such holders do not have cumulative
rights in the election of directors. No director of Reliant Energy may be
removed from office by vote or other action of the shareholders or otherwise
except (a) with cause, as defined in the Reliant Energy Bylaws, by the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of capital stock of Reliant Energy entitled to vote in
the election of directors, voting together as a single class, or (b) without
cause by (i) the affirmative vote of at least 80% of all directors then in
office at any regular or special meeting of the Reliant Energy Board of
Directors called for that purpose or (ii) the affirmative vote of the holders of
at least 80% of the voting power of all outstanding shares of capital stock of
Reliant Energy entitled to vote in the election of directors, voting together as
a single class. The Reliant Energy Board of Directors shall have the power to
alter, amend or repeal the Reliant Energy Bylaws or adopt new Bylaws by the
affirmative vote of at least 80% of all directors then in office at any regular
or special meeting of the Reliant Energy Board of Directors called for that
purpose, subject to repeal or change by the affirmative vote of the holders of
at least 80% of the voting power of all the shares of Reliant Energy entitled to
vote in the election of directors, voting together as a single class. The
Reliant Energy Articles of Incorporation provide that an amendment of the
articles of incorporation of, certain mergers and consolidations involving, the
sale of all or substantially all of the assets of or the dissolution of Reliant
Energy requires the approval of the holders of a majority (rather than the
two-thirds normally required by Texas law) of the outstanding shares entitled to
vote on such matters.
DIVIDENDS. Dividends may be paid on Common Stock out of any assets of
Reliant Energy available for such dividends after full cumulative dividends on
all outstanding shares of capital stock of all series ranking senior to Common
Stock in respect of dividends and liquidation rights have been paid, or declared
and a sum sufficient for the payment thereof set apart, for all past quarterly
dividend periods, and after or concurrently with making payment of or provision
for dividends on the stock ranking senior to Common Stock for the then-current
quarterly dividend period. The rights of holders of Common Stock to receive
dividends are further subject to the prior rights of holders of any outstanding
shares of capital stock of all series ranking senior to Common Stock to have
contributions made to any sinking fund that may be established for any such
series.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding-up of Reliant Energy, or any reduction or decrease of its capital stock
resulting in a distribution of assets to the holders of Common Stock, the
holders of Common Stock shall be entitled to receive, pro rata, all of the
remaining assets of Reliant Energy available for distribution to its
shareholders but only after there shall have been paid to or set aside for the
holders of the stock ranking senior to the Common Stock the full preferential
amounts fixed for each series thereof plus any dividends accrued or in arrears
thereon.
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CLASSIFICATION OF BOARD OF DIRECTORS. The Reliant Energy Board of
Directors is divided into three classes, Class I, Class II and Class III. Such
classes shall be as nearly equal in number of directors as possible. At each
annual meeting, the number of directors equal to the number constituting the
class whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting.
OTHER PROVISIONS. Subject to the provisions of the Reliant Energy
Bylaws imposing certain supermajority voting provisions, the rights of the
holders of shares of Common Stock may not be modified otherwise than by a vote
of a majority of the shares outstanding, voting together as a single class.
PREFERRED STOCK
The authorized Preferred Stock is issuable in series having such
designations, dividend rates, general voting rights, liquidation prices,
redemption prices, sinking fund provisions and other terms as provided in the
Reliant Energy Articles of Incorporation or as may be established from time to
time by the Reliant Energy Board of Directors. The rights evidenced by, or
amounts payable with respect to, the shares of Common Stock may be materially
limited or qualified by the Preferred Stock.
VOTING RIGHTS. The holders of Preferred Stock have special voting
rights with respect to certain matters affecting the powers, preferences and
privileges of the Preferred Stock of each respective series. Holders of
Preferred Stock generally have the right to elect one-third of the members of
the Reliant Energy Board of Directors whenever dividends on any outstanding
Preferred Stock are in arrears in an amount equal to the aggregate dividends
required to be paid on such Preferred Stock in any 12-month period, until no
dividends are in arrears. However, holders of Preferred Stock have the right to
elect a majority of the members of the Reliant Energy Board of Directors
whenever dividends on any outstanding Preferred Stock are in arrears in an
amount equal to the aggregate dividends required to be paid on such Preferred
Stock in any 24-month period, until no dividends are in arrears. Whenever
holders of any outstanding shares of Preferred Stock are entitled to elect
members of the Reliant Energy Board of Directors pursuant to the Reliant Energy
Articles of Incorporation, a director elected by the holders of Preferred Stock
as a class or of such other stock entitled to vote as a class (or a director
elected to fill a vacancy) shall be subject to removal by the vote of the
holders of a majority of the Preferred Stock as a class or of such other stock
entitled to vote as a class for the election of directors, as the case may be.
Directors elected by the holders of Preferred Stock (or any directors
elected by such directors to fill a vacancy) shall not be classified and shall
serve for a term ending upon the election and qualification of their successors
following the termination at any time of a right of the holders of Preferred
Stock to elect members of the Reliant Energy Board of Directors.
DIVIDENDS. Holders of Preferred Stock are entitled to receive
cumulative dividends at the rate fixed for each such series and to have
contributions made to any sinking fund that may be established for any such
series before any dividends shall be paid or set apart for any shares of Common
Stock.
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LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of Reliant Energy, or any reduction or decrease of its capital stock
resulting in a distribution of assets to the holders of Common Stock, payment to
the holders of any outstanding Preferred Stock of the full preferential amounts
fixed for each series thereof, plus an amount equal to any dividends accrued or
in arrears thereon, shall be made prior to the pro rata distribution of the
remaining assets of Reliant Energy to the holders of Common Stock.
PREFERENCE STOCK
The Reliant Energy Board of Directors, without further action by the
Reliant Energy shareholders, is authorized to issue the Preference Stock in
one or more series and to fix and determine as to any series all the relative
rights and preferences of shares of such series so established, including,
without limitation, preferences, limitations or relative rights with respect to
redemption rights, conversion rights, if any, voting rights, if any, dividend
rights and any preferences on liquidation; provided, however, that the relative
rights of priority of Preference Stock must rank junior to the relative rights
of priority of Preferred Stock. One series of Preference Stock, the Series A
Preference Stock, will be purchasable upon the exercise of a Right (as
hereinafter defined). See "--Rights Plan."
CERTAIN PROVISIONS OF THE RELIANT ENERGY ARTICLES OF INCORPORATION AND BYLAWS
Neither the Reliant Energy Articles of Incorporation nor the Reliant
Energy Bylaws contain any provision that would have an effect of delaying,
deferring or preventing a change in control of Reliant Energy and that would
operate only with respect to an extraordinary corporate transaction including
Reliant Energy or any of its subsidiaries. However, the Reliant Energy Articles
of Incorporation and the Reliant Energy Bylaws do contain certain provisions
that may have the effect of rendering more difficult certain possible takeover
proposals to acquire control of Reliant Energy and of making removal of
management of Reliant Energy more difficult. The Reliant Energy Articles of
Incorporation provide that the Reliant Energy Board of Directors is divided into
three classes serving staggered three-year terms such that approximately
one-third of the Reliant Energy Board of Directors is elected each year. The
Reliant Energy Bylaws provide that no director may be removed except (a) with
cause, as defined in the Bylaws, by a majority vote of the shareholders, or (b)
without cause by the affirmative vote of 80% of the directors or 80% of the
shareholders. The Reliant Energy Bylaws further provide that no person shall be
eligible for election or reelection or to continue to serve as a member of the
Reliant Energy Board of Directors if such person is an officer, director, agent,
representative, partner, employee, nominee or affiliate of another public
utility company other than Reliant Energy or any of Reliant Energy's
subsidiaries that is a public utility company. The Reliant Energy Bylaws also
provide that they may be amended or repealed, or new Reliant Energy Bylaws may
be adopted, only upon the affirmative vote of 80% of the directors or 80% of the
shareholders. The Reliant Energy Bylaws also impose certain procedural
requirements on shareholders who wish (i) to make nominations in the election of
directors, (ii) to propose that a director be removed and (iii) to propose any
repeal or change in the Reliant Energy Bylaws. The requirements include, among
other things, the timely delivery to Reliant Energy's Corporate Secretary of
notice of the nomination or proposal and evidence of (a) the shareholder's
status as such, (b) the number of shares he beneficially owns, (c) a list of the
persons with whom the shareholder is acting in concert and (d) the number of
shares such persons beneficially own. The Reliant Energy Bylaws further provide
that when nominating directors, the shareholder must also submit such
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information with respect to the nominee as would be required by a proxy
statement and certain other information. The Reliant Energy Bylaws provide that
failure to follow the required procedures renders the nominee or proposal
ineligible to be voted upon by the shareholders.
RIGHTS PLAN
On July 11, 1990, the Board of Directors of Houston Industries
Incorporated (a predecessor of Reliant Energy) declared a dividend of one right
to purchase preference stock for each outstanding share of its common stock to
shareholders of record at the close of business on August 16, 1990 ("HII
Rights"). Each share of Common Stock includes one right, which will entitle the
registered holder of Common Stock to purchase from Reliant Energy a unit
consisting of one-thousandth of a share (a "Fractional Share") of Series A
Preference Stock, without par value (the "Series A Preference Stock"), at a
purchase price of $42.50 per Fractional Share, subject to adjustment ("Rights").
The description and terms of the HII Rights and the Rights are set forth in the
Rights Agreement dated as of July 11, 1990 between Reliant Energy (formerly
Houston Industries Incorporated) and Chase Bank of Texas, National Association
(formerly Texas Commerce Bank National Association), as Rights Agent (the
"Rights Agent"), as amended and restated as of August 6, 1997, and as further
amended by Amendment No. 1 to Rights Agreement, dated as of May 8, 2000 (the
"Rights Agreement").
DETACHMENT OF RIGHTS; EXERCISABILITY. The Rights are attached to
all Common Stock certificates, and no separate Rights Certificates (as defined
in the Rights Agreement) will be distributed initially. The Rights will separate
from the Common Stock and a "Distribution Date" will occur, with certain
exceptions, upon the earlier of (i) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
20% or more of the outstanding shares of Common Stock (the date of the
announcement being the "Stock Acquisition Date"), or (ii) ten business days
following the commencement of a tender offer or exchange offer that would result
in a person's becoming an Acquiring Person. In certain circumstances, the
Distribution Date may be deferred by the Reliant Energy Board of Directors.
Certain inadvertent acquisitions will not result in a person's becoming an
Acquiring Person if the person promptly divests itself of sufficient Common
Stock. Until the Distribution Date (or earlier redemption or expiration of the
Rights), (a) the Rights will be evidenced by the Common Stock certificates and
will be transferred with and only with such Common Stock certificates, (b) new
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference and (c) the surrender for transfer of any certificate
representing outstanding shares of Common Stock will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on July 11, 2010 unless earlier redeemed or
exchanged by Reliant Energy as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares
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of Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with Rights. Except as otherwise determined by the Reliant Energy Board of
Directors, no other shares of Common Stock issued after the Distribution Date
will be issued with Rights.
FLIP-IN. In the event (a "Flip-In Event") that a person becomes an
Acquiring Person, except pursuant to a tender or exchange offer for all
outstanding shares of Common Stock at a price and on terms that a majority of
the independent directors of Reliant Energy determines to be fair to and
otherwise in the best interests of Reliant Energy and its shareholders (a
"Permitted Offer"), each holder of a Right will thereafter have the right to
receive, upon exercise of such Right, a number of shares of Common Stock (or, in
certain circumstances, cash, property or other securities of Reliant Energy)
having a Current Market Price (as defined in the Rights Agreement) equal to two
times the exercise price of the Right. Notwithstanding the foregoing, following
the occurrence of any Triggering Event, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by or
transferred to an Acquiring Person (or by certain related parties) will be null
and void in the circumstances set forth in the Rights Agreement.
FLIP-OVER. In the event (a "Flip-Over Event") that, at any time from
and after the time an Acquiring Person becomes such, (i) Reliant Energy is
acquired in a merger or other business combination transaction (other than
certain mergers that follow a Permitted Offer), or (ii) 50% or more of Reliant
Energy's assets or earning power is sold or transferred, each holder of a Right
(except Rights that are voided as set forth above) shall thereafter have the
right to receive, upon exercise, a number of shares of common stock of the
acquiring company having a Current Market Price equal to two times the exercise
price of the Right. Flip-In Events and Flip-Over Events are collectively
referred to as "Triggering Events."
SERIES A PREFERENCE STOCK. After the Distribution Date, each Right will
entitle the holder to purchase a Fractional Share of Series A Preference Stock,
which will be essentially the economic equivalent of one share of Common Stock.
ANTIDILUTION. The number of outstanding Rights associated with a share
of Common Stock, or the number of Fractional Shares of Series A Preference Stock
issuable upon exercise of Right and the exercise price, are subject to
adjustment in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Common Stock occurring prior to the Distribution Date.
The exercise price payable, and the number of Fractional Shares of Series A
Preference Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution in the
event of certain transactions affecting the Series A Preference Stock.
With certain exceptions, no adjustment in the exercise price will be
required until cumulative adjustments amount to at least 1% of the exercise
price. No fractional shares of Series A Preference Stock that are not integral
multiples of a Fractional Share are required to be issued and, in lieu thereof,
an adjustment in cash may be made based on the market price of the Series A
Preference Stock on the last trading date prior to the date of exercise.
Pursuant to the Rights Agreement, Reliant Energy reserves the right to require
prior to the occurrence of a Triggering Event that, upon any exercise of Rights,
a number of Rights be exercised so that only whole shares of Series A Preference
Stock will be issued.
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REDEMPTION OF RIGHTS. At any time until the time a person becomes an
Acquiring Person, Reliant Energy may redeem the Rights in whole, but not in
part, at a price of $.005 per Right, payable, at the option of Reliant Energy,
in cash, shares of Common Stock or such other consideration as the Reliant
Energy Board of Directors may determine. Immediately upon the effectiveness of
the action of the Reliant Energy Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.005 redemption price.
EXCHANGE OF RIGHTS. At any time after the occurrence of a Flip-In Event
and prior to a person's becoming the beneficial owner of 50% or more of the
shares of Common Stock then outstanding or the occurrence of a Flip-Over Event,
Reliant Energy may exchange the Rights (other than Rights owned by an Acquiring
Person or an affiliate or an associate of an Acquiring Person, which will have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock, and/or other equity securities deemed to have the same value as one share
of Common Stock, per Right, subject to adjustment.
SUBSTITUTION. If Reliant Energy has an insufficient number of
authorized but unissued shares of Common Stock available to permit an exercise
or exchange of Rights upon the occurrence of a Flip-In Event, it may substitute
certain other types of property for the Common Stock so long as the total value
received by the holder of the Rights is equivalent to the value of the Common
Stock that would otherwise have been received. Reliant Energy may substitute
cash, property, equity securities or debt of Reliant Energy, effect a reduction
in the exercise price of the Rights or use any combination of the foregoing.
NO RIGHTS AS A SHAREHOLDER; TAXES. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of Reliant Energy,
including, without limitation, the right to vote or to receive dividends.
Shareholders may, depending upon the circumstances, recognize taxable income in
the event that the Rights become exercisable for Common Stock (or other
consideration) or for the common stock of the acquiring company or are exchanged
as set forth above.
AMENDMENT OF TERMS OF RIGHTS. Other than certain provisions relating to
the principal economic terms of the Rights, any of the provisions of the Rights
Agreement may be amended by the Reliant Energy Board of Directors prior to the
time a person becomes an Acquiring Person. Thereafter, the provisions of the
Rights Agreement may be amended by the Board of Directors in order to cure any
ambiguity, defect or inconsistency or to make changes that do not materially and
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person).
RIGHTS AGENT. Chase Bank of Texas, National Association (formerly Texas
Commerce Bank National Association) serves as Rights Agent with regard to
the Rights. Because Reliant Energy serves as the transfer agent and
registrar for the Common Stock, Reliant Energy, at the request of the Rights
Agent, may agree to perform certain ministerial functions relating to the Rights
on behalf of the Rights Agent.
CERTAIN ANTI-TAKEOVER EFFECTS. The Rights have certain anti-takeover
effects. The Rights will cause substantial dilution to any person or group that
attempts to acquire Reliant Energy without the approval of the Reliant Energy
Board of Directors. As a result, the overall effect of the
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Rights may be to render more difficult or discourage any attempt to acquire
Reliant Energy even if such acquisition may be favorable to the interests of
Reliant Energy's shareholders. Because the Reliant Energy Board of Directors can
redeem the Rights or approve a Permitted Offer, the Rights should not interfere
with a merger or other business combination approved by the Reliant Energy Board
of Directors.
RIGHTS AGREEMENT; SUMMARY. A copy of the Rights Agreement is available
to shareholders free of charge from Reliant Energy. This summary description of
the Rights does not purport to be complete and is qualified by reference to the
Rights Agreement, which is incorporated herein by reference.
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