Document:

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                                                                    Exhibit 4.23

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                               GUARANTEE AGREEMENT

                                     Between

                         Principal Financial Group, Inc.

                                 (as Guarantor)

                                       and

                            Wilmington Trust Company

                                  (as Trustee)

                                   dated as of

                                        -

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<PAGE>

                             CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>

         Section of                                                                     Section of
         Trust Indenture Act                                                            Guarantee
         of 1939, as amended                                                            Agreement
         -------------------                                                            ---------
<S>                                                                                  <C>
         310(a).................................................................        4.1(a)
         310(b).................................................................        4.1(c), 208
         310(c).................................................................        Inapplicable
         311(a).................................................................        2.2(b)
         311(b).................................................................        2.2(b)
         311(c).................................................................        Inapplicable
         312(a).................................................................        2.2(a)
         312(b).................................................................        2.2(b)
         313....................................................................        2.3
         314(a).................................................................        2.4
         314(b).................................................................        Inapplicable
         314(c).................................................................        2.5
         314(d).................................................................        Inapplicable
         314(e).................................................................        1.1, 2.5, 3.2
         314(f).................................................................        2.1, 3.2
         315(a).................................................................        3.1(d)
         315(b).................................................................        2.7
         315(c).................................................................        3.1
         315(d).................................................................        3.1(d)
         316(a).................................................................        1.1, 2.6, 5.4
         316(b).................................................................        5.3
         316(c).................................................................        8.2
         317(a).................................................................        Inapplicable
         317(b).................................................................        Inapplicable
         318(a).................................................................        2.1(b)
         318(b).................................................................        2.1
         318(c).................................................................        2.1(a)

</TABLE>

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*        This Cross-Reference Table does not constitute part of the Guarantee
         Agreement and shall not affect the interpretation of any of its terms
         or provisions.
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                                Table of Contents

<TABLE>
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<S>                                                                                                          <C>
                                                       ARTICLE 1
                                                      DEFINITIONS

SECTION 1.1  Definitions..........................................................................................1

                                                       ARTICLE 2
                                                  TRUST INDENTURE ACT

SECTION 2.1  Trust Indenture Act; Application.....................................................................5
SECTION 2.2  List of Holders......................................................................................5
SECTION 2.3  Reports by the Guarantee Trustee.....................................................................5
SECTION 2.4  Periodic Reports to Guarantee Trustee................................................................5
SECTION 2.5  Evidence of Compliance with Conditions Precedent.....................................................6
SECTION 2.6  Events of Default; Waiver............................................................................6
SECTION 2.7  Event of Default; Notice.............................................................................6
SECTION 2.8  Conflicting Interests................................................................................6

                                                       ARTICLE 3
                                  POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

SECTION 3.1  Powers and Duties of the Guarantee Trustee...........................................................7
SECTION 3.2  Certain Rights of Guarantee Trustee..................................................................8
SECTION 3.3  Indemnity...........................................................................................10

                                                       ARTICLE 4
                                                   GUARANTEE TRUSTEE

SECTION 4.1  Guarantee Trustee; Eligibility......................................................................10
SECTION 4.2  Appointment, Removal and Resignation of the Guarantee Trustee.......................................11

                                                       ARTICLE 5
                                                       GUARANTEE

SECTION 5.1  Guarantee...........................................................................................12
SECTION 5.2  Waiver of Notice and Demand.........................................................................12
SECTION 5.3  Obligations Not Affected............................................................................12
SECTION 5.4  Rights of Holders...................................................................................13
SECTION 5.5  Guarantee of Payment................................................................................13
SECTION 5.6  Subrogation.........................................................................................14
SECTION 5.7  Independent Obligations.............................................................................14
</TABLE>

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                                Table of Contents
                                  (continued)
<TABLE>
<CAPTION>
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<S>                                                                                                          <C>

                                                       ARTICLE 6
                                              COVENANTS AND SUBORDINATION

SECTION 6.1  Subordination.......................................................................................14
SECTION 6.2  Pari Passu Guarantees...............................................................................14

                                                       ARTICLE 7
                                                      TERMINATION

SECTION 7.1  Termination.........................................................................................15

                                                       ARTICLE 8
                                                     MISCELLANEOUS

SECTION 8.1  Successors and Assigns..............................................................................15
SECTION 8.2  Amendments .........................................................................................15
SECTION 8.3  Notices ............................................................................................16
SECTION 8.4  Benefit ............................................................................................17
SECTION 8.5  Interpretation......................................................................................17
SECTION 8.6  GOVERNING LAW.......................................................................................17

</TABLE>

                                       ii
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                               GUARANTEE AGREEMENT

         This GUARANTEE AGREEMENT, dated as of -, 200-, is executed and
delivered by Principal Financial Group, Inc., a Delaware corporation (the
"Guarantor"), and Wilmington Trust Company, a Delaware banking corporation
organized under the laws of the State of Delaware, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securities (as defined herein) of Principal Capital III, a
Delaware statutory trust (the "Issuer").

         WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of -, 200-, among the Trustees named therein, the
Guarantor, as Depositor, and the Holders from time to time of undivided
beneficial interests in the assets of the Issuer, the Issuer is issuing - of its
-% Preferred Securities, Series A (liquidation preference $25 per preferred
security) (the "Preferred Securities") representing preferred undivided
beneficial interests in the assets of the Issuer and having the terms set forth
in the Trust Agreement;

         WHEREAS, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which will be deposited
with Wilmington Trust Company, as Property Trustee under the Trust Agreement, as
trust assets; and

         WHEREAS, as incentive for the Holders to purchase Preferred Securities
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Preferred Securities the
Guarantee Payments (as defined herein) and to make certain other payments on the
terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for
the benefit of the Holders from time to time of the Preferred Securities.

                                    ARTICLE 1
                                   DEFINITIONS

         SECTION 1.1 Definitions.

         As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.

<PAGE>

         "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, provided, however, that an Affiliate of the
Guarantor shall not be deemed to include the Issuer. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

         "Common Securities" means the securities representing common beneficial
interests in the assets of the Issuer.

         "Debt" means, with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.

         "Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; provided, however,
that, except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.

         "Expenses" has the meaning specified in Section 3.3.

         "Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by or on behalf of the Issuer: (i) any accrued and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Preferred Securities, to the extent the Issuer shall have funds on hand
available therefor, (ii) the redemption price, including all accrued and unpaid
Distributions to the date of redemption (the "Redemption Price"), with respect
to the Preferred Securities called for redemption by the Issuer to the extent
the Issuer shall have funds on hand available therefor, and (iii) upon a
voluntary or involuntary termination, winding-up or liquidation of the Issuer,
unless Debentures are distributed to

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the Holders, the lesser of (a) the aggregate of the liquidation preference of
$25 per Preferred Security plus accrued and unpaid Distributions on the
Preferred Securities to the date of payment to the extent the Issuer shall have
funds on hand available to make such payment and (b) the amount of assets of the
Issuer remaining available for distribution to Holders in liquidation of the
Issuer (in either case, the "Liquidation Distribution").

         "Guarantee Trustee" means Wilmington Trust Company (not in its
individual capacity but solely in its trustee capacity), until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.

         "Holder" means any holder, as registered on the books and records of
the Issuer, of any Preferred Securities; provided, however, that in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor, the Guarantee Trustee or any Affiliate of the Guarantor
or the Guarantee Trustee.

         "Indenture" means the Junior Subordinated Indenture dated as of -, -,
as supplemented and amended between the Guarantor and Wilmington Trust Company,
as trustee.

         "List of Holders" has the meaning specified in Section 2.2(a).

         "Majority in liquidation preference of the Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the liquidation preference of all then
outstanding Preferred Securities issued by the Issuer.

         "Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman, Chief Executive Officer, President or a Vice
President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer,
the Controller, the Secretary or an Assistant Secretary of such Person, and
delivered to the Guarantee Trustee. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this
Guarantee Agreement shall include:

                  (a) a statement that each officer signing the Officers'
         Certificate has read the covenant or condition and the definitions
         relating thereto;

                  (b) a brief statement of the nature and scope of the
         examination or investigation undertaken by each officer in rendering
         the Officers' Certificate;

                  (c) a statement that each such officer has made such
         examination or investigation as, in such officer's opinion, is
         necessary to enable such officer to

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         express an informed opinion as to whether or not such covenant or
         condition has been complied with; and

                  (d) a statement as to whether, in the opinion of each such
         officer, such condition or covenant has been complied with.

         "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

         "Responsible Officer" means, with respect to the Guarantee Trustee, any
officer within the Corporate Trust Administration department of the Guarantee
Trustee with direct responsibility for the administration of this Guarantee
Agreement, including any vice-president, any assistant vice president, any
assistant secretary, the treasurer, any assistant treasurer, any trust officer
or other officer of the Corporate Trust Office of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.

         "Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Guarantor whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Guarantee or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Guarantee or to other Debt which is pari
passu with, or subordinated to, the Guarantee; provided, however, that Senior
Debt shall not be deemed to include (a) any Debt of the Guarantor which when
incurred and without respect to any election under Section 11.11(b) of the
Bankruptcy Reform Act of 1978, was without recourse to the Company, (b) any Debt
of the Guarantor to any of its Subsidiaries, (c) Debt to any employee of the
Guarantor, (d) any liability for taxes, (e) Debt or other monetary obligations
to trade creditors created or assumed by the Guarantor or any of its
Subsidiaries in the ordinary course of business in connection with the obtaining
of goods, materials or services and (f) Debt issued under the Indenture and (g)
the Guarantee.

         "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.

         "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.

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                                   ARTICLE 2
                               TRUST INDENTURE ACT

         SECTION 2.1 Trust Indenture Act; Application.

         (a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.

         (b) If and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Sections 3.10 to 3.17,
inclusive, of the Trust Indenture Act, such imposed duties shall control.

         SECTION 2.2 List of Holders.

         (a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semiannually, on or before February 15 and August 15 of
each year, a list, in such form as the Guarantee Trustee may reasonably require,
of the names and addresses of the Holders ("List of Holders") as of a date not
more than 15 days prior to the delivery thereof, and (b) at such other times as
the Guarantee Trustee may request in writing, within 30 days after the receipt
by the Guarantor of any such request, a List of Holders as of a date not more
than 15 days prior to the time such list is furnished, in each case to the
extent such information is in the possession or control of the Guarantor and is
not identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.

         (b) The Guarantee Trustee shall comply with its obligations under
Section 3.11(a), Section 3.11(b) and Section 3.12(b) of the Trust Indenture Act.

         SECTION 2.3 Reports by the Guarantee Trustee.

         Within 60 days after - of each year, the Guarantee Trustee shall
provide to the Holders such reports as are required by Section 3.13 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 3.13 of
the Trust Indenture Act. The Guarantee Trustee shall also comply with the
requirements of Section 3.13(d) of the Trust Indenture Act.

         SECTION 2.4 Periodic Reports to Guarantee Trustee.

         The Guarantor shall provide to the Guarantee Trustee, the Securities
and Exchange Commission and the Holders such documents, reports and information,
if any, as required by Section 3.14 of the Trust Indenture Act and the
compliance certificate

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<PAGE>

required by Section 3.14 of the Trust Indenture Act in the form, in the manner
and at the times required by Section 3.14 of the Trust Indenture Act.

        SECTION 2.5 Evidence of Compliance with Conditions Precedent.

         The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
3.14(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 3.14(c)(1) may be given in the form of
an Officers' Certificate.

         SECTION 2.6 Events of Default; Waiver.

         The Holders of a Majority in liquidation preference of the Preferred
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.

         SECTION 2.7 Event of Default; Notice.

         (a) The Guarantee Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, notices of all Events of Default actually known to a Responsible
Officer of the Guarantee Trustee, unless such defaults have been cured before
the giving of such notice, provided, that, except in the case of a default in
the payment of a Guarantee Payment, the Guarantee Trustee shall be protected in
withholding such notice if and so long as the Board of Directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Guarantee Trustee in good faith determines that the withholding of such notice
is in the interests of the Holders.

         (b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless a Responsible Officer of the Guarantee Trustee shall
have received written notice of such Event of Default.

         SECTION 2.8 Conflicting Interests.

         The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 3.10(b) of the Trust Indenture Act.

                                       6
<PAGE>

                                    ARTICLE 3
               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

         SECTION 3.1 Powers and Duties of the Guarantee Trustee.

         (a) This Guarantee Agreement shall be held by the Guarantee Trustee for
the benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising his or her rights
pursuant to Section 5.04(iv) or to a Successor Guarantee Trustee on acceptance
by such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.

         (b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall, promptly upon receipt of written notice of such Event
of Default, enforce this Guarantee Agreement for the benefit of the Holders.

         (c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied duties or covenants shall be read into
this Guarantee Agreement against the Guarantee Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section
2.6), the Guarantee Trustee shall exercise such of the rights and powers vested
in it by this Guarantee Agreement, and use the same degree of care and skill in
its exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.

         (d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:

                  (i) prior to the occurrence of any Event of Default and after
         the curing or waiving of all such Events of Default that may have
         occurred:

                           (A) the duties and obligations of the Guarantee
                  Trustee shall be determined solely by the express provisions
                  of this Guarantee Agreement, and the Guarantee Trustee shall
                  not be liable except for the performance of such duties and
                  obligations as are specifically set forth in this Guarantee
                  Agreement; and

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<PAGE>
                                    (B) in the absence of bad faith on the part
                           of the Guarantee Trustee, the Guarantee Trustee may
                           conclusively rely, as to the truth of the statements
                           and the correctness of the opinions expressed
                           therein, upon any certificates or opinions furnished
                           to the Guarantee Trustee and conforming to the
                           requirements of this Guarantee Agreement; but in the
                           case of any such certificates or opinions that by any
                           provision hereof or of the Trust Indenture Act are
                           specifically required to be furnished to the
                           Guarantee Trustee, the Guarantee Trustee shall be
                           under a duty to examine the same to determine whether
                           or not they conform on their face to the requirements
                           of this Guarantee Agreement;

                           (ii) the Guarantee Trustee shall not be liable for
                  any error of judgment made in good faith by a Responsible
                  Officer of the Guarantee Trustee, unless it shall be proved
                  that the Guarantee Trustee was negligent in ascertaining the
                  pertinent facts upon which such judgment was made;

                           (iii) the Guarantee Trustee shall not be liable with
                  respect to any action taken or omitted to be taken by it in
                  good faith in accordance with the direction of the Holders of
                  not less than a Majority in liquidation preference of the
                  Preferred Securities relating to the time, method and place of
                  conducting any proceeding for any remedy available to the
                  Guarantee Trustee, or exercising any trust or power conferred
                  upon the Guarantee Trustee under this Guarantee Agreement; and

                           (iv) no provision of this Guarantee Agreement shall
                  require the Guarantee Trustee to expend or risk its own funds
                  or otherwise incur personal financial liability in the
                  performance of any of its duties or in the exercise of any of
                  its rights or powers, if the Guarantee Trustee shall have
                  reasonable grounds for believing that the repayment of such
                  funds or liability is not reasonably assured to it under the
                  terms of this Guarantee Agreement or adequate indemnity
                  against such risk or liability is not reasonably assured to
                  it.

         SECTION 3.2 Certain Rights of Guarantee Trustee.

         (a) Subject to the provisions of Section 3.01:

                  (i) The Guarantee Trustee may rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, sent or presented
by the proper party or parties.

                                       8
<PAGE>

                  (ii) Any direction or act of the Guarantor contemplated by
this Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.

                  (iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and rely upon
an Officers' Certificate which, upon receipt of such request from the Guarantee
Trustee, shall be promptly delivered by the Guarantor.

                  (iv) The Guarantee Trustee may consult with legal counsel, and
the written advice or opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in good faith
and in accordance with such advice or opinion. Such legal counsel may be legal
counsel to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement from any
court of competent jurisdiction.

                  (v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee Agreement at
the request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such adequate security and indemnity as would satisfy a
reasonable person in the position of the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee; provided that,
nothing contained in this Section 3.2(a)(v) shall be taken to relieve the
Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Guarantee Agreement.

                  (vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.

                  (vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent or attorney appointed with due care by it
hereunder.

                                       9
<PAGE>

                  (viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the Holders,
(B) may refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (C) shall be protected in acting in
accordance with such instructions.

         (b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.

         SECTION 3.3 Indemnity.

         The Guarantor agrees to indemnify the Guarantee Trustee (including in
its individual capacity) and its officers, directors and employees for, and to
hold each harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Guarantee Trustee, arising out of or
in connection with the acceptance or administration of this Guarantee Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder (collectively, "Expenses"). The Guarantee Trustee will not
claim or exact any lien or charge on any Guarantee Payments as a result of any
amount due to it under this Guarantee Agreement. To the fullest extent permitted
by law, the Expenses (including reasonable attorneys' fees and expenses)
incurred by the Guarantee Trustee referred to above shall be paid by the
Guarantor in advance upon receipt of an undertaking by or on behalf of the
Guarantee Trustee to repay such amount if it shall ultimately be determined that
the Guarantee Trustee is not entitled to be indemnified by the Guarantor as
authorized in this Section 3.3. The obligations of the Guarantor under this
Section 3.3 shall survive termination of this Guarantee Agreement and the
removal or resignation of any Guarantee Trustee.

                                   ARTICLE 4
                                GUARANTEE TRUSTEE

         SECTION 4.1 Guarantee Trustee; Eligibility.

         (a) There shall at all times be a Guarantee Trustee which shall:

                  (i) not be an Affiliate of the Guarantor; and

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                  (ii) be a Person that is eligible pursuant to the Trust
         Indenture Act to act as such and has a combined capital and surplus of
         at least 50 million U.S. dollars ($50,000,000), and shall be a
         corporation meeting the requirements of Section 3.10(c) of the Trust
         Indenture Act. If such corporation publishes reports of condition at
         least annually, pursuant to law or to the requirements of the
         supervising or examining authority, then, for the purposes of this
         Section and to the extent permitted by the Trust Indenture Act, the
         combined capital and surplus of such corporation shall be deemed to be
         its combined capital and surplus as set forth in its most recent report
         of condition so published.

         (b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2(c).

         (c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 3.10(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 3.10(b) of the Trust Indenture Act.

         SECTION 4.2 Appointment, Removal and Resignation of the Guarantee
                     Trustee.

         (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the Guarantor.

         (b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and delivered to
the Guarantor.

         (c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

         (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a

                                       11
<PAGE>

Successor Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.

                                    ARTICLE 5
                                    GUARANTEE

         SECTION 5.1 Guarantee.

         The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by or on behalf of the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim which the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.

         SECTION 5.2 Waiver of Notice and Demand.

         The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.

         SECTION 5.3 Obligations Not Affected.

         The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by reason
of the happening from time to time of any of the following:

                  (a) the release or waiver, by operation of law or otherwise,
         of the performance or observance by the Issuer of any express or
         implied agreement, covenant, term or condition relating to the
         Preferred Securities to be performed or observed by the Issuer;

                  (b) the extension of time for the payment by the Issuer of all
         or any portion of the Distributions (other than an extension of time
         for payment of Distributions that results from the extension of any
         interest payment period on the Debentures as so provided in the
         Indenture), Redemption Price, Liquidation Distribution or any other
         sums payable under the terms of the Preferred Securities or the
         extension of time for the performance of any other obligation under,
         arising out of, or in connection with, the Preferred Securities;

                                       12
<PAGE>

                  (c) any failure, omission, delay or lack of diligence on the
         part of the Holders to enforce, assert or exercise any right,
         privilege, power or remedy conferred on the Holders pursuant to the
         terms of the Preferred Securities, or any action on the part of the
         Issuer granting indulgence or extension of any kind;

                  (d) the voluntary or involuntary liquidation, dissolution,
         sale of any collateral, receivership, insolvency, bankruptcy,
         assignment for the benefit of creditors, reorganization, arrangement,
         composition or readjustment of debt of, or other similar proceedings
         affecting, the Issuer or any of the assets of the Issuer;

                  (e) any invalidity of, or defect or deficiency in, the
         Preferred Securities;

                  (f) the settlement or compromise of any obligation guaranteed
         hereby or hereby incurred; or

                  (g) any other circumstance whatsoever that might otherwise
         constitute a legal or equitable discharge or defense of a guarantor, it
         being the intent of this Section 5.3 that the obligations of the
         Guarantor hereunder shall be absolute and unconditional under any and
         all circumstances.

There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.

         SECTION 5.4 Rights of Holders.

         The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in
liquidation preference of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of this Guarantee Agreement or exercising any
trust or power conferred upon the Guarantee Trustee under this Guarantee
Agreement; and (iv) any Holder may institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
or any other Person.

         SECTION 5.5 Guarantee of Payment.

         This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.

                                       13
<PAGE>

         SECTION 5.6 Subrogation.

         The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.

         SECTION 5.7 Independent Obligations.

         The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3 hereof.

                                    ARTICLE 6
                           COVENANTS AND SUBORDINATION

         SECTION 6.1 Subordination.

         This Guarantee Agreement will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all Senior
Debt of the Guarantor.

         SECTION 6.2 Pari Passu Guarantees.

         This Guarantee Agreement shall rank pari passu with any similar
Guarantee Agreements issued by the Guarantor on behalf of the holders of
Preferred Securities issued by Principal Capital ___, Principal Capital ___ and
Principal Capital ___.

                                       14
<PAGE>

                                    ARTICLE 7
                                   TERMINATION

         SECTION 7.1 Termination.

         This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Preferred
Securities, (ii) the distribution of Debentures to the Holders in exchange for
all of the Preferred Securities or (iii) full payment of the amounts payable in
accordance with the Trust Agreement upon liquidation of the Issuer.
Notwithstanding the foregoing, this Guarantee Agreement will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid with respect to Preferred Securities or
this Guarantee Agreement.

                                    ARTICLE 8
                                  MISCELLANEOUS

         SECTION 8.1 Successors and Assigns.

         All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article Eight of the
Indenture and pursuant to which the assignee agrees in writing to perform the
Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder.

         SECTION 8.2 Amendments.

         Any amendment to this Guarantee Agreement shall be in writing and
executed by the Guarantor and Guarantee Trustee. Except with respect to any
changes which do not adversely affect the rights of the Holders in any material
respect (in which case no consent of the Holders will be required), this
Guarantee Agreement may only be amended with the prior approval of the Holders
of not less than a Majority in liquidation preference of all the outstanding
Preferred Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
The Guarantee Trustee shall not be required to enter into any amendment to this
Guarantee Agreement which affects its own rights, duties or immunities under
this Guarantee Agreement. The Guarantee Trustee shall be entitled to receive and
conclusively rely on an Opinion of Counsel and an Officer's Certificate stating
that any amendment to this Guarantee Agreement is in compliance with this
Guarantee Agreement.

                                       15
<PAGE>

         SECTION 8.3 Notices.

         Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:

                  (a) if given to the Guarantor, to the address set forth below
         or such other address as the Guarantor may give notice of to the
         Holders:

                           Principal Financial Group, Inc.
                           711 High Street
                           Des Moines, Iowa  50392
                           Facsimile No.:  (515) [               ]
                           Attention:  [Treasurer]

                  (b) if given to the Issuer, in care of the Guarantee Trustee,
         at the Issuer's (and the Guarantee Trustee's) address set forth below
         or such other address as the Guarantee Trustee on behalf of the Issuer
         may give notice to the Holders:

                           Principal Capital III
                           c/o Principal Financial Group, Inc.
                           711 High Street
                           Des Moines, Iowa  50392
                           Facsimile No.:  (515) [               ]
                           Attention:  [Treasurer]

                           with a copy to:

                           Wilmington Trust Company
                           Rodney Square North
                           1100 N. Market Street
                           Wilmington, Delaware 19890
                           Facsimile No.: (302) 636-4141
                           Attention: Corporate Trust Administration

                  (c) if given to any Holder, at the address set forth on the
         books and records of the Issuer.

         All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other

                                       16
<PAGE>

document shall be deemed to have been delivered on the date of such refusal or
inability to deliver.

         SECTION 8.4 Benefit.

         This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Preferred Securities.

         SECTION 8.5 Interpretation.

         In this Guarantee Agreement, unless the context otherwise requires:

                  (a) capitalized terms used in this Guarantee Agreement but not
         defined in the preamble hereto have the respective meanings assigned to
         them in Section 1.1;

                  (b) a term defined anywhere in this Guarantee Agreement has
         the same meaning throughout;

                  (c) all references to "the Guarantee Agreement" or "this
         Guarantee Agreement" are to this Guarantee Agreement as modified,
         supplemented or amended from time to time;

                  (d) all references in this Guarantee Agreement to Articles and
         Sections are to Articles and Sections of this Guarantee Agreement
         unless otherwise specified;

                  (e) a term defined in the Trust Indenture Act has the same
         meaning when used in this Guarantee Agreement unless otherwise defined
         in this Guarantee Agreement or unless the context otherwise requires;

                  (f) a reference to the singular includes the plural and vice
         versa; and

                  (g) the masculine, feminine or neuter genders used herein
         shall include the masculine, feminine and neuter genders.

                  SECTION 8.6 GOVERNING LAW.

         THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.

                                       17
<PAGE>

         This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

                                       18
<PAGE>

         THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.

                                                 PRINCIPAL FINANCIAL GROUP, INC.

                                                 By: ___________________________
                                                     Name:
                                                     Title:

                                                 WILMINGTON TRUST COMPANY, as
                                                     Guarantee Trustee

                                                 By: ___________________________
                                                     Name:
                                                     Title:<PAGE>

                                                                     EXHIBIT 4.2

                            CENTERPOINT ENERGY, INC.

                                       To

                              JPMORGAN CHASE BANK,

                                     Trustee

                               ------------------

                          SUPPLEMENTAL INDENTURE NO. 4

                          Dated as of December 17, 2003

                                -----------------

                    2.875% Convertible Senior Notes due 2024

<PAGE>

                            CENTERPOINT ENERGY, INC.

                          SUPPLEMENTAL INDENTURE NO. 4

                    2.875% Convertible Senior Notes due 2024

         SUPPLEMENTAL INDENTURE No. 4, dated as of December 17, 2003, between
CENTERPOINT ENERGY, INC., a Texas corporation (the "Company"), and JPMORGAN
CHASE BANK, as Trustee (the "Trustee").

                                    RECITALS

         The Company has heretofore executed and delivered to the Trustee an
Indenture, dated as of May 19, 2003 (the "Original Indenture" and, as hereby
supplemented and amended, the "Indenture"), providing for the issuance from time
to time of one or more series of the Company's Securities.

         Pursuant to the terms of the Indenture, the Company desires to provide
for the establishment of one new series of Securities to be designated as the
"2.875% Convertible Senior Notes due 2024 (the "Notes"), the form and substance
of such Notes and the terms, provisions and conditions thereof to be set forth
as provided in the Original Indenture and this Supplemental Indenture No. 4.

         Section 301 of the Original Indenture provides that various matters
with respect to any series of Securities issued under the Indenture may be
established in an indenture supplemental to the Indenture.

         Subparagraph (7) of Section 901 of the Original Indenture provides that
the Company and the Trustee may enter into an indenture supplemental to the
Indenture to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301 of the Original Indenture.

         For and in consideration of the premises and the issuance of the series
of Securities provided for herein, it is mutually covenanted and agreed, for the
equal and proportionate benefit of the Holders of the Securities of such series,
as follows:

                                    ARTICLE I

                  Relation to Indenture; Additional Definitions

         Section 101 Relation to Indenture. This Supplemental Indenture No. 4
constitutes an integral part of the Original Indenture.

                                        1

<PAGE>

         Section 102 Additional Definitions. For all purposes of this
Supplemental Indenture No. 4:

                  Capitalized terms used herein shall have the meaning specified
         herein or in the Original Indenture, as the case may be.

                  "Additional Amounts" has the meaning provided in Section
         204(f) hereof.

                  "Affiliate" of, or a Person "affiliated" with, a specific
         Person means a Person that directly, or indirectly through one or more
         intermediaries, controls, or is controlled by, or is under common
         control with, the Person specified. For purposes of this definition,
         "control" (including the terms "controlled by" and "under common
         control with") means the possession, direct or indirect, of the power
         to direct or cause the direction of the management and policies of a
         Person, whether through the ownership of voting shares, by contract, or
         otherwise.

                  "Applicable Stock Price" has the meaning provided in Section
         802(a)(2).

                  "Beneficial Owner" shall be determined in accordance with Rule
         13d-3 promulgated by the Commission under the Exchange Act.

                  "Bid Solicitation Agent" has the meaning provided in Section
         212 hereof.

                  "Business Day" means, with respect to any Note, any day other
         than a Saturday, a Sunday or a day on which banking institutions in The
         City of New York are authorized or required by law, regulation or
         executive order to close. If any Interest Payment Date, Maturity Date,
         Redemption Date, Purchase Date or Fundamental Change Purchase Date of a
         Note falls on a day that is not a Business Day, the required payment
         will be made on the next succeeding Business Day with the same force
         and effect as if made on the relevant date that the payment was due and
         no interest will accrue on such payment for the period from and after
         the Interest Payment Date, Maturity Date, Redemption Date, Purchase
         Date or Fundamental Change Purchase Date, as the case may be, to the
         date of that payment on the next succeeding Business Day. The
         definition of "Business Day" in this Supplemental Indenture No. 4 and
         the provisions described in the preceding sentence shall supersede the
         definition of Business Day in the Original Indenture and Section 113 of
         the Original Indenture.

                  "Capital Lease" means a lease that, in accordance with
         accounting principles generally accepted in the United States of
         America, would be recorded as a capital lease on the balance sheet of
         the lessee.

                  "Cash Settlement" has the meaning provided in Section
         802(a)(2).

                  "CenterPoint Houston" means CenterPoint Energy Houston
         Electric, LLC, a Texas limited liability company, and any successor
         thereto; provided that at any given time, there shall not be more than
         one such successor.

                                        2

<PAGE>

                  "CERC" means CenterPoint Energy Resources Corp., a Delaware
         corporation, and any successor thereto; provided that at any given
         time, there shall not be more than one such successor.

                  "Combined Settlement" has the meaning provided in Section
         802(a)(3).

                  "Common Equity" of any Person means capital stock of such
         Person that is generally entitled to (1) vote in the election of
         directors of such Person or (2) if such Person is not a corporation,
         vote or otherwise participate in the selection of the governing body,
         partners, managers or others that will control the management or
         policies of such Person.

                  "Common Stock" means the common stock, par value $.01 per
         share, of the Company.

                  "Company Credit Facility" means that certain Credit Agreement,
         dated as of October 7, 2003, among the Company, as borrower, the banks
         party thereto, Citibank, N.A., as syndication agent, Deutsche Bank AG,
         New York Branch, Credit Suisse First Boston and Bank of America, N.A.,
         as co-documentation agents, and JPMorgan Chase Bank, as administration
         agent.

                  "Company Notice" has the meaning provided in Section 701
         hereof.

                  "Company Notice Date" has the meaning provided in Section 701
         hereof.

                  "Contingent Interest" has the meaning provided in Section
         204(a) hereof.

                  "Continuing Director" means a director who either was a member
         of the Board of Directors on December 12, 2003 or who becomes a member
         of the Board of Directors subsequent to that date and whose
         appointment, election or nomination for election by the Company's
         shareholders is duly approved by a majority of the Continuing Directors
         on the Board of Directors at the time of such approval, either by a
         specific vote or by approval of the proxy statement issued by the
         Company on behalf of the Board of Directors in which such individual is
         named as nominee for director.

                  "Conversion Agent" means the office or agency designated by
         the Company where Notes may be presented for conversion. The Trustee
         will initially act as Conversion Agent.

                  "Conversion Date" has the meaning provided in Section 802(a)
         hereof.

                  "Conversion Obligation" has the meaning provided in Section
         801.

                  "Conversion Price" means $1,000 divided by the Conversion
         Rate.

                  "Conversion Rate" has the meaning provided in Section 801
         hereof.

                  "Conversion Retraction Period" has the meaning provided in
         Section 802(b)(4).

                                        3

<PAGE>

                  "CPDI Regulations" has the meaning provided in Section 213
         hereof.

                  "Distributed Assets or Securities" has the meaning provided in
         Section 806(c) hereof.

                  "Distribution Compliance Period" means the period which
         expires immediately after one year following the later of: (a) the
         commencement of the offering of the Notes to Persons other than
         "distributors" (as defined in Regulation S) in reliance upon Regulation
         S; and (b) the date of closing of the offering of the Notes.

                  "Equity Interests" means any capital stock, partnership, joint
         venture, member or limited liability or unlimited liability company
         interest, beneficial interest in a trust or similar entity or other
         equity interest or investment of whatever nature.

                  "ex-date" has the meaning provided in the definition of
         Spin-off Market Price.

                  "Fair Market Value" means the amount which a willing buyer
         would pay a willing seller in an arm's length transaction.

                  A "Fundamental Change" shall be deemed to have occurred at
         such time after the original issuance of the Notes as any of the
         following occurs: (a) the Common Stock or other common stock into which
         the Notes are convertible is neither listed for trading on a United
         States national securities exchange nor approved for trading on the
         Nasdaq National Market or another established automated
         over-the-counter trading market in the United States; (b) a "person" or
         "group" within the meaning of Section 13(d) of the Exchange Act, other
         than the Company, any Subsidiary of the Company or any employee benefit
         plan of the Company or any such Subsidiary, files a Schedule TO (or any
         other schedule, form or report under the Exchange Act) disclosing that
         such person or group has become the direct or indirect ultimate
         Beneficial Owner of Common Equity of the Company representing more than
         50% of the voting power of the Company's Common Equity; (c)
         consummation of any share exchange, consolidation or merger of the
         Company pursuant to which the Common Stock will be converted into cash,
         securities or other property or any sale, lease or other transfer (in
         one transaction or a series of transactions) of all or substantially
         all of the consolidated assets of the Company and its Subsidiaries,
         taken as a whole, to any Person (other than the Company or one or more
         of the Company's Subsidiaries); provided, however, that a transaction
         where the holders of the Company's Common Equity immediately prior to
         such transaction own, directly or indirectly, more than 50% of the
         aggregate voting power of all classes of Common Equity of the
         continuing or surviving corporation or transferee immediately after
         such event shall not be a Fundamental Change; or (d) Continuing
         Directors cease to constitute at least a majority of the Board of
         Directors; provided, however, that a Fundamental Change shall not be
         deemed to have occurred in respect of any of the foregoing if either
         (i) the Last Reported Sale Price per share of Common Stock for any five
         Trading Days within the period of 10 consecutive Trading Days ending
         immediately before the later of the Fundamental Change or the public
         announcement thereof shall equal or exceed 105% of the Conversion Price
         of the Notes in effect immediately before the Fundamental Change or the
         public announcement thereof; or (ii) at least 90% of the consideration

                                        4

<PAGE>

         (excluding cash payments for fractional shares) in the transaction or
         transactions constituting the Fundamental Change consists of shares of
         Capital Stock traded on a national securities exchange or quoted on the
         Nasdaq National Market (or which shall be so traded or quoted when
         issued or exchanged in connection with such Fundamental Change) (such
         securities being referred to as "Publicly Traded Securities") and as a
         result of such transaction or transactions the Notes become convertible
         into such Publicly Traded Securities (excluding cash payments for
         fractional shares). For purposes of the foregoing, the term "Capital
         Stock" of any Person means any and all shares (including ordinary
         shares or American Depositary Shares), interests, participations or
         other equivalents however designated of corporate stock or other equity
         participations, including partnership interests, whether general or
         limited, of such Person and any rights (other than debt securities
         convertible or exchangeable into an equity interest), warrants or
         options to acquire an equity interest in such Person.

                  "Fundamental Change Purchase Date" has the meaning provided in
         Section 501 hereof.

                  "Fundamental Change Purchase Notice" has the meaning provided
         in Section 503 hereof.

                  "Fundamental Change Purchase Price" has the meaning provided
         in Section 501 hereof.

                  "Global Notes" has the meaning provided in Section 208(a)
         hereof.

                  "Indebtedness," as applied to any Person, means bonds,
         debentures, notes and other instruments or arrangements representing
         obligations created or assumed by any such Person, in respect of: (i)
         obligations for money borrowed (other than unamortized debt discount or
         premium); (ii) obligations evidenced by a note or similar instrument
         given in connection with the acquisition of any business, properties or
         assets of any kind; (iii) obligations as lessee under a Capital Lease;
         and (iv) any amendments, renewals, extensions, modifications and
         refundings of any such indebtedness or obligations listed in clause
         (i), (ii) or (iii) above. All indebtedness of such type secured by a
         lien upon property owned by such Person, although such Person has not
         assumed or become liable for the payment of such indebtedness, shall
         also for all purposes hereof be deemed to be indebtedness of such
         Person. All indebtedness for borrowed money incurred by any other
         Persons which is directly guaranteed as to payment of principal by such
         Person shall for all purposes hereof be deemed to be indebtedness of
         any such Person, but no other contingent obligation of such Person in
         respect of indebtedness incurred by any other Persons shall for any
         purpose be deemed to be indebtedness of such Person.

                  "Initial Purchasers" means Citigroup Global Markets Inc.,
         Deutsche Bank Securities Inc., Banc of America Securities LLC, Credit
         Suisse First Boston LLC, J.P. Morgan Securities Inc., Wachovia Capital
         Markets, LLC, ABN AMRO Rothschild LLC, Banc One Capital Markets, Inc.,
         Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith
         Incorporated, Commerzbank Aktiengesellschaft and Scotia Capital (USA)
         Inc., as

                                        5

<PAGE>

         initial purchasers in the offering of the Notes pursuant to the
         Offering Memorandum dated December 12, 2003 relating thereto.

                  "Interest Payment Date" has the meaning provided in Section
         204(a) hereof.

                  "Issue Date" has the meaning provided in Section 204(a)
         hereof.

                  "Last Reported Sale Price" of Common Stock on any date means
         the closing sale price per share (or, if no closing sale price is
         reported, the average of the bid and ask prices or, if more than one in
         either case, the average of the average bid and the average ask prices)
         on that date as reported in composite transactions for the principal
         U.S. securities exchange on which the Common Stock is traded or, if the
         Common Stock is not listed on a U.S. national or regional securities
         exchange, as reported by the Nasdaq National Market. If the Common
         Stock is not listed for trading on a U.S. national or regional
         securities exchange and not reported by the Nasdaq National Market on
         the relevant date, the "Last Reported Sale Price" shall be the last
         quoted bid price for Common Stock in the over-the-counter market on the
         relevant date as reported by the National Quotation Bureau or similar
         organization. If the Common Stock is not so quoted, the "Last Reported
         Sale Price" will be the average of the mid-point of the last bid and
         ask prices for the Common Stock on the relevant date from each of at
         least three nationally recognized independent investment banking firms
         selected by the Company for this purpose.

                  "Market Price" means the average of the Last Reported Sale
         Prices of Common Stock for the 20 Trading Day period ending on the
         applicable date of determination (if the applicable date of
         determination is a Trading Day or, if not, then on the last Trading Day
         prior to such applicable date of determination), appropriately adjusted
         to take into account the occurrence, during the period commencing on
         the first of the Trading Days during such 20 Trading Day period and
         ending on the applicable date of determination, of any event that would
         result in an adjustment of the Conversion Rate pursuant to the
         provisions hereof.

                  "Maturity Date" has the meaning provided in Section 203
         hereof.

                  "Non-U.S. Person" means persons other than "U.S. persons" as
         defined in Regulation S under the Securities Act.

                  "Notes" has the meaning provided in the second paragraph of
         the Recitals hereof.

                  "Original Indenture" has the meaning provided in the first
         paragraph of the Recitals hereof.

                  "Partial Cash Amount" has the meaning provided in Section
         802(a)(3).

                  "Purchase Agreement" means that certain Purchase Agreement
         dated December 12, 2003 between the Company and the Initial Purchasers
         which provides for the sale by the Company to the Initial Purchasers of
         the Notes.

                                        6

<PAGE>

                  "Purchase Date" has the meaning provided in Section 601(a)
         hereof.

                  "Purchase Notice" has the meaning provided in Section
         601(a)(i) hereof.

                  "Purchase Price" has the meaning provided in paragraph 8 of
         the Notes.

                  "Qualified Institutional Buyer" has the meaning assigned to
         such term in Rule 144A under the Securities Act.

                  "Redemption Price" has the meaning provided in paragraph 6 of
         the Notes.

                  "Registrable Securities" has the meaning assigned to such term
         in the Registration Rights Agreement.

                  "Registration Default" has the meaning assigned to such term
         in the Registration Rights Agreement.

                  "Registration Rights Agreement" means that certain
         Registration Rights Agreement, dated as of December 17, 2003, between
         the Company and the Initial Purchasers.

                  "Regular Record Date" has the meaning provided in Section
         204(a) hereof.

                  "Regulation S" means Regulation S under the Securities Act.

                  "Resale Restriction Termination Date" has the meaning provided
         in Section 902(b).

                  "Restricted Common Stock Legend" means the legend labeled as
         such, substantially in the form set forth in Exhibit H hereof.

                  "Rights Plan" means that certain Rights Agreement dated
         January 1, 2002, between the Company and JPMorgan Chase Bank, as rights
         agent, as amended from time to time.

                  "Settlement Notice Period" has the meaning provided in Section
         802(b)(3).

                  "Share Settlement" has the meaning provided in Section
         802(a)(1).

                  "Shelf Registration Statement" has the meaning assigned to
         such term in the Registration Rights Agreement.

                  "Significant Subsidiary" means CERC, CenterPoint Houston and
         Texas Genco, and any other Subsidiary which, at the time of the
         creation of a pledge, mortgage, security interest or other lien upon
         any Equity Interests of such Subsidiary, has consolidated gross assets
         (having regard to the Company's beneficial interest in the shares, or
         the like, of that Subsidiary) that represents at least 25% of the
         Company's consolidated gross assets appearing in the Company's most
         recent audited consolidated financial statements.

                                        7

<PAGE>

                  "Spin-off Market Price" per share of Common Stock of the
         Company or the Equity Interests in a subsidiary or other business unit
         of the Company on any day means the average of the daily Last Reported
         Sale Price for the 10 consecutive Trading Days commencing on and
         including the fifth Trading Day after the "ex date" with respect to the
         issuance or distribution requiring such computations. As used herein,
         the term "ex date," when used with respect to any issuance or
         distribution, shall mean the first date on which the security trades
         regular way on the New York Stock Exchange or such other national
         regional exchange or market in which the security trades without the
         right to receive such issuance or distribution.

                  "Subsidiary" of any entity means any corporation, partnership,
         joint venture, limited liability company, trust or estate of which (or
         in which) more than 50% of (i) the issued and outstanding capital stock
         or Equity Interests having ordinary voting power to elect a majority of
         the Board of Directors or comparable governing body of such corporation
         or other entity (irrespective of whether at the time capital stock of
         any other class or classes of such corporation or other entity shall or
         might have voting power upon the occurrence of any contingency), (ii)
         the interest in the capital or profits of such limited liability
         company, partnership, joint venture or other entity, or (iii) the
         beneficial interest in such trust or estate is at the time directly or
         indirectly owned or controlled by such entity, by such entity and one
         or more of its other Subsidiaries, or by one or more of such entity's
         other Subsidiaries.

                  "Texas Genco" means Texas Genco Holdings, Inc., a Texas
         corporation, and any successor thereto; provided that at any given
         time, there shall not be more than one such successor.

                  "Trading Day" means (a) if the applicable security is listed,
         admitted for trading or quoted on the New York Stock Exchange, the
         Nasdaq National Market or another national security exchange, a day on
         which the New York Stock Exchange, the Nasdaq National Market or
         another national security exchange is open for business or (b) if the
         applicable security is not so listed, admitted for trading or quoted, a
         Business Day.

                  "Trading Price" of the Notes on any date of determination
         means the average of the secondary market bid quotations per $1,000
         principal amount of Notes obtained by the Bid Solicitation Agent for
         $10 million principal amount of Notes at approximately 4:00 p.m., New
         York City time, on such determination date from three unaffiliated,
         nationally recognized securities dealers the Company selects, provided
         that if: (i) at least three such bids are not obtained by the Bid
         Solicitation Agent, or (ii) in the Company's reasonable judgment, the
         bid quotations are not indicative of the secondary market value of the
         Notes, then the Trading Price of the Notes will equal (a) the then
         applicable Conversion Rate of the Notes multiplied by (b) the average
         of the Last Reported Sale Prices of Common Stock for the five Trading
         Days ending on such determination date, appropriately adjusted to take
         into account the occurrence, during the period commencing on the first
         of such Trading Days during such five Trading Day period and ending on
         such determination date, of any event that would result in an
         adjustment of the Conversion Rate pursuant to the provisions hereof.

                                        8

<PAGE>

                  "Transfer Restricted Securities" means the Registrable
         Securities under the Registration Rights Agreement.

                  All references herein to Articles and Sections, unless
         otherwise specified, refer to the corresponding Articles and Sections
         of this Supplemental Indenture No. 4.

                  The terms "herein," "hereof," "hereunder" and other words of
         similar import refer to this Supplemental Indenture No. 4.

                                   ARTICLE II

                            The Series of Securities

         Section 201 Title of the Securities. The Notes shall be designated as
the "2.875% Convertible Senior Notes due 2024." The Notes shall be treated for
all purposes under the Indenture as a single class or series of Securities.

         Section 202 Limitation on Aggregate Principal Amount. The Trustee shall
authenticate and deliver Notes for original issue on the Issue Date in the
aggregate principal amount of $255,000,000 upon a Company Order for the
authentication and delivery thereof and satisfaction of Sections 301 and 303 of
the Original Indenture. Such order shall specify the amount of the Notes to be
authenticated, the date on which the original issue of Notes is to be
authenticated and the name or names of the initial Holder or Holders. The
aggregate principal amount of Notes that may be outstanding shall not exceed
$255,000,000.

         Section 203 Stated Maturity. The stated maturity of the Notes shall be
January 15, 2024 (the "Maturity Date"). The principal amount of the Notes shall
be payable on the Maturity Date unless the Notes are earlier redeemed, purchased
or converted in accordance with the terms of the Indenture.

         Section 204 Interest and Interest Rates.

         (a)      The Notes shall bear interest at a rate of 2.875% per year,
from December 17, 2003 (the "Issue Date") or from the most recent Interest
Payment Date (as defined below) to which payment has been made or duly provided
for, payable semiannually in arrears on January 15 and July 15 of each year
(each an "Interest Payment Date"), beginning July 15, 2004 to the persons in
whose names the Notes are registered at the close of business on January 1 and
July 1 (each a "Regular Record Date") (whether or not a Business Day), as the
case may be, immediately preceding such Interest Payment Date. The Notes shall
also provide for payment of contingent interest ("Contingent Interest") in
certain circumstances as specified in paragraph 5 of the Notes.

         (b)      Holders of Notes at the close of business on a Regular Record
Date will receive payment of interest, including Contingent Interest, if any,
payable on the corresponding Interest Payment Date notwithstanding the
conversion of such Notes at any time after the close of business on such Regular
Record Date. Notes surrendered for conversion by a Holder during the period from
the close of business on any Regular Record Date to the opening of business on
the immediately following Interest Payment Date must be accompanied by payment
of an amount

                                        9

<PAGE>

equal to the interest, including Contingent Interest, if any, that the Holder is
to receive on the Notes; provided, however, that no such payment need be made if
(1) the Company has specified a Redemption Date that is after a Regular Record
Date and on or prior to the immediately following Interest Payment Date, (2) the
Company has specified a Purchase Date following a Fundamental Change that is
during such period or (3) any overdue interest (including overdue Contingent
Interest, if any) exists at the time of conversion with respect to such Notes to
the extent of such overdue interest. Holders of the Notes and any Common Stock
issuable upon conversion thereof will continue to be entitled to receive
Additional Amounts in accordance with the Registration Rights Agreement.

         (c)      Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular Record Date
and shall either (i) be paid to the Person in whose name such Note (or one or
more Predecessor Securities) is registered at the close of business on the
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of the Notes not less than
10 days prior to such Special Record Date, or (ii) be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange or automated quotation system on which the Notes may be listed or
traded, and upon such notice as may be required by such exchange or automated
quotation system, all as more fully provided in the Indenture.

         (d)      The amount of interest, including Contingent Interest, if any,
payable for any period shall be computed on the basis of a 360-day year of
twelve 30-day months. The amount of interest, including Contingent Interest, if
any, payable for any partial period shall be computed on the basis of a 360-day
year of twelve 30-day months and the days elapsed in any partial month. In the
event that any date on which interest is payable on a Note is not a Business
Day, then a payment of the interest, including Contingent Interest, if any,
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay)
with the same force and effect as if made on the date the payment was originally
payable.

         (e)      If any principal of the Notes or any portion of such principal
is not paid when due (whether upon acceleration, upon the date set for payment
of the Redemption Price pursuant to paragraph 6 of the Notes, upon the date set
for payment of a Purchase Price or Fundamental Change Purchase Price pursuant to
paragraph 8 of the Notes or upon the Maturity Date) or if interest (including
Contingent Interest, if any) due hereon or any portion of such interest is not
paid when due in accordance with paragraph 1 or paragraph 5 or 11 of the Note,
then in each such case the overdue amount shall bear interest at the rate of
2.875% per annum, compounded semiannually (to the extent that the payment of
such interest shall be legally enforceable), which interest shall accrue from
the date such overdue amount was due to the date payment of such amount,
including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand.

         (f)      The interest rate borne by the Registrable Securities will be
increased by .25% per annum upon the occurrence of each Registration Default,
which rate will increase by an additional .25% per annum if such Registration
Default has not been cured within 90 days after the occurrence thereof and will
continue until all Registration Defaults have been cured ("Additional Amounts");
provided that the aggregate amount of any such increase in the interest

                                       10

<PAGE>

rate on the Registrable Securities shall in no event exceed .50% per annum. All
accrued Additional Amounts shall be paid to Holders of Registrable Securities in
the same manner and at the same time as regular payments of interest on the
Registrable Securities. Following the cure of all Registration Defaults, the
accrual of Additional Amounts shall cease and the interest rate on the
Registrable Securities will revert to 2.875% per annum.

         Section 205 Paying Agent and Conversion Agent; Place of Payment. The
Trustee shall initially serve as the Paying Agent and Conversion Agent for the
Notes. The Company may appoint and change any Paying Agent or Conversion Agent
or approve a change in the office through which any Paying Agent acts without
notice, other than notice to the Trustee. The Company or any of its Subsidiaries
or any of their Affiliates may act as Paying Agent or Conversion Agent. The
Place of Payment where the Notes may be presented or surrendered for payment
shall be the Corporate Trust Office of the Trustee. At the option of the
Company, except in the case of a Global Note, payment of interest may be made
(i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer in
immediately available funds at such place and to such account as may be
designated in writing by the Person entitled thereto as specified in the
Security Register

         Section 206 Place of Registration or Exchange; Notices and Demands With
Respect to the Notes. The place where the Holders of the Notes may present the
Notes for registration of transfer or exchange and may make notices and demands
to or upon the Company in respect of the Notes shall be the Corporate Trust
Office of the Trustee.

         Section 207 Percentage of Principal Amount. The Notes shall be issued
at 100% of their principal amount plus accrued interest, if any, from December
17, 2003.

         Section 208 Global Notes.

         (a)      The Notes are being offered and sold to Qualified
Institutional Buyers in reliance on Rule 144A under the Securities Act or to
Non-U.S. Persons in offshore transactions in reliance on Regulation S under the
Securities Act and shall be issued initially in the form of one or more
permanent Global Securities in definitive, fully registered, book-entry form,
without interest coupons (collectively, the "Global Notes").

         (b)      Each of the Global Notes shall represent such of the Notes as
shall be specified therein and shall each provide that it shall represent the
aggregate principal amount of Notes from time to time endorsed thereon and that
the aggregate principal amount of Notes represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges, redemptions,
purchases or conversions. Any endorsement of a Global Note to reflect the
amount, or any increase or decrease in the aggregate principal amount, of Notes
represented thereby shall be reflected by the Trustee on Schedule A attached to
the Note and made by the Trustee in accordance with written instructions or such
other written form of instructions as is customary for the Depositary, from the
Depositary or its nominee on behalf of any Person having a beneficial interest
in the Global Note.

                                       11

<PAGE>

         (c)      The Depository Trust Company shall initially serve as
Depositary with respect to the Global Notes. Such Global Notes shall bear the
legends set forth in the form of Note attached as Exhibit A hereto.

         Section 209 Form of Securities. The Global Notes shall be substantially
in the form attached as Exhibit A hereto.

         Section 210 Securities Registrar. The Trustee shall initially serve as
the Security Registrar for the Notes.

         Section 211 Sinking Fund Obligations. The Company shall have no
obligation to redeem or purchase any Notes pursuant to any sinking fund or
analogous requirement.

         Section 212 Bid Solicitation Agent. The Trustee shall initially serve
as the bid solicitation agent (the "Bid Solicitation Agent") for purposes of
obtaining secondary market bid quotations for determining Trading Prices. The
Company may change the Bid Solicitation Agent at any time; provided, however,
the Bid Solicitation Agent shall not be an Affiliate of the Company. The Bid
Solicitation Agent shall solicit bids from nationally recognized securities
dealers that are believed by the Company to be willing to bid for the Notes.

         Section 213 Tax Treatment of Notes The Company agrees, and by
purchasing a beneficial ownership interest in the Notes each Holder, and any
person (including an entity) that acquires a direct or indirect beneficial
interest in the Notes, will be deemed to have agreed (i) for United States
federal income tax purposes to treat the Notes as Indebtedness of the Company
that is subject to the Contingent Payment Debt Instrument regulations under
Treas. Reg. Sec. 1.1275-4 (the "CPDI Regulations"), (ii) for all tax purposes to
treat the Notes as Indebtedness of the Company, (iii) for purposes of the CPDI
Regulations, to treat the fair market value of any stock beneficially received
by a beneficial holder upon any conversion of the Notes as a contingent payment,
(iv) to be bound by the Company's determination that the Notes are contingent
payment debt instruments subject to the "noncontingent bond method" of accruing
original issue discount within the meaning of the CPDI Regulations with respect
to the Notes, (v) to accrue original issue discount at the comparable yield as
determined by the Company, and (vi) to be bound by the Company's projected
payment schedule with respect to the Notes. The provisions of this Supplemental
Indenture shall be interpreted to further this intention and agreement of the
parties. By purchasing a beneficial ownership interest in the Notes, each
Holder, and any person (including an entity) that acquires a direct or indirect
beneficial interest in the Notes, will be deemed to have acknowledged that the
comparable yield and the schedule of projected payments (i) are not determined
for any purpose other than for the determination of interest accruals and
adjustment thereof in respect of the Notes for United States federal income tax
purposes and (ii) do not constitute a projection or representation regarding the
future stock price or the amounts payable on the Notes. For purposes of the
foregoing, the Company's determination of the "comparable yield" is 5.06% per
annum, compounded semiannually. A Holder of Notes may obtain the amount of
original issue discount, issue date, comparable yield and projected payment
schedule by telephoning the Company's Treasury Department at (713) 207-7019 or
submitting a written request for such information to: CenterPoint Energy, Inc.,
1111 Louisiana, Houston, Texas 77002, Attention: Treasurer.

                                       12

<PAGE>

         Section 214 Defeasance and Discharge; Covenant Defeasance.

         (a)      Article Fourteen of the Original Indenture, including without
limitation, Sections 1402 and 1403 (as modified by Section 214(b) hereof)
thereof, shall apply to the Notes.

         (b)      Notwithstanding Section 214(a), (i) the Company shall not be
released from its obligations under Article VIII hereof, which obligations shall
survive any defeasance and discharge under Section 1402 of the Original
Indenture or covenant defeasance under Section 1403 of the Original Indenture,
and (ii) the occurrence of any event specified in Section 501(4) of the Original
Indenture with respect to Article VIII hereof shall be deemed to be or result in
an Event of Default in accordance with the terms of Article Five of the Original
Indenture.

         (c)      Notwithstanding Section 1403 of the Original Indenture, the
occurrence of any event specified in Section 1001(d)(i) hereof shall be deemed
not to be or result in an Event of Default with respect to the Notes on and
after the date the conditions set forth in Section 1404 of the Original
Indenture with respect to such Notes are satisfied and such covenant defeasance
remains in full force and effect pursuant to Article Fourteen of the Original
Indenture.

                                   ARTICLE III

                               Additional Covenant

         Section 301 Limitations on Liens. The Company shall not pledge,
mortgage, hypothecate, or grant a security interest in, or permit any such
mortgage, pledge, security interest or other lien upon any Equity Interests now
or hereafter owned by the Company in any Significant Subsidiary to secure any
Indebtedness, without making effective provisions whereby the outstanding Notes
shall be equally and ratably secured with or prior to any and all such
Indebtedness and any other Indebtedness similarly entitled to be equally and
ratably secured; provided, however, that this provision shall not apply to or
prevent the creation or existence of:

         (a)      any mortgage, pledge, security interest, lien or encumbrance
         upon the capital stock of Texas Genco to secure obligations under the
         Company Credit Facility or any extension, renewal, refunding, amendment
         or replacement thereof;

         (b)      any mortgage, pledge, security interest, lien or encumbrance
         upon the Equity Interests of CenterPoint Energy Transition Bond
         Company, LLC or any other special purpose Subsidiary created on or
         after the date of this Supplemental Indenture by the Company in
         connection with the issuance of securitization bonds for the economic
         value of generation-related regulatory assets and stranded costs;

         (c)      any mortgage, pledge, security interest, lien or encumbrance
         upon any Equity Interests in a Person which was not affiliated with the
         Company prior to one year before the grant of such mortgage, pledge,
         security interest, lien or encumbrance (or the Equity Interests of a
         holding company formed to acquire or hold such Equity Interests)
         created at the time of the Company's acquisition of the Equity
         Interests or within one year after such time to secure all or a portion
         of the purchase price for such Equity Interests; provided that the
         principal amount of any Indebtedness secured by such mortgage, pledge,
         security

                                       13

<PAGE>
         interest, lien or encumbrance does not exceed 100% of such purchase
         price and the fees, expenses and costs incurred in connection with such
         acquisition and acquisition financing;

         (d)      any mortgage, pledge, security interest, lien or encumbrance
         existing upon Equity Interests in a Person which was not affiliated
         with the Company prior to one year before the grant of such mortgage,
         pledge, security interest, lien or encumbrance at the time of the
         Company's acquisition of such Equity Interests (whether or not the
         obligations secured thereby are assumed by the Company or such
         Subsidiary becomes a Significant Subsidiary); provided that (i) such
         mortgage, pledge, security interest, lien or encumbrance existed at the
         time such Person became a Significant Subsidiary and was not created in
         anticipation of the acquisition, and (ii) any such mortgage, pledge,
         security interest, lien or encumbrance does not by its terms secure any
         Indebtedness other than Indebtedness existing or committed immediately
         prior to the time such Person becomes a Significant Subsidiary;

         (e)      liens for taxes, assessments or governmental charges or levies
         to the extent not past due or which are being contested in good faith
         by appropriate proceedings diligently conducted and for which the
         Company has provided adequate reserves for the payment thereof in
         accordance with generally accepted accounting principles;

         (f)      pledges or deposits in the ordinary course of business to
         secure obligations under workers' compensation laws or similar
         legislation;

         (g)      materialmen's, mechanics', carriers', workers' and repairmen's
         liens imposed by law and other similar liens arising in the ordinary
         course of business for sums not yet due or currently being contested in
         good faith by appropriate proceedings diligently conducted;

         (h)      attachment, judgment or other similar liens, which have not
         been effectively stayed, arising in connection with court proceedings;
         provided that such liens, in the aggregate, shall not secure judgments
         which exceed $50,000,000 aggregate principal amount at any one time
         outstanding; provided further that the execution or enforcement of each
         such lien is effectively stayed within 30 days after entry of the
         corresponding judgment (or the corresponding judgment has been
         discharged within such 30 day period) and the claims secured thereby
         are being contested in good faith by appropriate proceedings timely
         commenced and diligently prosecuted;

         (i)      other liens not otherwise referred to in paragraphs (a)
         through (h) above, provided that the Indebtedness secured by such liens
         in the aggregate, shall not exceed 1% of the Company's consolidated
         gross assets appearing in the Company's most recent audited
         consolidated financial statements at any one time outstanding;

         (j)      any mortgage, pledge, security interest, lien or encumbrance
         on the Equity Interests of any Subsidiary that was otherwise permitted
         under this Section 301 if such Subsidiary subsequently becomes a
         Significant Subsidiary; or

         (k)      any extension, renewal or refunding of Indebtedness secured by
         any mortgage, pledge, security interest, lien or encumbrance described
         in paragraphs (a) through (j)

                                       14

<PAGE>
         above; provided that the principal amount of any such Indebtedness is
         not increased by an amount greater than the fees, expenses and costs
         incurred in connection with such extension, renewal or refunding.

                                   ARTICLE IV

                        Optional Redemption of the Notes

         Section 401 Right to Redeem; Notice to Trustee, Paying Agent and
Holders. On or after January 15, 2007, the Company may, at its option, redeem
the Notes in whole, or in part, at any time in accordance with the provisions of
paragraph 6 of the Notes. If the Company elects to redeem Notes pursuant to
paragraph 6 of the Notes, it shall notify in writing the Trustee, the Paying
Agent and each Holder of Notes to be redeemed, as provided in Section 1104 of
the Indenture and Section 404 hereof.

         Section 402 Fewer Than All Outstanding Notes to Be Redeemed. If fewer
than all of the outstanding Notes are to be redeemed, the Trustee shall select
the Notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof. In the case that the Trustee shall select the Notes to be redeemed, the
Trustee may effectuate such selection by lot, pro rata, or by any other method
that the Trustee considers fair and appropriate. The Trustee will make such
selection promptly following receipt of the notice of redemption from the
Company provided pursuant to Section 404 hereof.

         Section 403 Selection of Notes to Be Redeemed. If any Notes selected
for partial redemption are thereafter surrendered for conversion in part before
termination of the conversion right with respect to the portion of the Notes so
selected, the converted portion of such Notes shall be deemed (so far as may
be), solely for purposes of determining the aggregate principal amount of Notes
to be redeemed by the Company, to be the portion selected for redemption. Notes
which have been converted during a selection of Notes to be redeemed may be
treated by the Trustee as outstanding for the purpose of such selection. Nothing
in this Section 403 shall affect the right of any Holder to convert any Notes
pursuant to Article VIII hereof before the termination of the conversion right
with respect thereto.

         Section 404 Notice of Redemption. In addition to those matters set
forth in Section 1104 of the Indenture, a notice of redemption sent to Holders
of Notes shall state:

         (a)      the then current Conversion Rate;

         (b)      the name and address of the Paying Agent and the Conversion
Agent;

         (c)      that the Notes called for redemption may be converted at any
time before the close of business on the Business Day immediately preceding the
Redemption Date; and

         (d)      that Holders who wish to convert Notes must comply with the
procedures in paragraph 10 of the Notes.

         Section 405 Effect of Notice of Redemption. Once notice of redemption
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption

                                       15

<PAGE>

Price, except for Notes that are converted in accordance with the provisions of
Article VIII hereof and paragraph 10 of the Notes. Upon presentation and
surrender to the Paying Agent, Notes called for redemption shall be paid at the
Redemption Price as defined in paragraph 6 of the Notes.

         Section 406 Deposit of Redemption Price. On or before 10:00 a.m. (New
York City time) on the Redemption Date, the Company shall deposit with the
Paying Agent (or if the Company or an Affiliate of the Company is acting as the
Paying Agent, shall segregate and hold in trust) an amount of money sufficient
to pay the aggregate Redemption Price of all the Notes to be redeemed on that
date other than the Notes or portions thereof called for redemption which on or
prior thereto have been delivered by the Company to the Security Registrar for
cancellation or have been converted. The Trustee and Paying Agent shall, as
promptly as practicable, return to the Company any money not required for that
purpose because of conversion of the Notes in accordance with the provisions of
Article VIII hereof. If such money is then held by the Company or a Subsidiary
in trust and is not required for such purpose, it shall be discharged from such
trust.

                                    ARTICLE V

                       Purchase Upon a Fundamental Change

         Section 501 Purchase at the Option of the Holder Upon a Fundamental
Change. If a Fundamental Change shall occur at any time prior to January 15,
2007, each Holder shall have the right, at such Holder's option, to require the
Company to purchase any or all of such Holder's Notes for cash on the date
selected by the Company that is no later than 35 days after the date of the
Company Notice of the occurrence of such Fundamental Change (subject to
extension to comply with applicable law, as provided in Section 704) (the
"Fundamental Change Purchase Date"). The Notes shall be repurchased in integral
multiples of $1,000 of the principal amount. The Company shall purchase such
Notes at a price (the "Fundamental Change Purchase Price") equal to 100% of the
principal amount of the Notes to be purchased plus accrued and unpaid interest,
including Contingent Interest and Additional Amounts, if any, to the Fundamental
Change Purchase Date. No Notes may be purchased at the option of the Holders
upon a Fundamental Change if there has occurred and is continuing an Event of
Default (other than an Event of Default that is cured by the payment of the
Fundamental Change Purchase Price of the Notes).

         Section 502 Notice of Fundamental Change. The Company, or at its
request (which must be received by the Paying Agent at least three Business Days
(or such lesser period as agreed to by the Paying Agent) prior to the date the
Paying Agent is requested to give such notice as described below), the Paying
Agent in the name of and at the expense of the Company, shall mail to all
Holders and the Trustee and the Paying Agent a Company Notice of the occurrence
of a Fundamental Change and of the purchase right arising as a result thereof,
including the information required by Section 701 hereof, on or before the 30th
day after the occurrence of such Fundamental Change.

         Section 503 Exercise of Option. For a Note to be so purchased at the
option of the Holder, the Paying Agent must receive such Note duly endorsed for
transfer, together with a

                                       16

<PAGE>

written notice of purchase (a "Fundamental Change Purchase Notice") and the form
entitled "Form of Fundamental Change Purchase Notice" on the reverse thereof
duly completed, on or before the 35th day after the date of the Company Notice
of the occurrence of such Fundamental Change, subject to extension to comply
with applicable law. The Fundamental Change Purchase Notice shall state:

         (a)      if certificated, the certificate numbers of the Notes which
         the Holder shall deliver to be purchased, or, if not certificated, the
         Fundamental Change Purchase Notice must comply with appropriate
         Depositary procedures;

         (b)      the portion of the principal amount of the Notes which the
         Holder shall deliver to be purchased, which portion must be $1,000 in
         principal amount or an integral multiple thereof; and

         (c)      that such Notes shall be purchased as of the Fundamental
         Change Purchase Date pursuant to the terms and conditions specified in
         paragraph 8 of the Notes and in this Supplemental Indenture.

         Section 504 Procedures. The Company shall purchase from a Holder,
pursuant to Article V hereof, Notes if the principal amount of such Notes is
$1,000 or a multiple of $1,000 if so requested by such Holder.

         Any purchase by the Company contemplated pursuant to the provisions of
Article V hereof shall be consummated by the delivery of the Fundamental Change
Purchase Price to be received by the Holder promptly following the later of the
Fundamental Change Purchase Date or the time of book-entry transfer or delivery
of the Notes.

         Notwithstanding anything herein to the contrary, any Holder delivering
to the Paying Agent the Fundamental Change Purchase Notice contemplated by
Section 503 shall have the right at any time prior to the close of business on
the Business Day prior to the Fundamental Change Purchase Date to withdraw such
Fundamental Change Purchase Notice (in whole or in part) by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section 702.

         The Paying Agent shall promptly notify the Company of the receipt by it
of any Fundamental Change Purchase Notice or written notice of withdrawal
thereof.

         On or before 10:00 a.m. (New York City time) on the Fundamental Change
Purchase Date, the Company shall deposit with the Paying Agent (or if the
Company or an Affiliate of the Company is acting as the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the aggregate Fundamental
Change Purchase Price of the Notes to be purchased pursuant to Article V hereof.
Payment by the Paying Agent of the Fundamental Change Purchase Price for such
Notes shall be made promptly following the later of the Fundamental Change
Purchase Date or the time of book-entry transfer or delivery of such Notes. If
the Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Fundamental Change Purchase Price of such Notes on the
Business Day following the Fundamental Change Purchase Date, then, on and after
such Fundamental Change Purchase Date, such Notes shall cease to be outstanding
and interest (including Contingent Interest and Additional Amounts, if any) on
such

                                       17

<PAGE>

Notes shall cease to accrue, whether or not book-entry transfer of such Notes is
made or such Notes are delivered to the Paying Agent, and all other rights of
the Holder shall terminate (other than the right to receive the Fundamental
Change Purchase Price upon delivery or transfer of the Notes). Nothing herein
shall preclude any withholding tax required by law.

         The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of the
Fundamental Change Purchase Price and shall notify the Trustee of any default by
the Company in making any such payment. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall segregate the money held by it as Paying
Agent and hold it as a separate trust fund. The Company at any time may require
a Paying Agent to deliver all money held by it to the Trustee and to account for
any funds disbursed by the Paying Agent. Upon doing so, the Paying Agent shall
have no further liability for the cash delivered to the Trustee.

         All questions as to the validity, eligibility (including time of
receipt) and acceptance of any Notes for redemption shall be determined by the
Company, whose determination shall be final and binding.

                                   ARTICLE VI

                                Optional Purchase

         Section 601 Purchase of Notes by the Company at the Option of the
Holder.

         (a)      On each of January 15, 2007, January 15, 2012 and January 15,
2017 (each, a "Purchase Date"), Holders shall have the option to require the
Company to purchase any Notes at the Purchase Price specified in paragraph 8 of
the Notes, upon:

                  (i)      delivery to the Paying Agent by the Holder of a
         written notice of purchase (a "Purchase Notice") at any time from the
         opening of business on the date that is 20 Business Days prior to a
         Purchase Date until the close of business on the fifth Business Day
         prior to such Purchase Date, stating:

                           (1)      if certificated, the certificate numbers of
                  the Notes which the Holder will deliver to be purchased, or,
                  if not certificated, the Purchase Notice must comply with
                  appropriate Depositary procedures;

                           (2)      the portion of the principal amount of the
                  Notes which the Holder will deliver to be purchased, which
                  portion must be $1,000 in principal amount or an integral
                  multiple thereof; and

                           (3)      that such Notes shall be purchased as of the
                  Purchase Date pursuant to the terms and conditions specified
                  in paragraph 8 of the Notes and in this Supplemental
                  Indenture; and

                  (ii)     delivery or book-entry transfer of such Notes to the
         Paying Agent prior to, on or after the Purchase Date (together with all
         necessary endorsements) at the offices of

                                       18

<PAGE>

         the Paying Agent, such delivery or transfer being a condition to
         receipt by the Holder of the Purchase Price therefor; provided,
         however, that such Purchase Price shall be so paid pursuant to this
         Section 601 only if the Notes so delivered or transferred to the Paying
         Agent shall conform in all respects to the description thereof in the
         related Purchase Notice.

         (b)      The Company shall purchase from a Holder, pursuant to the
terms of this Section 601, Notes if the principal amount of such Notes is $1,000
or a multiple of $1,000 if so requested by such Holder.

         (c)      Any purchase by the Company contemplated pursuant to the
provisions of this Section 601 shall be consummated by the delivery of the
Purchase Price to be received by the Holder promptly following the later of the
Purchase Date or the time of book-entry transfer or delivery of the Notes.

         (d)      Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent the Purchase Notice contemplated by this Section
601 shall have the right at any time prior to the close of business on the
Business Day prior to the Purchase Date to withdraw such Purchase Notice (in
whole or in part) by delivery of a written notice of withdrawal to the Paying
Agent in accordance with Section 702.

         (e)      The Paying Agent shall promptly notify the Company of the
receipt by it of any Purchase Notice or written notice of withdrawal thereof.

         (f)      On or before 10:00 a.m. (New York City time) on the Purchase
Date, the Company shall deposit with the Paying Agent (or if the Company or an
Affiliate of the Company is acting as the Paying Agent, shall segregate and hold
in trust) money sufficient to pay the aggregate Purchase Price of the Notes to
be purchased pursuant to this Section 601. Payment by the Paying Agent of the
Purchase Price for such Notes shall be made promptly following the later of the
Purchase Date or the time of book-entry transfer or delivery of such Notes. If
the Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Purchase Price of such Notes on the Business Day following
the Purchase Date, then, on and after such Purchase Date, such Notes shall cease
to be outstanding and interest (including Contingent Interest and Additional
Amounts, if any) on such Notes shall cease to accrue, whether or not book-entry
transfer of such Notes is made or such Notes are delivered to the Paying Agent,
and all other rights of the Holder shall terminate (other than the right to
receive the Purchase Price upon delivery or transfer of the Notes).

         (g)      The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of the Purchase Price and shall notify the Trustee of any default by the
Company in making any such payment. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall segregate the money held by it as Paying
Agent and hold it as a separate trust fund. The Company at any time may require
a Paying Agent to deliver all money held by it to the Trustee and to account for
any funds disbursed by the Paying Agent. Upon doing so, the Paying Agent shall
have no further liability for the cash delivered to the Trustee.

                                       19

<PAGE>

                                   ARTICLE VII

          Conditions and Procedures for Purchases at Option of Holders

         Section 701 Notice of Purchase Date or Fundamental Change. The Company
shall send notices (each, a "Company Notice") to the Holders (and to beneficial
owners as required by applicable law) at their addresses shown in the Security
Register maintained by the Security Registrar, and delivered to the Trustee and
Paying Agent, not less than 20 Business Days prior to each Purchase Date, or on
or before the 30th day after the occurrence of the Fundamental Change, as the
case may be (each such date of delivery, a "Company Notice Date"). Each Company
Notice shall include a form of Purchase Notice or Fundamental Change Purchase
Notice to be completed by a Holder and shall state:

         (a)      the applicable Purchase Price or Fundamental Change Purchase
         Price, excluding accrued and unpaid interest, Conversion Rate at the
         time of such notice (and any adjustments to the Conversion Rate) and,
         to the extent known at the time of such notice, the amount of interest
         (including Contingent Interest and Additional Amounts, if any), if any,
         that will be payable with respect to the Notes on the applicable
         Purchase Date or Fundamental Change Purchase Date;

         (b)      if the notice relates to a Fundamental Change, the events
         causing the Fundamental Change and the date of the Fundamental Change;

         (c)      the Purchase Date or Fundamental Change Purchase Date;

         (d)      the last date on which a Holder may exercise its purchase
         right;

         (e)      the name and address of the Paying Agent and the Conversion
         Agent;

         (f)      that Notes must be surrendered to the Paying Agent to collect
         payment of the Purchase Price or Fundamental Change Purchase Price;

         (g)      that Notes as to which a Purchase Notice or Fundamental Change
         Purchase Notice has been given may be converted only if the applicable
         Purchase Notice or Fundamental Change Purchase Notice has been
         withdrawn in accordance with the terms of this Supplemental Indenture;

         (h)      that the Purchase Price or Fundamental Change Purchase Price
         for any Notes as to which a Purchase Notice or a Fundamental Change
         Purchase Notice, as applicable, has been given and not withdrawn shall
         be paid by the Paying Agent promptly following the later of the
         Purchase Date or Fundamental Change Purchase Date, as applicable, or
         the time of book-entry transfer or delivery of such Notes;

         (i)      the procedures the Holder must follow under Article V or VI
         hereof, as applicable, and Article VII hereof;

         (j)      briefly, the conversion rights of the Notes;

                                       20

<PAGE>

         (k)      that, unless the Company defaults in making payment of such
         Purchase Price or Fundamental Change Purchase Price on Notes covered by
         any Purchase Notice or Fundamental Change Purchase Notice, as
         applicable, interest (including Contingent Interest and Additional
         Amounts, if any) will cease to accrue on and after the Purchase Date or
         Fundamental Change Purchase Date, as applicable;

         (l)      the CUSIP or ISIN number of the Notes; and

         (m)      the procedures for withdrawing a Purchase Notice or
         Fundamental Change Purchase Notice.

         In connection with providing such Company Notice, the Company will
issue a press release and publish a notice containing the information in such
Company Notice in a newspaper of general circulation in The City of New York or
publish such information on the Company's then existing Web site or through such
other public medium as the Company may use at the time.

         At the Company's request, made at least three Business Days prior to
the date upon which such notice is to be mailed (or such lesser period as agreed
to by the Paying Agent), and at the Company's expense, the Paying Agent shall
give the Company Notice in the Company's name; provided, however, that, in all
cases, the text of the Company Notice shall be prepared by the Company.

         Section 702 Effect of Purchase Notice or Fundamental Change Purchase
Notice; Effect of Event of Default. Upon receipt by the Company of the Purchase
Notice or Fundamental Change Purchase Notice specified in Section 601 or Section
503, as applicable, the Holder of the Notes in respect of which such Purchase
Notice or Fundamental Change Purchase Notice, as the case may be, was given
shall (unless such Purchase Notice or Fundamental Change Purchase Notice is
withdrawn as specified in the following two paragraphs) thereafter be entitled
to receive solely the Purchase Price or Fundamental Change Purchase Price with
respect to such Notes. Such Purchase Price or Fundamental Change Purchase Price
shall be paid by the Paying Agent to such Holder promptly following the later of
(x) the Purchase Date or the Fundamental Change Purchase Date, as the case may
be, with respect to such Notes (provided the conditions in Section 601 or
Section 503, as applicable, have been satisfied) and (y) the time of delivery or
book-entry transfer of such Notes to the Paying Agent by the Holder thereof in
the manner required by Section 601 or Section 503, as applicable. Notes in
respect of which a Purchase Notice or Fundamental Change Purchase Notice, as the
case may be, has been given by the Holder thereof may not be converted for
shares of Common Stock on or after the date of the delivery of such Purchase
Notice or Fundamental Change Purchase Notice, as the case may be, unless such
Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has
first been validly withdrawn as specified in the following two paragraphs.

         A Purchase Notice or Fundamental Change Purchase Notice, as the case
may be, may be withdrawn by means of a written notice of withdrawal delivered to
the office of the Paying Agent at any time prior to 5:00 p.m. New York City time
on the Business Day prior to the Purchase Date or the Fundamental Change
Purchase Date, as the case may be, to which it relates specifying:

                                       21

<PAGE>

         (a)      if certificated, the certificate number of the Notes in
         respect of which such notice of withdrawal is being submitted, or, if
         not certificated, the written notice of withdrawal must comply with
         appropriate Depositary procedures;

         (b)      the principal amount of the Notes with respect to which such
         notice of withdrawal is being submitted; and

         (c)      the principal amount, if any, of such Notes which remains
         subject to the original Purchase Notice or Fundamental Change Purchase
         Notice, as the case may be, and which has been or shall be delivered
         for purchase by the Company.

         There shall be no purchase of any Notes pursuant to Article V or
Article VI hereof if an Event of Default has occurred and is continuing (other
than a default that is cured by the payment of the Purchase Price or Fundamental
Change Purchase Price, as the case may be). The Paying Agent shall promptly
return to the respective Holders thereof any Notes (x) with respect to which a
Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has
been withdrawn in compliance with this Supplemental Indenture, or (y) held by it
during the continuance of an Event of Default (other than a default that is
cured by the payment of the Purchase Price or Fundamental Change Purchase Price,
as the case may be) in which case, upon such return, the Purchase Notice or
Fundamental Change Purchase Notice with respect thereto shall be deemed to have
been withdrawn.

         Section 703 Notes Purchased in Part. Any Notes that are to be purchased
only in part shall be surrendered at the office of the Paying Agent (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or such Holder's attorney duly authorized in
writing) and the Company shall execute and the Trustee or the Authenticating
Agent shall authenticate and deliver to the Holder of such Notes, without
service charge, a new Note or Notes, of any authorized denomination as requested
by such Holder in aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Notes so surrendered which is not
purchased or redeemed.

         Section 704 Covenant to Comply with Securities Laws Upon Purchase of
Notes. In connection with any offer to purchase Notes under Article V or Article
VI hereof, the Company shall, to the extent applicable, (a) comply with Rules
13e-4 and 14e-1 (and any successor provisions thereto) under the Exchange Act,
if applicable; (b) file the related Schedule TO (or any successor schedule, form
or report) under the Exchange Act, if applicable; and (c) otherwise comply with
all applicable federal and state securities laws so as to permit the rights and
obligations under Article V or Article VI hereof to be exercised in the time and
in the manner specified in Article V or Article VI hereof.

         Section 705 Repayment to the Company. The Trustee and the Paying Agent
shall return to the Company any cash or property that remains unclaimed as
provided in paragraph 14 of the Notes, together with interest that the Trustee
or Paying Agent, as the case may be, has agreed to pay, if any, held by them for
the payment of a Purchase Price or Fundamental Change Purchase Price, as the
case may be; provided, however, that to the extent that the aggregate amount of
cash or property deposited by the Company pursuant to Section 601(f) or 504, as
applicable, exceeds

                                       22

<PAGE>

the aggregate Purchase Price or Fundamental Change Purchase Price, as the case
may be, of the Notes or portions thereof which the Company is obligated to
purchase as of the Purchase Date or Fundamental Change Purchase Date, as the
case may be, then promptly on and after the Business Day following the Purchase
Date or Fundamental Change Purchase Date, as the case may be, the Trustee and
the Paying Agent shall return any such excess to the Company together with
interest that the Trustee or Paying Agent, as the case may be, has agreed to
pay, if any.

                                  ARTICLE VIII

                               Conversion of Notes

         Section 801 Right to Convert. A Holder may convert its Notes for Common
Stock at any time during which the conditions stated in paragraph 10 of the
Notes are met. The number of shares of Common Stock issuable upon conversion of
a Note per $1,000 principal amount (the "Conversion Rate") shall be that set
forth in paragraph 10 in the Notes, subject to adjustment as herein set forth.
The initial Conversion Rate is 78.0640 shares of Common Stock issuable upon
conversion of $1,000 principal amount of Notes. Upon conversion of a Note
pursuant to this Article VIII, the Company shall satisfy its obligations to
deliver shares of Common Stock (or, as set forth in Section 802, cash or a
combination of cash and shares of Common Stock), together with any cash payment
for fractional shares, in accordance with this Article VIII (the "Conversion
Obligation").

         A Holder may convert a portion of the principal amount of Notes if the
portion is $1,000 or a multiple of $1,000.

         Section 802 Conversion Procedures.

         (a)      To convert Notes, a Holder must satisfy the requirements in
this Section 802 and in paragraph 10 of the Notes. The date on which the Holder
satisfies all those requirements is the conversion date (the "Conversion Date").
As soon as practicable after the Conversion Date, and subject to Section 802(b),
the Company shall satisfy its Conversion Obligation upon conversion of a Note by
delivering to the Holder, at the Company's election, either shares of Common
Stock, cash or a combination of cash and shares of Common Stock as follows:

                  (1)      If the Company elects to satisfy the entire
         Conversion Obligation in shares of Common Stock ("Share Settlement"),
         then the Company will deliver to such Holder a number of full shares of
         Common Stock equal to (i) the aggregate principal amount of Notes to be
         converted by such Holder divided by 1,000 multiplied by (ii) the
         Conversion Rate in effect on the Conversion Date, together with cash in
         lieu of any fractional shares determined pursuant to Section 803 based
         on the Last Reported Sale Price of a full share of Common Stock on the
         Trading Day immediately preceding the Conversion Date;

                  (2)      If the Company elects to satisfy the entire
         Conversion Obligation in cash ("Cash Settlement"), then the Company
         will deliver to such Holder cash in an amount equal to the product of
         (i) (x) the aggregate principal amount of Notes to be converted by such
         Holder divided by 1,000 multiplied by (y) the Conversion Rate in effect
         on the Conversion Date, and (ii) the average of the Last Reported Sale
         Prices of Common Stock

                                       23

<PAGE>

         for the five Trading Day period commencing on the third Trading Day
         following the Conversion Date (the "Applicable Stock Price"); or

                  (3)      If the Company elects to satisfy a portion of the
         Conversion Obligation in cash (the "Partial Cash Amount") and a portion
         in shares of Common Stock (together with the Partial Cash Amount, a
         "Combined Settlement"), then the Company will deliver to such Holder
         such Partial Cash Amount, plus a number of full shares of Common Stock
         equal to (i) the amount of the Cash Settlement determined pursuant to
         clause (2) above minus such Partial Cash Amount divided by (B) the
         Applicable Stock Price, together with cash in lieu of any fractional
         shares determined pursuant to Section 803 based on the Applicable Stock
         Price.

         (b)      Upon receipt of the conversion notice from a Holder by the
Company or the Conversion Agent:

                  (1)      If such notice is received by the Conversion Agent,
         the Conversion Agent shall promptly notify the Company.

                  (2)      If the Company elects to satisfy the Conversion
         Obligation by Share Settlement, then settlement in Common Stock will be
         made on or prior to the fifth Trading Day following the Conversion
         Date.

                  (3)      If the Company elects to satisfy the Conversion
         Obligation by Cash Settlement or Combined Settlement, then the Company
         will notify the Trustee in writing, who shall promptly notify such
         Holder, of the dollar amount to be satisfied in cash at any time on or
         prior to the date that is two Business Days following the Conversion
         Date (the "Settlement Notice Period"). Share Settlement will apply
         automatically if the Company does not notify the Trustee during the
         Settlement Notice Period that the Company has chosen another settlement
         method.

                  (4)      If the Company timely elects Cash Settlement or
         Combined Settlement, then such Holder may retract the conversion notice
         at any time during the two Business Day period beginning on the
         Business Day after the Settlement Notice Period (the "Conversion
         Retraction Period") by written notice to the Trustee. Such Holder
         cannot retract its conversion notice (and such conversion notice
         therefore will be irrevocable) if the Company has elected Share
         Settlement. If such Holder has not retracted the conversion notice
         during the Conversion Retraction Period, then Cash Settlement or
         Combined Settlement will occur, through the Conversion Agent, on or
         prior to the third Business Day following the determination of the
         Applicable Stock Price. If such Holder timely retracts its conversion
         notice, then such Holder shall be deemed to be a Holder of Notes as if
         a conversion notice had never been delivered by such Holder for such
         Notes.

         (c)      In the event of Share Settlement or Combined Settlement, the
Person in whose name the certificate is registered shall be treated as a
stockholder of record on and after the Conversion Date; provided, however, that
no surrender of Notes on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the Person or Persons entitled
to receive the shares of Common Stock upon such conversion as the record

                                       24

<PAGE>

holder or holders of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the Person or Persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; and provided further that such conversion shall
be at the Conversion Rate in effect on the date that such Notes shall have been
surrendered for conversion, as if the stock transfer books of the Company had
not been closed. Upon conversion of Notes, such Person shall no longer be a
Holder of such Notes.

         (d)      No payment or adjustment shall be made for dividends on or
other distributions with respect to any Common Stock except as provided in
Section 806 or as otherwise provided in this Indenture.

         (e)      On conversion of Notes, that portion of the principal amount
and accrued and unpaid interest, including Contingent Interest, if any, with
respect to the converted portion of the Notes shall not be canceled,
extinguished or forfeited, but rather shall be deemed to be paid in full to the
Holder thereof through the delivery of the Common Stock, cash or a combination
thereof (together with the cash payment, if any, in lieu of fractional shares)
in exchange for the portion of the Notes being converted pursuant to the
provisions hereof. Notwithstanding the conversion of any Notes, the Holders of
the Notes and any Common Stock issuable upon conversion thereof will continue to
be entitled to receive Additional Amounts in accordance with the Registration
Rights Agreement.

         (f)      If a Holder converts more than one Note at the same time, the
number of shares of Common Stock issuable upon the conversion shall be based on
the total principal amount of the Notes converted. Upon surrender of a Note that
is converted in part, the Company shall execute, and the Trustee or the
Authenticating Agent shall authenticate and deliver to the Holder, a new Note in
an authorized denomination equal in principal amount to the unconverted portion
of the Note surrendered. If the last day on which Notes may be converted is a
legal holiday in a place where a Conversion Agent is located, the Notes may be
surrendered to that Conversion Agent on the next succeeding day that is not a
legal holiday.

         Section 803 Cash Payments in Lieu of Fractional Shares. The Company
shall not issue a fractional share of Common Stock upon conversion of Notes.
Instead the Company shall deliver cash for the current market value of the
fractional share. The current market value of a fractional share shall be
determined to the nearest 1/10,000th of a share by multiplying the Last Reported
Sale Price of a full share of Common Stock on the Trading Day immediately
preceding the Conversion Date (or, in the case of Combined Settlement, the
Applicable Stock Price) by the fractional amount and rounding the product to the
nearest whole cent.

         Section 804 Taxes on Conversion. If a Holder converts Notes, the
Company shall pay any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon the conversion. However, the Holder
shall pay any such tax which is due because the Holder requests the shares to be
issued in a name other than the Holder's name or delivered to a Person other
than the Holder. The Conversion Agent may refuse to deliver the certificates
representing the Common Stock being issued in a name other than the Holder's
name or to a Person other than the Holder until the Conversion Agent receives a
sum sufficient to pay any tax which shall be due because the shares are to be
issued in a name other than the Holder's name or

                                       25

<PAGE>

delivered to a Person other than the Holder. Nothing herein shall preclude any
withholding tax required by law.

         Section 805 Covenants of the Company. The Company shall, prior to
issuance of any Notes hereunder, and from time to time as may be necessary,
reserve out of its authorized but unissued Common Stock a sufficient number of
shares of Common Stock to permit the conversion of the Notes.

         All shares of Common Stock delivered upon conversion of the Notes shall
be newly issued shares or treasury shares, shall be duly and validly issued and
fully paid and nonassessable and shall be free from preemptive rights and free
of any lien or adverse claim.

         The Company shall endeavor promptly to comply with all federal and
state securities laws regulating the order and delivery of shares of Common
Stock upon the conversion of Notes, if any, and shall cause to have listed or
quoted all such shares of Common Stock on each United States national securities
exchange or over-the-counter or other domestic market on which the Common Stock
is then listed or quoted.

         Section 806 Adjustments to Conversion Rate. The Conversion Rate shall
be adjusted from time to time, without duplication, as follows:

         (a)      In case the Company shall (i) pay a dividend, or make a
distribution, exclusively in shares of its capital stock, on the Common Stock;
(ii) subdivide its outstanding Common Stock into a greater number of shares;
(iii) combine its outstanding Common Stock into a smaller number of shares; or
(iv) reclassify its Common Stock, the Conversion Rate in effect immediately
prior to the record date or effective date, as the case may be, for the
adjustment pursuant to this Section 806(a) as described below, shall be adjusted
so that the Holder of any Notes thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock of the Company which
such Holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Notes been converted
immediately prior to such record date or effective date, as the case may be. An
adjustment made pursuant to this Section 806(a) shall become effective
immediately after the applicable record date in the case of a dividend or
distribution and shall become effective immediately after the applicable
effective date in the case of subdivision, combination or reclassification of
the Company's Common Stock. If any dividend or distribution of the type
described in clause (i) above is not so paid or made, the Conversion Rate shall
again be adjusted to the Conversion Rate which would then be in effect if such
dividend or distribution had not been declared.

         (b)      In case the Company shall issue rights or warrants to all
holders of the Common Stock entitling them (for a period expiring within 60 days
after the date of issuance of such rights or warrants) to subscribe for or
purchase Common Stock at a price per share less than the Market Price per share
of Common Stock on the record date fixed for determination of shareholders
entitled to receive such rights or warrants, the Conversion Rate in effect
immediately after such record date shall be adjusted so that the same shall
equal the Conversion Rate determined by multiplying the Conversion Rate in
effect immediately after such record date by a fraction of which (i) the
numerator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock offered for
subscription or

                                       26

<PAGE>
purchase, and (ii) the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at the Market Price per share of Common Stock on the earlier of such record date
or the Trading Day immediately preceding the ex date for such issuance of rights
or warrants. Such adjustment shall be made successively whenever any such rights
or warrants are issued, and shall become effective immediately after the opening
of business on the day following the record date for the determination of
shareholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered after the expiration of such rights or
warrants, the Conversion Rate shall be readjusted to the Conversion Rate which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. If such rights or warrants are not so
issued, the Conversion Rate shall again be adjusted to be the Conversion Rate
which would then be in effect if such record date for the determination of
shareholders entitled to receive such rights or warrants had not been fixed. In
determining whether any rights or warrants entitle the holders to subscribe for
or purchase shares of Common Stock at less than such Market Price, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received by the Company for such
rights or warrants, the value of such consideration, if other than cash, to be
determined by the Board of Directors.

         (c)      In case the Company shall, by dividend or otherwise,
distribute to all holders of Common Stock any assets, debt securities or rights
or warrants to purchase any of its securities (excluding (i) any dividend,
distribution or issuance covered by those referred to in Section 806(a) or
806(b) hereof, (ii) any dividend or distribution paid exclusively in cash, and
(iii) all distributions of common stock of Reliant Resources, Inc., a Delaware
corporation, or of Texas Genco made by the Company prior to the date of this
Supplemental Indenture) (any of the foregoing hereinafter in this Section 806(c)
called the "Distributed Assets or Securities") in an aggregate amount per share
of Common Stock that, combined together with the aggregate amount of any other
such distributions to all holders of its Common Stock made within the 12 months
preceding the date of payment of such distribution, and in respect of which no
adjustment pursuant to this Section 806(c) has been made, exceeds 15% of the
Market Price on the Trading Day immediately preceding the declaration of such
distribution, then, the Conversion Rate shall be adjusted so that the same shall
equal the Conversion Rate determined by multiplying the Conversion Rate in
effect immediately prior to the close of business on the record date mentioned
below by a fraction of which (A) the numerator shall be the Market Price per
share of the Common Stock on the earlier of such record date or the Trading Day
immediately preceding the ex date for such dividend or distribution, and (B) the
denominator shall be (1) the Market Price per share of the Common Stock on the
earlier of such record date or the Trading Day immediately preceding the ex date
for such dividend or distribution less (2) the Fair Market Value on the earlier
of such record date or the Trading Day immediately preceding the ex date for
such dividend or distribution (as determined by the Board of Directors, whose
determination shall be conclusive, and described in a certificate filed with the
Trustee and the Paying Agent) of the Distributed Assets or Securities so
distributed applicable to one share of Common Stock. Such adjustment shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such distribution; provided, however, that, if
(i) the Fair Market Value of the portion of the Distributed Assets or Securities
so distributed applicable to one share of Common Stock is equal to or greater
than the Market Price of the

                                       27

<PAGE>

Common Stock on the record date for the determination of shareholders entitled
to receive such distribution or (ii) the Market Price of the Common Stock on the
record date for the determination of shareholders entitled to receive such
distribution is greater than the Fair Market Value per share of such Distributed
Assets or Securities by less than $1.00, then, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have the
right to receive upon conversion, in addition to the shares of Common Stock, the
kind and amount of assets, debt securities, or rights or warrants comprising the
Distributed Assets or Securities the Holder would have received had such Holder
converted such Notes immediately prior to the record date for the determination
of shareholders entitled to receive such distribution. In the event that such
distribution is not so paid or made, the Conversion Rate shall again be adjusted
to the Conversion Rate which would then be in effect if such distribution had
not been declared.

         (d)      In case the Company shall make any distributions, by dividend
or otherwise, during any quarterly fiscal periods consisting exclusively of cash
to all holders of outstanding shares of Common Stock in an aggregate amount
that, together with (i) other all-cash distributions made to holders of
outstanding shares of Common Stock during such quarterly fiscal period, and (ii)
any cash and the Fair Market Value, as of the expiration of any tender or
exchange offer (other than consideration payable in respect of any odd-lot
tender offer) of consideration payable in respect of any tender or exchange
offer by the Company or any of the Company's Subsidiaries for all or any portion
of shares of Common Stock concluded during such quarterly fiscal period, exceed
the product of $0.10 (appropriately adjusted from time to time for any stock
dividends on or subdivisions or combinations of the Common Stock) multiplied by
the number of shares of Common Stock outstanding on the record date for such
distribution, then, and in each such case, the Conversion Rate shall be adjusted
so that the same shall equal the Conversion Rate determined by multiplying the
Conversion Rate in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive such distribution by a fraction of which (A) the numerator shall be the
Market Price per share of the Common Stock on the earlier of such record date or
the Trading Day immediately preceding the ex date for such dividend or
distribution and (B) the denominator shall be (1) the Market Price per share of
Common Stock on the earlier of such record date or the Trading Day immediately
preceding the ex date for such dividend or distribution plus (2) $0.10
(appropriately adjusted from time to time for any stock dividends on or
subdivisions or combination of Common Stock) less (3) an amount equal to the
quotient of (x) the combined amount distributed or payable in the transactions
described in clauses (i), (ii) and (iii) above during such quarterly fiscal
period and (y) the number of shares of Common Stock outstanding on such record
date, such adjustment to become effective immediately after the record date for
the determination of shareholders entitled to receive such distribution.

         (e)      With respect to Section 806(c) above, in the event that the
Company makes any distribution to all holders of Common Stock consisting of
Equity Interests in a Subsidiary or other business unit of the Company, the
Conversion Rate shall be adjusted so that the same shall equal the Conversion
Rate determined by multiplying the Conversion Rate in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive such distribution by a fraction of
which (i) the numerator shall be (x) the Spin-off Market Price per share of the
Common Stock on such record date plus (y) the Spin-off Market Price per Equity
Interest of the Subsidiary or other business unit of the Company on such record
date and (ii) the denominator shall be the Spin-off Market Price per

                                       28

<PAGE>

share of the Common Stock on such record date, such adjustment to become
effective 10 Trading Days after the effective date of such distribution of
Equity Interests in a Subsidiary or other business unit of the Company.

         (f)      Upon conversion of the Notes, the Holders shall receive, with
respect to any Common Stock issued upon such conversion, the rights issued under
the Rights Plan or under any future shareholder rights plan the Company
implements (notwithstanding the occurrence of an event causing such rights to
separate from the Common Stock at or prior to the time of conversion) unless,
prior to conversion, the rights have expired, terminated or been redeemed or
exchanged in accordance with the Rights Plan. If, and only if, the Holders of
Notes receive rights under such shareholder rights plans as described in the
preceding sentence upon conversion of their Notes, then no other adjustment
pursuant to this Section 806 shall be made in connection with such shareholder
rights plans.

         (g)      For purposes of this Section 806, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
shall not pay any dividend or make any distribution on shares of Common Stock
held in the treasury of the Company.

         (h)      Notwithstanding the foregoing, in no event shall the
Conversion Rate exceed the maximum conversion rate specified under this Section
806(h) (the "Maximum Conversion Rate") as a result of an adjustment pursuant to
Section 806(c) and Section 806(d) hereof. The Maximum Conversion Rate shall
initially be 109.2896 and shall be appropriately adjusted from time to time for
any stock dividends on or subdivisions or combinations of the Common Stock. The
Maximum Conversion Rate shall not apply to any adjustments made pursuant to any
of the events in Section 806(a) or Section 806(b) hereof.

         Section 807 Calculation Methodology. No adjustment in the Conversion
Price need be made unless the adjustment would require an increase or decrease
of at least 1% in the Conversion Price then in effect, provided that any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. Except as stated in this
Article VIII, the Conversion Rate will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing. Any adjustments that are
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under Article VII, Section 806 and this Section 807
shall be made to the nearest cent or to the nearest 1/10,000th of a share, as
the case may be.

         Section 808 When No Adjustment Required. No adjustment to the
Conversion Rate or the ability of a Holder to convert a Note shall be made if
such Holder will otherwise participate in the distribution without conversion.
In addition, no adjustment to the Conversion Rate need be made:

         (a)      upon the issuance of any shares of Common Stock pursuant to
         any present or future plan providing for the reinvestment of dividends
         or interest payable on securities

                                       29

<PAGE>

         of the Company and the investment of additional optional amounts in
         shares of Common Stock under any plan;

         (b)      upon the issuance of any shares of Common Stock or options or
         rights to purchase those shares pursuant to any present or future
         employee, director or consultant benefit plan or program of or assumed
         by the Company or any of its Subsidiaries;

         (c)      upon the issuance of any shares of Common Stock pursuant to
         any option, warrant, right, or exercisable, exchangeable or convertible
         security not described in paragraph (b) above and outstanding as of the
         date of this Supplemental Indenture;

         (d)      for a change in the par value of the Common Stock; or

         (e)      for accrued and unpaid interest (including Contingent Interest
         or Additional Amount, if any).

         To the extent the Notes become convertible into cash, assets, or
property (other than capital stock of the Company or securities to which Section
812 applies), no adjustment shall be made thereafter as to the cash, assets or
property. Interest shall not accrue on such cash.

         Section 809 Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Company shall promptly mail to Holders a notice of the adjustment.
The Company shall file with the Trustee and the Conversion Agent such notice.
The notice shall, absent manifest error, be conclusive evidence that the
adjustment is correct. Neither the Trustee nor any Conversion Agent shall be
under any duty or responsibility with respect to any such notice except to
exhibit the same to any Holder desiring inspection thereof.

         Section 810 Voluntary Increase. The Company may make such increases in
the Conversion Rate, in addition to those required by Section 806, as the Board
of Directors considers to be advisable to avoid or diminish any income tax to
holders of Common Stock or rights to purchase Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. To the extent permitted by applicable
law, the Company may from time to time increase the Conversion Rate by any
amount for any period of time if the period is at least 20 days, the increase is
irrevocable during the period and the Board of Directors shall have made a
determination that such increase would be in the best interests of the Company,
which determination shall be conclusive. Whenever the Conversion Rate is so
increased, the Company shall mail to Holders and file with the Trustee and the
Conversion Agent a notice of such increase. Neither the Trustee nor any
Conversion Agent shall be under any duty or responsibility with respect to any
such notice except to exhibit the same to any Holder desiring inspection
thereof. The Company shall mail the notice at least 15 days before the date the
increased Conversion Rate takes affect. The notice shall state the increased
Conversion Rate and the period it shall be in effect.

         Section 811 Notice to Holders Prior to Certain Actions. In case:

         (a)      The Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Rate pursuant to Section 806;

                                       30

<PAGE>

         (b)      The Company shall authorize the granting to all or
substantially all the holders of its Common Stock of rights or warrants to
subscribe for or purchase any share of any class or any other rights or
warrants;

         (c)      Of any reclassification or reorganization of the Common Stock
of the Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or of any consolidation or merger to which the
Company is a party and for which approval of any shareholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company; or

         (d)      Of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,

the Company shall cause to be filed with the Trustee and to be mailed to each
Holder at its address appearing on the Security Register, as promptly as
possible but in any event at least 15 days prior to the applicable date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights or warrants, or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution, or rights or warrants
are to be determined or (y) the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, dissolution, liquidation
or winding-up is expected to become effective or occur, and the date as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of such dividend,
distribution, reclassification, reorganization, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.

         Section 812 Effect of Reclassification, Consolidation, Merger, Binding
Share Exchange or Sale. If any of the following events occur, namely (a) any
reclassification or change of outstanding shares of Common Stock (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a reclassification, subdivision or combination
subject to Section 806(a)); (b) any consolidation, merger, combination or
binding share exchange of the Company with another corporation as a result of
which holders of Common Stock shall be entitled to receive stock, securities or
other property or assets (including cash) with respect to or in exchange for
such Common Stock; or (c) any sale or conveyance of the properties and assets of
the Company as, or substantially as, an entirety to any other corporation as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
corporation, as the case may be, shall execute with the Trustee a Supplemental
Indenture, providing that each Note shall be convertible into the kind and
amount of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, binding share exchange, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Note immediately
prior to such reclassification, change, consolidation, merger, combination,
binding share exchange, sale or

                                       31

<PAGE>

conveyance. Such Supplemental Indenture shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 812.

         The Company shall cause notice of the execution of such Supplemental
Indenture to be mailed to each Holder, at its address appearing on the Security
Register, within 20 days after execution thereof. Failure to deliver such notice
shall not affect the legality or validity of such Supplemental Indenture.

         The above provisions of this Section shall similarly apply to
successive such reclassifications, changes, consolidations, mergers,
combinations, binding share exchanges, sales and conveyances.

         If this Section 812 applies to any event or occurrence, Section 806
shall not apply.

         Section 813 Responsibility of Trustee. The Trustee and any other
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder to either calculate the Conversion Rate or determine whether any
facts exist which may require any adjustment of the Conversion Rate, or with
respect to the nature or extent or calculation of any such adjustment when made,
or with respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same and shall be protected in
relying upon an Officers' Certificate with respect to the same. The Trustee and
any other Conversion Agent shall not be accountable with respect to the validity
or value (or the kind or amount) of any shares of Common Stock, or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any Notes and the Trustee and any other Conversion Agent make no
representations with respect thereto. Subject to the provisions of Article Five
of the Original Indenture, neither the Trustee nor any Conversion Agent shall be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property or
cash upon the surrender of any Notes for the purpose of conversion or to comply
with any of the duties, responsibilities or covenants of the Company contained
in this Section. Without limiting the generality of the foregoing, neither the
Trustee nor any Conversion Agent shall be under any responsibility to determine
the correctness of any provisions contained in any Supplemental Indenture
entered into pursuant to Article VIII hereof relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Holders upon the conversion of their Notes after any event referred to in
such Section 812 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Article Five of the Original Indenture, may accept
as conclusive evidence of the correctness of any such provisions, and shall be
protected in relying upon, the Officers' Certificate (which the Company shall be
obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.

         Section 814 Simultaneous Adjustments. In the event that Section 806
requires adjustments to the Conversion Rate under more than one of Sections
806(a), (b), (c) or (d), and the Record Dates for the distributions giving rise
to such adjustments shall occur on the same date, then such adjustments shall be
made by applying, first, the provisions of Section 806(c), second, the
provisions of Section 806(a) and third, the provisions of Section 806(b);
provided, however, that nothing in this Section 814 shall be done to evade the
principle set forth in Section

                                       32

<PAGE>

806(h) hereof that the Maximum Conversion Rate shall not apply to any
adjustments made with respect to any of the events in Section 806(a) or Section
806(b) hereof.

         Section 815 Successive Adjustments. After an adjustment to the
Conversion Rate under Section 806, any subsequent event requiring an adjustment
under Section 806 shall cause an adjustment to the Conversion Rate as so
adjusted.

         Section 816 General Considerations. Whenever successive adjustments to
the Conversion Rate are called for pursuant to Article VIII hereof, such
adjustments shall be made to the Market Price as may be necessary or appropriate
to effectuate the intent of Article VIII hereof and to avoid unjust or
inequitable results as determined in good faith by the Board of Directors.

                                   ARTICLE IX

                            Restrictions on Transfer

         Section 901 Transfer and Exchange.

         (a)      Transfer and Exchange of Notes in Definitive Form. In addition
to the requirements set forth in Section 305 of the Original Indenture, Notes in
definitive form that are Transfer Restricted Securities presented or surrendered
for registration of transfer or exchange pursuant to Section 305 of the Original
Indenture shall be accompanied by the following additional information and
documents, as applicable, upon which the Security Registrar may conclusively
rely:

                  (i)      if such Transfer Restricted Securities are being
         delivered to the Security Registrar by a Holder for registration in the
         name of such Holder, without transfer, a certification from such Holder
         to that effect (in substantially the form of Exhibit B hereto); or

                  (ii)     if such Transfer Restricted Securities are being
         transferred (1) to a Qualified Institutional Buyer in accordance with
         Rule 144A under the Securities Act or (2) pursuant to an exemption from
         registration in accordance with Rule 144 under the Securities Act or
         (3) pursuant to an effective registration statement under the
         Securities Act, a certification to that effect from such Holder (in
         substantially the form of Exhibit B hereto); or

                  (iii)    if such Transfer Restricted Securities are being
         transferred to a Non-U.S. Person pursuant to an exemption from
         registration in accordance with Rule 904 of Regulation S under the
         Securities Act, certifications to that effect from such transferor (in
         substantially the form of Exhibits B and C hereto); or

                  (iv)     if such Transfer Restricted Securities are being
         transferred in reliance on and in compliance with another exemption
         from the registration requirements of the Securities Act, a
         certification to that effect from such Holder (in substantially the
         form of Exhibit B hereto) and an opinion of counsel to that effect if
         the Company or the Trustee so requests.

                                       33

<PAGE>

         (b)      Transfer and Exchange of the Notes.

                  (i)      The transfer and exchange of Global Notes or
         beneficial interests therein shall be effected through the Depositary,
         in accordance with Section 305 of the Original Indenture and Article IX
         hereof (including the restrictions on transfer set forth therein and
         herein) and the rules and procedures of the Depositary therefor, which
         shall include restrictions on transfer comparable to those set forth
         therein and herein to the extent required by the Securities Act.

                  (ii)     The transfer and exchange of Global Notes or
         beneficial interests therein for certificated notes (or vice versa)
         shall be effected through the Trustee and the Depositary, as the case
         may be, in accordance with Section 305 of the Original Indenture and
         Article IX hereof (including the restrictions on transfer set forth
         therein and herein) and the rules and procedures of the Depositary
         therefor, which shall include restrictions on transfer comparable to
         those set forth therein and herein to the extent required by the
         Securities Act.

         Section 902 Legends.

         (a)      Except as permitted by Section 902(b) hereof, each certificate
evidencing the Global Notes or certificated notes in definitive form (and all
Notes issued in exchange therefor or substitution thereof) shall bear a legend
in substantially the following form:

              THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
              TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
              SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY
              AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF MAY NOT BE
              OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
              REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
              OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS
              SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
              SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

              THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY
              THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON
              CONVERSION HEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
              TRANSFERRED ONLY (I) TO THE COMPANY, (II) IN THE UNITED STATES TO
              A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
              INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
              ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III)
              OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE
              WITH RULE 904

                                       34

<PAGE>

              UNDER THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM
              REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
              THEREUNDER (IF AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE
              REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES
              (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
              OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND
              EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE
              SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A)
              ABOVE. [IF CERTIFICATED: IN ADDITION, WITH RESPECT TO ANY TRANSFER
              OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (A)(V)
              ABOVE), THE HOLDER WILL DELIVER TO THE COMPANY AND THE TRUSTEE
              SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY
              REQUIRE TO CONFIRM THAT THE TRANSFER BY IT COMPLIES WITH THE
              FOREGOING RESTRICTIONS.]

              THE HOLDER OF THIS SECURITY AGREES THAT SUCH HOLDER WILL NOT
              ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY AND THE
              COMMON STOCK ISSUABLE UPON CONVERSION HEREOF UNLESS IN COMPLIANCE
              WITH THE SECURITIES ACT.

              THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE
              BENEFITS OF, A REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER
              17, 2003 ENTERED INTO BY THE COMPANY FOR THE BENEFIT OF CERTAIN
              HOLDERS OF SECURITIES FROM TIME TO TIME.

              THE HOLDER OF THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
              SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS OF, A RIGHTS
              AGREEMENT, DATED AS OF JANUARY 1, 2002, BETWEEN THE COMPANY AND
              JPMORGAN CHASE BANK, AS RIGHTS AGENT.

Each certificate evidencing the Global Notes also shall bear the legend
specified for Global Notes in the form of Note attached hereto as Exhibit A.

         (b)      Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or an effective registration
statement under the Securities Act, or after the date that is two years (or such
shorter period of time as permitted by Rule 144(k) of the Securities Act) after
the later of the original issue date of such Transfer Restricted Security and
the last date on which the Company or any "affiliate" (as defined in Rule 144
under the Securities Act) of the Company was the owner of such Transfer
Restricted Security (or any predecessor of such

                                       35

<PAGE>

Transfer Restricted Security) or such later date, if any, as may be required by
applicable law (the "Resale Restriction Termination Date"), in each case which
shall be certified to the Trustee and Security Registrar upon which each may
conclusively rely:

                  (i)      in the case of any Transfer Restricted Security
         represented by a certificated note, the Security Registrar shall permit
         the Holder thereof to exchange such Transfer Restricted Security for a
         certificated note that does not bear the legend set forth in Section
         902(a) hereof and rescind any restriction on the transfer of such
         Transfer Restricted Security; and

                  (ii)     in the case of any Transfer Restricted Security
         represented by a Global Note, such Transfer Restricted Security shall
         not be required to bear the legend set forth in Section 902(a) hereof
         if all other interests in such Global Note have been or are
         concurrently being sold or transferred pursuant to Rule 144 under the
         Securities Act or pursuant to an effective registration statement under
         the Securities Act or otherwise satisfy the holding period set forth
         above.

         Section 903 Registration Rights Agreement. The Company shall perform
its obligations under the Registration Rights Agreement and shall comply in all
material respects with the terms and conditions contained therein including,
without limitation, the payment of Additional Amounts.

         Section 904 Restriction on Common Stock Issuable Upon Conversion.

         (a)      Shares of Common Stock to be issued upon conversion of Notes
prior to the effectiveness of a Shelf Registration Statement shall be physically
delivered in certificated form to the Holders converting such Notes and the
certificate representing such shares of Common Stock shall bear the Restricted
Common Stock Legend unless removed in accordance with Section 904(c).

         (b)      If (i) shares of Common Stock to be issued upon conversion of
Notes prior to the effectiveness of a Shelf Registration Statement are to be
registered in a name other than that of the Holder of such Notes or (ii) shares
of Common Stock represented by a certificate bearing the Restricted Common Stock
Legend are transferred subsequently by such Holder, then, unless the Shelf
Registration Statement has become effective and such shares are being
transferred pursuant to the Shelf Registration Statement, the Holder must
deliver to the transfer agent for the Common Stock and to the Company a
certificate in substantially the form of Exhibit I as to compliance with the
restrictions on transfer applicable to such shares of Common Stock and neither
the transfer agent nor the registrar for the Common Stock shall be required to
register any transfer of such Common Stock not so accompanied by a properly
completed certificate.

         (c)      Except in connection with a Shelf Registration Statement, if
certificates representing shares of Common Stock are issued upon the
registration of transfer, exchange or replacement of any other certificate
representing shares of Common Stock bearing the Restricted Common Stock Legend,
or if a request is made to remove such Restricted Common Stock Legend from
certificates representing shares of Common Stock, the certificates so issued
shall bear the Restricted Common Stock Legend, or the Restricted Common Stock
Legend shall not be

                                       36

<PAGE>

removed, as the case may be, unless there is delivered to the Company such
reasonably satisfactory evidence, as may be reasonably required by the Company,
that neither the legend nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof comply with the provisions of Rule
144A, Rule 144 or Regulation S under the Securities Act of 1933 and that such
shares of Common Stock are securities that are not "restricted" within the
meaning of Rule 144 under the Securities Act of 1933. Upon provision to the
Company of such reasonably satisfactory evidence, the Company shall cause the
transfer agent for the Common Stock to countersign and deliver certificates
representing shares of Common Stock that do not bear the legend.

         Section 905 Delivery of Certain Information. At any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the
request of a Holder or any beneficial holder of Notes or shares of Common Stock
issued upon conversion thereof, the Company will promptly furnish or cause to be
furnished Rule 144A Information (as defined below) to such Holder or any
beneficial holder of Notes or holder of shares of Common Stock issued upon
conversion of Notes, or to a prospective purchaser of any such security
designated by any such holder, as the case may be, to the extent required to
permit compliance by such Holder or holder with Rule 144A under the Securities
Act in connection with the resale of any such security. "Rule 144A Information"
shall be such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act.

                                    ARTICLE X

                        Remedies; Modification and Waiver

         Section 1001 Additional Events of Default; Acceleration of Maturity.

         (a)      Solely with respect to the Notes issued hereby, Section 501(1)
of the Original Indenture is hereby deleted in its entirety, and the following
is substituted in lieu thereof as an Event of Default in addition to the other
events set forth in Section 501 of the Original Indenture:

                  "(1) default in the payment of any interest upon any Security
         of that series, including Contingent Interest and Additional Amounts,
         if any, when it becomes due and payable, and continuance of such
         default for a period of 30 days;"

         (b)      Solely with respect to the Notes issued hereby, Section 501(5)
of the Original Indenture is hereby deleted in its entirety, and the following
is substituted in lieu thereof as an Event of Default in addition to the other
events set forth in Section 501 of the Original Indenture:

                           "(5) the entry by a court having jurisdiction in the
                  premises of (A) a decree or order for relief in respect of the
                  Company, CERC or CenterPoint Houston in an involuntary case or
                  proceeding under any applicable federal or state bankruptcy,
                  insolvency, reorganization or other similar law or (B) a
                  decree or order adjudging the Company, CERC or CenterPoint
                  Houston a bankrupt or insolvent, or approving as properly
                  filed a petition seeking reorganization, arrangement,
                  adjustment or composition of

                                       37

<PAGE>

                  or in respect of the Company, CERC or CenterPoint Houston
                  under any applicable federal or state law, or appointing a
                  custodian, receiver, liquidator, assignee, trustee,
                  sequestrator or other similar official of the Company, CERC or
                  CenterPoint Houston or of any substantial part of its
                  respective property, or ordering the winding up or liquidation
                  of its respective affairs, and the continuance of any such
                  decree or order for relief or any such other decree or order
                  unstayed and in effect for a period of 90 consecutive days;
                  provided that any specified event in (A) or (B) involving CERC
                  or CenterPoint Houston shall not constitute an Event of
                  Default if, at the time such event occurs, CERC or CenterPoint
                  Houston, as the case may be, shall no longer be an Affiliate
                  of the Company; or"

         (c)      Solely with respect to the Notes issued hereby, Section 501(6)
of the Original Indenture is hereby deleted in its entirety, and the following
is substituted in lieu thereof as an Event of Default in addition to the other
events set forth in Section 501 of the Original Indenture:

                           "(6) the commencement by the Company, CERC or
                  CenterPoint Houston of a voluntary case or proceeding under
                  any applicable federal or state bankruptcy, insolvency,
                  reorganization or other similar law or of any other case or
                  proceeding to be adjudicated a bankrupt or insolvent, or the
                  consent by any of them to the entry of a decree or order for
                  relief in respect of the Company, CERC or CenterPoint Houston
                  in an involuntary case or proceeding under any applicable
                  federal or state bankruptcy, insolvency, reorganization or
                  other similar law or to the commencement of any bankruptcy or
                  insolvency case or proceeding against any of them, or the
                  filing by any of them of a petition or answer or consent
                  seeking reorganization or relief under any applicable federal
                  or state law, or the consent by any of them to the filing of
                  such petition or to the appointment of or taking possession by
                  a custodian, receiver, liquidator, assignee, trustee,
                  sequestrator or other similar official of the Company, CERC or
                  CenterPoint Houston or of any substantial part of its
                  respective property, or the making by any of them of an
                  assignment of a substantial part of its respective property
                  for the benefit of creditors, or the admission by any of them
                  in writing of the inability of any of the Company, CERC or
                  CenterPoint Houston to pay its respective debts generally as
                  they become due, or the taking of corporate action by the
                  Company, CERC or CenterPoint Houston in furtherance of any
                  such action; provided that any such specified event involving
                  CERC or CenterPoint Houston shall not constitute an Event of
                  Default if, at the time such event occurs, CERC or CenterPoint
                  Houston, as the case may be, shall no longer be an Affiliate
                  of the Company; or"

                                       38

<PAGE>

         (d)      Solely with respect to the Notes issued hereby, and pursuant
to Section 501(7) of the Original Indenture, the following shall each constitute
an "Event of Default" in addition to the other events set forth in Section 501
of the Original Indenture:

                           (i) The default by the Company, CERC or CenterPoint
                  Houston in a scheduled payment at maturity, upon redemption or
                  otherwise, in the aggregate principal amount of $50 million or
                  more, after the expiration of any applicable grace period, of
                  any Indebtedness or the acceleration of any Indebtedness of
                  the Company, CERC or CenterPoint Houston in such aggregate
                  principal amount, so that it becomes due and payable prior to
                  the date on which it would otherwise have become due and
                  payable and such payment default is not cured or such
                  acceleration is not rescinded within 30 days after notice to
                  the Company in accordance with the terms of the Indebtedness;
                  provided that such payment default or acceleration of CERC or
                  CenterPoint Houston shall not to be an Event of Default if, at
                  the time such event occurs, CERC or CenterPoint Houston, as
                  the case may be, shall not be an Affiliate of the Company;

                           (ii) The Company defaults in its obligation to redeem
                  the Notes after exercising its redemption option pursuant to
                  Article IV hereof;

                           (iii) The Company defaults in its Conversion
                  Obligations upon exercise of a Holder's conversion right in
                  accordance with the terms of the Notes and Article VIII
                  hereof; and

                           (iv) The Company defaults in its obligation to
                  purchase Notes upon the occurrence of a Fundamental Change or
                  the exercise by a Holder of its option to require the Company
                  to repurchase such Holder's Notes in accordance with the terms
                  of Article V or Article VI hereof, as applicable.

         Section 1002 Modification and Waiver. In addition to those matters set
forth in Section 902 of the Original Indenture (including the terms and
conditions of the Notes set forth herein), with respect to the Notes, no
amendment or Supplemental Indenture shall without the consent of the Holder of
each Note affected thereby:

         (a)      Reduce the Redemption Price, Purchase Price or Fundamental
         Change Purchase Price of the Notes;

         (b)      Change the terms applicable to redemption or purchase of the
         Notes in a manner adverse to the Holder;

         (c)      Alter the manner of calculation or rate of Contingent Interest
         or Additional Amounts payable on any Note or extend the time for
         payment of any such amount.

                                       39

<PAGE>

In addition, with respect to the Notes, notwithstanding Sections 513 and 1006 of
the Original Indenture, approval of the Holders of each outstanding Note shall
be required to:

         (a)      Waive any default by the Company in any payment of the
         Redemption Price, Purchase Price or Fundamental Change Purchase Price
         with respect to any Notes; or

         (b)      Waive any default which constitutes a failure to convert any
         Note in accordance with its terms and the terms of Article VIII hereof.

The reference to "interest" in Section 513(1) of the Original Indenture shall
include Contingent Interest and Additional Amounts, if any.

                                   ARTICLE XI

                            Miscellaneous Provisions

         Section 1101 The Indenture, as supplemented and amended by this
Supplemental Indenture No. 4, is in all respects hereby adopted, ratified and
confirmed.

         Section 1102 This Supplemental Indenture No. 4 may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.

         Section 1103 THIS SUPPLEMENTAL INDENTURE NO. 4 AND EACH NOTE SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.

         Section 1104 If any provision in this Supplemental Indenture No. 4
limits, qualifies or conflicts with another provision hereof which is required
to be included herein by any provisions of the Trust Indenture Act, such
required provision shall control.

         Section 1105 In case any provision in this Supplemental Indenture No. 4
or the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

                                       40

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture No. 4 to be duly executed, as of the day and year first written above.

                                            CENTERPOINT ENERGY, INC.

                                            By: /s/ GARY L. WHITLOCK
                                               --------------------------------
                                            Name:   Gary L. Whitlock
                                            Title:  Executive Vice President
                                                    and Chief Financial Officer
Attest:

   /s/ RICHARD B. DAUPHIN
--------------------------------
Name:  Richard B. Dauphin
Title: Assistant Corporate
       Secretary

(SEAL)

                                            JPMORGAN CHASE BANK, as Trustee

                                            By: /s/ CAROL LOGAN
                                               --------------------------------
                                            Name:   Carol Logan
                                            Title:  Vice President and
                                                    Trust Officer

(SEAL)

                                       41

<PAGE>

                                    Exhibit A

                             [FORM OF FACE OF NOTE]

 [IF THIS SECURITY IS TO BE A GLOBAL NOTE -] THIS SECURITY IS A GLOBAL SECURITY
WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN
THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY.

[For as long as this Global Security is deposited with or on behalf of The
Depository Trust Company it shall bear the following legend.] Unless this
certificate is presented by an authorized representative of The Depository Trust
Company, a New York corporation ("DTC"), to CenterPoint Energy, Inc. or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

                            CENTERPOINT ENERGY, INC.

                    2.875% Convertible Senior Notes due 2024

No. __________                                                     $__________ *
                                                              CUSIP No. ________

         CENTERPOINT ENERGY, INC., a corporation duly organized and existing
under the laws of the State of Texas (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _______________, or registered
assigns, the principal sum of ____________________ Dollars* on January 15, 2024.
This Note shall bear interest as specified on the other side of this Note. This
Note is convertible and is subject to redemption at the option of the Company
and to purchase by the Company at the option of the Holder as specified on the
other side of this Note.

-----------

         * REFERENCE IS MADE TO SCHEDULE A ATTACHED HERETO WITH RESPECT TO
DECREASES AND INCREASES IN THE AGGREGATE PRINCIPAL AMOUNT OF NOTES EVIDENCED BY
THIS CERTIFICATE.

                                       A-1

<PAGE>

         Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

              THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
              TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
              SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY
              AND THE COMMON STOCK ISSUABLE UPON CONVERSION HEREOF MAY NOT BE
              OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
              REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
              OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS
              SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
              SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

              THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY
              THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON
              CONVERSION HEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
              TRANSFERRED ONLY (I) TO THE COMPANY, (II) IN THE UNITED STATES TO
              A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
              INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
              ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III)
              OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE
              WITH RULE 904 UNDER THE SECURITIES ACT, (IV) PURSUANT TO AN
              EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
              RULE 144 THEREUNDER (IF AVAILABLE), OR (V) PURSUANT TO AN
              EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH
              OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE
              SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE
              HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
              PURCHASER OF THE SECURITY FROM IT OF THE RESALE RESTRICTIONS
              REFERRED TO IN (A) ABOVE. [IF CERTIFICATED: IN ADDITION, WITH
              RESPECT TO ANY TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
              PURSUANT TO CLAUSE (A)(V) ABOVE), THE HOLDER WILL DELIVER TO THE
              COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS
              THEY MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER BY IT
              COMPLIES WITH THE FOREGOING RESTRICTIONS.]

                                       A-2

<PAGE>

              THE HOLDER OF THIS SECURITY AGREES THAT SUCH HOLDER WILL NOT
              ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY AND THE
              COMMON STOCK ISSUABLE UPON CONVERSION HEREOF UNLESS IN COMPLIANCE
              WITH THE SECURITIES ACT.

              THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE
              BENEFITS OF, A REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER
              17, 2003 ENTERED INTO BY THE COMPANY FOR THE BENEFIT OF CERTAIN
              HOLDERS OF SECURITIES FROM TIME TO TIME.

              THE HOLDER OF THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
              SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS OF, A RIGHTS
              AGREEMENT, DATED AS OF JANUARY 1, 2002, BETWEEN THE COMPANY AND
              JPMORGAN CHASE BANK, AS RIGHTS AGENT.

              FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE
              CODE, THIS SECURITY IS A CONTINGENT PAYMENT DEBT INSTRUMENT AND
              WILL ACCRUE ORIGINAL ISSUE DISCOUNT AT THE ISSUER'S "COMPARABLE
              YIELD" FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. PURSUANT TO
              SECTION 213 OF THE SUPPLEMENTAL INDENTURE, THE COMPANY AGREES, AND
              BY ACCEPTANCE OF A BENEFICIAL OWNERSHIP INTEREST IN THE SECURITY,
              EACH BENEFICIAL HOLDER OF THE SECURITIES WILL BE DEEMED TO HAVE
              AGREED, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, (i) TO
              TREAT THE SECURITIES AS INDEBTEDNESS THAT IS SUBJECT TO THE
              CONTINGENT PAYMENT DEBT INSTRUMENT REGULATIONS UNDER SECTION
              1.1275-4 OF THE UNITED STATES TREASURY REGULATIONS (THE "CPDI
              REGULATIONS"), AND, FOR PURPOSES OF THE CPDI REGULATIONS, TO TREAT
              THE FAIR MARKET VALUE OF COMMON STOCK RECEIVED BY A BENEFICIAL
              HOLDER UPON ANY CONVERSION OF THE NOTES AS A CONTINGENT PAYMENT
              AND (ii) TO BE BOUND BY THE COMPANY'S DETERMINATION OF THE
              "COMPARABLE YIELD" AND "PROJECTED PAYMENT SCHEDULE," WITHIN THE
              MEANING OF THE CPDI REGULATIONS, WITH RESPECT TO THE NOTES AND TO
              ACCRUE ORIGINAL ISSUE DISCOUNT AT THE COMPARABLE YIELD AS
              DETERMINED BY THE COMPANY. THE COMPANY'S DETERMINATION OF THE
              "COMPARABLE YIELD" IS 5.06% PER ANNUM, COMPOUNDED SEMIANNUALLY.
              YOU MAY OBTAIN THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE,
              COMPARABLE YIELD AND

                                       A-3
<PAGE>

                  PROJECTED PAYMENT SCHEDULE FOR THE SECURITY BY TELEPHONING THE
                  COMPANY'S TREASURY DEPARTMENT AT (713) 207-7019 OR SUBMITTING
                  A WRITTEN REQUEST FOR SUCH INFORMATION TO: CENTERPOINT ENERGY,
                  INC., 1111 LOUISIANA, HOUSTON, TEXAS 77002, ATTENTION:
                  TREASURER.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

                                      A-4

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

Dated: ________________________             CENTERPOINT ENERGY, INC.

                                            By: ________________________________
                                            Name: ______________________________
                                            Title: _____________________________
(SEAL)

Attest:

______________________________________
Name:
Title:

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

                                            JPMORGAN CHASE BANK,
                                            As Trustee

Date of Authentication: ______________

                                            By: ________________________________
                                                     Authorized Signatory

                                      A-5

<PAGE>

                         [FORM OF REVERSE SIDE OF NOTE]

                            CENTERPOINT ENERGY, INC.

                    2.875% CONVERTIBLE SENIOR NOTES DUE 2024

1.       INTEREST

         This Note shall bear interest at a rate of 2.875% per year on the
principal hereof, from December 17, 2003 or from the most recent Interest
Payment Date (as defined below) to which payment has been made or duly provided
for, payable semiannually in arrears on January 15 and July 15 of each year
(each an "Interest Payment Date"), beginning July 15, 2004 to the persons in
whose names the Notes are registered at the close of business on January 1 and
July 1 (each a "Regular Record Date") (whether or not a Business Day), as the
case may be, immediately preceding such Interest Payment Date. This Note shall
also bear Contingent Interest in certain circumstances as specified in paragraph
5 below. The amount of interest payable for any period shall be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest payable
for any partial period shall be computed on the basis of a 360-day year of
twelve 30-day months and the days elapsed in any partial month.

         Holders of Notes at the close of business on a Regular Record Date will
receive payment of interest, including Contingent Interest, if any, payable on
the corresponding Interest Payment Date notwithstanding the conversion of such
Notes at any time after the close of business on such Regular Record Date. Notes
surrendered for conversion by a Holder during the period from the close of
business on any Regular Record Date to the opening of business on the
immediately following Interest Payment Date must be accompanied by payment of an
amount equal to the interest, including Contingent Interest, if any, that the
Holder is to receive on the Notes; provided, however, that no such payment need
be made if (1) the Company has specified a Redemption Date that is after a
Regular Record Date and on or prior to the immediately following Interest
Payment Date, (2) the Company has specified a Purchase Date following a
Fundamental Change that is during such period or (3) any overdue interest
(including overdue Contingent Interest, if any) exists at the time of conversion
with respect to such Notes to the extent of such overdue interest. Holders of
the Notes and any Common Stock issuable upon conversion thereof will continue to
be entitled to receive Additional Amounts in accordance with the Registration
Rights Agreement.

         If the principal hereof or any portion of such principal is not paid
when due (whether upon acceleration, upon the date set for payment of the
Redemption Price pursuant to paragraph 6 hereof, upon the date set for payment
of a Purchase Price or Fundamental Change Purchase Price pursuant to paragraph 8
hereof or upon the Maturity Date of this Note) or if interest (including
Contingent Interest, if any) due hereon or any portion of such interest is not
paid when due in accordance with this paragraph or paragraph 5 or 11 hereof,
then in each such case the overdue amount shall bear interest at the rate of
2.875% per annum, compounded semiannually (to the extent that the payment of
such interest shall be legally enforceable), which interest shall accrue from
the date such overdue amount was due to the date payment of such amount,

                                      A-6

<PAGE>

including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand.

2.       METHOD OF PAYMENT

         Payment of the principal of (and premium, if any) and any such interest
on this Note will be made at the Corporate Trust Office of the Trustee, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that at
the option of the Company payment of interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer in immediately available funds at
such place and to such account as may be designated in writing by the Person
entitled thereto as specified in the Security Register.

3.       PAYING AGENT, CONVERSION AGENT AND SECURITY REGISTRAR

         Initially, the Trustee shall act as Paying Agent, Conversion Agent and
Security Registrar. The Company may appoint and change any Paying Agent,
Conversion Agent, Security Registrar or co-registrar or approve a change in the
office through which any Paying Agent acts without notice, other than notice to
the Trustee. The Company or any of its Subsidiaries or any of their Affiliates
may act as Paying Agent, Conversion Agent, Security Registrar or co-registrar.

4.       INDENTURE

         This Note is one of a duly authorized issue of securities of the
Company, issued and to be issued in one or more series under an Indenture, dated
as of May 19, 2003 (the "Original Indenture"), as supplemented by Supplemental
Indenture No. 4 thereto, dated as of December 17, 2003 (the "Supplemental
Indenture" and, together with the Original Indenture, the "Indenture"), between
the Company and the Trustee. Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture. Reference is hereby
made to the Indenture for a statement of the respective rights thereunder of the
Company, the Trustee and the Holders and the terms upon which the Notes are to
be authenticated and delivered. The terms, conditions and provisions of the
Notes are those stated in the Indenture, those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended, and those set forth in
the Notes.

         The Notes are general unsecured obligations of the Company limited to
$255,000,000 aggregate principal amount.

5.       CONTINGENT INTEREST

         The Company will pay Contingent Interest to the Holders of the Notes in
respect of any six-month interest period from and including January 15 to and
including July 14 or from and including July 15 to and including January 14
commencing on or after January 15, 2007 for which the average Trading Price of a
Note for the applicable five Trading Day reference period equals or exceeds 120%
of $1,000 per $1,000 principal amount of Notes as of the day immediately
preceding the first day of the applicable six-month interest period. The "five
Trading Day reference period" means the five Trading Days ending on the second
Trading Day

                                      A-7

<PAGE>

immediately preceding the relevant six-month interest period. For any six-month
interest period in respect of which Contingent Interest is payable, the
Contingent Interest payable on each $1,000 principal amount of Notes shall equal
0.25% of the average Trading Price per $1,000 principal amount of Notes during
the applicable five Trading Day reference period.

         The record dates and payment dates for Contingent Interest, if any,
will be the same as the Regular Record Date and Interest Payment Dates for the
semi-annual interest payments on the Notes.

         Upon determination that Holders will be entitled to receive Contingent
Interest which may become payable, the Company shall notify the Holders. In
connection with providing such notice, the Company will issue a press release
and publish a notice containing information regarding the Contingent Interest
determination in a newspaper of general circulation in The City of New York or
publish such information on the Company's then existing Web site or through such
other public medium as the Company may use at the time.

6.       REDEMPTION AT THE OPTION OF THE COMPANY

         No sinking fund is provided for the Notes. The Notes are redeemable for
cash in whole, or in part, at any time on or after January 15, 2007 at the
option of the Company at a redemption price ("Redemption Price") equal to 100%
of the principal amount of the Notes to be redeemed plus any accrued and unpaid
interest (including Contingent Interest and Additional Amounts, if any) to the
Redemption Date.

7.       NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY

         Notice of redemption at the option of the Company shall be mailed at
least 30 days but not more than 60 days before a Redemption Date to the Trustee,
the Paying Agent and each Holder of Notes to be redeemed at the Holder's
registered address. If money sufficient to pay the Redemption Price of all Notes
(or portions thereof) to be redeemed on the Redemption Date is deposited with
the Paying Agent prior to or on the Redemption Date, on and after the Redemption
Date interest (including Contingent Interest and Additional Amounts, if any), if
any, shall cease to accrue on such Notes or portions thereof. Notes in
denominations larger than $1,000 principal amount may be redeemed in part but
only in integral multiples of $1,000 principal amount.

8.       PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; PURCHASE AT THE
         OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE

         (a)      Subject to the terms and conditions of the Indenture, a Holder
shall have the option to require the Company to purchase the Notes held by such
Holder on January 15, 2007, January 15, 2012 and January 15, 2017 (each, a
"Purchase Date") at a purchase price (the "Purchase Price") equal to 100% of the
principal amount of the Notes to be purchased plus any accrued and unpaid
interest (including Contingent Interest and Additional Amounts, if any) to such
Purchase Date, upon delivery of a Purchase Notice containing the information set
forth in the Indenture, from the opening of business on the date that is 20
Business Days prior to such Purchase Date until the close of business on the
fifth Business Day prior to such Purchase Date

                                      A-8

<PAGE>

and upon delivery of the Notes to the Paying Agent by the Holder as set forth in
the Indenture. The Company will pay the Purchase Price in cash.

         Notes in denominations larger than $1,000 principal amount may be
purchased in part, but only in integral multiples of $1,000 principal amount.

         (b)      If a Fundamental Change shall occur at any time prior to
January 15, 2007, each Holder shall have the right, at such Holder's option and
subject to the terms and conditions of the Indenture, to require the Company to
purchase any or all of such Holder's Notes or any portion of the principal
amount thereof that is equal to $1,000 or an integral multiple of $1,000 on the
date selected by the Company that is no later than 35 days after the date of the
Company Notice of the occurrence of the Fundamental Change (subject to extension
to comply with applicable law) for a Fundamental Change Purchase Price equal to
100% of the principal amount of Notes purchased plus accrued and unpaid interest
(including Contingent Interest and Additional Amounts, if any) to the
Fundamental Change Purchase Date, which Fundamental Change Purchase Price shall
be paid by the Company in cash, as set forth in the Indenture.

         (c)      Holders have the right to withdraw any Purchase Notice or
Fundamental Change Purchase Notice, as the case may be, by delivery to the
Paying Agent of a written notice of withdrawal in accordance with the provisions
of the Indenture.

         (d)      If cash sufficient to pay a Fundamental Change Purchase Price
or Purchase Price, as the case may be, of all Notes or portions thereof to be
purchased as of the Purchase Date or the Fundamental Change Purchase Date, as
the case may be, is deposited with the Paying Agent on the Business Day
following the Purchase Date or the Fundamental Change Purchase Date, as the case
may be, interest (including Contingent Interest and Additional Amounts, if any)
shall cease to accrue on such Notes (or portions thereof) on and after such
Purchase Date or Fundamental Change Purchase Date, as the case may be, and the
Holder thereof shall have no other rights as such (other than the right to
receive the Purchase Price or Fundamental Change Purchase Price, as the case may
be, upon surrender of such Note).

9.       RANKING

         The Notes shall be unsecured and shall rank equally in right of payment
with all of the Company's other existing and future unsecured and unsubordinated
Indebtedness.

10.      CONVERSION

         Subject to the procedures set forth in the Indenture, a Holder may
convert Notes into Common Stock on or before the close of business on January
15, 2024 during the periods and upon satisfaction of at least one of the
conditions set forth below:

         (a)      in any calendar quarter (and only during such calendar
quarter) if the Last Reported Sale Price for Common Stock for at least 20
Trading Days during the period of 30 consecutive Trading Days ending on the last
Trading Day of the previous calendar quarter is greater than or equal to 120% of
the Conversion Price per share of Common Stock on such last Trading Day;

                                      A-9

<PAGE>

         (b)      during any period in which both (A) the credit rating assigned
to the Notes by Moody's Investors Service, Inc. is lower than Ba2 and (B) the
credit rating assigned to the Notes by Standard & Poor's Rating Services is
lower than BB;

         (c)      during any period in which the Notes no longer are assigned
credit ratings by at least one of Moody's Investors Services, Inc. and Standard
& Poor's Ratings Services or their successors;

         (d)      in the event that the Company calls the Notes for redemption,
at any time prior to the close of business on the second Business Day
immediately preceding the Redemption Date; or

         (e)      the Company becomes a party to a consolidation, merger or
binding share exchange pursuant to which the Common Stock would be converted
into cash or property (other than securities), in which case a Holder may
surrender Notes for conversion at any time from and after the date which is 15
days prior to the anticipated effective date for the transaction until 15 days
after the actual effective date of such transaction; or

         (f)      the Company elects to (i) distribute to all holders of Common
Stock assets, debt securities or rights to purchase securities of the Company,
which distribution has a per share value as determined by the Board of Directors
exceeding 15% of the Last Reported Sale Price of a share of Common Stock on the
Trading Day immediately preceding the declaration date for such distribution, or
(ii) distribute to all holders of Common Stock rights entitling them to
purchase, for a period expiring within 60 days after the date of such
distribution, shares of Common Stock at less than the Last Reported Sale Price
of Common Stock on the Trading Day immediately preceding the declaration date of
the distribution. In the case of the foregoing clauses (i) and (ii), the Company
must notify the Holders at least 20 Business Days immediately prior to the ex
date for such distribution. Once the Company has given such notice, Holders may
surrender their Notes for conversion at any time thereafter until the earlier of
the close of business on the Business Day immediately prior to the ex date or
the Company's announcement that such distribution will not take place; provided,
however, that a Holder may not exercise this right to convert if the Holder may
participate in the distribution without conversion. As used herein, the term "ex
date," when used with respect to any issuance or distribution, shall mean the
first date on which the Common Stock trades regular way on such exchange or in
such market without the right to receive such issuance or distribution.

         Notes in respect of which a Holder has delivered a notice of exercise
of the option to require the Company to purchase such Notes pursuant to Articles
V or VI of the Indenture may be converted only if the notice of exercise is
withdrawn in accordance with the terms of the Indenture.

         The initial Conversion Rate is 78.0640 shares of Common Stock per
$1,000 principal amount, subject to adjustment in certain events described in
the Indenture.

         Holders of Notes at the close of business on a Regular Record Date will
receive payment of interest, including Contingent Interest, if any, payable on
the corresponding Interest Payment Date notwithstanding the conversion of such
Notes at any time after the close of business on

                                      A-10

<PAGE>

such Regular Record Date. Notes surrendered for conversion by a Holder during
the period from the close of business on any Regular Record Date to the opening
of business on the immediately following Interest Payment Date must be
accompanied by payment of an amount equal to the interest, including Contingent
Interest, if any, that the Holder is to receive on the Notes; provided, however,
that no such payment need be made if (1) the Company has specified a Redemption
Date that is after a Regular Record Date and on or prior to the immediately
following Interest Payment Date, (2) the Company has specified a Purchase Date
following a Fundamental Change that is during such period, or (3) any overdue
interest (including overdue Contingent Interest, if any) exists at the time of
conversion with respect to such Notes to the extent of such overdue interest.
Holders of the Notes and any Common Stock issuable upon conversion thereof will
continue to be entitled to receive Additional Amounts in accordance with the
Registration Rights Agreement.

         To convert the Notes a Holder must (1) complete and manually sign the
conversion notice on the back of the Notes (or complete and manually sign a
facsimile of such notice) and deliver such notice to the Conversion Agent at the
office maintained by the Conversion Agent for such purpose, (2) surrender the
Notes to the Conversion Agent, (3) furnish appropriate endorsements and transfer
documents if required by the Conversion Agent, the Company or the Trustee and
(4) pay any transfer or similar tax, if required.

         As soon as practicable after the Conversion Date, the Company shall
satisfy its Conversion Obligations upon conversion of a Note by delivering to
the Holder, at the Company's election, either shares of Common Stock, cash or a
combination of cash and shares of Common Stock. If the Company elects to satisfy
the entire Conversion Obligation by Share Settlement, then the Company will
deliver to the Holder a number of full shares of Common Stock equal to (i) the
aggregate principal amount of Notes to be converted by the Holder divided by
1,000 multiplied by (ii) the Conversion Rate in effect on the Conversion Date,
together with cash in lieu of any fractional shares. If the Company elects to
satisfy the entire Conversion Obligation by Cash Settlement, then the Company
will deliver to the Holder cash in an amount equal to the product of (i) (x) the
aggregate principal amount of Notes to be converted by the Holder divided by
1,000 multiplied by (y) the Conversion Rate in effect on the Conversion Date,
and (ii) the Applicable Stock Price. If the Company elects to satisfy the
Conversion Obligation by Combined Settlement, then the Company will deliver to
the Holder the Partial Cash Amount, plus a number of full shares of Common Stock
equal to (i) the amount of the Cash Settlement determined pursuant to the
immediately preceding sentence minus such Partial Cash Amount divided by (B) the
Applicable Stock Price, together with cash in lieu of any fractional shares.

         Upon receipt of a conversion notice from a Holder, (1) if the Company
elects to satisfy the Conversion Obligation by Share Settlement, then settlement
in Common Stock will be made on or prior to the fifth Trading Day following the
Conversion Date; or (2) if the Company elects to satisfy the Conversion
Obligation by Cash Settlement or Combined Settlement, then the Company will
notify the Trustee in writing, who shall promptly notify such Holder, of the
dollar amount to be satisfied in cash at any time during the Settlement Notice
Period. Share Settlement will apply automatically if the Company does not notify
the Trustee during the Settlement Notice Period that the Company has chosen
another settlement method.

                                      A-11

<PAGE>

         If the Company timely elects Cash Settlement or Combined Settlement,
then the Holder may retract the conversion notice at any time during the
Conversion Retraction Period by written notice to the Trustee. The Holder cannot
retract its conversion notice (and such conversion notice therefore will be
irrevocable) if the Company has elected Share Settlement. If the Holder has not
retracted the conversion notice during the Conversion Retraction Period, then
Cash Settlement or Combined Settlement will occur, through the Conversion Agent,
on or prior to the third Business Day following the determination of the
Applicable Stock Price. If the Holder timely retracts its conversion notice,
then that Holder shall be deemed to be a Holder of Notes as if a conversion
notice had never been delivered by that Holder for such Notes

         A Holder may convert a portion of the Notes only if the principal
amount of such portion is $1,000 or a multiple of $1,000. No payment or
adjustment shall be made for dividends on the Common Stock except as provided in
the Indenture. On conversion of Notes, that portion of the principal amount and
accrued and unpaid interest, including Contingent Interest, if any, with respect
to the converted portion of the Notes shall not be canceled, extinguished or
forfeited, but rather shall be deemed to be paid in full to the Holder thereof
through the delivery of the Common Stock, cash or a combination thereof
(together with the cash payment, if any, in lieu of fractional shares) in
exchange for the portion of the Notes being converted pursuant to the provisions
hereof. Notwithstanding the conversion of any Notes, the Holders of the Notes
and any Common Stock issuable upon conversion thereof will continue to be
entitled to receive Additional Amounts in accordance with the Registration
Rights Agreement.

11.      DEFAULTED INTEREST

         Except as otherwise specified with respect to the Notes, any Defaulted
Interest on any Note shall forthwith cease to be payable to the registered
Holder thereof on the relevant Regular Record Date or accrual date, as the case
may be, by virtue of having been such Holder, and such Defaulted Interest may be
paid by the Company as provided for in Section 204 of the Supplemental
Indenture.

12.      DENOMINATIONS; TRANSFER; EXCHANGE

         The Notes are in registered form, without coupons, in denominations of
$1,000 principal amount and multiples of $1,000. A Holder may transfer or
convert Notes in accordance with the Indenture. The Security Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. In the event of any redemption or purchase in part, the Security
Registrar need not register the transfer of or exchange any Notes selected for
redemption (except, in the case of a Note to be redeemed in part, the portion of
the Note not to be redeemed) or any Notes in respect of which a Purchase Notice
or Fundamental Change Purchase Notice has been given and not withdrawn (except,
in the case of a Note to be purchased in part, the portion of the Note not to be
purchased) for a period of 15 days before the mailing of a Redemption Notice,
Purchase Notice or Fundamental Change Purchase Notice.

                                      A-12

<PAGE>

13.      PERSONS DEEMED OWNERS

         The registered Holder of this Note may be treated as the owner of this
Note for all purposes.

14.      UNCLAIMED MONEY OR PROPERTY

         The Trustee and the Paying Agent shall return to the Company upon
written request any money or property held by them for the payment of any amount
with respect to the Notes that remains unclaimed for two years, provided,
however, that the Trustee or such Paying Agent, before being required to make
any such return, shall at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
such Holder notice that such money or property remains unclaimed and that, after
a date specified therein, which shall not be less than 30 days from the date of
such publication or mailing, any unclaimed money or property then remaining
shall be returned to the Company. After return to the Company, Holders entitled
to the money or property must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another Person.

15.      AMENDMENT; WAIVER

         Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in aggregate principal amount of the Notes at the time
Outstanding and (ii) certain defaults or noncompliance with certain provisions
may be waived with the written consent of the Holders of a majority in aggregate
principal amount of the Notes at the time Outstanding. The Indenture or the
Notes may be amended without the consent of any Holders under circumstances set
forth in Section 901 of the Original Indenture. Any such consent or waiver by
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Note.

16.      DEFAULTS AND REMEDIES

         If an Event of Default occurs and is continuing, the Trustee, or the
Holders of at least 25% in aggregate principal amount of the Notes at the time
outstanding, may declare the principal amount and any accrued and unpaid
interest (including Contingent Interest and Additional Amounts, if any), of all
the Notes to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default which shall result in the Notes being declared
due and payable immediately upon the occurrence of such Events of Default.

         Events of Default in respect of the Notes are set forth in Section 1001
of the Supplemental Indenture and Section 501 of the Original Indenture. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may refuse to enforce the Indenture or the Notes unless it receives
reasonable indemnity or security. Subject to certain limitations, conditions and
exceptions, Holders of a majority in aggregate principal amount of the Notes at
the time Outstanding may direct the Trustee in its exercise of any trust or
power, including the annulment of a declaration of acceleration. The Trustee may
withhold from

                                      A-13

<PAGE>

Holders notice of any continuing default (except a default in payment on any
Notes) if it determines that withholding notice is in their interests.

17.      CONSOLIDATION, MERGER, AND SALE OF ASSETS

         In the event of a consolidation or merger, or a conveyance, transfer or
lease of all or substantially all of Company's property or assets, as described
in Article Eight of the Original Indenture, the successor corporation to the
Company shall succeed to and be substituted for the Company, and may exercise
the Company's rights and powers under this Indenture, and thereafter, except in
the case of a lease, the Company shall be relieved of all obligations and
covenants under the Indenture and the Notes.

18.      TRUSTEE AND AGENT DEALINGS WITH THE COMPANY

         The Trustee, Paying Agent, Conversion Agent and Security Registrar
under the Indenture, each in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee, Paying Agent, Conversion Agent or Security Registrar.

19.      CALCULATIONS IN RESPECT OF THE NOTES

         The Company will be responsible for making all calculations called for
under the Notes. These calculations include, but are not limited to,
determination of the market prices for the Common Stock, accrued interest
payable on the Notes and Conversion Price of the Notes. The Company will make
these calculations in good faith and, absent manifest error, these calculations
will be final and binding on the Holders. The Company will provide to each of
the Trustee and the Conversion Agent a schedule of its calculations and each of
the Trustee and the Conversion Agent is entitled to rely upon the accuracy of
such calculations without independent verification. The Trustee will forward the
Company's calculations to any Holder upon the request of such Holder.

20.      NO RECOURSE AGAINST OTHERS

         A director, officer or employee, as such, of the Company or any
Subsidiary of the Company or any stockholder as such, of the Company shall not
have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Note, each Holder waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.

21.      AUTHENTICATION

         This Note shall not be valid until an authorized officer of the Trustee
or Authenticating Agent manually signs the Trustee's Certificate of
Authentication on the other side of this Note.

                                      A-14

<PAGE>

22.      ABBREVIATIONS

         Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).

23.      GOVERNING LAW

         The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of law rules of said state.

                                      A-15

<PAGE>

                                                                      SCHEDULE A

                             SCHEDULE OF ADJUSTMENTS

                  The initial aggregate principal amount of Securities evidenced
by the Certificate to which this Schedule is attached is _______________. The
notations on the following table evidence decreases and increases in the
aggregate principal amount of Securities evidenced by such Certificate.

<TABLE>
<CAPTION>
                                                                       Aggregate Principal
                 Decrease in Aggregate     Increase in Aggregate       Amount of Securities       Notation by
 Date of          Principal Amount of       Principal Amount of        Remaining After Such         Security
Adjustment             Securities                Securities            Decrease or Increase        Registrar
----------             ----------                ----------            --------------------        ---------
<S>              <C>                       <C>                         <C>                        <C>
</TABLE>

                                      S-1

<PAGE>

                                                                       Exhibit B

                FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE
                    OR REGISTRATION OF TRANSFER OF SECURITIES

Re:      2.875% Convertible Senior Notes due 2024 of CenterPoint Energy Inc.
         (the "Company")

         This Certificate relates to $_____ principal amount of Notes held in
*______ book-entry or *______ definitive form by _____________________ (the
"Transferor").

         The Transferor has requested the Trustee by written order to exchange
or register the transfer of a Note or Notes.

         In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture, dated as of May 19, 2003 (as amended or supplemented to date, the
"Indenture"), between the Company and JPMorgan Chase Bank, (the "Trustee")
relating to the above-captioned Notes and that the transfer of this Note does
not require registration under the Securities Act (as defined below) because:*

         [ ]    Such Note is being acquired for the Transferor's own account
without transfer.

         [ ]    Such Note is being transferred (i) to the Company, (ii) to a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act")), in a transaction meeting the
requirements of Rule 144A under the Securities Act or (iii) pursuant to an
exemption from registration in accordance with Rule 904 of Regulation S under
the Securities Act (and in the case of clause (iii), together with a
certification in substantially the form of Exhibit C to Supplemental Indenture
No. 4 to the Indenture).

         [ ]    Such Note is being transferred (i) pursuant to an exemption from
registration in accordance with Rule 144 under the Securities Act or (ii)
pursuant to an effective registration statement under the Securities Act.

         [ ]    Such Note is being transferred in reliance on and in compliance
with another exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel if the Company or the Trustee so
requests).

------------------
         *        FILL IN BLANK OR CHECK APPROPRIATE BOX, AS APPLICABLE.

                                       B-1

<PAGE>

You are entitled to rely upon this certificate and you are irrevocably
authorized to produce this certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

                                            [INSERT NAME OF TRANSFEROR]

                                            By: ________________________________
                                            Name:
                                            Title:
                                            Address:

Date: __________________________

                                       B-2

<PAGE>

                                                                       Exhibit C

                FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
                     WITH TRANSFERS PURSUANT TO REGULATION S

                                            ____________________, ______________

JPMorgan Chase Bank, as Security Registrar
600 Travis, Suite 1150
Houston, Texas 77002
Attention: Institutional Trust Services

Ladies and Gentlemen:

                  In connection with our proposed sale of certain 2.875%
Convertible Senior Notes due 2024 (the "Notes"), of CenterPoint Energy, Inc.
(the "Company"), we represent that:

                  (i)      the offer or sale of the Notes was made in an
         "offshore transaction";

                  (ii)     at the time the buy order was originated, the
         transferee was outside the United States or we and any person acting on
         our behalf reasonably believed that the transferee was outside the
         United States;

                  (iii)    no directed selling efforts have been made by us in
         the United States in contravention of the requirements of Rule 903(a)
         or Rule 904(a) of Regulation S under the U.S. Securities Act of 1933,
         as applicable;

                  (iv)     if this transfer of the Note is being made prior to
         the expiration of the one-year Distribution Compliance Period, such
         interest that is being transferred is held immediately thereafter
         through the Euroclear System or Clearstream Banking, societe anonyme;
         and

                  (v)      the transaction is not part of a plan or scheme to
         evade the registration requirements of the U.S. Securities Act of 1933.

                                      C-1

<PAGE>

         You and the Company are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S under the U.S. Securities Act of 1933.

                                            Very truly yours,

                                            Name of Transferor:

                                            By: ________________________________
                                                Name:
                                                Title:
                                                Address:

                                      C-2

<PAGE>

                                                                       Exhibit D

                            FORM OF CONVERSION NOTICE

To: CenterPoint Energy, Inc.

         The undersigned registered holder of this Note hereby exercises the
option to convert this Note, or portion hereof (which is $1,000 principal amount
or an integral multiple thereof) designated below, for shares of Common Stock of
CenterPoint Energy, Inc. in accordance with the terms of the Indenture referred
to in this Note, and directs that the shares, if any, issuable and deliverable
upon such conversion, together with any check for cash deliverable upon such
conversion, and any Notes representing any unconverted principal amount hereof,
be issued and delivered to the registered holder hereof unless a different name
has been indicated below. If shares or any portion of this Note not converted
are to be issued in the name of a Person other than the undersigned, the
undersigned shall pay all transfer taxes payable with respect thereto.

         Except as provided in the Indenture, this notice shall be deemed to be
an irrevocable exercise of the option to convert this Note.

Dated:
                                               _________________________________

                                               _________________________________
                                                          Signature(s)

                                    Signature(s) must be guaranteed by a
                                    commercial bank or trust company or a member
                                    firm of a major stock exchange if shares of
                                    Common Stock are to be issued, or Notes to
                                    be delivered, other than to or in the name
                                    of the registered holder.

                                            ____________________________________
                                                    Signature Guarantee

                                      D-1

<PAGE>

Fill in for registration of shares if
to be delivered, and Notes if to be
issued other than to and in the
name of registered holder:

_______________________________             Principal Amount to be converted (if
(Name)                                      less than all):

_______________________________             $___________,000
(Street Address)
                                            Social Security or Other Taxpayer
_______________________________             Number
(City, state and zip code)

Please print name and address

                                       D-2
<PAGE>

                                                                       Exhibit E

                   FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE

To: CenterPoint Energy, Inc.

         The undersigned registered holder of this Note hereby acknowledges
receipt of a notice from CenterPoint Energy, Inc. (the "Company") as to the
occurrence of a Fundamental Change with respect to the Company and requests and
instructs the Company to repurchase this Note, or the portion hereof (which is
$1,000 principal amount or a integral multiple thereof) designated below, in
accordance with the terms of the Supplemental Indenture referred to in this Note
and directs that the check of the Company, in payment for this Note or the
portion thereof and any Notes representing any unrepurchased principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If any portion of this Note not
repurchased is to be issued in the name of a Person other than the undersigned,
the undersigned shall pay all transfer taxes payable with respect thereto.

Dated:                                        __________________________________
                                                         Signature(s)

                                    Signature(s) must be guaranteed by a
                                    commercial bank or trust company or a member
                                    firm of a major stock exchange if Notes are
                                    to be delivered, other than to or in the
                                    name of the registered holder.

                                              __________________________________
                                                      Signature Guarantee

Fill in for registration of Notes if to be issued other than to and in the name
of registered holder:

(Name)

__________________________________
(Street Address)

__________________________________
(City, state and zip code)

Please print name and address

                                            Principal Amount to be purchased (if
                                            less than all): $__________,000

                                            Social Security or Other Taxpayer
                                            Number

                                       E-1
<PAGE>

                                                                       Exhibit F

                             FORM OF PURCHASE NOTICE

To: CenterPoint Energy, Inc.

         The undersigned registered holder of this Note hereby acknowledges
receipt of a notice from CenterPoint Energy, Inc. (the "Company") as to the
holder's option to require the Company to repurchase this Note and requests and
instructs the Company to repurchase this Note, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) designated below, in
accordance with the terms of the Supplemental Indenture referred to in this Note
and directs that the check of the Company in payment for this Note or the
portion thereof and any Notes representing any unrepurchased principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If any portion of this Note not
repurchased is to be issued in the name of a Person other than the undersigned,
the undersigned shall pay all transfer taxes payable with respect thereto.

Dated:                                      ____________________________________
                                                        Signature(s)

                                    Signature(s) must be guaranteed by a
                                    commercial bank or trust company or a member
                                    firm of a major stock exchange if Notes are
                                    to be delivered, other than to or in the
                                    name of the registered holder.

                                            ____________________________________
                                                     Signature Guarantee

Fill in for registration of Notes if to be issued other than to and in the name
of registered holder:

(Name)

____________________________________
(Street Address)

____________________________________
(City, state and zip code)

Please print name and address

                                            Principal Amount to be purchased (if
                                            less than all): $__________,000

                                            Social Security or Other Taxpayer
                                            Number

                                       F-1
<PAGE>

                                                                       Exhibit G

                                 ASSIGNMENT FORM

         For value received ___________________________ hereby sell(s),
assign(s) and transfer(s) unto _____________________ (Please insert social
security or other Taxpayer Identification Number of assignee) the within Note,
and hereby irrevocably constitutes and appoints __________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.

Dated:                                      ____________________________________
                                                       Signature(s)

                                    Signature(s) must be guaranteed by a
                                    commercial bank or trust company or a member
                                    firm of a major stock exchange if shares of
                                    Common Stock are to be issued, or Notes to
                                    be delivered, other than to or in the name
                                    of the registered holder.

                                            ____________________________________
                                                     Signature Guarantee

NOTICE: The above signatures of the holder(s) hereof must correspond with the
name as written upon the face of the Note in every particular without alteration
or enlargement or any change whatever.

                                       G-1
<PAGE>

                                                                       Exhibit H

                     FORM OF RESTRICTED COMMON STOCK LEGEND

         THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
         TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES
         ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE
         OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
         REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
         THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY
         BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
         SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

         THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
         (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
         TRANSFERRED ONLY (I) TO THE COMPANY, (II) IN THE UNITED STATES TO A
         PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
         BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
         TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) OUTSIDE THE
         UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904
         UNDER THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM
         REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER
         (IF AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
         UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (V) IN
         ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
         UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
         REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY FROM IT OF THE RESALE
         RESTRICTIONS REFERRED TO IN (A) ABOVE. IN ADDITION, WITH RESPECT TO ANY
         TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
         (A)(V) ABOVE), THE HOLDER WILL DELIVER TO THE COMPANY AND THE TRUSTEE
         SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE
         TO CONFIRM THAT THE TRANSFER BY IT COMPLIES WITH THE FOREGOING
         RESTRICTIONS.

         THE HOLDER OF THIS SECURITY AGREES THAT SUCH HOLDER WILL NOT ENGAGE IN
         HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS IN COMPLIANCE WITH
         THE SECURITIES ACT.

                                       H-1

<PAGE>

         THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS
         OF, A REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER 17, 2003
         ENTERED INTO BY THE COMPANY FOR THE BENEFIT OF CERTAIN HOLDERS OF
         SECURITIES FROM TIME TO TIME.

         THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS
         OF, A RIGHTS AGREEMENT, DATED AS OF JANUARY 1, 2002, BETWEEN THE
         COMPANY AND JPMORGAN CHASE BANK, AS RIGHTS AGENT.

                                       H-2
<PAGE>

                                                                       Exhibit I

                    FORM OF TRANSFER CERTIFICATE FOR TRANSFER
                           OF RESTRICTED COMMON STOCK

      (Transfers pursuant to Section 904(b) of the Supplemental Indenture)

[NAME AND ADDRESS OF COMMON STOCK TRANSFER AGENT]

                  Re: CenterPoint Energy, Inc. 2.875% Convertible Senior Notes
                  Due 2024 (the "Notes")

                  Reference is hereby made to the Indenture, dated as of May 19,
2003, as supplemented by Supplemental Indenture No. 4 thereto, dated as of
December 17, 2003, between the Company and the Trustee (collectively, the
"Indenture"). Capitalized terms used but not defined herein shall have the
meanings given them in the Indenture.

                  This letter relates to _________ shares of Common Stock
represented by the accompanying certificate(s) that were issued upon conversion
of Notes and which are held in the name of [name of transferor] (the
"Transferor") to effect the transfer of such Common Stock.

                  In connection with the transfer of such shares of Common
Stock, the undersigned confirms that such shares of Common Stock are being
transferred:

                  CHECK ONE BOX BELOW

                  (1)      [ ]      to the Company;

                  (2)      [ ]      to a "qualified institutional buyer" (as
                                    defined in Rule 144A under the Securities
                                    Act of 1933) in a transaction meeting the
                                    requirements of Rule 144A under the
                                    Securities Act of 1933;

                  (3)      [ ]      pursuant to and in compliance with
                                    Regulation S under the Securities Act of
                                    1933 in offshore transactions to non-U.S.
                                    persons;

                  (4)      [ ]      pursuant to an exemption from registration
                                    under the Securities Act of 1933 provided by
                                    Rule 144 thereunder; or

                  (5)      [ ]      pursuant to an effective registration
                                    statement under the Securities Act of 1933.

                  Unless one of the boxes is checked, the transfer agent will
refuse to register any of the Common Stock evidenced by this certificate in the
name of any person other than the registered holder thereof; provided, however,
that if box (2) or (3) is checked, the transfer agent may require, prior to
registering any such transfer of the Common Stock such certifications and other
information, by delivery to the transfer agent of a standing letter of
instruction, to confirm

                                       I-1
<PAGE>

                                                                       Exhibit I

that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933.

                                             [Name of Transferor],

                                             By
                                                 Name:
                                                 Title:

Dated:

                                       I-2

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