Filed pursuant to Rule 424 (b)2
Registration Statement No. 333-51932
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 21, 2004
28,500,000 SHARES
(CMS ENERGY LOGO)
COMMON STOCK
---------------------
We are offering 28,500,000 shares of our common stock. Our common stock is
listed on the New York Stock Exchange under the symbol "CMS." The last reported
sale price on October 7, 2004 was $9.41 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO CMS
------------ ------------- ------------
Per Share................................................ $ 9.1000 $ 0.3185 $ 8.7815
Total.................................................... $259,350,000 $9,077,250 $250,272,750
We have granted the underwriters a 30-day option to purchase up to
4,275,000 additional shares of our common stock on the same terms and conditions
as set forth above to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the shares of common stock to purchasers
on or about October 13, 2004.
---------------------
Joint Book-Running Managers
CITIGROUP JPMORGAN MERRILL LYNCH & CO.
---------------------
DEUTSCHE BANK GOLDMAN, SACHS & CO. WACHOVIA SECURITIES
SECURITIES
---------------------
BNP PARIBAS COMERICA SECURITIES DAIWA SECURITIES AMERICA INC.
KEYBANC CAPITAL MARKETS WELLS FARGO SECURITIES
The date of this prospectus supplement is October 7, 2004
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
ABOUT THIS PROSPECTUS SUPPLEMENT............................ S-2
WHERE TO FIND MORE INFORMATION.............................. S-3
FORWARD-LOOKING STATEMENTS AND INFORMATION.................. S-4
SUMMARY..................................................... S-6
RISK FACTORS................................................ S-13
USE OF PROCEEDS............................................. S-23
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND POLICY......... S-23
TRANSFER AGENT.............................................. S-24
UNDERWRITING................................................ S-24
LEGAL OPINIONS.............................................. S-26
EXPERTS..................................................... S-26
PROSPECTUS
SUMMARY..................................................... 2
WHERE TO FIND MORE INFORMATION.............................. 2
CMS ENERGY CORPORATION...................................... 4
CMS ENERGY TRUSTS........................................... 4
RISK FACTORS................................................ 5
USE OF PROCEEDS............................................. 6
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS........... 6
DESCRIPTION OF SECURITIES................................... 6
EFFECT OF OBLIGATIONS UNDER THE DEBT SECURITIES AND THE
GUARANTEES................................................ 23
PLAN OF DISTRIBUTION........................................ 27
LEGAL OPINIONS.............................................. 30
EXPERTS..................................................... 30
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
---------------------
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of common stock and also
adds to and updates information contained in the accompanying prospectus and the
documents incorporated by reference into the accompanying prospectus. The second
part is the accompanying prospectus, which contains a description of the
securities registered by us. To the extent there is a conflict between the
information contained or incorporated by reference in this prospectus
supplement, on the one hand, and the information contained in the accompanying
prospectus or any document incorporated by reference therein, on the other hand,
the information in this prospectus supplement shall control.
This prospectus supplement and the accompanying prospectus are part of a
registration statement that we filed with the Securities and Exchange Commission
using a "shelf" registration process. Under the registration statement, we may
sell securities, including common stock, up to a dollar amount of
$2,000,000,000, of which this offering is a part.
S-2
WHERE TO FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC") under File No. 1-9513. Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You may
also read and copy any document we file at the SEC's public reference room at
450 Fifth Street N.W., Room 1024, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms and their copy
charges. You may also inspect our SEC reports and other information at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. You can find
additional information about us, including our Annual Report on Form 10-K/A for
the year ended December 31, 2003 and our Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2004 and June 30, 2004, on our web site at
http://www.cmsenergy.com. The information on this web site is not a part of this
prospectus supplement and accompanying prospectus.
We have securities listed on the New York Stock Exchange ("NYSE"). You can
inspect and copy reports and other information about us at the NYSE's offices at
20 Broad Street, New York, New York 10005.
We are "incorporating by reference" information into this prospectus
supplement and accompanying prospectus. This means that we are disclosing
important information to you when we refer you to another document that we filed
separately with the SEC. Information incorporated by reference is considered to
be part of this prospectus supplement and accompanying prospectus, unless the
information is updated by information in this prospectus supplement and the
accompanying prospectus. This prospectus supplement and the accompanying
prospectus incorporate by reference the documents listed below. We encourage you
to read these additional documents because these documents contain important
information about us and our finances.
SEC FILINGS
(FILE NO. 1-9513) PERIOD/DATE
----------------- -----------
- Annual Report on Form 10-K/A Year ended December 31, 2003
- Quarterly Reports on Form 10-Q Quarters ended March 31, 2004 and June 30,
2004
- Current Reports on Form 8-K Filed January 22, 2004, March 18, 2004, April
14, 2004, June 3, 2004, August 20, 2004,
August 31, 2004, September 1, 2004 and October
6, 2004
The documents we have filed with the SEC after the date of this prospectus
supplement and accompanying prospectus and prior to the termination of the
offering made by this prospectus supplement and accompanying prospectus are also
incorporated by reference into this prospectus supplement and accompanying
prospectus. Any statement contained in such document will be deemed to be
modified or superseded for purposes of this prospectus supplement and
accompanying prospectus to the extent that a statement contained in this
prospectus supplement and accompanying prospectus or any other subsequently
filed document modifies or supersedes such statement.
This prospectus supplement and the accompanying prospectus do not contain
all of the information found in the offering registration statement including
various exhibits and schedules. We are incorporating by reference the offering
registration statement.
We will provide, upon your oral or written request, a copy of any or all of
the information that has been incorporated by reference into this prospectus
supplement and accompanying prospectus but not delivered with this prospectus
supplement and accompanying prospectus.
You may request copies of these filings, including the registration
statement, at no cost, by writing or telephoning CMS Energy at the following
address:
CMS Energy Corporation
Attn: Office of the Secretary
One Energy Plaza
Jackson, Michigan 49201
Telephone: (517) 788-0531
S-3
FORWARD-LOOKING STATEMENTS AND INFORMATION
This prospectus supplement and the accompanying prospectus contain
forward-looking statements as defined in Rule 175 under the Securities Act of
1933, as amended (the "SECURITIES ACT") and Rule 3b-6 under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") and relevant legal
decisions. Our intention with the use of such words as "may," "could,"
"anticipates," "believes," "estimates," "expects," "intends," "plans" and other
similar words is to identify forward-looking statements that involve risk and
uncertainty. We designed this discussion of potential risks and uncertainties to
highlight important factors that may impact our business and financial outlook.
We have no obligation to update or revise forward-looking statements regardless
of whether new information, future events or any other factors affect the
information contained in the statements. These forward-looking statements are
subject to various factors that could cause our actual results to differ
materially from the results anticipated in these statements. Such factors
include our inability to predict and/or control:
- the efficient sale of non-strategic and under-performing domestic and
international assets and discontinuation of certain operations;
- capital and financial market conditions, including the current price of
our common stock and the effect of such conditions on our pension plan,
interest rates and availability of financing to us, to Consumers Energy
Company ("CONSUMERS"), our wholly-owned subsidiary, or any of our
affiliates and to the energy industry;
- ability to access the capital markets successfully;
- market perception of the energy industry, us and Consumers or any of our
affiliates;
- our and Consumers' or any of our affiliates' securities ratings;
- currency fluctuations, transfer restrictions and exchange controls;
- factors affecting utility and diversified energy operations such as
unusual weather conditions, catastrophic weather-related damage,
unscheduled generation outages, maintenance or repairs or electric
transmission or gas pipeline system constraints;
- international, national, regional and local economic, competitive and
regulatory policies, conditions and developments;
- adverse regulatory or legal decisions, including environmental laws and
regulations;
- the impact of rising natural gas prices on the Midland Cogeneration
Venture Limited Partnership (the "MCV PARTNERSHIP") investment,
regulatory decisions concerning the MCV Partnership resource conservation
plan ("RCP"), and regulatory decisions that limit our recovery of
capacity and fixed energy payments;
- federal regulation of electric sales and transmission of electricity,
including re-examination by federal regulators of the market-based sales
authorizations by which our subsidiaries participate in wholesale power
markets without price restrictions and proposals by the Federal Energy
Regulatory Commission ("FERC") to change the way it currently lets our
subsidiaries and other public utilities and natural gas companies
interact with each other;
- energy markets, including the timing and extent of unanticipated changes
in commodity prices for oil, coal, natural gas, natural gas liquids,
uranium, electricity and certain related products due to lower or higher
demand, shortages, transportation problems or other developments;
- potential disruption, expropriation or interruption of facilities or
operations due to accidents, war, terrorism or changing political
conditions and the ability to obtain or maintain insurance coverage for
such events;
- nuclear power plant performance, decommissioning, policies, procedures,
incidents and regulation, including the availability of spent nuclear
fuel storage;
S-4
- technological developments in energy production, delivery and usage;
- achievement of capital expenditure and operating expense goals;
- changes in financial or regulatory accounting principles or policies;
- outcome, cost and other effects of legal and administrative proceedings,
settlements, investigations and claims, including particularly claims,
damages and fines resulting from round-trip trading and inaccurate
commodity price reporting, including an investigation by the U.S.
Department of Justice regarding round-trip trading and price reporting
and antitrust actions relating to price reporting;
- limitations on our ability to control the development or operation of
projects in which our subsidiaries have a minority interest;
- disruptions in the normal commercial insurance and surety bond markets
that may increase costs or reduce traditional insurance coverage,
particularly terrorism and sabotage insurance and performance bonds;
- other business or investment considerations that may be disclosed from
time to time in our or Consumers' SEC filings or in other publicly
disseminated written documents;
- other uncertainties, which are difficult to predict and many of which are
beyond our control; and
- the factors identified under "Risk Factors" beginning on page S-13.
These are important factors, but not necessarily all of the important
factors, that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, us or our
subsidiaries.
S-5
SUMMARY
This summary may not contain all the information that may be important to
you. You should read this prospectus supplement and the accompanying prospectus
and the documents incorporated by reference into this prospectus supplement and
the accompanying prospectus in their entirety before making an investment
decision. The terms "CMS," "CMS ENERGY," "OUR," "US" and "WE" as used in this
document refer to CMS Energy Corporation and its subsidiaries as a combined
entity, except where it is made clear that such term means only CMS Energy
Corporation.
In this document, "BCF" means billion cubic feet and "MW" means megawatts.
CMS ENERGY CORPORATION
CMS Energy, formed in Michigan in 1987, is an integrated energy holding
company operating through subsidiaries in the United States and in selected
markets around the world. Its two principal wholly-owned subsidiaries are
Consumers and CMS Enterprises Company ("ENTERPRISES"). Consumers is a public
utility that provides natural gas and/or electricity to almost 6.5 million of
Michigan's 10 million residents and serves customers in 61 of the 68 counties in
Michigan's Lower Peninsula. Enterprises, through subsidiaries, is engaged in
several energy businesses in the United States and in selected international
markets.
Our assets and services include: electric and natural gas utility
operations; independent power production; natural gas transmission, storage and
processing; and international energy distribution. Our principal businesses are:
- Consumers' electric utility, which owns and operates 30 electric
generating plants with an aggregate of 6,431 MW of capacity and serves
1.77 million customers in Michigan's Lower Peninsula;
- Consumers' gas utility, which owns and operates over 27,463 miles of
transmission and distribution lines throughout the Lower Peninsula of
Michigan, providing natural gas to 1.67 million customers;
- CMS Generation Co. ("CMS GENERATION"), a wholly-owned subsidiary of
Enterprises, that has ownership interests in independent power plants in
operation with 6,766 gross MW (3,157 net MW) throughout the United States
and abroad. The plants are located in the U.S., Argentina, Chile, Ghana,
India, Jamaica, Morocco and the United Arab Emirates. CMS Generation also
has ownership interests in the Shuweihat power plant, which is under
construction in the United Arab Emirates and the Saudi Petrochemical
Company power plant, which is under construction and is located in the
Kingdom of Saudi Arabia. These plants total approximately 1,784 gross MW
(420 net MW) of electric generation; and
- CMS Gas Transmission Company ("CMS GAS TRANSMISSION"), a wholly-owned
subsidiary of Enterprises that owns an interest in and operates natural
gas pipelines in various locations in North America (aggregating 265
miles) and South America (aggregating 4,330 miles). The pipelines are
located in the U.S., Argentina and Chile. It also owns gathering systems
and processing facilities.
In 2003, we had consolidated operating revenue of approximately $5.5
billion.
Our principal executive offices are located at One Energy Plaza, Jackson,
Michigan 49201 and our telephone number is (517) 788-0531.
S-6
RECENT DEVELOPMENTS
SECOND QUARTER 2004 RESULTS OF OPERATIONS
RESTATED
THREE MONTHS ENDED JUNE 30 2004 2003 CHANGE
-------------------------- ------ --------- -------
UNAUDITED, IN MILLIONS
(EXCEPT PER SHARE AMOUNTS)
Net Income (Loss) Available to Common Stock................. $ 16 $ (65) $ 81
Basic Earnings (Loss) Per Share Attributable to Common
Stock..................................................... $0.10 $(0.45) $0.55
Diluted Earnings (Loss) Per Share Attributable to Common
Stock..................................................... $0.10 $(0.45) $0.55
Electric utility............................................ $ 27 $ 35 $ (8)
Gas utility................................................. 1 5 (4)
Enterprises................................................. 38 8 30
Corporate interest and other................................ (50) (60) 10
Discontinued operations..................................... -- (53) 53
----- ------ -----
CMS Energy Net Income (Loss) Available to Common Stock...... $ 16 $ (65) $ 81
===== ====== =====
For the three months ended June 30, 2004, our net income available to
common stock was $16 million, compared to a loss of $65 million for the three
months ended June 30, 2003. The $81 million increase in net income available to
common stock primarily reflects:
- the absence of a $53 million loss from discontinued operations recorded
in 2003, comprised mainly of the loss on the sale of Panhandle Eastern
Pipe Line Company and its subsidiaries ("PANHANDLE");
- the absence of a $31 million deferred tax asset valuation reserve
established in 2003;
- an $11 million increase in mark-to-market valuation adjustments on
interest rate swaps and power contracts; and
- a $6 million reduction in funded benefits expense primarily due to the
postretirement benefit plans, other than pensions, for retired employees
("OPEB") plans accounting for the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 and the positive impact of
prior year pension plan contributions on pension plan asset returns.
These increases were partially offset by:
- the absence of a $30 million Michigan Single Business Tax refund received
in 2003; and
- a $12 million reduction in electric and gas utility net income at
Consumers resulting primarily from industrial and commercial customers
choosing different electricity suppliers and decreased gas deliveries
caused primarily by milder weather.
S-7
RESTATED
SIX MONTHS ENDED JUNE 30 2004 2003 CHANGE
------------------------ ------ --------- -------
UNAUDITED, IN MILLIONS
(EXCEPT PER SHARE AMOUNTS)
Net Income Available to Common Stock........................ $ 9 $ 17 $ (8)
Basic Earnings Per Share Attributable to Common Stock....... $0.06 $0.12 $(0.06)
Diluted Earnings Per Share Attributable to Common Stock..... $0.06 $0.14 $(0.08)
Electric utility............................................ $ 75 $ 86 $ (11)
Gas utility................................................. 57 59 (2)
Enterprises................................................. (23) 29 (52)
Corporate interest and other................................ (98) (111) 13
Discontinued operations..................................... (2) (22) 20
Accounting changes.......................................... -- (24) 24
----- ----- ------
CMS Energy Net Income Available to Common Stock............. $ 9 $ 17 $ (8)
===== ===== ======
For the six months ended June 30, 2004, CMS Energy's net income available
to common stock was $9 million, compared to net income available to common stock
of $17 million for the six months ended June 30, 2003. The $8 million change
reflects:
- an $81 million charge to earnings related to the sale of our Loy Yang A
power plant ("LOY YANG");
- the absence of a $30 million Michigan Single Business Tax refund received
in 2003; and
- a $13 million reduction in electric and gas utility net income at
Consumers resulting primarily from industrial and commercial customers
choosing different electricity suppliers and decreased gas deliveries
caused primarily by milder weather.
These losses were partially offset by:
- the exclusion in 2004 of a $24 million charge for changes in accounting
that occurred in the first quarter of 2003;
- the absence of a $31 million deferred tax asset valuation reserve
established in 2003;
- the decrease of $20 million in the net loss from discontinued operations
resulting from the sale of Panhandle and other businesses in 2003;
- a $31 million increase in mark-to-market valuation adjustments on
interest rate swaps and power contracts; and
- a $13 million reduction in funded benefits expense primarily due to the
OPEB plans accounting for the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 and the positive impact of prior year
pension plan contributions on pension plan asset returns.
SALE OF AUSTRALIAN PIPELINES
On August 17, 2004, we completed the sale of our interests in a business
located in Australia comprised of a pipeline, processing facilities and a gas
storage facility in which we held a 100% ownership interest ("PARMELIA") and a
pipeline business located in Australia in which we held a 39.7 percent ownership
interest ("GOLDFIELDS") to the Australian Pipeline Trust for approximately $204
million Australian (approximately $147 million in U.S. dollars). As disclosed in
our Form 8-K dated August 31, 2004, the assets sold had a book value of
approximately $94 million. The sale also included $2 million of selling
expenses, $18 million of taxes and the recognition of $1 million of cumulative
foreign currency translation adjustments, resulting in an after-tax gain of $34
million calculated as of June 30, 2004. Additionally, certain deferred taxes
were assumed by the buyer.
S-8
SALE OF LOY YANG
In April 2004, we and our partners sold the 2,000 MW Loy Yang power plant
and adjacent coal mine located in Victoria, Australia for approximately $3.5
billion Australian (approximately $2.6 billion in U.S. dollars), including $145
million Australian for the project equity. We owned 49.6 percent of Loy Yang.
NRG Energy Inc. and Horizon Energy Australia Investments each owned about 25
percent of Loy Yang. CMS Energy's share of the proceeds was approximately $71
million Australian, which, after closing adjustments and transaction costs, was
approximately $44 million in U.S. dollars. We recognized an $81 million
after-tax impairment charge in the first quarter of 2004, primarily related to
prior currency translation adjustments.
CONSOLIDATION OF THE MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP AND THE
FIRST MIDLAND LIMITED PARTNERSHIP
Under revised FASB Interpretation No. 46 "Consolidation of Variable
Interest Entities," we determined that we are the primary beneficiary of both
the MCV Partnership and the First Midland Limited Partnership ("FMLP"). We have
a 49 percent partnership interest in the MCV Partnership and a 46.4 percent
partnership interest in the FMLP. Consumers is the primary purchaser of power
from the MCV Partnership through a long-term power purchase agreement. In
addition, the FMLP holds a 75.5 percent lessor interest in the MCV Partnership's
facility (the "MCV FACILITY"), which results in Consumers holding a 35 percent
lessor interest in the MCV Facility. Collectively, these interests make us the
primary beneficiary of these entities. As such, we consolidated their assets,
liabilities and activities into our financial statements for the first time as
of and for the quarter ended March 31, 2004. These partnerships had third-party
obligations totaling $728 million at June 30, 2004. Property, plant and
equipment serving as collateral for these obligations had a carrying value of
$1.453 billion at June 30, 2004. The creditors of these partnerships do not have
recourse to the general credit of CMS Energy.
RECENT FINANCINGS AND SECURITIES OFFERINGS
We have initiated several transactions with various financial institutions,
lenders, banks and others to provide liquidity:
- As of August 3, 2004, we obtained an amended and restated $300 million
secured revolving credit facility to replace both our $190 million
facility and $185 million letter of credit facility. The amended facility
carries a three-year term and provides for a lower interest rate.
- As of August 3, 2004, Consumers obtained an amended and restated $500
million secured revolving credit facility to replace its $400 million
facility. The amended facility carries a one-year term with two one-year
extensions at Consumers' sole option and provides for a lower interest
rate.
- On August 17, 2004, Consumers issued $800 million of first mortgage bonds
(the "BONDS") in a private placement to institutional investors in three
separate series. The $150 million Series K Bonds will mature on August
15, 2009 and will bear interest at the rate of 4.40 percent. The $300
million Series L Bonds will mature on February 15, 2012 and will bear
interest at the rate of 5.00 percent. The $350 million Series M Bonds
will mature on August 15, 2016 and will bear interest at the rate of 5.50
percent.
S-9
THE OFFERING
Shares offered................ 28,500,000 shares of CMS Energy common stock
($0.01 par value)
Over-allotments............... If the underwriters sell more shares than the
total number set forth above, the underwriters
have an option to buy up to an additional
4,275,000 shares from us to cover such sales.
The underwriters may exercise that option
within 30 days of the date of this prospectus
supplement. If any shares are purchased
pursuant to this option, the underwriters will
severally purchase shares in approximately the
same proportions as set forth in the table
found in "Underwriting."
CMS Energy common stock
outstanding as of October 6,
2004 (before giving effect to
this offering)................ 161,936,133 shares
Pro forma shares of CMS Energy
common stock outstanding after
giving effect to this
offering...................... 190,436,133 shares
Voting Rights................. Holders of our common stock are entitled to one
vote for each share of common stock held.
Risks......................... Your investment in our common stock will
involve risks. You should carefully consider
the discussion of risks in "Risk Factors"
beginning on page S-13 of this prospectus
supplement and the other information in this
prospectus supplement and the accompanying
prospectus, including our cautionary statements
regarding "forward-looking statements," before
deciding whether an investment in our common
stock is suitable for you.
New York Stock Exchange
Symbol........................ CMS. The shares of common stock offered hereby
have been authorized for listing on the New
York Stock Exchange, subject to official notice
of issuance.
Use of Proceeds............... We intend to use the net proceeds of this
offering to make capital infusions into
Consumers. Pending such capital infusions, the
proceeds will be used for general corporate
purposes, including temporary investments in
short term securities.
S-10
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data have been derived from our audited
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent registered public accounting firm, for the fiscal years ended
December 31, 2003, 2002, 2001 and 2000, except for amounts included from the
financial statements of the MCV Partnership and Jorf Lasfar Energy Company
S.C.A. ("JORF LASFAR"). The MCV Partnership represents an investment accounted
for under the equity method of accounting through December 31, 2003, which was
audited by another independent registered public accounting firm (the other
auditors for 2001 and 2000 have ceased operations), for the fiscal years ended
December 31, 2003, 2002, 2001 and 2000. Jorf Lasfar represents an investment
accounted for under the equity method of accounting, which was audited by
another independent registered public accounting firm for the fiscal years ended
December 31, 2003, 2002, 2001 and 2000. The following selected consolidated
financial data for the six months ended June 30, 2004 and 2003 have been derived
from our unaudited consolidated financial statements. Please refer to our
financial statements for the fiscal year ended December 31, 2003 and for the
quarter ended June 30, 2004, which are each incorporated by reference herein.
The financial information set forth below should be read in conjunction with our
consolidated financial statements, related notes and other financial information
that are incorporated by reference herein. Operating results for the six months
ended June 30, 2004 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 2004. See "Where To Find More
Information."
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------
2004(A) 2003 2003 2002 2001 2000
------- ------- ------- ------- ------- -------
(UNAUDITED, (DOLLARS IN MILLIONS EXCEPT PER SHARE
DOLLARS IN AMOUNTS)
MILLIONS EXCEPT
PER SHARE
AMOUNTS)
INCOME STATEMENT DATA:
Operating revenue......................................... $2,847 $ 3,094 $ 5,513 $ 8,673 $ 8,006 $ 6,623
Earnings from equity method investees..................... 60 97 164 92 172 213
Operating expenses........................................ 2,614 2,779 5,082 8,690 8,027 6,342
Operating income.......................................... 293 412 595 75 151 494
Income (loss) from continuing operations.................. 17 63 (43) (394) (327) (85)
Net income (loss) available to common shareholder......... $ 9 $ 17 $ (44) $ (650) $ (459) $ 5
Earnings per average common share:
Income (loss) from continuing operations
Basic................................................... $ 0.07 $ 0.43 $ (0.30) $ (2.84) $ (2.50) $ (0.76)
Income (loss) from continuing operations
Diluted................................................. 0.07 0.43 (0.30) (2.84) (2.50) (0.76)
CMS Energy Basic Net Income (Loss) attributable to common
stock................................................... 0.06 0.12 (0.30) (4.68) (3.51) 0.04
CMS Energy Diluted Net Income (Loss) attributable to
common stock............................................ 0.06 0.14 (0.30) (4.68) (3.51) 0.04
Dividends declared per average common share:
CMS Energy.............................................. $ -- $ -- $ -- $ 1.09 $ 1.46 $ 1.46
S-11
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------
2004(A) 2003 2003 2002 2001 2000
------- ------- ------- ------- ------- -------
(UNAUDITED, (DOLLARS IN MILLIONS EXCEPT PER SHARE
DOLLARS IN AMOUNTS)
MILLIONS EXCEPT
PER SHARE
AMOUNTS)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 696 $ 917 $ 532 $ 351 $ 123 $ 143
Restricted cash........................................... 213 205 201 38 4 --
Net plant and property(a)................................. 8,528 6,674 6,944 6,103 6,703 6,316
Total assets.............................................. 15,307 13,939 13,838 14,781 17,633 17,801
Long-term debt, excluding current maturities(a)........... 5,816 6,062 6,020 5,357 5,842 6,052
Long-term debt -- related parties......................... 684 -- 684 -- -- --
Non-current portion of capital leases and finance lease
obligations............................................. 338 119 58 116 71 49
Notes payable............................................. -- -- -- 458 416 403
Other liabilities......................................... 5,722 5,652 5,113 6,807 8,012 7,705
Minority interest......................................... 740 43 73 38 43 82
Company-obligated mandatorily redeemable trust preferred
securities of subsidiaries(b)........................... -- 393 -- 393 694 694
Company obligated trust preferred securities of Consumers'
subsidiaries(b)......................................... -- 490 -- 490 520 395
Preferred stock........................................... 261 -- 261 -- -- --
Preferred stock of subsidiary............................. $ 44 $ 44 $ 44 $ 44 $ 44 $ 44
Common stockholders' equity............................... 1,702 1,136 1,585 1,078 1,991 2,377
OTHER DATA:
Cash Flow:
Provided by (Used in) operating activities................ $ 481 $ 147 $ (251) $ 614 $ 372 $ 600
Provided by (Used in) investing activities................ (214) 292 203 829 (1,349) (1,220)
Provided by (Used in) financing activities................ (276) 125 230 (1,223) 967 629
Ratio of earnings to fixed charges(c)..................... --(d) 1.13 --(e) --(f) --(g) --(h)
---------------
(a) Under revised FASB Interpretation No. 46 "Consolidation of Variable
Interest Entities," we are the primary beneficiary of the MCV Partnership
and the FMLP. As a result, we have consolidated their assets, liabilities
and activities into our financial statements for the first time as of and
for the quarter ended March 31, 2004. These partnerships had third-party
obligations totaling $728 million at June 30, 2004. Property, plant and
equipment serving as collateral for these obligations had a carrying value
of $1.453 billion at June 30, 2004.
(b) CMS Energy and Consumers each formed various statutory wholly-owned
business trusts for the sole purpose of issuing preferred securities and
lending the gross proceeds to the parent companies. The sole assets of the
trusts are debentures of the parent company with terms similar to those of
the preferred securities. As a result of the adoption of FASB
Interpretation No. 46 on December 31, 2003, we deconsolidated the trusts
that hold the mandatorily redeemable trust preferred securities. Therefore,
$490 million, previously reported by us as Company-obligated mandatorily
redeemable trust preferred securities of subsidiaries, plus $16 million
owed to the trusts and previously eliminated in consolidation, is now
included in the balance sheet as Long-term debt -- related parties.
Additionally, $173 million, previously reported by us as Company-obligated
convertible trust preferred securities of subsidiaries, plus $5 million
owed to the trusts and previously eliminated in consolidation, is now
included in the balance sheet as Long-term debt -- related parties.
(c) For the purpose of computing the ratio, earnings represents the sum of
income from continuing operations before income taxes and income from
equity method investees, net interest charges and preferred dividends of
subsidiary, the estimated interest portion of lease rentals and distributed
income of equity method investees.
(d) For the six months ended June 30, 2004, fixed charges exceeded earnings by
$47 million. Earnings as defined include $125 million of asset impairment
charges.
(e) For the year ended December 31, 2003, fixed charges exceeded earnings by
$59 million. Earnings as defined include $95 million of asset impairment
charges.
(f) For the year ended December 31, 2002, fixed charges exceeded earnings by
$475 million. Earnings as defined include $602 million of asset impairment
charges.
(g) For the year ended December 31, 2001, fixed charges exceeded earnings by
$393 million. Earnings as defined include $323 million of asset impairment
charges.
(h) For the year ended December 31, 2000, fixed charges exceeded earnings by
$225 million. Earnings as defined include a $329 million pretax impairment
loss on the Loy Yang investment.
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RISK FACTORS
Before purchasing any of our securities offered by this prospectus
supplement and the accompanying prospectus, you should carefully consider the
following risk factors, as well as the other information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
RISKS RELATING TO CMS ENERGY
WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD LIMIT OUR FINANCIAL FLEXIBILITY.
As of June 30, 2004, we had outstanding approximately $2.7 billion
aggregate principal amount of indebtedness, including approximately $178 million
of subordinated indebtedness relating to our convertible preferred securities
but excluding approximately $5.0 billion of indebtedness of our subsidiaries. In
August 2004, we entered into the Fifth Amended and Restated Credit Agreement in
the amount of approximately $300 million. As of August 31, 2004, there were
approximately $94 million of letters of credit outstanding under the Fifth
Amended and Restated Credit Agreement. We and our subsidiaries may incur
additional indebtedness in the future.
The level of our present and future indebtedness could have several
important effects on our future operations, including, among others:
- a significant portion of our cash flow from operations will be dedicated
to the payment of principal and interest on our indebtedness and will not
be available for other purposes;
- covenants contained in our existing debt arrangements require us to meet
certain financial tests, which may affect our flexibility in planning
for, and reacting to, changes in our business;
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate and other purposes may
be limited;
- we may be at a competitive disadvantage to our competitors that are less
leveraged; and
- our vulnerability to adverse economic and industry conditions may
increase.
Our ability to meet our debt service obligations and to reduce our total
indebtedness will be dependent upon our future performance, which will be
subject to general economic conditions, industry cycles and financial, business
and other factors affecting our operations, many of which are beyond our
control. We cannot assure you that our business will continue to generate
sufficient cash flow from operations to service our indebtedness. If we are
unable to generate sufficient cash flow from operations, we may be required to
sell additional assets or obtain additional financings. We also plan to
refinance a substantial amount of our indebtedness prior to its maturity. We
cannot assure you that any such refinancing will be possible or that additional
financing will be available on commercially acceptable terms or at all.
There can be no assurance that the requirements of our existing debt
arrangements or other indebtedness will be met in the future. Failure to comply
with such covenants may result in a default with respect to the related debt and
could lead to acceleration of such debt or any instruments evidencing
indebtedness that contain cross-acceleration or cross-default provisions.
In such a case, there can be no assurance that we would be able to
refinance or otherwise repay such indebtedness.
WE HAVE FINANCING NEEDS AND WE MAY BE UNABLE TO SUCCESSFULLY ACCESS BANK
FINANCING OR THE CAPITAL MARKETS.
As of June 30, 2004, we had approximately $395 million of debt maturities
in 2004 and 2005, excluding subsidiaries. These maturities include:
approximately $176 million of senior notes due in November 2004; $180 million of
senior notes due in January 2005; and approximately $39 million of general term
notes that mature at various times in 2004 and 2005. In addition, we expect to
incur
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significant costs for capital expenditures, including future environmental
regulation compliance, especially compliance with clean air laws. See "We could
incur significant capital expenditures to comply with environmental standards
and face difficulty in recovering these costs on a current basis" below. As of
June 30, 2004 we had incurred $489 million in capital expenditures to comply
with these regulations and future capital expenditures may total approximately
$282 million between 2004 and 2009. We could also be required to make additional
cash contributions to our employee pension and benefit plans and become subject
to liquidity demands pursuant to commercial commitments under guarantees,
indemnities and letters of credit. After giving effect to recent issuances of
securities, along with asset sales, capital markets or bank financing and cash
flow from operations, we believe, but can make no assurance, that we will have
sufficient liquidity to meet our debt maturities through 2005. Management is
actively pursuing plans to refinance debt and to sell assets. There can be no
assurances that this business plan will be successful and failure to achieve its
goals could have a material adverse effect on our liquidity and operations.
We continue to explore financing opportunities to supplement our financial
plan. These potential opportunities include: refinancing our bank credit
facilities; entering into leasing arrangements and/or vendor financing;
refinancing and issuing new capital markets debt, preferred and/or common
equity; and negotiating private placement debt. We cannot guarantee the capital
market's acceptance of our securities or predict the impact of factors beyond
our control, such as actions of rating agencies. If we are unable to access bank
financing or the capital markets to incur or refinance indebtedness, there could
be a material adverse effect upon our liquidity and operations.
Consumers accesses debt and other capital from various sources and carries
its own credit ratings. Any downgrade or other event negatively affecting the
credit ratings of Consumers could make its cost of borrowing higher or access to
funding sources more limited, which in turn could increase the need of CMS
Energy to provide liquidity in the form of capital contributions or loans, thus
reducing the liquidity and borrowing availability of the consolidated group.
Further, any adverse developments relating to Consumers, which provides
dividends to us, that result in a lowering of Consumers' credit ratings could
have an adverse effect on our credit ratings.
WE MAY BE ADVERSELY AFFECTED BY A REGULATORY INVESTIGATION AND LAWSUITS
REGARDING "ROUND TRIP" TRADING BY ONE OF OUR SUBSIDIARIES AS WELL AS CIVIL
LAWSUITS REGARDING PRICING INFORMATION THAT TWO OF OUR AFFILIATES PROVIDED TO
MARKET PUBLICATIONS.
As a result of round trip trading transactions at CMS Marketing Services
and Trading Company (now known as CMS Energy Resource Management Company) ("CMS
MST"), we are under investigation by the United States Department of Justice. We
have received subpoenas from U.S. Attorneys Offices regarding investigations of
those trades. CMS Energy and Consumers have also been named in numerous class
action lawsuits by individuals who allege that they purchased CMS Energy
securities during a purported class period. These complaints generally seek
unspecified damages based on allegations that the defendants violated United
States securities laws and regulations by making allegedly false and misleading
statements about the company's business and financial condition. The cases have
been consolidated into a single lawsuit and an amended and consolidated
complaint was filed on May 1, 2003. The judge issued an opinion and order dated
March 31, 2004 in connection with various pending motions, including the
plaintiffs' motion to amend the complaint and the motions to dismiss the
complaint filed by us, Consumers and other defendants. The judge directed the
plaintiffs to file an amended complaint under seal and ordered an expedited
hearing on the motion to amend, which was held on May 12, 2004. At the hearing,
the judge ordered the plaintiffs to file an amended complaint deleting certain
counts related to purchasers of CMS Energy-related securities, which the judge
ordered dismissed with prejudice. The plaintiffs filed this complaint on May 26,
2004. We, Consumers and the individual defendants filed new motions to dismiss
on June 21, 2004. A hearing on those motions occurred on August 2, 2004 and the
judge has taken the matter under advisement.
In March 2004, the SEC approved a cease-and-desist order settling an
administrative action against us relating to round-trip trading. The order did
not assess a fine and we neither admitted to nor denied the order's findings.
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Our Board of Directors has received a demand on behalf of a shareholder of
CMS Energy to commence civil actions (i) to remedy alleged breaches of fiduciary
duties by CMS Energy officers and directors in connection with round trip
trading at CMS MST and (ii) to recover damages sustained by CMS Energy as a
result of alleged insider trades alleged to have been made by certain current
and former officers of CMS Energy and its subsidiaries. In December 2002, two
new directors were appointed to our Board of Directors. A special litigation
committee was formed by the Board of Directors in January 2003 to determine
whether it is in the best interest of CMS Energy to bring the action demanded by
the shareholder. The disinterested members of the Board of Directors appointed
the two new directors to serve on the special litigation committee.
On December 2, 2003, during the continuing review by the special litigation
committee, we were served with a derivative complaint filed by the shareholder
in the Circuit Court of Jackson County, Michigan in furtherance of his demands.
The date for CMS Energy and other defendants to answer or otherwise respond to
the complaint was extended to December 1, 2004, subject to such further
extensions as may be mutually agreed upon by the parties and authorized by the
court.
We have notified appropriate regulatory and governmental agencies that some
employees at CMS MST and CMS Field Services, Inc. (now Cantera Gas Company)
appeared to have provided inaccurate information regarding natural gas trades to
various energy industry publications which compile and report index prices. CMS
Energy is cooperating with an investigation by the United States Department of
Justice regarding this matter. On November 25, 2003, the Commodity Futures
Trading Commission ("CFTC") issued a settlement order regarding this matter. CMS
MST and CMS Field Services, Inc. agreed to pay a fine to the CFTC totaling $16
million. CMS Energy neither admitted nor denied the findings of the CFTC in the
settlement order.
We have also been named as a defendant in several gas industry civil
lawsuits regarding inaccurate gas trade reporting that include claims alleging
manipulation of natural gas prices and violations of the Commodities Exchange
Act and federal and state antitrust laws.
We cannot predict the outcome of the United States Department of Justice
investigation and the lawsuits. It is possible that the outcome in one or more
of the investigation or the lawsuits could adversely affect our financial
condition, liquidity or results of operations.
WE MAY BE NEGATIVELY IMPACTED BY THE RESULTS OF AN EMPLOYEE BENEFIT PLAN
LAWSUIT.
We are a defendant, along with Consumers, CMS MST and certain named and
unnamed officers and directors, in two lawsuits brought as purported class
actions on behalf of participants and beneficiaries of our 401(k) plan. The two
cases, filed in July 2002 in the United States District Court for the Eastern
District of Michigan, were consolidated by the trial judge and an amended and
consolidated complaint has been filed. Plaintiffs allege breaches of fiduciary
duties under the Employee Retirement Income Security Act of 1974 ("ERISA") and
seek restitution on behalf of the plan with respect to a decline in value of the
shares of our common stock held in the plan. The plaintiffs also seek other
equitable relief and legal fees. The judge issued an opinion and order dated
March 31, 2004 in connection with the motions to dismiss filed by us, Consumers
and the individuals. The judge dismissed certain of the amended counts in the
plaintiffs' complaint and denied our motion to dismiss the other claims in the
complaint. We, Consumers and the individual defendants filed answers to the
amended complaint on May 14, 2004. A trial date has not been set, but is
expected to be no earlier than late in 2005.
We cannot predict the outcome of the ERISA litigation and it is possible
that an adverse outcome in this lawsuit could adversely affect our financial
condition, liquidity or results of operations.
WE CANNOT PREDICT THE OUTCOME OF CERTAIN CLAIMS OR OTHER LITIGATION IN WHICH
SUBSTANTIAL MONETARY CLAIMS ARE INVOLVED.
Certain of our subsidiaries participated in the development of Bay Harbor,
a residential development near Petoskey, Michigan. We have since sold our
interests in Bay Harbor but on September 3, 2004, the
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Michigan Department of Environmental Quality ("MDEQ") issued a notice directed
to certain of our subsidiaries and other parties that participated in Bay Harbor
regarding cement kiln dust ("CKD") pile seep water contaminated with high levels
of pH in Little Traverse Bay of Lake Michigan.
In the various agreements to develop Bay Harbor, CMS Land Company, a
subsidiary of CMS ("CMS LAND"), and CMS made certain indemnifications to various
parties for environmental conditions. In a settlement agreement, CMS Land
abandoned all interests and rights in Bay Harbor but retained the
responsibilities it (and CMS) had under the previous environmental
indemnifications. One such responsibility deals with the construction, operation
and maintenance of a pH lowering treatment facility at Bay Harbor that treats
"seep water" collected after the water seeps over underground CKD piles. The
"seep water" has a high pH level that requires treatment before the water can be
discharged into the City of Petoskey sewer system. While the pH treatment
facility suspended operation for a number of months to address maintenance
issues, and to resolve issues with the City of Petoskey, MDEQ found the high
levels of pH in Little Traverse Bay and issued the MDEQ notice.
Several parties have issued demand letters to CMS Land and CMS claiming
breach of the indemnification provisions, payment of their expenses related to
the MDEQ notice and requesting that CMS address all the seeps at Bay Harbor. CMS
responded by stating that: it had not breached its indemnity obligations; it
will comply with the indemnities; it has restarted the pH treatment facility;
and it will respond to the MDEQ notice.
An adverse outcome of this matter could, depending on the size of any
indemnification obligation or liability under environmental laws, have an
adverse effect on our financial condition, liquidity or results of operations.
In addition to the litigation and proceedings discussed above, CMS Energy
or various of our subsidiaries are parties in other pending litigation in which
substantial monetary damages are sought. These proceedings, certain of which are
described in CMS Energy's Annual Report on Form 10K/A for the year ended
December 31, 2003 -- Notes to Consolidated Financial Statements -- Note 4,
include arbitration and litigation relating to the Dearborn Industrial
Generation project, and claims from various provinces in Argentina for stamp
taxes and associated penalties and interest arising from various gas
transportation transactions. An adverse outcome in one or more of these cases
could, depending on the timing and size of any award and the availability of
insurance or reimbursement from third parties, have an adverse effect on our
financial condition, liquidity or results of operations.
REGULATORY CHANGES AND OTHER DEVELOPMENTS HAVE RESULTED AND WILL CONTINUE TO
RESULT IN INCREASED COMPETITION IN OUR DOMESTIC ENERGY BUSINESS. GENERALLY,
INCREASED COMPETITION THREATENS OUR MARKET SHARE IN CERTAIN SEGMENTS OF OUR
BUSINESS AND CAN REDUCE OUR PROFITABILITY.
Consumers has in the last several years experienced, and expects to
continue to experience, a significant increase in competition for generation
services with the introduction of retail open access in the State of Michigan.
Pursuant to the Customer Choice Act, as of January 1, 2002, all electric
customers have the choice of buying electric generation service from an
alternative electric supplier. We continue to lose industrial and commercial
customers to other electric suppliers without receiving compensation for
stranded costs caused by the lost sales. As of September 14, 2004, we had lost
866 MW or 11 percent of our electric generation business to these alternative
electric suppliers. We expect the loss to be in the range of 900 MW to 1,100 MW
by year-end 2004. We cannot predict the total amount of electric supply load
that we may lose to competitor suppliers in the future.
ELECTRIC INDUSTRY REGULATION COULD ADVERSELY AFFECT OUR BUSINESS, INCLUDING
OUR ABILITY TO RECOVER OUR EXPENSES FROM OUR CUSTOMERS.
Federal and state regulation of electric utilities has changed dramatically
in the last two decades and could continue to change over the next several
years. These changes could adversely affect our business, financial condition
and profitability.
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In June 2000, the Michigan Legislature enacted the Customer Choice Act that
became effective June 5, 2000. Pursuant to the Customer Choice Act:
- residential rates were reduced by five percent and then capped through at
least December 31, 2005; and
- small commercial and industrial customer rates were capped through at
least December 31, 2004.
Ultimately, the rate caps could extend until December 31, 2013 depending
upon whether or not Consumers exceeds the market power supply test established
by the legislation (a requirement that Consumers believes itself to be in
compliance with at this time). Under circumstances specified in the Customer
Choice Act, certain costs can be deferred for future recovery after the
expiration of the rate cap period. The rate caps could, however, result in
Consumers being unable to collect customer rates sufficient to fully recover its
cost of conducting business. Some of these costs may be beyond Consumers'
ability to control. In particular, if Consumers needs to purchase power supply
from wholesale suppliers during the period when retail rates are frozen or
capped, the rate restrictions imposed by the Customer Choice Act may make it
impossible for Consumers to fully recover the cost of purchased power and
associated transmission costs through the rates it charges its customers. As a
result, it is not certain that Consumers can maintain its profit margins in its
electric utility business during the period of the rate freeze or rate caps.
Consumers intends to file an electric rate case with the Michigan Public
Service Commission ("MPSC") in the fourth quarter of 2004.
There are multiple proceedings pending before FERC involving transmission
rates, regional transmission organizations and standard market design for
electric bulk power markets and transmission. FERC is also reviewing the
standards under which electric utilities are allowed to participate in wholesale
power markets without price restrictions. We cannot predict the impact of these
electric industry-restructuring proceedings on our financial position, liquidity
or results of operations.
PENDING UTILITY LEGISLATION IN MICHIGAN MAY AFFECT US IN WAYS WE CANNOT
PREDICT.
In July 2004, as a result of legislative hearings, several bills were
introduced into the Michigan Senate that could change Michigan's Customer Choice
Act. The proposals include:
- requiring that rates be based on cost of service;
- establishing a defined Stranded Cost calculation method;
- allowing customers who stay with or switch to alternative electric
suppliers after December 31, 2005 to return to utility services, and
requiring them to pay current market rates upon return;
- establishing reliability standards that all electric suppliers must
follow;
- requiring utilities and alternative suppliers to maintain a 15 percent
power reserve margin;
- creating a service charge to fund the Low Income and Energy Efficiency
Fund;
- giving kindergarten through twelfth-grade schools a discount of 10
percent to 20 percent on electric rates; and
- authorizing a service charge payable by all customers for meeting Clean
Air Act requirements.
Although we do not believe the terms of the pending bills would have a
material adverse effect on our business, the final form of any new utility
legislation may differ from the pending bills. We cannot predict whether these
or other measures will be enacted into law or their potential effect on us.
OUR ABILITY TO RECOVER OUR "NET" STRANDED COSTS IS UNCERTAIN AND MAY AFFECT
OUR FINANCIAL RESULTS.
The Customer Choice Act allows for the recovery, by an electric utility, of
the cost of implementing that Act's requirements and "net" Stranded Costs,
without defining the term. According to the MPSC,
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"net" Stranded Costs are to be recovered from retail open access customers
through a Stranded Cost transition charge.
In 2002 and 2001, the MPSC issued orders finding that Consumers experienced
zero "net" Stranded Costs from 2000 to 2001. The MPSC also declined to resolve
numerous issues regarding the "net" Stranded Cost methodology in a way that
would allow a reliable prediction of the level of Stranded Costs for future
years. Consumers is currently in the process of appealing these orders with the
Michigan Court of Appeals and the Michigan Supreme Court.
In March 2003, Consumers filed an application with the MPSC seeking
approval of "net" Stranded Costs incurred in 2002 and for approval of a "net"
Stranded Cost recovery charge. In the application, Consumers' "net" Stranded
Costs incurred in 2002, including the cost of money, are estimated to be
approximately $47 million with the issuance of securitization bonds that include
Clean Air Act investments, or approximately $104 million without the issuance of
securitization bonds that include Clean Air Act investments. In July 2004, the
administrative law judge issued a proposal for decision in Consumers' 2002 "net"
Stranded Cost case, which recommended that the MPSC find that Consumers incurred
"net" Stranded Costs of $12 million. This recommendation includes the cost of
money through July 2004 and excludes Clean Air Act investments.
In April 2004, Consumers filed an application with the MPSC seeking
approval of "net" Stranded Costs incurred in 2003. Consumers also requested
interim relief for 2003 "net" Stranded Costs. In July 2004, Consumers revised
its request for approval of 2003 Stranded Costs incurred, including the cost of
money, to $69 million with the issuance of securitization bonds that include
Clean Air Act investments, or $128 million without the issuance of
securitization bonds that include Clean Air Act investments. In July 2004, the
MPSC staff issued a position on Consumers' 2003 "net" Stranded Cost application,
which resulted in a Stranded Cost calculation of $52 million. The amount
includes the cost of money, but excludes Clean Air Act investments. MPSC
hearings have been concluded for Consumers' 2003 "net" Stranded Cost application
and the matter is pending before the MPSC. We cannot predict how the MPSC will
rule on Consumers' requests for recoverability of 2002 and 2003 Stranded Costs
or whether the MPSC will adopt a Stranded Cost recovery method that will offset
fully any associated margin loss from retail open access.
We cannot predict the ability of Consumers to recover its "net" Stranded
Costs, including costs related to electric utility restructuring, and failure to
recover those "net" Stranded Costs could adversely affect our financial
condition.
PERIODIC REVIEWS OF THE VALUES OF OUR ASSETS COULD RESULT IN ADDITIONAL
ACCOUNTING CHARGES.
We are required by U.S. generally accepted accounting principles to
periodically review the carrying value of our assets, including those that may
be sold. Market conditions, the operational characteristics of our assets and
other factors could result in our recording additional impairment charges for
our assets, which could have an adverse effect on our stockholders' equity and
our access to additional financing. In addition, we may be required to record
impairment charges at the time we sell assets depending on the sale prices we
are able to secure.
WE COULD INCUR SIGNIFICANT CAPITAL EXPENDITURES TO COMPLY WITH ENVIRONMENTAL
STANDARDS AND FACE DIFFICULTY IN RECOVERING THESE COSTS ON A CURRENT BASIS.
We and our subsidiaries are subject to costly and increasingly stringent
environmental regulations. We expect that the cost of future environmental
compliance, especially compliance with clean air laws, will be significant.
In 1998, the Environmental Protection Agency ("EPA") issued regulations
requiring the State of Michigan to further limit nitrogen oxide emissions at our
coal-fired electric plants. The EPA and the State of Michigan regulations
require us to make significant capital expenditures estimated to be $771
million. As of June 30, 2004, Consumers has incurred $489 million in capital
expenditures to comply with the
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EPA regulations and anticipates that the remaining $282 million of capital
expenditures will be incurred between 2004 and 2009. Additionally, Consumers
currently expects it will supplement its compliance plan with the purchase of
nitrogen oxide emissions credits for the years 2004 through 2008. The cost of
these credits based on the current market is estimated to average $8 million per
year; however, the market for nitrogen oxide emissions credits and their price
could change substantially. As new environmental standards become effective,
Consumers will need additional capital expenditures to comply with the
standards.
Based on the Customer Choice Act, beginning January 2004 an annual return
of and on these types of capital expenditures, to the extent they are above
depreciation levels, is expected to be recoverable from customers, subject to an
MPSC prudency hearing.
The EPA has proposed a Clean Air Interstate Rule that would require
additional coal-fired electric plant emission controls for nitrogen oxides and
sulfur dioxide. If implemented, this rule could potentially require substantial
additional expenditures. The rule proposes a two-phase program to reduce
emissions of sulfur dioxide by 70 percent and nitrogen oxides by 65 percent by
2015. Additionally, the EPA also proposed two alternative sets of rules to
reduce emissions of mercury and nickel from coal-fired and oil-fired electric
plants. Until the proposed environmental rules are finalized, an accurate cost
of compliance cannot be determined.
The EPA has alleged that some utilities have incorrectly classified plant
modifications as "routine maintenance" rather than seek modification permits
from the EPA. We have received and responded to information requests from the
EPA on this subject. We believe that we have properly interpreted the
requirements of "routine maintenance." If our interpretation is found to be
incorrect, we may be required to install additional pollution controls at some
or all of our coal-fired electric plants and potentially pay fines.
These and other required environmental expenditures, if not recovered from
customers in Consumers' rates, may require us to seek significant additional
financing to fund such expenditures and could strain our cash resources.
WE RETAIN CONTINGENT LIABILITIES IN CONNECTION WITH OUR ASSET SALES.
The agreements we enter into for the sale of assets customarily include
provisions whereby we are required to:
- retain specified preexisting liabilities such as for taxes and pensions;
- indemnify the buyers against specified risks, including the inaccuracy of
representations and warranties we make; and
- require payments to the buyers depending on the outcome of post-closing
adjustments, audits or other reviews.
Many of these contingent liabilities can remain open for extended periods
of time after the sales are closed. Depending on the extent to which the buyers
may ultimately seek to enforce their rights under these contractual provisions,
and the resolution of any disputes we may have concerning them, these
liabilities could have a material adverse effect on our financial condition,
liquidity and results of operations.
We have received a request for indemnification from the purchaser of CMS
Oil and Gas Company, a former subsidiary of CMS. The indemnification claim
relates to the sale by CMS of its oil, gas and methanol projects in Equatorial
Guinea and the claim of the government of Equatorial Guinea that $142 million in
taxes is owed it in connection with that sale. We continue to evaluate the tax
claim of the government of Equatorial Guinea. An adverse outcome of this claim
could have a material adverse effect on our financial condition, liquidity and
results of operations.
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OUR REVENUES AND RESULTS OF OPERATIONS ARE SUBJECT TO RISKS THAT ARE BEYOND
OUR CONTROL, INCLUDING BUT NOT LIMITED TO FUTURE TERRORIST ATTACKS OR RELATED
ACTS OF WAR.
The cost of repairing damage to our facilities due to storms, natural
disasters, wars, terrorist acts and other catastrophic events, in excess of
reserves established for such repairs, may adversely impact our results of
operations, financial condition and cash flows. The occurrence or risk of
occurrence of future terrorist activity and the high cost or potential
unavailability of insurance to cover such terrorist activity may impact our
results of operations and financial condition in unpredictable ways. These
actions could also result in disruptions of power and fuel markets. In addition,
our natural gas distribution system and pipelines could be directly or
indirectly harmed by future terrorist activity.
WE HAVE MADE SUBSTANTIAL INTERNATIONAL INVESTMENTS THAT ARE SUBJECT TO
POSSIBLE NATIONALIZATION, EXPROPRIATION OR INABILITY TO CONVERT CURRENCY.
Our investments in selected international markets in electric generating
facilities, natural gas pipelines and electric distribution systems face a
number of risks inherent in acquiring, developing and owning these types of
international facilities. Although we maintain insurance for various risk
exposures, including political risk from possible nationalization, expropriation
or inability to convert currency, we are exposed to some risks that include
local political and economic factors over which we have no control, such as
changes in foreign governmental and regulatory policies (including changes in
industrial regulation and control and changes in taxation), changing political
conditions and international monetary fluctuations. In some cases an investment
may have to be abandoned or disposed of at a loss. These factors could
significantly adversely affect the financial results of the affected subsidiary
and our financial position and results of operations.
International investments of the type we have made are subject to the risk
that they may be expropriated or that the required agreements, licenses, permits
and other approvals may be changed or terminated in violation of their terms.
These kinds of changes could result in a partial or total loss of our
investment.
The local foreign currency may be devalued, the conversion of the currency
may be restricted or prohibited or other actions, such as increases in taxes,
royalties or import duties, may be taken which adversely affect the value and
the recovery of our investment.
OUR OWNERSHIP OF A NUCLEAR GENERATING FACILITY CREATES RISK RELATING TO
NUCLEAR ENERGY.
Consumers owns the Palisades nuclear power plant and we are, therefore,
subject to the risks of nuclear generation, including the risks associated with
the operation of plant facilities and the storage and disposal of spent fuel and
other radioactive waste. The Nuclear Regulatory Commission ("NRC") has broad
authority under federal law to impose licensing and safety-related requirements
for the operation of nuclear generation facilities. In the event of
non-compliance, the NRC has the authority to impose fines or shut down a unit,
or both, depending upon its assessment of the severity of the situation, until
compliance is achieved. In addition, although we have no reason to anticipate a
serious nuclear incident at Consumers' plant, if an incident did occur, it could
harm our results of operations and financial condition. A major incident at a
nuclear facility anywhere in the world could cause the NRC to limit or prohibit
the operation or licensing of any domestic nuclear unit.
CONSUMERS CURRENTLY UNDERRECOVERS IN ITS RATES ITS PAYMENTS TO THE MCV
PARTNERSHIP FOR CAPACITY AND ENERGY, AND IS ALSO EXPOSED TO FUTURE CHANGES IN
THE MCV PARTNERSHIP'S FINANCIAL CONDITION THROUGH ITS EQUITY AND LESSOR
INVESTMENTS.
Consumers' power purchase agreement with the MCV Partnership ("PPA")
expires in 2025. We estimate that Consumers will incur estimated cash
underrecoveries of payments under the PPA aggregating $206 million through 2007.
For availability payments billed by the MCV Partnership after September 15,
2007, and not recovered from customers, Consumers would expect to claim a
"regulatory out" under the PPA which Consumers believes it has the right to do
after satisfying its obligation to
S-20
"support and defend" full recovery of PPA charges from customers. The effect of
any such action would be to reduce cash flow to the MCV Partnership, which could
in turn have an adverse effect on Consumers' equity and lessor interests in the
MCV Facility.
Further, under the PPA, energy payments to the MCV Partnership are based on
the cost of coal burned at Consumers' coal plants and costs associated with fuel
inventory, operations and maintenance, and administrative and general expenses
associated with Consumers' coal plants. However, the MCV Partnership's costs of
producing electricity are tied, in large part, to the cost of natural gas.
Because natural gas prices have increased substantially in recent years, while
energy charge payments to the MCV Partnership have not, the MCV Partnership's
financial performance has been impacted negatively.
In February 2004, Consumers filed a RCP with the MPSC that is intended to
help conserve natural gas and thereby improve its investment in the MCV
Partnership. This plan seeks approval to:
- dispatch the MCV Facility based on natural gas market prices without
increased costs to electric customers;
- give Consumers a priority right to buy excess natural gas as a result of
the reduced dispatch of the MCV Facility; and
- fund $5 million annually for renewable energy sources such as wind power
projects.
The RCP is expected to reduce the MCV Facility's annual natural gas
consumption by an estimated 30 to 40 bcf. This decrease in the quantity of
high-priced natural gas consumed by the MCV Facility would benefit Consumers'
ownership interest in the MCV Partnership. The amount of PPA capacity and fixed
energy payments recovered from retail electric customers would remain capped at
88.7 percent. Therefore, customers would not be charged for any increased power
supply costs, if they occur. Consumers and the MCV Partnership have reached an
agreement that the MCV Partnership will reimburse Consumers for any incremental
power costs incurred to replace the reduction in power dispatched from the MCV
Facility. We cannot predict if or when the MPSC will approve the RCP.
We cannot estimate, at this time, the impact of these issues on Consumers'
future earnings or cash flow from its interest in the MCV Partnership. The
forward price of natural gas for the next 20 years and the MPSC decision in 2007
or later related to Consumers' recovery of capacity payments are the two most
significant variables in the analysis of the MCV Partnership's future financial
performance. Natural gas prices have historically been volatile and presently
there is no consensus in the marketplace on the price or range of prices of
natural gas beyond the next five years. Further, it is not presently possible
for us to predict the actions of the MPSC in 2007 or later. Even with an
approved RCP, if gas prices continue at present levels or increase, the
economics of operating the MCV Facility may be adverse enough to require
Consumers to recognize an impairment of its investment in the MCV Partnership.
For these reasons, at this time we cannot predict the impact of these issues on
Consumers' future earnings or cash flows or on the value of its equity interest
in the MCV Partnership.
CONSUMERS' ENERGY RISK MANAGEMENT STRATEGIES MAY NOT BE EFFECTIVE IN MANAGING
FUEL AND ELECTRICITY PRICING RISKS, WHICH COULD RESULT IN UNANTICIPATED
LIABILITIES TO CONSUMERS OR INCREASED VOLATILITY OF ITS EARNINGS.
Consumers is exposed to changes in market prices for natural gas, coal,
electricity and emission credits. Prices for natural gas, coal, electricity and
emission credits may fluctuate substantially over relatively short periods of
time and expose Consumers to commodity price risk. A substantial portion of
Consumers' operating expenses for its plants consists of the costs of obtaining
these commodities. Consumers manages these risks using established policies and
procedures, and it may use various contracts to manage these risks, including
swaps, options, futures and forward contracts. We cannot assure you that these
strategies will be successful in managing Consumers' pricing risk, or that they
will not result in net liabilities to Consumers as a result of future volatility
in these markets.
S-21
Natural gas prices in particular have historically been volatile. To manage
market risks associated with the volatility of natural gas prices, the MCV
Partnership maintains a gas hedging program. The MCV Partnership enters into
natural gas futures contracts, option contracts and over-the-counter swap
transactions in order to hedge against unfavorable changes in the market price
of natural gas in future months when gas is expected to be needed. These
financial instruments are being used principally to secure anticipated natural
gas requirements necessary for projected electric and steam sales, and to lock
in sales prices of natural gas previously obtained in order to optimize the MCV
Partnership's existing gas supply, storage and transportation arrangements.
Consumers also routinely enters into contracts to offset its positions, such as
hedging exposure to the risks of demand, market effects of weather and changes
in commodity prices associated with its gas distribution business. Such
positions are taken in conjunction with the gas cost recovery mechanism, which
allows Consumers to recover prudently incurred costs associated with such
position. However, neither Consumers nor the MCV Partnership always hedges the
entire exposure of its operations from commodity price volatility. Furthermore,
the ability to hedge exposure to commodity price volatility depends on liquid
commodity markets. As a result, to the extent the commodity markets are
illiquid, Consumers may not be able to execute its risk management strategies,
which could result in greater open positions than we would prefer at a given
time. To the extent that open positions exist, fluctuating commodity prices can
improve or diminish our financial results and financial position.
In addition, Consumers currently has a power supply cost recovery mechanism
to recover the increased cost of fuel used to generate electricity from its
industrial and large commercial customers, but not from its residential or small
commercial customers. Therefore, to the extent that Consumers has not hedged its
fuel costs, it is exposed to changes in fuel prices to the extent fuel for its
electric generating facilities must be purchased on the open market in order for
Consumers to serve its residential and small commercial customers.
RISKS RELATED TO COMMON STOCK
WE CURRENTLY DO NOT PAY DIVIDENDS ON OUR COMMON STOCK.
We suspended the payments of dividends on our common stock in January 2003
and have no current plans to resume payment of a dividend. Our ability to
declare dividends in the future will depend on a variety of factors, including
improvement in our financial condition and liquidity and the terms of our
financing agreements. We cannot predict when resumption of dividends on our
common stock would occur, and if so the amount of any such dividends that might
be declared.
A RECENT ACCOUNTING STANDARD REGARDING CONTINGENTLY CONVERTIBLE SECURITIES
COULD RESULT IN PER SHARE EARNINGS DILUTION.
An accounting standards body, the Emerging Issues Task Force ("EITF"), has
recently reached a consensus concerning when the dilutive effect of contingently
convertible debt and preferred stock instruments that include contingencies
based on market conditions (e.g. stock price) should be included in diluted
earnings per share calculations. The EITF consensus reached at the September 30,
2004 meeting (the minutes of which are not yet published) indicates that such
instruments should be included in the diluted earnings per share computation (if
dilutive) regardless of whether the market price contingency features have been
met. We currently have a contingently convertible debt instrument and a
contingently convertible preferred stock instrument outstanding. Both securities
include similar contingent conversion provisions that are based on the market
price of CMS Energy common stock. Including the dilutive effect of these
instruments could reduce our diluted earnings per share for 2004 by up to $0.10
per average common share. Transition to the accounting required by this
consensus is retroactive beginning in periods ending after December 15, 2004. We
may take certain actions related to our contingently convertible securities
prior to the effective date to mitigate the earnings per share impact.
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WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK OR SECURITIES CONVERTIBLE OR
EXCHANGEABLE FOR OUR COMMON STOCK AND THEREBY MATERIALLY AND ADVERSELY AFFECT
THE PRICE OF OUR COMMON STOCK.
We are not restricted from issuing additional common stock or securities
convertible or exchangeable for our common stock. We have outstanding $150
million of senior notes convertible into common stock at $10.671 per share under
certain circumstances and 5 million shares of preferred stock convertible into
common stock at $9.893 per share under certain circumstances, in each case
subject to adjustment. If we issue additional shares of common stock or
securities convertible or exchangeable for our common stock, it may materially
and adversely affect the price of our common stock.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE.
The market price of our common stock will likely continue to fluctuate in
response to factors including the following, many of which are beyond our
control:
- fluctuations in our operating and financial results;
- changes in financial estimates and recommendations by financial analysts;
- changes in the ratings of our securities and those of Consumers;
- developments related to litigation or regulatory proceedings involving
us;
- our asset sales and financings; and
- market perception of the energy industry and of us.
In addition, the stock markets in general, including the New York Stock
Exchange, are subject to significant price and trading fluctuations. These
fluctuations have resulted in volatility in the market prices of securities that
often has been unrelated or disproportionate to changes in operating
performance. These broad market fluctuations may affect adversely the market
prices of our common stock.
USE OF PROCEEDS
We intend to use the net proceeds of this offering to make capital
infusions into Consumers. Pending such capital infusions, the proceeds will be
used for general corporate purposes, including temporary investments in short
term securities.
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange. The following
table sets forth for the periods indicated the range of high and low intraday
sales prices per share of our common stock as reported on the New York Stock
Exchange and the cash dividends declared on the common stock for the periods
indicated.
S-23
HIGH LOW DIVIDENDS
------ ------ ---------
Year Ended December 31, 2002
First Quarter............................................. $24.80 $20.97 $0.365
Second Quarter............................................ 22.50 7.75 0.365
Third Quarter............................................. 11.55 6.89 0.18
Fourth Quarter............................................ 10.48 5.45 0.18
Year Ended December 31, 2003
First Quarter............................................. 10.74 3.41 --
Second Quarter............................................ 8.95 4.58 --
Third Quarter............................................. 8.04 6.03 --
Fourth Quarter............................................ 8.67 7.40 --
Year Ending December 31, 2004
First Quarter............................................. 9.59 8.25 --
Second Quarter............................................ 9.43 7.81 --
Third Quarter............................................. 9.88 8.58 --
On October 7, 2004, the last sale price of our common stock as reported on
the New York Stock Exchange was $9.41 per share. On October 5, 2004 there were
approximately 59,136 holders of record of our common stock.
In January 2003, we suspended the payment of dividends on our common stock.
TRANSFER AGENT
Our common stock is transferable at our offices located at One Energy
Plaza, Jackson, Michigan 49201. We are the transfer agent and registrar for our
common stock.
UNDERWRITING
Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are acting as joint book-running
managers of the offering and are acting as representatives of the underwriters
named below. Subject to the terms and conditions stated in the underwriting
agreement dated October 7, 2004, each underwriter named below has agreed to
purchase, and we have agreed to sell to that underwriter, the number of shares
of the common stock set forth opposite the underwriter's name.
NUMBER OF
UNDERWRITERS SHARES
------------ -----------
Citigroup Global Markets Inc. .............................. 7,125,000
J.P. Morgan Securities Inc. ................................ 7,125,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 7,125,000
Deutsche Bank Securities Inc. .............................. 1,425,000
Goldman, Sachs & Co. ....................................... 1,425,000
Wachovia Capital Markets, LLC............................... 1,425,000
BNP Paribas Securities Corp. ............................... 570,000
Comerica Securities, Inc. .................................. 570,000
Daiwa Securities America Inc. .............................. 570,000
KeyBanc Capital Markets, a division of McDonald Investments
Inc. ..................................................... 570,000
Wells Fargo Securities, LLC................................. 570,000
Total............................................. 28,500,000
The underwriting agreement provides that the obligations of the
underwriters to purchase the common stock are subject to approval of legal
matters by counsel and to other conditions. The underwriters are
S-24
obligated to purchase and accept delivery of all shares of common stock if any
shares are purchased, other than those shares covered by the underwriters'
over-allotment option described below.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus supplement. The
underwriters may allow a discount of $0.10 per share on sales to other
broker/dealers. After the initial public offering, the public offering price and
discount to broker/dealers may be changed by the underwriters.
We estimate that our out of pocket expenses for this offering will be
approximately $325,000.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
4,275,000 shares from us to cover such sales. The underwriters may exercise that
option within 30 days of the date of this prospectus supplement. If any shares
are purchased pursuant to this option, the underwriters will severally purchase
shares in approximately the same proportions as set forth in the table above.
We, our executive officers and directors have agreed that, for a period of
60 days from the date of this prospectus supplement, we will not and they will
not, without the prior written consent of Citigroup Global Markets Inc., J.P.
Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated:
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant to sell any common stock;
- lend or otherwise dispose of or transfer any common stock;
- file a registration related to the common stock; or
- enter into any swap or other agreement or transaction that transfers, in
whole or in part, the economic consequence of ownership or common stock
whether any such swap or transaction is to be settled by delivery of
common stock, in cash or otherwise;
provided that we may issue shares of our common stock upon conversion or
settlement of any warrants outstanding, 7 3/4% Convertible Trust Preferred
Securities, 3.375% Convertible Senior Notes Due 2023 or 4.50% Cumulative
Convertible Preferred Stock in accordance with their respective terms, and under
any continuous equity program, stock purchase plan, performance incentive stock
plan, employee stock ownership plan and employee savings and incentive plan.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may
S-25
close out any short position by either exercising their over-allotment option
and/or purchasing shares in the open market.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the common stock sold originally by the syndicate
member is purchased in a stabilizing or syndicate covering transaction to
cover short positions.
These stabilizing transactions and syndicate covering transactions may have
the effect of raising or maintaining the market price of our common stock or
preventing or retarding a decline in the market price of the common stock. As a
result, the price of our common stock may be higher than the price that might
otherwise exist in the open market. These transactions, if commenced, may be
discontinued at any time.
Daiwa Securities America Inc. ("DAIWA") has entered into an agreement with
SMBC Securities, Inc. ("SMBC") pursuant to which SMBC provides certain advisory
and/or other services to Daiwa, including in respect of the offering. In return
for the provision of such services by SMBC to Daiwa, Daiwa will pay to SMBC a
mutually agreed-upon fee.
Certain of the underwriters or their affiliates have on a number of
occasions provided investment, commercial banking and financial advisory
services to us, Consumers and our affiliates, for which they have received
customary fees. The underwriters may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their business.
LEGAL OPINIONS
Robert C. Shrosbree, Assistant General Counsel for CMS Energy Corporation,
will render opinions as to the legality of the common stock for CMS Energy.
Pillsbury Winthrop LLP will pass upon certain legal matters with respect to
the offering of the common stock for the underwriters.
EXPERTS
The consolidated financial statements and schedule of CMS Energy appearing
in its Annual Report (Form 10-K/A) for the year ended December 31, 2003 have
been audited by Ernst & Young LLP, independent registered public accounting
firm, as set forth in their report thereon included therein and incorporated
herein by reference which are based in part on the report of Price Waterhouse,
independent accountants, for Jorf Lasfar and the reports of
PricewaterhouseCoopers LLP, independent registered public accounting firm, for
2003 and 2002 and Arthur Andersen LLP, independent accountants (who have ceased
operations), for 2001 for the MCV Partnership. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such reports given on the authority of such firms as experts in accounting and
auditing.
The financial statements of Emirates CMS Power Company PJSC appearing in
CMS Energy's Annual Report (Form 10-K/A) for the year ended December 31, 2003
have been audited by Ernst & Young, independent registered public accounting
firm, as set forth in their report thereon included therein
S-26
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
The financial statements of Jorf Lasfar as of December 31, 2003 and 2002
and for each of the three years in the period ended December 31, 2003
incorporated herein by reference have been so included in reliance on the report
of Price Waterhouse, independent accountants for Jorf Lasfar, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of the MCV Partnership as of and for
the years ended December 31, 2003 and 2002 incorporated herein by reference have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent registered public accounting firm, given on the authority of said
firm as experts in auditing and accounting.
The audited consolidated financial statements of the MCV Partnership for
the year ended December 31, 2001, incorporated herein by reference, have been
audited by Arthur Andersen LLP, independent accountants. Arthur Andersen LLP has
not consented to the inclusion of their report on the financial statements of
the MCV Partnership for the year ended December 31, 2001 in this prospectus, and
we have dispensed with the requirement to file their consent in reliance upon
Rule 437a under the Securities Act. Because Arthur Andersen LLP has not
consented to the incorporation by reference of their report in this prospectus,
you will not be able to recover against Arthur Andersen LLP under Section 11 of
the Securities Act for any untrue statements of a material fact contained in the
financial statements audited by Arthur Andersen LLP or any omissions to state a
material fact required to be stated therein.
S-27
CMS ENERGY CORPORATION
CMS ENERGY COMMON STOCK
SENIOR DEBENTURES
SUBORDINATED DEBENTURES
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
GUARANTEES
AND
CMS ENERGY TRUST IV
CMS ENERGY TRUST V
TRUST PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
CMS ENERGY CORPORATION
OFFERING PRICE: $2,000,000,000
---------------------
We may offer, from time to time:
- shares of CMS Energy Common Stock,
- unsecured senior or subordinated debt securities consisting of
debentures, convertible debentures, notes and other unsecured evidence of
indebtedness,
- stock purchase contracts to purchase CMS Energy Common Stock,
- stock purchase units, each representing ownership of a stock purchase
contract and unsecured senior or subordinated debt securities or trust
preferred securities or debt obligations of third parties, including U.S.
Treasury Securities, securing the holder's obligation to purchase the CMS
Energy Common Stock under the stock purchase contract, or any combination
of the above, and
- guarantees of CMS Energy with respect to Trust Preferred Securities of
CMS Energy Trusts IV and V.
For each type of security listed above, the amount, price and terms will be
determined at or prior to the time of sale.
CMS Energy Trust IV and CMS Energy Trust V, which are Delaware business
trusts, may offer trust preferred securities. The trust preferred securities
represent preferred undivided beneficial interests in the assets of CMS Energy
Trust IV and CMS Energy Trust V in amounts, at prices and on terms to be
determined at or prior to the time of sale.
We will provide the specific terms of these securities in an accompanying
prospectus supplement or supplements. You should read this prospectus and the
accompanying prospectus supplement or supplements carefully before you invest.
THESE SECURITIES INVOLVE RISK. SEE "RISK FACTORS" ON PAGE 5.
CMS Energy Common Stock is traded on the New York Stock Exchange under the
symbol "CMS." CMS Energy Common Stock sold pursuant to a prospectus supplement
or supplements accompanying this prospectus will also be listed for trading on
the New York Stock Exchange, subject to official notice of issuance.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We intend to sell these securities through underwriters, dealers, agents or
directly to a limited number of purchasers. The names of, and any securities to
be purchased by or through, these parties, the compensation of these parties and
other special terms in connection with the offering and sale of these securities
will be provided in the related prospectus supplement or supplements.
This prospectus may not be used to consummate sales of any of these
securities unless accompanied by a prospectus supplement.
The date of this prospectus is September 21, 2004.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND ANY INFORMATION
OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CMS ENERGY OR ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH THEY RELATE OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
TABLE OF CONTENTS
PAGE
----
Summary..................................................... 2
Where to Find More Information.............................. 2
CMS Energy Corporation...................................... 4
CMS Energy Trusts........................................... 4
Risk Factors................................................ 5
Use of Proceeds............................................. 6
Ratio of Earnings to Fixed Changes and Ratio of Earnings to
Combined Fixed Changes and Preference Dividends........... 6
Description of Securities................................... 6
Effect of Obligations Under the Debt Securities and the
Guarantees................................................ 23
Plan of Distribution........................................ 27
Legal Opinions.............................................. 30
Experts..................................................... 30
SUMMARY
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission utilizing a "shelf"
registration process. Under this shelf process, we may sell any combination of
securities described in this prospectus in one or more offerings, up to a total
dollar amount of $2,000,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement containing specific information about the
terms of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
below under the heading "Where To Find More Information."
WHERE TO FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC under
File No. 1-9513. Our SEC filings are also available over the Internet at the
SEC's web site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference room at 450 Fifth Street N.W., Room 1024,
Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on
2
the public reference rooms and their copy charges. You may also inspect our SEC
reports and other information at the New York Stock Exchange, 20 Broad Street,
New York, New York 10005. You can find additional information about us,
including our Annual Report on Form 10-K/A for the year ended December 31, 2003
and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and
June 30, 2004, on our Web site at http://www.cmsenergy.com. The information on
this Web site is not a part of this prospectus.
We have securities listed on the New York Stock Exchange. You can inspect
and copy reports and other information about us at the NYSE's offices at 20
Broad Street, New York, New York 10005.
We have not included separate financial statements of the Trusts. We and
the Trusts do not consider that such financial statements would be material to
holders of Trust Preferred Securities because each Trust is a newly organized
special purpose entity, has no operating history and no independent operations.
The Trusts are not currently involved in and don't anticipate being involved in
any activity other than as described under "CMS Energy Trusts." Further, we
believe that financial statements of the Trusts are not material to the holders
of the Trust Preferred Securities since we will guarantee the Trust Preferred
Securities. Holders of the Trust Preferred Securities, with respect to the
payment of distributions and amounts upon liquidation, dissolution and
winding-up, are at least in the same position vis-a-vis the assets of CMS Energy
Corporation ("CMS Energy") as a preferred stockholder of CMS Energy. We
beneficially own all of the undivided beneficial interests in the assets of the
Trusts (other than the beneficial interests represented by the Trust Preferred
Securities). See "CMS Energy Trusts," "Description of Securities -- Trust
Preferred Securities" and "Effect of Obligations Under the Debt Securities And
the Guarantees -- The Guarantees." In future filings under the Exchange Act,
there will be an audited footnote to our annual financial statements stating
that the Trusts are wholly-owned by CMS Energy, that the sole assets of the
Trusts are the Senior Debentures or the Subordinated Debentures of CMS Energy
having a specified aggregate principal amount, and, considered together, the
back-up undertakings, including the Guarantees, constitute a full and
unconditional guarantee by CMS Energy of the Trusts' obligations under the Trust
Preferred Securities issued by the Trusts.
We are "incorporating by reference" information into this registration
statement. This means that we are disclosing important information to you when
we refer you to another document that we filed separately with the SEC.
Information incorporated by reference is considered to be part of this
prospectus, unless the information is updated by information in this prospectus.
This prospectus incorporates by reference the documents listed below. We
encourage you to read these additional documents because these documents contain
important information about us and our finances.
SEC FILINGS
(FILE NO. 1-9513) PERIOD/DATE
--------------------------------------- ---------------------------------------------------------
- Annual Report on Form 10-K/A Year ended December 31, 2003
- Quarterly Reports on Form 10-Q Quarters ended March 31, 2004 and June 30, 2004
- Current Reports on Form 8-K Filed January 22, 2004, March 8, 2004, April 14, 2004,
June 3, 2004, August 20, 2004, August 31, 2004 and
September 1, 2004
The documents we have filed with the SEC after the date of this prospectus
and prior to the termination of the offering made by this prospectus are also
incorporated by reference into this prospectus. Any statement contained in such
document will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or any
other subsequently filed document modifies or supersedes such statement.
This prospectus, which is part of the offering registration statement, does
not contain all of the information found in the offering registration statement
including various exhibits and schedules. We are incorporating by reference the
offering registration statement.
We will provide, upon your oral or written request, a copy of any or all of
the information that has been incorporated by reference into the prospectus but
not delivered with the prospectus.
3
You may request copies of these filings, including the registration
statement, at no cost, by writing or telephoning CMS Energy at the following
address:
CMS Energy Corporation
Attn: Office of the Secretary
One Energy Plaza
Jackson, Michigan 49201
Telephone: (517) 788-0531
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from this information.
CMS ENERGY CORPORATION
We are an integrated energy company with a business strategy focused
primarily in Michigan. We are the parent holding company of Consumers Energy
Company ("Consumers") and CMS Enterprises Company ("Enterprises"). Consumers is
a combination electric and gas utility company serving Michigan's Lower
Peninsula. Enterprises, through various subsidiaries and equity investments, is
engaged in domestic and international diversified energy businesses including:
independent power production and natural gas transmission, storage and
processing. We manage our businesses by the nature of services each provides and
operate principally in three business segments: electric utility, gas utility,
and enterprises.
CMS ENERGY TRUSTS
CMS Energy Trust IV and CMS Energy Trust V are statutory business trusts
formed under the Delaware Business Trust Act (the "Trust Act") (each, a "Trust"
and collectively, the "Trusts") pursuant to: (i) a trust agreement executed by
CMS Energy, as sponsor, and the trustees of the Trusts (the "CMS Trustees"); and
(ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware. At the time of public issuance of Trust Preferred Securities,
each trust agreement will be amended and restated in its entirety (as so amended
and restated, the "Trust Agreement") and will be qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). CMS
Energy will directly or indirectly acquire common securities of each Trust (the
"Common Securities" and, together with the Trust Preferred Securities, the
"Trust Securities") in an aggregate liquidation amount equal to approximately 3%
for the total capital of the Trust. Each Trust exists for the exclusive purposes
of:
- issuing the Trust Preferred Securities and Common Securities representing
undivided beneficial interests in the assets of the Trust;
- investing the gross proceeds of the Trust Securities in the Senior
Debentures or Subordinated Debentures; and
- engaging in only those other activities necessary or incidental thereto.
Each Trust has a term of approximately 30 years, but may terminate
earlier as provided in the Trust Agreement.
The undivided common beneficial interests in the Trust will be owned by CMS
Energy. The proceeds from the offering of the Trust Preferred Securities and the
sale of the Common Securities may be contributed by the Trust to purchase from
CMS Energy Senior Debentures or Subordinated Debentures in an aggregate
principal amount equal to the aggregate liquidation preference of the Trust
Securities, bearing interest at an annual rate equal to the annual distribution
rate of such Trust Securities and having certain redemption terms which
correspond to the redemption terms for the Trust Securities. The Senior
Debentures will rank on an equal basis with all other unsecured debt of CMS
Energy except subordinated debt. The Subordinated Debentures will rank
subordinate in right of payment to all of CMS Energy's Senior Indebtedness (as
defined herein). Distributions on the Trust Securities may not be made unless
the Trust receives corresponding interest payments on the Senior Debentures or
the Subordinated Debentures from CMS Energy. CMS Energy will irrevocably
guarantee, on a senior or subordinated basis, as
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applicable, and to the extent set forth therein, with respect to each of the
Trust Securities, the payment of distributions, the redemption price, including
all accrued or deferred and unpaid distributions, and payment on liquidation,
but only to the extent of funds on hand. Each Guarantee will be unsecured and
will be either equal to or subordinate to, as applicable, all Senior
Indebtedness, of CMS Energy. Upon the occurrence of certain events (subject to
the conditions to be described in an accompanying prospectus supplement) the
Trust may be liquidated and the holders of the Trust Securities could receive
Senior Debentures or Subordinated Debentures in lieu of any liquidating cash
distribution.
Pursuant to the Trust Agreement, the number of CMS Trustees will initially
be three. Two of the CMS Trustees (the "Administrative Trustees") will be
persons who are employees or officers of or who are affiliated with CMS Energy.
The third trustee will be a financial institution that is unaffiliated with CMS
Energy, which trustee will serve as property trustee under the Trust Agreement
and as indenture trustee for the purposes of compliance with the provisions of
the Trust Indenture Act (the "Property Trustee"). Initially, either The Bank of
New York, a New York banking corporation, or J.P. Morgan Trust Company, N.A, a
national banking association, will be the Property Trustee until removed or
replaced by the holder of the Common Securities. For the purpose of compliance
with the provisions of the Trust Indenture Act, The Bank of New York or J.P.
Morgan Trust Company, N.A. will also act as trustee (each a "Guarantee Trustee"
and collectively the "Guarantee Trustees"). The Bank of New York (Delaware) will
act as the Delaware Trustee for the purposes of the Trust Act, until removed or
replaced by the holder of the Common Securities. See "Effect of Obligations
Under the Debt Securities And the Guarantees -- The Guarantees."
Each Property Trustee will hold title to the applicable Debt Securities for
the benefit of the holders of the Trust Securities and each Property Trustee
will have the power to exercise all rights, powers and privileges under the
applicable indentures (as defined herein) as the holder of the Debt Securities.
In addition, each Property Trustee will maintain exclusive control of a
segregated non-interest bearing bank account (the "Property Account") to hold
all payments made in respect of the Debt Securities for the benefit of the
holders of the Trust Securities. Each Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustees will hold the Guarantees for the benefit of the holders of
the Trust Securities. CMS Energy, as the direct or indirect holder of all the
Common Securities, will have the right to appoint, remove or replace any CMS
Trustee and to increase or decrease the number of CMS Trustees; provided, that
the number of CMS Trustees shall be at least three, a majority of which shall be
Administrative Trustees. CMS Energy will pay all fees and expenses related to
the Trusts and the offering of the Trust Securities.
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Trust Agreement, the Trust Act and the Trust Indenture Act.
The trustee in the State of Delaware is The Bank of New York (Delaware),
White Clay Center, Route 273, Newark, Delaware 19711.
The principal place of business of each Trust shall be c/o CMS Energy
Corporation, One Energy Plaza, Jackson, Michigan 49201.
RISK FACTORS
Before acquiring any of the securities that may be offered hereby, you
should carefully consider the risks discussed in the section of our Form 10-Q,
filed August 6, 2004, for the quarter year ended June 30, 2004, entitled
"Forward-Looking Statements and Risk Factors," which is incorporated in this
document by reference. You should also consider the risk factors listed in the
accompanying prospectus supplement or supplements and you should read this
prospectus and the accompanying prospectus supplement or supplements carefully
before you invest.
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USE OF PROCEEDS
The proceeds received by each of the Trusts from the sale of its Trust
Preferred Securities or the Common Securities will be invested in the Senior
Debentures or the Subordinated Debentures. As will be more specifically set
forth in the applicable prospectus supplement, we will use such borrowed amounts
and the net proceeds from the sale of CMS Energy Common Stock, Stock Purchase
Contracts, Stock Purchase Units and any Senior Debentures or Subordinated
Debentures offered hereby for our general corporate purposes, including capital
expenditures, investment in subsidiaries, working capital and repayment of debt.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERENCE DIVIDENDS
The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the six months ended
June 30, 2004 and each of the years ended December 31, 1999 through 2003 is as
follows:
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------
JUNE 30, 2004 2003 2002 2001 2000 1999
---------------- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges..................... --(1) --(2) --(3) --(4) --(5) 1.33
Ratio of earnings to combined
fixed charges and preference
dividends................... --(1) --(2) --(6) --(7) --(8) 1.28
---------------
(1) For the six months ended June 30, 2004, fixed charges exceeded earnings by
$47 million. Earnings as defined include $125 million of asset impairment
charges.
(2) For the year ended December 31, 2003, fixed charges exceeded earnings by $59
million. Earnings as defined include $95 million of asset impairment
charges.
(3) For the year ended December 31, 2002, fixed charges exceeded earnings by
$475 million. Earnings as defined include $602 million of asset impairment
charges.
(4) For the year ended December 31, 2001, fixed charges exceeded earnings by
$393 million. Earnings as defined include $323 million of asset impairment
charges.
(5) For the year ended December 31, 2000, fixed charges exceeded earnings by
$225 million. Earnings as defined include a $329 million pretax impairment
loss on the Loy Yang investment.
(6) For the year ended December 31, 2002, fixed charges exceeded earnings by
$472 million. Earnings as defined include $602 million of asset impairment
charges.
(7) For the year ended December 31, 2001, fixed charges exceeded earnings by
$392 million. Earnings as defined include $323 million of asset impairment
charges.
(8) For the year ended December 31, 2000, fixed charges exceeded earnings by
$224 million. Earnings as defined include a $329 million pretax impairment
loss on the Loy Yang investment.
For the purpose of computing these ratios, earnings represent sum of income
from continuing operations before income taxes, net interest charges and the
estimated interest portion of lease rentals and distributed income of equity
method investees.
DESCRIPTION OF SECURITIES
INTRODUCTION
Specific terms of the shares of Common Stock, par value $.01 per share
("CMS Energy Common Stock"), unsecured senior debt securities (the "Senior
Debentures") and unsecured subordinated debt securities (the "Subordinated
Debentures") (individually a "Debt Security" and collectively the "Debt
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Securities") consisting of debentures, convertible debentures, notes and other
unsecured evidence of indebtedness, Stock Purchase Contracts (the "Stock
Purchase Contracts") to purchase CMS Energy Common Stock, Stock Purchase Units
(the "Stock Purchase Units"), each representing ownership of a Stock Purchase
Contract and Debt Securities, or Trust Preferred Securities or debt obligations
of third parties, including U.S. Treasury Securities, securing the holder's
obligation to purchase the CMS Energy Common Stock under the Stock Purchase
Contract, or any combination of the foregoing, irrevocable guarantees
(individually a "Guarantee" and collectively "Guarantees") of CMS Energy, on a
senior or subordinated basis as applicable, and to the extent set forth therein,
with respect to each of the Trust Securities, the payment of distributions, the
redemption price, including all accrued or deferred and unpaid distributions,
and payment on liquidation, but only to the extent of fund on hand, and trust
preferred securities (the "Trust Preferred Securities") representing preferred
undivided beneficial interests in the assets of the Trust, in respect of which
this prospectus is being delivered (collectively, the "Offered Securities"),
will be set forth in an accompanying prospectus supplement or supplements,
together with the terms of the offering of the Offered Securities, the initial
price thereof and the net proceeds from the sale thereof. The prospectus
supplement will set forth with regard to the particular Offered Securities,
without limitation, the following: (i) in the case of Debt Securities, the
designation, aggregate principal amount, denomination, maturity, premium, if
any, any exchange, conversion, redemption or sinking fund provisions, interest
rate (which may be fixed or variable), the time or method of calculating
interest payments, the right of CMS Energy, if any, to defer payment or interest
on the Debt Securities and the maximum length of such deferral, put options, if
any, public offering price, ranking, any listing on a securities exchange and
other specific terms of the offering; (ii) in the case of CMS Energy Common
Stock, the designation, number of shares, public offering price and other
specific terms of the Offering, from the sale thereof; (iii) in the case of
Trust Preferred Securities, the designation, number of shares, liquidation
preference per security, initial public offering price, any listing on a
securities exchange, dividend rate (or method of calculation thereof), dates on
which dividends shall be payable and dates from which dividends shall accrue,
any voting rights, any redemption, exchange, conversion or sinking fund
provisions and any other rights, preferences, privileges, limitations or
restrictions relating to a specific series of the Trust Preferred Securities
including a description of the Guarantee (as defined herein), as the case may
be; and (iv) in the case of Stock Purchase Units, the specific terms of the
Stock Purchase Contracts and any Debt Securities, Trust Preferred Securities, or
debt obligations of third parties securing the holders obligation to purchase
CMS Energy Common Stock under the Stock Purchase Contracts, and the terms of the
offering and sale thereof.
CAPITAL STOCK
The following summary of certain rights of the holders of CMS Energy
capital stock does not purport to be complete and is qualified in its entirety
by express reference to the Restated Articles of Incorporation of CMS Energy
(the "Articles of Incorporation") and the By-Laws of CMS Energy, which are
incorporated into this prospectus by reference. See "Where You Can Find More
Information." A copy of the By-laws has been previously filed with the SEC. The
Articles of Incorporation are available on our website at
http://www.cmsenergy.com.
The authorized capital stock of CMS Energy consists of:
- 350 million shares of CMS Energy Common Stock; and
- 10 million shares of CMS Energy Preferred Stock, par value $0.01 per
share ("Preferred Stock").
As of August 31, 2004, we had 5,000,000 shares of 4.50% Cumulative
Convertible Preferred Stock and 161,819,124 shares of CMS Energy Common Stock
issued and outstanding.
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COMMON STOCK
DIVIDEND RIGHTS AND POLICY; RESTRICTIONS ON DIVIDENDS
Dividends on the common stock are paid at the discretion of the Board of
Directors based primarily upon the earnings and financial condition of CMS
Energy. Dividends are payable out of the assets of CMS Energy legally available
therefore.
In January 2003, the Board of Directors suspended the payment of CMS Energy
Common Stock dividends.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. As a holding company with no significant
operations of its own, the principal sources of its funds are dependent
primarily upon the earnings of its subsidiaries (in particular, Consumers),
borrowings and sales of equity. CMS Energy's ability to pay dividends on CMS
Energy Common Stock, is dependent primarily upon the earnings and cash flows of
its subsidiaries and the distribution or other payment of such earnings to CMS
Energy in the form of dividends, loans or advances and repayment of loans and
advances from CMS Energy. Accordingly, the ability of CMS Energy to pay
dividends on its capital stock will depend on the earnings, financial
requirements, contractual restrictions of the subsidiaries of CMS Energy (in
particular, Consumers) and other factors. CMS Energy's subsidiaries are separate
and distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts on the capital stock of CMS Energy or to make any funds
available therefor, whether by dividends, loans or other payments.
Dividends on capital stock of CMS Energy are limited by Michigan law to
legally available assets of CMS Energy. Distributions on CMS Energy Common Stock
may be subject to the rights of the holders, if any, of the Preferred Stock,
including the currently issued and outstanding 4.50% Cumulative Convertible
Preferred Stock. As long as the 4.50% Cumulative Convertible Preferred Stock is
outstanding, CMS Energy may not pay dividends on the CMS Energy Common Stock
unless certain conditions are met including, but not limited to, that dividends
on the 4.50% Cumulative Convertible Preferred Stock have been paid. See
"Preferred Stock -- Dividends".
CMS Energy is subject to the following contractual restrictions on its
ability to pay dividends:
CMS ENERGY'S SENIOR SECURED CREDIT FACILITY
Under the terms of our Fifth Amended and Restated Senior Credit Agreement
we have agreed that we will not, and will not permit certain of our
subsidiaries, directly or indirectly, to:
- declare or pay any dividend, payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any
shares of any class of CMS Energy Common Stock or the capital stock or
other ownership interests of certain subsidiaries (other than stock
splits and dividends payable solely in our non-convertible equity
securities (other than Redeemable Stock or Exchangeable Stock (as such
terms are defined in the senior debt indenture on August 3, 2004)) and
dividends and distributions made to us or certain of our subsidiaries);
or
- purchase, redeem, retire or otherwise acquire for value any such capital
stock or other ownership interests;
unless other than (i) pursuant to the terms of any class of our capital stock
issued and outstanding (and as in effect on August 3, 2004), any purchase or
redemption of our capital stock made by exchange for, or out of the proceeds of
the substantially concurrent sale of, our capital stock (other than Redeemable
Stock or Exchangeable Stock (as such terms are defined in the senior debt
indenture on August 3, 2004)) and (ii) payments made by us or certain
subsidiaries pursuant to our tax sharing agreement and (iii) after January 1,
2005 payments not to exceed certain amounts for any twelve-month period so long
as a certain amount of liquidity is held by CMS Energy.
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SENIOR DEBT INDENTURE
Under the terms of the senior debt indenture we have the following issued
and outstanding securities: 7 5/8% Senior Unsecured Notes Due 2004,
X-TRAS(SM)Pass-Through Trust I Certificates Due 2005, 9.875% Senior Notes Due
2007, 7.5% Senior Notes Due 2009, 8.9% Senior Notes Due 2008, 8.5% Senior Notes
Due 2011, 3.375% Convertible Senior Notes Due 2023 and 7.75% Senior Notes Due
2010. So long as any of such notes issued thereunder are outstanding and until
those notes are rated BBB -- or above (or an equivalent rating) by S&P and one
other rating agency, at which time we will be permanently released from the
provisions of this limitation, we have agreed that we will not, and will not
permit any of our restricted subsidiaries, directly or indirectly, to:
- declare or pay any dividend or make any distribution on our capital stock
to the direct or indirect holders of our capital stock (except dividends
or distributions payable solely in our non-convertible capital stock (as
defined in the senior debt indenture) or in options, warrants or other
rights to purchase such non-convertible capital stock and except
dividends or other distributions payable to us or one of our
subsidiaries);
- purchase, redeem or otherwise acquire or retire for value any of our
capital stock; or
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to the schedule maturity or scheduled repayment thereof, any
of our subordinated indebtedness (each, for purposes of the senior debt
indenture, a "restricted payment"),
if at the time of any restricted payment described above (1) an event of default
under the senior debt indenture (or event that with the lapse of time or giving
of notice would constitute an event of default) has occurred and is continuing,
or would occur as a result of the restricted payment, or (2) after giving effect
to any restricted payment described above, the aggregate amount of all
restricted payments made since May 6, 1997 would exceed the sum of:
- $100 million;
- 100% of our consolidated net income from May 6, 1997 to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of
the restricted payment (or, in the case of a deficit, minus 100% of the
deficit); and
- the aggregate net proceeds we have received for any issuance or sale of,
or contribution with respect to, our capital stock subsequent to May 6,
1997.
GENERAL TERM NOTE INDENTURE
Similarly, the indenture, dated as of January 15, 1994, as amended and
supplemented, between us and JPMorgan Chase Bank, as trustee, pursuant to which
we have issued our General Term Notes, Series D, Series E and Series F, provides
that so long as any general term notes issued thereunder are outstanding and
until the notes are rated BBB -- or above (or an equivalent rating) by S&P and
one other rating agency, at which time we will be permanently released from the
provisions of this limitation, we have agreed that we will not, and will not
permit any of our restricted subsidiaries, directly or indirectly, to:
- declare or pay any dividend or make any distribution on our capital stock
to the direct or indirect holders of our capital stock (except dividends
or distributions payable solely in our non-convertible capital stock (as
defined in such indenture) or in options, warrants or other rights to
purchase such non-convertible capital stock and except dividends or other
distributions payable to us or one of our subsidiaries); or
- purchase, redeem or otherwise acquire or retire for value any of our
capital stock (each, a "restricted payment");
if at the time of any restricted payment described above (1) an event of default
under such indenture (or event that with the lapse of time or giving of notice
would constitute an event of default) has occurred and is continuing, or would
occur as a result of the restricted payment, or (2) after giving effect to any
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restricted payment described above, the aggregate amount of all restricted
payments made since September 30, 1993 would exceed the sum of:
- $120 million;
- 100% of our consolidated net income from September 30, 1993 to the end of
the most recent fiscal quarter ending at least 45 days prior to the date
of the restricted payment (or, in the case of a deficit, minus 100% of
the deficit); and
- the aggregate net proceeds we have received for any issuance or sale of,
or contribution with respect to, our capital stock subsequent to
September 30, 1993.
The provisions described above do not prohibit (1) dividends or other
distributions in respect of capital stock issued in connection with the
acquisition of any business or assets by us where the payment of such dividends
or distributions are payable solely from the net earnings of such business or
assets, (2) any purchase or redemption of capital stock made by exchange for, or
out of the proceeds of the substantially concurrent sale of, our capital stock
(other than certain redeemable stock or exchangeable stock), (3) dividends paid
within 60 days after the date of declaration thereof if at the date of
declaration such dividends would have complied with the limitations described
above or (4) payments pursuant to the tax sharing agreement among us and our
subsidiaries.
TRUST PREFERRED SECURITIES
In June 1997, a CMS Energy affiliated trust issued $172.5 million of 7 3/4%
Convertible Quarterly Income Preferred Securities. The preferred securities are
convertible at the option of the holder into shares of CMS Energy Common Stock
at an initial conversion rate of 1.2255 shares of CMS Energy Common Stock for
each preferred security (equivalent to a purchase price of $40.80 per share of
CMS Energy Common Stock), subject to certain adjustments. We may, at our option,
cause the conversion rights of the holders of the preferred securities to expire
upon certain conditions.
Under the terms of the indenture, dated June 1, 1997, between us and The
Bank of New York, as trustee, as amended and supplemented, and the guarantee
agreement dated June 20, 1997 between us and The Bank of New York relating to
the preferred securities of CMS Energy Trust I pursuant to which the preferred
securities and the related 7 3/4% Convertible Subordinated Debentures due 2027
were issued, we have agreed that we will not, and will not cause any of our
subsidiaries to, declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of our
capital stock, if at such time:
- an event has occurred, of which we have actual knowledge, that with the
giving of notice or the lapse of time, or both, would constitute an event
of default and in respect of which we have not taken reasonable steps to
cure;
- we are in default with respect to the payment of any obligations under
the relevant guarantee agreement; or
- we have given notice of our selection of an extension period as provided
in such indenture with respect to the subordinated debentures and have
not rescinded such notice, or such extension period (or any extension
thereof) is continuing.
DIVIDEND RESTRICTIONS UNDER MICHIGAN LAW
Michigan law prohibits payment of a dividend or a repurchase of capital
stock if, after giving it effect, a corporation would not be able to pay its
debts as they become due in the usual course of business, or its total assets
would be less than the sum of its total liabilities plus, unless the Articles of
Incorporation provide otherwise, the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution (including the rights of
holders of preferred stock, if any).
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VOTING RIGHTS
Each holder of CMS Energy Common Stock is entitled to one vote for each
share of CMS Energy Common Stock held by such holder on each matter voted upon
by the shareholders. Such right to vote is not cumulative. A majority of the
votes cast by the holders of shares entitled to vote thereon is sufficient for
the adoption of any question presented, except that certain provisions of the
Articles of Incorporation relating to special shareholder meetings, the removal,
indemnification and liability of the Board of Directors and the requirements for
amending these provisions may not be amended, altered, changed or repealed
unless such amendment, alteration, change or repeal is approved by the
affirmative vote of at least 75% of the outstanding shares entitled to vote
thereon.
Under Michigan law, the approval of the holders of a majority of the
outstanding shares of CMS Energy Common Stock would be necessary for
authorizing, effecting or validating the merger or consolidation of CMS Energy
into or with any other corporation if such merger or consolidation would
adversely affect the powers or special rights of such CMS Energy Common Stock,
and to authorize any amendment to the Articles of Incorporation that would
increase or decrease the aggregate number of authorized shares of CMS Energy
Common Stock or alter or change the powers, preferences or special rights of the
shares of CMS Energy Common Stock so as to affect them adversely. The Articles
of Incorporation also provide that unless the vote or consent of a greater
number of shares shall then be required by law, the vote or consent of the
holders of a majority of the shares of CMS Energy Common Stock then outstanding
will be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other entity if such merger or
consolidation would adversely affect the powers or special rights of the CMS
Energy Common Stock, either directly by amendment to the Articles of
Incorporation or indirectly by requiring the holders of the CMS Energy Common
Stock to accept or retain, in such merger or consolidation, anything other than
(i) shares of such class or (ii) shares of the surviving or resulting
corporation, having, in either case, powers and special rights identical to
those of such commons stock prior to such merger or consolidation. The effect of
these provisions may be to permit the holders of a majority of the outstanding
shares of CMS Energy Common Stock to block any such merger or amendment which
would adversely affect the powers or special rights of holders of such shares of
CMS Energy Common Stock.
PREEMPTIVE RIGHTS
The Articles of Incorporation provide that holders of CMS Energy Common
Stock will have no preemptive rights to subscribe for or purchase any additional
shares of the capital stock of CMS Energy of any class now or hereafter
authorized, or Preferred Stock, bonds, debentures, or other obligations or
rights or options convertible into or exchangeable for or entitling the holder
or owner to subscribe for or purchase any shares of capital stock, or any rights
to exchange shares issued for shares to be issued.
LIQUIDATION RIGHTS
In the event of the dissolution, liquidation or winding up of CMS Energy,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of CMS Energy and after there shall have been paid
or set apart for the holders of Preferred Stock the full preferential amounts
(including any accumulated and unpaid dividends) to which they are entitled, the
holders of CMS Energy Common Stock will be entitled to receive, on a per share
basis, the assets of CMS Energy remaining for distribution to the holders of CMS
Energy Common Stock. Neither the merger or consolidation of CMS Energy into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with CMS Energy nor any sale, transfer or lease of all or
any part of the assets of CMS Energy, shall be deemed to be a dissolution,
liquidation or winding up for the purposes of this provision.
Because CMS Energy has subsidiaries which have debt obligations and other
liabilities of their own, CMS Energy's rights and the rights of its creditors
and its stockholders to participate in the distribution of assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
prior claims of
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the subsidiary's creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary.
SUBDIVISION OR COMBINATION
If CMS Energy subdivides (by stock split, stock dividend or otherwise) or
combines (by reverse stock split or otherwise), the voting and liquidation
rights of shares of CMS Energy Common Stock will be appropriately adjusted so as
to avoid any dilution in aggregate voting or liquidation rights.
EXCHANGES
The Articles of Incorporation do not provide for either the mandatory or
optional exchange or redemption of CMS Energy Common Stock.
TRANSFER AGENT AND REGISTRAR
CMS Energy Common Stock is transferable at Consumers Energy Company, One
Energy Plaza, Jackson, Michigan 49201. CMS Energy is the registrar and transfer
agent for CMS Energy Common Stock.
PREFERRED STOCK
The authorized Preferred Stock may be issued without the approval of the
holders of CMS Energy Common Stock in one or more series, from time to time,
with each such series to have such designation, powers, preferences and
relative, participating, optional or other special rights, voting rights, if
any, and qualifications, limitations or restrictions thereof, as shall be stated
in a resolution providing for the issue of any such series adopted by CMS
Energy's Board of Directors. The Articles of Incorporation provide that holders
of Preferred Stock will not have any preemptive rights to subscribe for or
purchase any additional shares of the capital stock of CMS Energy of any class
now or hereafter authorized, or any Preferred Stock, bonds, debentures or other
obligations or rights or options convertible into or exchangeable for or
entitling the holder or owner to subscribe for or purchase any shares of capital
stock. The future issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of CMS Energy.
4.50% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Articles of Incorporation establish one series of preferred stock
designated as "4.50% Cumulative Convertible Preferred Stock" consisting of
5,000,000 shares with a liquidation preference of $50.00 per share (the
"Cumulative Convertible Preferred Stock"). The Cumulative Convertible Preferred
Stock ranks prior to any series of our CMS Energy Common Stock as to the payment
of dividends and distribution of assets upon dissolution, liquidation or winding
up of CMS Energy, and is convertible into shares of CMS Energy Common Stock. The
holders of the Cumulative Convertible Preferred Stock have no preemptive rights.
DIVIDENDS
Holders of shares of Cumulative Convertible Preferred Stock will be
entitled to receive, when, as and if declared by our board of directors out of
funds legally available for payment, cumulative cash dividends at the rate per
annum of 4.50% per share on the liquidation preference thereof of $50.00 per
share (equivalent to $2.25 per annum per share). Dividends on the Cumulative
Convertible Preferred Stock will be payable quarterly on March 1, June 1,
September 1 and December 1 of each year at such annual rate, and shall
accumulate from the most recent date as to which dividends shall have been paid
or, if no dividends have been paid, from the issue date of the Cumulative
Convertible Preferred Stock, whether or not in any dividend period or periods
there have been funds legally available for the payment of such dividends.
Accumulated unpaid dividends accrue and cumulate dividends at the annual rate of
4.50%.
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As long as any Cumulative Convertible Preferred Stock is outstanding, we
may not pay dividends or distributions on, or purchase, redeem or otherwise
acquire, subject to certain exceptions, shares of the CMS Energy Common Stock
unless all accumulated and unpaid dividends on the Cumulative Convertible
Preferred Stock have been paid or set aside for payment.
LIQUIDATION PREFERENCE
In the event of our voluntary or involuntary liquidation, winding-up or
dissolution, holders of Cumulative Convertible Preferred Stock will be entitled
to receive and to be paid out of our assets available for distribution to our
stockholders, before any payment or distribution is made to holders of junior
stock (including CMS Energy Common Stock), a liquidation preference in the
amount of $50.00 per share of Cumulative Convertible Preferred Stock, plus
accumulated and unpaid dividends on the shares to the date fixed for
liquidation, winding-up or dissolution. If, upon our voluntary or involuntary
liquidation, winding-up or dissolution, the amounts payable with respect to the
liquidation preference of the Cumulative Convertible Preferred Stock and all
parity stock are not paid in full, the holders of the Cumulative Convertible
Preferred Stock and the parity stock will share equally and ratably in any
distribution of our assets in proportion to the full liquidation preference and
accumulated and unpaid dividends to which they are entitled.
VOTING RIGHTS
Except as required by Michigan law and our Articles of Incorporation, the
holders of Cumulative Convertible Preferred Stock have no voting rights unless
dividends payable on the Cumulative Convertible Preferred Stock are in arrears
for six or more quarterly periods (whether or not consecutive). In that event,
the holders of the Cumulative Convertible Preferred Stock, voting as a single
class with the shares of any other preferred stock or preference securities
having similar voting rights that are exercisable, will be entitled at the next
regular or special meeting of our stockholders to elect two additional directors
(or one director if fewer than six directors comprise our board prior to
appointment) and the number of directors that comprise our board will be
increased by the number of directors so elected. These voting rights and the
terms of the directors so elected will continue until such time as the dividend
arrearage on the Cumulative Convertible Preferred Stock has been paid in full.
REDEMPTION
We cannot redeem shares of the Cumulative Convertible Preferred Stock.
MANDATORY CONVERSION
On or after December 5, 2008, we may, at our option, cause the Cumulative
Convertible Preferred Stock to be automatically converted into that number of
shares of CMS Energy Common Stock for each share of Cumulative Convertible
Preferred Stock equal to $50.00 (the liquidation preference) divided by the
applicable conversion rate. We may exercise our conversion right only if, for 20
trading days within any period of 30 consecutive trading days (including the
last trading day of such 30-day period), the closing price of the CMS Energy
Common Stock exceeds 130% of the then prevailing conversion price of the
Cumulative Convertible Preferred Stock.
CONVERSION RIGHTS
A holder of record of Cumulative Convertible Preferred Stock may convert
its shares of Cumulative Convertible Preferred Stock at any time into shares of
CMS Energy Common Stock under any of the following circumstances:
- during any calendar quarter (and only during such calendar quarter) if
the last reported sale price of CMS Energy 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 CMS Energy Common
Stock on such last trading day;
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- upon the occurrence of specified corporate transactions; and
- subject to certain exceptions, during the five business day period
immediately following any ten consecutive trading-day period in which the
trading price per share of Cumulative Convertible Preferred Stock for
each day of that period was less than 95% of the product of the closing
sale price of CMS Energy Common Stock and the applicable conversion rate
of such share of Cumulative Convertible Preferred Stock; provided,
however, a holder may not convert its shares of Cumulative Convertible
Preferred Stock if the average closing sale price of CMS Energy Common
Stock for such ten consecutive trading-day period was between the then
current conversion price on the Cumulative Convertible Preferred Stock
and 120% of the then applicable conversion price on the Cumulative
Convertible Preferred Stock.
For each share of Cumulative Convertible Preferred Stock surrendered for
conversion, holders will receive 5.0541 shares of CMS Energy Common Stock. This
represents an initial conversion price of $9.893 per share of CMS Energy Common
Stock. The conversion rate may be adjusted for certain reasons, but it will not
be adjusted for accumulated and unpaid dividends on the Preferred Stock.
PRIMARY SOURCE OF FUNDS OF CMS ENERGY; RESTRICTIONS ON SOURCES OF DIVIDENDS
The ability of CMS Energy to pay (i) dividends on its capital stock and
(ii) its indebtedness, including the Debt Securities, depends and will depend
substantially upon timely receipt of sufficient dividends or other distributions
from its subsidiaries, in particular Consumers and Enterprises. Each of
Consumers' and Enterprises' ability to pay dividends on its common stock depends
upon its revenues, earnings and other factors. Consumers' revenues and earnings
will depend substantially upon rates authorized by the MPSC.
Consumers' Restated Articles of Incorporation ("Articles") provide two
restrictions on its payment of dividends on its common stock. First, prior to
the payment of any common stock dividend, Consumers must reserve retained
earnings after giving effect to such dividend payment of at least (i) $7.50 per
share on all then outstanding shares of its preferred stock, (ii) in respect to
its Class A Preferred Stock, 7.5% of the aggregate amount established by its
Board of Directors to be payable on the shares of each series thereof in the
event of involuntary liquidation of Consumers and (iii) $7.50 per share on all
then outstanding shares of all other stock over which its preferred stock and
Class A Preferred Stock do not have preference as to the payment of dividends
and as to assets. Second, dividend payments during the 12 month period ending
with the month the proposed payment is to be paid are limited to: (i) 50% of net
income available for the payment of dividends during the base period, if the
ratio of common stock and surplus to total capitalization and surplus for 12
consecutive calendar months within the 14 calendar months immediately preceding
the proposed dividend payment (the "base period"), adjusted to reflect the
proposed dividend, is less than 20%; and (ii) 75% of net income available for
the payment of dividends during the base period if the ratio of common stock and
surplus to total capitalization and surplus for the base period, adjusted to
reflect the proposed dividend, is at least 20% but less than 25%.
In addition, Consumers' indenture dated as of January 1, 1996, between
Consumers and The Bank of New York, as trustee (the "Preferred Securities
Indenture"), and certain preferred securities guarantees by Consumers dated
January 23, 1996, September 11, 1997 and October 25, 1999 (collectively, the
"Consumers Preferred Securities Guarantees"), in connection with which the 8.36%
Trust Originated Preferred Securities of Consumers Power Company Financing I,
the 8.20% Trust Originated Preferred Securities of Consumers Energy Company
Financing II, the 9 1/4% Trust Originated Preferred Securities of Consumers
Energy Company Financing III and the 9.00% Trust Preferred Securities of
Consumers Energy Company Financing IV (collectively, the "Consumers Trust
Preferred Securities") were issued, provide that Consumers shall not declare or
pay any dividend on, make any distributions with respect to, or redeem, purchase
or make a liquidation payment with respect to, any of its capital stock if (i)
there shall have occurred any event that would constitute an event of default
under the Preferred Securities Indenture or the trust agreements pursuant to
which the Consumers Trust Preferred Securities were issued, (ii) a default has
occurred with respect to its payment of any obligations under the Consumers
Preferred
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Securities Guarantees or certain Consumers common stock guarantees or (iii) it
gives notice of its election to extend the interest payment period on the
subordinated notes issued under the Preferred Securities Indenture, at any time
for up to 20 consecutive quarters, provided, however, Consumers may declare and
pay stock dividends where the dividend stock is the same stock as that on which
the dividend is being paid.
Consumers' ability to pay dividends is also restricted by several existing
loan agreements. The loan agreements are:
- The Amended and Restated Credit Agreement dated as of August 3, 2004
among Consumers, Bank One, N.A., as agent, and the financial institutions
named therein; and
- Term Loan Agreement dated as of November 7, 2003 among Consumers, Bank
One, N.A., as agent, and the financial institutions named therein.
Pursuant to these loan agreements, so long as there exists no event of
default under these agreements, Consumers may pay dividends in an aggregate
amount not to exceed $300 million during any calendar year.
On June 2, 2003, the MPSC issued a financing order authorizing the issuance
of $554 million of securitization bonds. The order would prohibit Consumers from
paying any extraordinary dividends to us until further order of the MPSC.
Pursuant to the order, extraordinary dividends are considered any amount over
and above Consumers' earnings. The order also directed that the securitization
charges be designed such that retail open access customers would pay a
significantly smaller charge than would full service customers. On July 1, 2003,
Consumers filed a petition for rehearing and clarification of certain portions
of the order with the MPSC, including the portion dealing with the design of the
securitization charges. In December 2003, the MPSC issued its order on rehearing
which rejected our requests for rehearing and clarification and remanded the
proceeding to the administrative law judge for additional proceedings.
In December 2003, the MPSC issued an order granting interim gas rate relief
in the amount of $19.34 million annually. In connection with this rate relief,
Consumers agreed to limit its dividends to CMS Energy to a maximum of $190
million annually during the period in which Consumers receives the interim
relief. The MPSC stated in its order that it was not determining at that time
whether dividend restrictions should continue after the issuance of a final
order.
Consumers' Articles also prohibit the payment of cash dividends on its
common stock if Consumers is in arrears on preferred stock dividend payments.
In addition, Michigan law prohibits payment of a dividend if, after giving
it effect, Consumers or Enterprises would not be able to pay its debts as they
become due in the usual course of business, or its total assets would be less
than the sum of its total liabilities plus, unless the Articles permit
otherwise, the amount that would be needed, if Consumers or Enterprises were to
be dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. Currently, it is Consumers' policy to pay annual
dividends equal to 80% of its annual consolidated net income. Consumers' Board
of Directors reserves the right to change this policy at any time.
DEBT SECURITIES
The Debt Securities offered by this prospectus will be unsecured
obligations of CMS Energy and will be either senior or subordinated debt. Senior
Debentures will be issued under a senior debt indenture and Subordinated
Debentures will be issued under a subordinated debt indenture. The senior debt
indenture and the subordinated debt indenture are sometimes referred to in this
prospectus individually as an "indenture" and collectively as the "indentures."
The following briefly summarizes the material provisions of the indentures
and the Debt Securities. You should read the more detailed provisions of the
applicable indenture, including the defined terms, for provisions that may be
important to you. You should also read the particular terms of a series of Debt
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Securities, which will be described in more detail in the applicable prospectus
supplement. Copies of the indentures may be obtained from CMS Energy or the
applicable trustee.
Unless otherwise provided in the applicable prospectus supplement, the
trustee under the senior debt indenture will be J.P. Morgan Trust Company, N.A
and the trustee under the subordinated debt indenture will be The Bank of New
York.
GENERAL
The indentures provide that Debt Securities of CMS Energy may be issued in
one or more series, with different terms, in each case as authorized from time
to time by CMS Energy.
Federal income tax consequences and other special considerations applicable
to any Debt Securities issued by CMS Energy at a discount will be described in
the applicable prospectus supplement.
Because CMS Energy is a holding company, the claims of creditors of CMS
Energy's subsidiaries will have a priority over CMS Energy's equity rights and
the rights of CMS Energy's creditors, including the holders of Debt Securities,
to participate in the assets of the subsidiary upon the subsidiary's
liquidation.
The applicable prospectus supplement relating to any series of Debt
Securities will describe the following terms, where applicable:
- the title of the Debt Securities;
- whether the Debt Securities will be senior or subordinated debt;
- the total principal amount of the Debt Securities;
- the percentage of the principal amount at which the Debt Securities will
be sold and, if applicable, the method of determining the price;
- the maturity date or dates;
- the interest rate or the method of computing the interest rate;
- the date or dates from which any interest will accrue, or how such date
or dates will be determined, and the interest payment date or dates and
any related record dates;
- the location where payments on the Debt Securities will be made;
- the terms and conditions on which the Debt Securities may be redeemed at
the option of CMS Energy;
- any obligation of CMS Energy to redeem, purchase or repay the Debt
Securities at the option of a holder upon the happening of any event and
the terms and conditions of redemption, purchase or repayment;
- any provisions for the discharge of CMS Energy's obligations relating to
the Debt Securities by deposit of funds or United States government
obligations;
- whether the Debt Securities are to trade in book-entry form and the terms
and any conditions for exchanging the global security in whole or in part
for paper certificates;
- any material provisions of the applicable indenture described in this
prospectus that do not apply to the Debt Securities;
- any additional amounts with respect to the Debt Securities that CMS
Energy will pay to a non-United States person because of any tax,
assessment or governmental charge withheld or deducted and, if so, any
option of CMS Energy to redeem the Debt Securities rather than paying
these additional amounts; and
- any other specific terms of the Debt Securities.
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CONCERNING THE TRUSTEES
Each of J.P. Morgan Trust Company, N.A, the trustee under the senior debt
indenture, and The Bank of New York, the trustee under the subordinated debt
indenture, is one of a number of banks with which CMS Energy and its
subsidiaries maintain ordinary banking relationships, including credit
facilities.
EXCHANGE AND TRANSFER
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for registration of transfer at the offices and
subject to the restrictions set forth therein and in the applicable prospectus
supplement without service charge, but upon payment of any taxes or other
governmental charges due in connection therewith, subject to any limitations
contained in the applicable indenture. Debt Securities in bearer form and the
coupons appertaining thereto, if any, will be transferable by delivery.
PAYMENT
Distributions on the Debt Securities in registered form will be made at the
office or agency of the applicable trustee in the Borough of Manhattan, the City
of New York or its other designated office. However, at the option of CMS
Energy, payment of any interest may be made by check or by wire transfer.
Payment of any interest due on Debt Securities in registered form will be made
to the persons in whose name the Debt Securities are registered at the close of
business on the record date for such interest payments. Payments made in any
other manner will be specified in the prospectus supplement.
EVENTS OF DEFAULT
Each indenture provides that events of default regarding any series of Debt
Securities will be:
- failure to pay required interest on any Debt Security of such series for
30 days;
- failure to pay principal other than a scheduled installment payment or
premium, if any, on any Debt Security of such series when due;
- failure to make any required scheduled installment payment for 30 days on
Debt Securities of such series;
- failure to perform for 90 days after notice any other covenant in the
relevant indenture other than a covenant included in the relevant
indenture solely for the benefit of a series of Debt Securities other
than such series;
- certain events of bankruptcy or insolvency, whether voluntary or not; or
- entry of final judgments against CMS Energy or Consumers for more than
$25,000,000 which remain undischarged or unbonded for 60 days or a
default resulting in the acceleration of indebtedness of CMS Energy or
Consumers of more than $25,000,000, and the acceleration has not been
rescinded or annulled within 10 days after written notice of such default
as provided in the applicable indenture.
Additional events of default may be prescribed for the benefit of the
holders of a particular series of Debt Securities and will be described in the
prospectus supplement relating to those Debt Securities.
If an event of default regarding Debt Securities of any series issued under
the indentures should occur and be continuing, either the trustee or the holders
of 25% in the principal amount of outstanding Debt Securities of such series may
declare each Debt Security of that series due and payable.
Holders of a majority in principal amount of the outstanding Debt
Securities of any series will be entitled to control certain actions of the
trustee under the indentures and to waive past defaults regarding such series.
The trustee generally will not be requested, ordered or directed by any of the
holders of Debt Securities, unless one or more of such holders shall have
offered to the trustee reasonable security or indemnity.
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Before any holder of any series of Debt Securities may institute action for
any remedy, except payment on such holder's Debt Security when due, the holders
of not less than 25% in principal amount of the Debt Securities of that series
outstanding must request the trustee to take action. Holders must also offer and
give the satisfactory security and indemnity against liabilities incurred by the
trustee for taking such action.
CMS Energy is required to annually furnish the relevant trustee a statement
as to CMS Energy's compliance with all conditions and covenants under the
applicable indenture. Each indenture provides that the relevant trustee may
withhold notice to the holders of the Debt Securities of any series of any
default affecting such series, except payment on holders' Debt Securities when
due, if it considers withholding notice to be in the interests of the holders of
the Debt Securities of such series.
CONSOLIDATION, MERGER OR SALE OF ASSETS
Each indenture provides that CMS Energy may consolidate with or merge into,
or sell, lease or convey its property as an entirety or substantially as an
entirety to, any other corporation if the new corporation assumes the
obligations of CMS Energy under the Debt Securities and the indentures and is
organized and existing under the laws of the United States of America, any U.S.
state or the District of Columbia.
MODIFICATION OF THE INDENTURE
Each indenture permits CMS Energy and the relevant trustee to enter into
supplemental indentures without the consent of the holders of the Debt
Securities to establish the form and terms of any series of securities under the
indentures.
Each indenture also permits CMS Energy and the relevant trustee, with the
consent of the holders of at least a majority in total principal amount of the
Debt Securities of all series then outstanding and affected (voting as one
class), to change in any manner the provisions of the applicable indenture or
modify in any manner the rights of the holders of the Debt Securities of each
such affected series. CMS Energy and the relevant trustee may not, without the
consent of the holder of each Debt Security affected, enter into any
supplemental indenture to:
- change the time of payment of the principal;
- reduce the principal amount of such Debt Security;
- reduce the rate or change the time of payment of interest on such Debt
Security;
- reduce the amount payable on any securities issued originally at a
discount upon acceleration or provable in bankruptcy; or
- impair the right to institute suit for the enforcement of any payment on
any Debt Security when due.
In addition, no such modification may reduce the percentage in principal
amount of the Debt Securities of the affected series, the consent of whose
holders is required for any such modification or for any waiver provided for in
the applicable indenture.
Prior to the acceleration of the maturity of any Debt Security, the
holders, voting as one class, of a majority in total principal amount of the
Debt Securities with respect to which a default or event of default shall have
occurred and be continuing may on behalf of the holders of all such affected
Debt Securities waive any past default or event of default and its consequences,
except a default or an event of default in respect of a covenant or provision of
the applicable indenture or of any Debt Security which cannot be modified or
amended without the consent of the holder of each Debt Security affected.
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DEFEASANCE, COVENANT DEFEASANCE AND DISCHARGE
Each indenture provides that, at the option of CMS Energy:
- CMS Energy will be discharged from all obligations in respect of the Debt
Securities of a particular series then outstanding (except for certain
obligations to register the transfer of or exchange the Debt Securities
of such series, to replace stolen, lost or mutilated Debt Securities of
such series, to maintain paying agencies and to maintain the trust
described below); or
- CMS Energy need not comply with certain restrictive covenants of the
relevant indenture (including those described under "Consolidation,
Merger or Sale of Assets").
If CMS Energy in each case irrevocably deposits in trust with the relevant
trustee money, and/or securities backed by the full faith and credit of the
United States which, through the payment of the principal thereof and the
interest thereon in accordance with their terms, will provide money in an amount
sufficient to pay all the principal and interest on the Debt Securities of such
series on the stated maturities of such Debt Securities in accordance with the
terms thereof.
To exercise this option, CMS Energy is required to deliver to the relevant
trustee an opinion of independent counsel to the effect that:
- the exercise of such option would not cause the holders of the Debt
Securities of such series to recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance, and
such holders will be subject to United States federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred; and
- in the case of a discharge as described above, such opinion is to be
accompanied by a private letter ruling to the same effect received from
the Internal Revenue Service, a revenue ruling to such effect pertaining
to a comparable form of transaction published by the Internal Revenue
Service or appropriate evidence that since the date of the applicable
indenture there has been a change in the applicable federal income tax
law.
In the event:
- CMS Energy exercises its option to effect a covenant defeasance with
respect to the Debt Securities of any series as described above,
- the Debt Securities of such series are thereafter declared due and
payable because of the occurrence of any event of default other than an
event of default caused by failing to comply with the covenants which are
defeased,
- the amount of money and securities on deposit with the relevant trustee
would be insufficient to pay amounts due on the Debt Securities of such
series at the time of the acceleration resulting from such event of
default,
CMS Energy would remain liable for such amounts.
GOVERNING LAW
Each indenture and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of Michigan unless the laws of another
jurisdiction shall mandatorily apply.
SENIOR DEBENTURES
The Senior Debentures will be issued under the senior debt indenture and
will rank on an equal basis with all other unsecured debt of CMS Energy except
subordinated debt.
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SUBORDINATED DEBENTURES
The Subordinated Debentures will be issued under the subordinated debt
indenture and will rank subordinated and junior in right of payment, to the
extent set forth in the subordinated debt indenture, to all "Senior
Indebtedness" (as defined below) of CMS Energy.
If CMS Energy defaults in the payment of any distributions on any Senior
Indebtedness when it becomes due and payable after any applicable grace period,
then, unless and until the default is cured or waived or ceases to exist, CMS
Energy cannot make a payment on account of or redeem or otherwise acquire the
Subordinated Debentures. The subordinated debt indenture provisions described in
this paragraph, however, do not prevent CMS Energy from making sinking fund
payments in Subordinated Debentures acquired prior to the maturity of Senior
Indebtedness or, in the case of default, prior to such default and notice
thereof. If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to CMS Energy, its creditors or its property, then all
Senior Indebtedness must be paid in full before any payment may be made to any
holders of Subordinated Debentures. Holders of Subordinated Debentures must
return and deliver any payments received by them, other than in a plan of
reorganization or through a defeasance trust as described above, directly to the
holders of Senior Indebtedness until all Senior Indebtedness is paid in full.
"Senior Indebtedness" means distributions on the following, whether
outstanding on the date of execution of the subordinated debt indenture or
thereafter incurred, created or assumed:
- indebtedness of CMS Energy for money borrowed by CMS Energy or evidenced
by debentures (other than the Subordinated Debentures), notes, bankers'
acceptances or other corporate debt securities or similar instruments
issued by CMS Energy;
- obligations of CMS Energy with respect to letters of credit;
- all indebtedness of others of the type referred to in the two preceding
clauses assumed by or guaranteed in any manner by CMS Energy or in effect
guaranteed by CMS Energy; or
- renewals, extensions or refundings of any of the indebtedness referred to
in the preceding three clauses unless, in the case of any particular
indebtedness, renewal, extension or refunding, under the express
provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the subordinated debt
securities.
The subordinated debt indenture does not limit the total amount of Senior
Indebtedness that may be issued.
CERTAIN COVENANTS
If Debt Securities are issued to a Trust or a trustee of such Trust in
connection with the issuance of Trust Preferred Securities by such Trust, CMS
Energy will covenant that it will not, and it will not cause any of its
subsidiaries to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
CMS Energy's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of CMS Energy that
rank pari passu (in the case of Subordinated Debentures) with or junior (in the
case of Senior and Subordinated Debentures) to that Debt Security (other than
(a) any dividend, redemption, liquidation, interest, principal or guarantee
payment by CMS Energy where the payment is made by way of securities (including
capital stock) that rank pari passu with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is being
made, (b) payments under the Guarantees, (c) purchases of CMS Energy Common
Stock related to the issuance of CMS Energy Common Stock under any of CMS
Energy's benefit plans for its directors, officers or employees, (d) as a result
of a reclassification of CMS Energy's capital stock or the exchange or
conversion of one series or class of CMS
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Energy's capital stock for another series or class of CMS Energy's capital stock
and (e) the purchase of fractional interests in shares of CMS Energy's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged) if at such time (i) there shall have
occurred any event of which CMS Energy has actual knowledge that (a) with the
giving of notice or the lapse of time, or both, would constitute an event of
default under the indentures and (b) in respect of which CMS Energy shall not
have taken reasonable steps to cure, (ii) CMS Energy shall be in default with
respect to its payment of any obligations under the Guarantees or (iii) CMS
Energy shall have given notice of its selection of an Extension Period as
provided in the indentures with respect to the Debt Securities and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing. CMS Energy will also covenant (i) for so long as Trust
Preferred Securities are outstanding, not to convert the Debt Securities except
pursuant to a notice of conversion delivered to the Conversion Agent (as defined
in the indentures) by a holder of Trust Preferred Securities, (ii) to maintain
directly or indirectly 100% ownership of the Common Securities, provided that
certain successor which are permitted pursuant to the indentures may succeed to
CMS Energy's ownership of the Common Securities, (iii) not to voluntarily
terminate, wind-up or liquidate such Trust, except (a) in connection with a
distribution of the Debt Securities to the holders of the Trust Preferred
Securities in liquidation of such Trust or (b) in connection with certain
mergers, consolidations or amalgamations permitted by the Trust Agreement, (iv)
to maintain the reservation for issuance of the number of shares of CMS Energy
Common Stock that would be required from time to time upon the conversion of all
the Debt Securities then outstanding, (v) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause such
Trust to remain classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes and (vi) to
deliver shares of CMS Energy Common Stock upon an election by the holders of the
Trust Preferred Securities to convert such Trust Preferred Securities into CMS
Energy Common Stock.
As part of the Guarantees, CMS Energy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Trust Preferred Securities into or for CMS Energy Common Stock, Senior
Debentures or Subordinated Debentures.
CONVERSION RIGHTS
If the prospectus supplement provides, the Holders of Debt Securities may
convert such Debt Securities into CMS Energy Common Stock, as defined herein
(see "Description of Securities -- Common Stock"), at the option of the Holders
at the principal amount thereof, or of such portion thereof, at any time during
the period specified in the prospectus supplement, at the conversion price or
conversion rate specified in the prospectus supplement; except that, with
respect to any Debt Securities (or portion thereof) called for redemption, such
conversion right shall terminate at the close of business on the fifteenth day
prior to the date fixed for redemption of such Debt Security, unless CMS Energy
shall default in payment of the amount due upon redemption thereof.
The conversion privilege and conversion price or conversion rate will be
adjusted in certain events, including if CMS Energy:
- pays a dividend or makes a distribution in shares of CMS Energy Common
Stock;
- subdivides its outstanding shares of CMS Energy Common Stock into a
greater number of shares;
- combines its outstanding shares of CMS Energy Common Stock into a smaller
number of shares;
- pays a dividend or makes a distribution on its CMS Energy Common Stock
other than in shares of its CMS Energy Common Stock;
- issues by reclassification of its shares of CMS Energy Common Stock any
shares of its capital stock;
- issues any rights or warrants to all holders of shares of its CMS Energy
Common Stock entitling them (for a period expiring within 45 days, or
such other period as may be specified in the
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prospectus supplement) to purchase shares of CMS Energy Common Stock (or
Convertible Securities as defined in the indentures) at a price per share
less than the Average Market Price (as defined in the indentures) per
share for such CMS Energy Common Stock; or
- distributes to all holders of shares of its CMS Energy Common Stock any
assets or Debt Securities or any rights or warrants to purchase
securities, provided that no adjustment shall be made under the last two
bullet points above if the adjusted conversion price would be higher
than, or the adjusted conversion rate would be less than, the conversion
price or conversion rate, as the case may be, in effect prior to such
adjustment.
CMS Energy may reduce the conversion price or increase the conversion rate,
temporarily or otherwise, by any amount but in no event shall such adjusted
conversion price or conversion rate result in shares of CMS Energy Common Stock
being issuable upon conversion of the Debt Securities if converted at the time
of such adjustment at an effective conversion price per share less than the par
value of the CMS Energy Common Stock at the time such adjustment is made. No
adjustments in the conversion price or conversion rate need be made unless the
adjustment would require an increase or decrease of at least one percent (1%) in
the initial conversion price or conversion rate. Any adjustment which is not
made shall be carried forward and taken into account in any subsequent
adjustment. The foregoing conversion provisions may be modified to the extent
set forth in the prospectus supplement.
TRUST PREFERRED SECURITIES
GENERAL
Each Trust may issue, from time to time, Trust Preferred Securities having
terms described in the applicable prospectus supplement. The Trust Agreement of
each Trust will authorize the establishment of no more than one series of Trust
Preferred Securities, having such terms, including distributions, redemption,
voting, liquidation rights and such other preferred, deferred or other special
rights or such rights or restrictions as shall be set forth therein or otherwise
established by the relevant Trust Trustees. Reference is made to the prospectus
supplement relating to the Trust Preferred Securities for specific terms,
including:
- the distinctive designation and the number of Trust Preferred Securities
to be offered which will represent undivided beneficial interests in the
assets of the Trust;
- the annual distribution rate and the dates or date upon which such
distributions will be paid, provided, however distributions on the Trust
Preferred Securities will be paid quarterly in arrears to holders of
Trust Preferred Securities as of a record date on which the Trust
Preferred Securities are outstanding;
- whether holders' can convert the Trust Preferred Securities into shares
of CMS Energy Common Stock;
- whether distributions on Trust Preferred Securities would be deferred
during any deferral of interest payments on the Debt Securities,
provided, however that no such deferral, including extensions, if any,
may exceed 20 consecutive quarters nor extend beyond the stated maturity
date of the Debt Securities, and at the end of any such deferrals, CMS
Energy shall make all interest payments then accrued or deferred and
unpaid (including any compounded interest);
- the amount of any liquidation preference;
- the obligation, if any, of the Trust to redeem Trust Preferred Securities
through the exercise of CMS Energy of an option on the corresponding Debt
Securities and the price or prices at which, the period or periods within
which and the terms and conditions upon which Trust Preferred Securities
shall be purchased or redeemed, in whole or in part, pursuant to such
obligation;
- the period or periods within which and the terms and conditions, if any,
including the price or prices or the rate or rates of conversion or
exchange and the terms and conditions of any
22
adjustments thereof, upon which the Trust Preferred Securities shall be
convertible or exchangeable at the option of the holder of the Trust
Preferred Securities or other property or cash;
- the voting rights, if any, of the Trust Preferred Securities in addition
to those required by law and in the Trust Agreement, or set forth under a
Guarantee (as defined below);
- the additional payments, if any, which the Trust will pay as a
distribution as necessary so that the net amounts reserved by the Trust
and distributable to the holders of the Trust Preferred Securities, after
all taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) have been paid will not be less than the
amount that would have been reserved and distributed by the Trust, and
the amount the holders of the Trust Preferred Securities would have
reserved, had no such taxes, duties, assessments or governmental charges
been imposed;
- the terms and conditions, if any, upon which the Debt Securities may be
distributed to holders of Trust Preferred Securities; and
- any other relative rights, powers, preferences, privileges, limitations
or restrictions of the Trust Preferred Securities not inconsistent with
the Trust Agreement or applicable law. All Trust Preferred Securities
offered hereby will be irrevocably guaranteed by CMS Energy, on a senior
or subordinated basis, as applicable, and to the extent set forth below
under "The Guarantees." Any applicable federal income tax considerations
applicable to any offering of the Trust Preferred Securities will be
described in the prospectus supplement relating thereto. The aggregate
number of Trust Preferred Securities which the Trust shall have authority
to issue will be pursuant to the terms of the Trust Agreement.
EFFECT OF OBLIGATIONS UNDER THE DEBT SECURITIES
AND THE GUARANTEES
As set forth in the Trust Agreement, the sole purpose of the Trust is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of each of the Trusts, and to invest the proceeds from such issuance and
sale to acquire directly the Debt Securities from CMS Energy.
As long as payments of interest and other payments are made when due on the
Debt Securities, such payments will be sufficient to cover distributions and
payments due on the Trust Securities because of the following factors:
- the aggregate principal amount of Debt Securities will be equal to the
sums of the aggregate stated liquidation amount of the Trust Securities;
- the interest rate and the interest and other payment dates on the Debt
Securities will match the distribution rate and distribution and other
payment dates for the Trust Securities;
- CMS Energy shall pay all, and the Trust shall not be obligated to pay,
directly or indirectly, all costs, expenses, debt and obligations of the
Trust (other than with respect to the Trust Securities); and
- the Trust Agreement further provides that CMS Energy Trustees shall not
take or cause or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefore are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by CMS Energy as and to the extent set
forth under "The Guarantees" below. If CMS Energy does not make interest
payments on the Debt Securities purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Trust Preferred
Securities. The Guarantees do not apply to any payment of distributions unless
and until the Trust has sufficient funds for the payment of distributions and
other payments on the Trust Preferred Securities only if and to the extent that
CMS Energy has made a payment of interest or principal on the Debt Securities
held by the Trust as its sole asset. The Guarantees,
23
when taken together with CMS Energy's obligations under the Debt Securities and
the Indenture and its obligations under the Trust Agreement, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust securities), provide a full and unconditional
guarantee of amounts on the Trust Preferred Securities.
If CMS Energy fails to make interest or other payments on the Debt
Securities when due (taking account of any extension period), the Trust
Agreement provides a mechanism whereby the holders of the Trust Preferred
Securities may direct a Property Trustee to enforce its rights under the Debt
Securities. If a Property Trustee fails to enforce its rights under the Debt
Securities, a holder of Trust Preferred Securities may institute a legal
proceeding against CMS Energy to enforce a Property Trustee's rights under the
Debt Securities without first instituting any legal proceeding against a
Property Trustee or any other person or entity. Notwithstanding the foregoing,
if an event of default has occurred and is continuing under the Trust Agreement,
and such event is attributable to the failure of CMS Energy to pay interest or
principal on the Debt Securities on the date such interest or principal is
otherwise payable (or in the case of redemption on the redemption date), then a
holder of Trust Preferred Securities may institute legal proceedings directly
against CMS Energy to obtain payment. If CMS Energy fails to make payments under
the Guarantees, the Guarantees provide a mechanism whereby the holders of the
Trust Preferred Securities may direct a Guarantee Trustee to enforce its rights
thereunder. Any holder of Trust Preferred Securities may institute a legal
proceeding directly against CMS Energy to enforce a Guarantee Trustee's rights
under a Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee, or any other person or entity.
THE GUARANTEES
Set forth below is a summary of information concerning the Guarantees which
will be executed and delivered by CMS Energy for the benefit of the holders,
from time to time, of the Trust Preferred Securities. Each Guarantee will be
qualified as an indenture under the Trust Indenture Act of 1939. Either The Bank
of New York, or J.P. Morgan Trust Company, N.A, each an independent trustee,
will act as indenture trustee under the Guarantees for the purpose of compliance
with the provisions of the Trust Indenture Act of 1939. This summary does not
purport to be complete and is subject in all respects to the provisions of, and
is qualified in its entirety by reference to, the Guarantees, which is filed as
an exhibit to the Registration Statement of which this prospectus forms a part.
GENERAL
CMS Energy will irrevocably agree to pay in full, on a senior or
subordinated basis, as applicable, to the extent set forth herein, the Guarantee
Payments (as defined below) to the holders of the Trust Preferred Securities, as
and when due, regardless of any defense, right of set-off or counterclaim that
the Trust may have or assert other than the defense of payment. The following
payments with respect to the Trust Preferred Securities, to the extent not paid
by or on behalf of the Trust (the "Guarantee Payments"), will be subject to a
Guarantee: (i) any accumulated and unpaid distributions required to be paid on
the Trust Preferred Securities, to the extent that the Trust has funds on hand
available therefor at such time; (ii) the redemption price with respect to any
Trust Preferred Securities called for redemption to the extent that the Trust
has funds on hand available therefor at such time; or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Trust (unless the Debt
Securities are distributed to holders of the Trust Preferred Securities), the
lesser of (a) the liquidation distribution, to the extent that the Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Trust remaining available for distribution to holders of Trust Preferred
Securities. CMS Energy's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts of CMS Energy to the holders of the
Trust Preferred Securities or by causing the Trust to pay such amount to such
holders.
Such Guarantees will be irrevocable guarantees, on a senior or subordinated
basis, as applicable, of the Trust's obligations under the Trust Preferred
Securities, but will apply only to the extent that the Trust has funds
sufficient to make such payments, and are not guarantees of collection. If CMS
Energy does not
24
make interest payments on the Debt Securities held by the Trust, the Trust will
not be able to pay distributions on the Trust Preferred Securities and will not
have funds legally available therefor.
CMS Energy has, through the Guarantees, the Trust Agreements, the Senior
Debentures, the Subordinated Debentures, the indentures and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of the Trust's obligations under the Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the Trust Preferred
Securities.
CMS Energy has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities to
the same extent as the Guarantees, except that upon the occurrence and during
the continuation of a Trust Agreement Event of Default, holders of Trust
Preferred Securities shall have priority over holders of Common Securities with
respect to distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF CMS ENERGY
CMS Energy will covenant in each Guarantee that if and so long as (i) the
Trust is the holder of all the Debt Securities, (ii) a Tax Event (as defined in
the Guarantee) in respect of the Trust has occurred and is continuing and (iii)
CMS Energy has elected, and has not revoked such election, to pay Additional
Sums (as defined in the Guarantee) in respect of the Trust Preferred Securities
and Common Securities, CMS Energy will pay to the Trust such Additional Sums.
CMS Energy will also covenant that it will not, and it will not cause any of its
subsidiaries to (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of CMS
Energy's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of CMS Energy that
rank pari passu (in the case of Subordinated Debentures with or junior in the
case of the Senior and Subordinated Debentures) to the Debt Securities (other
than (a) any dividend, redemption, liquidation, interest, principal or guarantee
payment by CMS Energy where the payment is made by way of securities (including
capital stock) that rank pari passu with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is being
made, (b) payments under the Guarantees, (c) purchases of CMS Energy Common
Stock related to the issuance of CMS Energy Common Stock under any of CMS
Energy's benefit plans for its directors, officers or employees, (d) as a result
of a reclassification of CMS Energy's capital stock or the exchange or
conversion of one series or class of CMS Energy's capital stock for another
series or class of CMS Energy's capital stock and (e) the purchase of fractional
interests in shares of CMS Energy's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged) if at such time (i) there shall have occurred any event of which CMS
Energy has actual knowledge that (a) with the giving of notice or the lapse of
time, or both, would constitute an event of default and (b) in respect of which
CMS Energy shall not have taken reasonable steps to cure, (ii) CMS Energy shall
be in default with respect to its payment of any obligations under the Guarantee
or (iii) CMS Energy shall have given notice of its selection of an Extension
Period as provided in the indentures with respect to the Debt Securities and
shall not have rescinded such notice, or such Extension Period, or any extension
thereof, shall be continuing. CMS Energy also will covenant to (i) for so long
as Trust Preferred Securities are outstanding, not convert Debt Securities
except pursuant to a notice of conversion delivered to the Conversion Agent by a
holder of Trust Preferred Securities, (ii) maintain directly or indirectly 100%
ownership of the Common Securities, provided that certain successors which are
permitted pursuant to the indentures may succeed to CMS Energy's ownership of
the Common Securities, (iii) not voluntarily terminate, wind-up or liquidate the
Trust, except (a) in connection with a distribution of the Debt Securities to
the holders of the Trust Preferred Securities in liquidation of the Trust or (b)
in connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement, (iv) maintain the reservation for issuance of the number of
shares of CMS Energy Common Stock that would be required from time to time upon
the
25
conversion of all the Debt Securities then outstanding, (v) use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause the Trust to remain classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes and (vi) deliver shares of CMS Energy Commo n Stock upon an election by
the holders of the Trust Preferred Securities to convert such Trust Preferred
Securities into CMS Energy Common Stock.
As part of the Guarantees, CMS Energy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Trust Preferred Securities into or for CMS Energy Common Stock, Senior
Debentures or Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantees may not be amended without the prior approval
of the holders of not less than a majority in aggregate liquidation amount of
such outstanding Trust Preferred Securities. All guarantees and agreements
contained in the Guarantees shall bind the successors, assigns, receivers,
trustees and representatives of CMS Energy and shall inure to the benefit of the
holders of the Trust Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEES
The Guarantees will terminate and be of no further force and effect upon
full payment of the redemption price of the Trust Preferred Securities, upon
full payment of the amounts payable upon liquidation of the Trust, upon the
distribution, if any, of CMS Energy Common Stock to the holders of Trust
Preferred Securities in respect of the conversion of all such holders' Trust
Preferred Securities into CMS Energy Common Stock or upon distribution of the
Debt Securities to the holders of the Trust Preferred Securities in exchange for
all of the Trust Preferred Securities. The Guarantees will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Trust Preferred Securities must restore payment of any sums paid under such
Trust Preferred Securities or the Guarantees.
EVENTS OF DEFAULT
An event of default under a Guarantee will occur upon the failure of CMS
Energy to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to a Guarantee Trustee in respect of a
Guarantee or to direct the exercise of any trust or power conferred upon a
Guarantee Trustee under the Guarantees.
If a Guarantee Trustee fails to enforce a Guarantee, any holder of the
Trust Preferred Securities may institute a legal proceeding directly against CMS
Energy to enforce its rights under such Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. In addition, any record holder of Trust Preferred Securities shall have
the right, which is absolute and unconditional, to proceed directly against CMS
Energy to obtain Guarantee Payments, without first waiting to determine if
the Guarantee Trustee has enforced a Guarantee or instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. CMS
Energy has waived any right or remedy to require that any action be brought just
against the Trust, or any other person or entity before proceeding directly
against CMS Energy.
CMS Energy, as guarantor, is required to file annually with each Guarantee
Trustee a certificate as to whether or not CMS Energy is in compliance with all
the conditions and covenants applicable to it under the Guarantees.
26
STATUS OF THE GUARANTEES
The Guarantees will constitute unsecured obligations of CMS Energy and will
rank equal to or subordinate and junior in right of payment to all other
liabilities of CMS Energy, as applicable. The Guarantees will rank pari passu
with or senior to, as applicable, any guarantee now or hereafter entered into by
CMS Energy in respect of any preferred or preference stock of any affiliate of
CMS Energy.
The Guarantees will constitute a guarantee of payment and not of collection
which means that the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The
Guarantees will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantees will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or upon
distribution of the Debt Securities to the holders of the Trust Preferred
Securities. The Guarantees do not place a limitation on the amount of additional
indebtedness that may be incurred by CMS Energy or any of its subsidiaries.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
CMS Energy may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from CMS Energy, and CMS Energy to sell to the
holders, a specified number of shares of CMS Energy Common Stock at a future
date or dates. The price per share of CMS Energy Common Stock may be fixed at
the time the Stock Purchase Contracts are issued or may be determined by
reference to a specific formula set forth in the Stock Purchase Contracts. The
Stock Purchase Contracts may be issued separately or as part of Stock Purchase
Units consisting of a Stock Purchase Contract and Senior Debentures,
Subordinated Debentures, Trust Preferred Securities or debt obligations of third
parties, including U.S. Treasury securities, securing the holders' obligations
to purchase the Common Stock under the Stock Purchase Contracts. The Stock
Purchase Contracts may require CMS Energy to make periodic payments to the
holders of the Stock Purchase Units or visa versa, and such payments may be
unsecured or refunded on some basis. The Stock Purchase Contracts may require
holders to secure their obligations thereunder in a specified manner.
The applicable prospectus supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the prospectus
supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
PLAN OF DISTRIBUTION
CMS Energy and/or the Trusts may sell the Offered Securities: (i) through
the solicitation of proposals of underwriters or dealers to purchase the Offered
Securities; (ii) through underwriters or dealers on a negotiated basis; (iii)
directly to a limited number of purchasers or to a single purchaser; or (iv)
through agents. The prospectus supplement with respect to any Offered Securities
will set forth the terms of such offering, including the name or names of any
underwriters, dealers or agents; the purchase price of the Offered Securities
and the proceeds to CMS Energy and/or the Trust from such sale; any underwriting
discounts and commissions and other items constituting underwriters'
compensation; any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchange on which
such Offered Securities may be listed. Any initial public offering price,
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or
27
underwriters with respect to a particular underwritten offering of Offered
Securities will be named in the prospectus supplement relating to such offering
and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such prospectus supplement.
Unless otherwise set forth in the prospectus supplement relating thereto, the
obligations of the underwriters to purchase the Offered Securities will be
subject to certain conditions precedent, and the underwriters will be obligated
to purchase all the Offered Securities if any are purchased.
CMS Energy and/or the Trusts may sell Offered Securities to dealers as
principals. The dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
prospectus supplement relating thereto.
The Offered Securities may be sold directly by CMS Energy and/or the Trusts
to institutional investors or others, who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale thereof. The
terms of any such sales will be described in the prospectus supplement relating
thereto.
The CMS Energy Common Stock may be offered other than through the
facilities of a national securities exchange and other than to or through a
market maker other than on an exchange.
Agents, dealers and underwriters may be entitled under agreements with CMS
Energy and/or the Trusts to indemnification by CMS Energy and/or the Trusts
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for CMS Energy and/or the Trusts in the ordinary course of business.
The Offered Securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for CMS Energy and/or the Trusts. Any
remarketing firm will be identified and the terms of its agreement, if any, with
its compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Offered Securities remarketed
thereby. Remarketing firms may be entitled under agreements which may be entered
into with CMS Energy and/or the Trusts to indemnification or contribution by CMS
Energy and/or the Trusts against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions or perform services for CMS Energy and its subsidiaries in the
ordinary course of business.
The Offered Securities may or may not be listed on a national securities
exchange. Reference is made to the prospectus supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
Offered Securities.
We may engage J.P. Morgan Securities Inc. ("JPMS") or Brinson Patrick
Securities Corporation ("Brinson") (JPMS and Brinson collectively, the "Agents")
to act as agent or principal for offerings from time to time of shares of CMS
Energy Common Stock in one or more placements pursuant to the terms of a
distribution agreement between us and either JPMS or Brinson. The terms of sales
to or through the Agents pursuant to a distribution agreement will be set out in
more detail in a prospectus supplement to this prospectus. When acting as agent,
the Agents will use commercially reasonable efforts to sell the shares pursuant
to the terms agreed to with us, including the number of shares to be offered in
the placement and any minimum price below which sales may not be made. The
Agents, in their capacity as agent or principal, could arrange for or make sales
in privately negotiated transactions, at the market in the existing trading
market for CMS Energy Common Stock, including sales made to or through a market
maker or through an electronic communications network, or in any other manner
that may be deemed to be an "at-the-market offering" as defined in Rule 415
promulgated under the Securities Act and/or any other method permitted by law.
28
CMS Energy Common Stock sold through the Agents in any at-the-market
offerings will be sold at prices related to the prevailing market price for such
securities, and therefore exact figures regarding proceeds which will be raised
or commissions to be paid are impossible to determine. We will report at least
quarterly the number of shares of CMS Energy Common Stock sold to or through the
Agents in at-the-market offerings, the net proceeds to us and the compensation
paid by us to the Agents in connection with such sales of CMS Energy Common
Stock. Pursuant to the terms of a distribution agreement with the Agents or any
other distribution agreement we may enter into, we also may agree to sell, and
the relevant underwriters or agents may agree to solicit offers to purchase,
blocks of CMS Energy Common Stock or other securities. The total number of
shares that we may sell in at-the-market offerings will be disclosed in a
prospectus supplement to this prospectus.
In connection with the offering of the securities, certain underwriters and
selling group members and their respective affiliates, may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the applicable securities. These transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the SEC pursuant to which these persons may bid for or purchase securities for
the purpose of stabilizing their market price.
If indicated in the applicable prospectus supplement, we will authorize
underwriters, dealers or agents to solicit offers by institutional investors to
purchase securities from us pursuant to contracts providing for payment and
delivery at a future date. In all cases, these purchasers must be approved by
us. Unless otherwise set forth in the applicable prospectus supplement, the
obligations of any purchaser under any of these contracts will not be subject to
any conditions, except that the purchase of the securities must not at the time
of delivery be prohibited under the laws of any jurisdiction to which that
purchaser is subject and if securities also are being sold to underwriters, we
must have sold to these underwriters the securities not subject to delayed
delivery. Underwriters and other agents will not have any responsibility in
respect of the validity or performance of these contracts.
Under the securities laws of some states, the securities registered by the
registration statement that includes this prospectus may be sold in those states
only through registered or licensed brokers or dealers. Any person participating
in the distribution of the securities registered under the registration
statement that includes this prospectus will be subject to applicable provisions
of the Securities Exchange Act of 1934, and the applicable rules and regulations
of the SEC, including, among others, Regulation M noted above, which may limit
the timing of purchases and sales of any of the securities by any such person.
Furthermore, Regulation M may restrict the ability of any person engaged in the
distribution of the securities to engage in market-making activities with
respect to the securities. These restrictions may affect the marketability of
the securities and the ability of any person or entity to engage in
market-making activities with respect to the securities.
We may enter into derivative transactions with third parties, or sell
securities not covered by this prospectus to third parties in privately
negotiated transactions. If the applicable prospectus supplement indicates, in
connection with those derivatives, the third parties may sell securities covered
by this prospectus and the applicable prospectus supplement, including in short
sale transactions. If so, the third parties may use securities pledged by us or
borrowed from us or others to settle those sales or to close out any related
open borrowings of stock, and may use securities received from us in settlement
of those derivatives to close out any related open borrowings of stock. The
third parties in such sale transactions will be underwriters and, if not
identified in this prospectus, will be identified in the applicable prospectus
supplement (or a post-effective amendment).
We or one of our affiliates may loan or pledge securities to a financial
institution or other third party that in turn may sell the securities using this
prospectus. Such financial institution or third party may transfer its short
position to investors in our securities or in connection with a simultaneous
offering of other securities offered by this prospectus or otherwise.
29
LEGAL OPINIONS
Opinions as to the legality of certain of the Offered Securities will be
rendered for CMS Energy by Robert C. Shrosbree, Esq., Assistant General Counsel
for CMS Energy. Certain matters of Delaware law relating to the validity of the
Trust Preferred Securities will be passed upon on behalf of the Trusts by
Skadden, Arps, Slate, Meagher & Flom LLP, special Delaware counsel to the
Trusts. Certain United States Federal income taxation matters may be passed upon
for CMS Energy and the Trust by either Theodore Vogel, tax counsel for CMS
Energy, or by special tax counsel to CMS Energy and of the Trust, who will be
named in the prospectus supplement. Certain legal matters with respect to
Offered Securities will be passed upon by counsel for any underwriters, dealers
or agents, each of whom will be named in the related prospectus supplement.
EXPERTS
The consolidated financial statements and schedule of CMS Energy appearing
in its Annual Report (Form 10-K/A) for the year ended December 31, 2003, have
been audited by Ernst & Young LLP, independent registered public accounting
firm, as set forth in their report thereon included therein and incorporated
herein by reference which are based in part on the reports of Price Waterhouse,
independent accountants, for Jorf Lasfar and the reports of
PricewaterhouseCoopers LLP, independent registered public accounting firm, for
2003 and 2002 and Arthur Andersen LLP, (who have ceased operations) for 2001 for
the MCV Partnership. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
The financial statements of Emirates CMS Power Company PJSC appearing in
CMS's Annual Report (Form 10-K/A) for the year ended December 31, 2003, have
been audited by Ernst & Young, independent registered public accounting firm, as
set forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of Jorf Lasfar as of December 31, 2003 and 2002
and for each of the three years in the period ended December 31, 2003
incorporated by reference in this prospectus and registration statement have
been so included in reliance on the report of Price Waterhouse, independent
accountants for Jorf Lasfar, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of the MCV Partnership as of and for
the years ended December 31, 2003 and 2002 incorporated by reference in this
prospectus and registration statement have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent registered public accounting
firm, given on the authority of said firm as experts in auditing and accounting.
The audited consolidated financial statements of the MCV Partnership for
the year ended December 31, 2001, incorporated by reference in this prospectus
and registration statement, have been audited by Arthur Andersen LLP,
independent accountants. Arthur Andersen LLP has not consented to the inclusion
of their report on the financial statements of the MCV Partnership for the year
ended December 31, 2001 in this prospectus, and we have dispensed with the
requirement to file their consent in reliance upon Rule 437a of the Securities
Act of 1933. Because Arthur Andersen LLP has not consented to the incorporation
by reference of their report in this prospectus, you will not be able to recover
against Arthur Andersen LLP under Section 11 of the Securities Act of 1933 for
any untrue statements of a material fact contained in the financial statements
audited by Arthur Andersen LLP or any omissions to state a material fact
required to be stated therein.
30
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28,500,000 Shares
CMS ENERGY CORPORATION
COMMON STOCK
(CMS LOGO)
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PROSPECTUS SUPPLEMENT
OCTOBER 7, 2004
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Joint Book-Running Managers
CITIGROUP
JPMORGAN
MERRILL LYNCH & CO.
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DEUTSCHE BANK SECURITIES
GOLDMAN, SACHS & CO.
WACHOVIA SECURITIES
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BNP PARIBAS
COMERICA SECURITIES
DAIWA SECURITIES AMERICA INC.
KEYBANC CAPITAL MARKETS
WELLS FARGO SECURITIES
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