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Filed Pursuant to Rule 424B5
Registration Statement No. 333-51932
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 15, 2000
$350,000,000
[CMS ENERGY LOGO]
8.50% Senior Notes Due 2011
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We will pay interest on the Notes each April 15 and October 15. The first
interest payments will be made on October 15, 2001.
We may redeem any or all of the Notes at any time. The redemption price for
the Notes will be 100% of their principal amount, plus any applicable premium
and any accrued interest. There is no sinking fund for the Notes. See
"Description of the Notes -- Optional Redemption."
The Notes will rank equally with the other unsecured and unsubordinated
indebtedness of CMS Energy Corporation.
For a more detailed description of the Notes, see "Description of the
Notes" beginning on page S-27.
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INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
S-11 OF THIS PROSPECTUS SUPPLEMENT.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO COMPANY
-------- ------------- ----------
Per Note.................................... 98.018% 1.625% 96.393%
Total....................................... $343,063,000 $5,687,500 $337,375,500
Delivery of the Notes in book-entry form only, will be made on or about
March 29, 2001.
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 ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CREDIT SUISSE FIRST BOSTON
ABN AMRO INCORPORATED BANC OF AMERICA SECURITIES LLC BARCLAYS CAPITAL
CIBC WORLD MARKETS JPMORGAN SALOMON SMITH BARNEY
BNP PARIBAS SCOTIA CAPITAL SG COWEN
The date of this prospectus supplement is March 26, 2001
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
SUMMARY.......................... S-3
RISK FACTORS..................... S-11
FORWARD-LOOKING INFORMATION...... S-16
USE OF PROCEEDS.................. S-18
RATIO OF EARNINGS TO FIXED
CHARGES........................ S-18
CAPITALIZATION................... S-19
THE COMPANY...................... S-20
DESCRIPTION OF THE NOTES......... S-27
UNDERWRITERS..................... S-47
LEGAL MATTERS.................... S-50
EXPERTS.......................... S-50
UNAUDITED PRO FORMA FINANCIAL
INFORMATION.................... F-1
PAGE
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PROSPECTUS
WHERE TO FIND MORE INFORMATION... 2
CMS ENERGY CORPORATION........... 4
CMS ENERGY TRUSTS................ 4
USE OF PROCEEDS.................. 6
RATIO OF EARNINGS TO FIXED
CHARGES AND RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS................ 6
DESCRIPTION OF SECURITIES........ 6
EFFECT OF OBLIGATIONS UNDER THE
DEBT SECURITIES AND THE
GUARANTEES..................... 21
LEGAL OPINIONS................... 25
EXPERTS.......................... 26
PLAN OF DISTRIBUTION............. 26
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM THAT CONTAINED IN THIS DOCUMENT. WE ARE
OFFERING TO SELL, AND SEEKING OFFERS TO BUY, THE NOTES ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS DOCUMENT
IS ACCURATE ONLY AS OF THE DATE HEREOF, REGARDLESS OF THE TIME OF DELIVERY OF
THIS DOCUMENT OR OF ANY SALE OF THE NOTES.
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FORWARD-LOOKING STATEMENTS
The prospectus supplement and the accompanying prospectus contain or
incorporate by reference forward-looking statements. The factors identified
under "Risk Factors" are important factors, but not necessarily all 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.
Where any forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, we caution that, while such
assumptions or bases are believed to be reasonable and are made in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, we,
our subsidiaries, or our management, express an expectation or belief as to
future results, this expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "project," and "anticipate" or
similar expressions identify forward-looking statements.
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SUMMARY
This summary may not contain all the information that may be important to
you. You should read this prospectus supplement, the accompanying prospectus and
the documents incorporated by reference in this document in their entirety
before making an investment decision. The terms "CMS," "CMS Energy," "Company,"
"Our" and "We" as used in this prospectus supplement and the accompanying
prospectus refer to CMS Energy Corporation and its subsidiaries.
In this document, "Bcf" means billion cubic feet, "GWh" means
gigawatt-hour, "KWh" means kilowatt-hour, "MBbls" means thousand barrels, "Mcf"
means thousand cubic feet, "MMBoe" means million barrels of oil equivalent,
"MMBbls" means million barrels, "MMcf" means million cubic feet, "MW" means
megawatts, and "Tbtu" means trillion british thermal units.
CMS ENERGY CORPORATION
CMS Energy is a leading diversified energy company operating in the United
States and around the world. Our two principal subsidiaries are Consumers Energy
Company ("Consumers") and CMS Enterprises Company ("Enterprises"). Consumers is
a public utility that provides natural gas or electricity to almost six million
of the approximately 9.9 million residents in Michigan's lower peninsula.
Enterprises, through subsidiaries, is engaged in a wide range of diversified
energy businesses in the United States and in approximately 20 countries on five
continents.
Our assets and services are broad and include: electric and natural gas
utility operations; independent power production; natural gas transmission,
storage and processing; oil and gas exploration and production; international
energy distribution; and marketing, services and trading. In 2000,
- Consumers' electric utility owned and operated 29 electric generating
plants with an aggregate of 6,437 MW of capacity and served 1.7 million
customers in Michigan's lower peninsula;
- Consumers' gas utility owned and operated over 25,000 miles of
transmission and distribution lines throughout the lower peninsula of
Michigan, providing natural gas to 1.6 million customers;
- CMS Generation had ownership interests in independent power plants with
8,365 MW gross and 3,533 MW net capacity. The plants are located
primarily in the U.S., Argentina, Australia, Chile, Ghana, India,
Morocco, Thailand and the United Arab Emirates;
- CMS Gas Transmission owned and operated over 15,700 miles of pipelines
with a daily capacity of approximately 8.5 Bcf per day. The pipelines are
located in the U.S., Argentina, Australia, Chile and Tunisia. It also
owns extensive gathering systems and processing facilities;
- CMS Oil and Gas had proved reserves of 235 MMBoe and exploration and
production activities in the U.S., Venezuela, Colombia, the Republic of
Congo, Cameroon, Equatorial Guinea and Tunisia;
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- CMS Electric and Gas, our international energy distribution subsidiary,
owned energy distribution interests in Venezuela, Argentina and Brazil,
serving approximately 475,000 customers and recording sales of
approximately 3,200 GWh;
- CMS Marketing, Services and Trading marketed 614 Bcf of gas, 37,781 GWh
of electricity, 31 MMBbls of crude oil and 9.0 MMBbls of natural gas
liquids; and
- Our various subsidiaries currently have ownership interests in projects
under construction or in advanced stages of development, including
approximately 3,600 MW of electric generation, 154 miles of pipeline
projects, a 2,500 metric tonnes per day methanol production facility, and
conversion of a natural gas pipeline to an 800 mile liquids product
pipeline.
In 2000, we had consolidated operating revenue of $8.998 billion, earnings
before interest, taxes, depreciation and amortization of $1.693 billion and net
income of $36 million.
We were incorporated in Michigan in 1987 and our world wide web address is
http://www.cmsenergy.com. Our web site is not part of this prospectus
supplement. Our telephone number is (313) 436-9200.
BUSINESS STRATEGY
Our objective is to be a leading diversified energy company developing
energy facilities and marketing energy and related services in the United States
and selected world growth markets. The key elements of our strategy to achieve
this objective are as follows:
USE OUR NATURAL GAS PIPELINE BUSINESS FOR GROWTH OPPORTUNITIES ACROSS OUR OTHER
BUSINESSES
Our March 1999 acquisition of Panhandle Eastern Pipe Line Company,
Panhandle Storage Company, Trunkline LNG Company and their subsidiaries
(collectively, the "Panhandle Companies" or "Panhandle") significantly enhanced
our domestic natural gas pipeline business. We intend to use Panhandle as a
platform for growth in the United States and derive added value through
expansion opportunities for multiple CMS businesses. Our growth strategy around
Panhandle includes enhancing the opportunities for other CMS businesses involved
in electric power generation and distribution, mid-stream activities (gathering
and processing), and exploration and production. By providing additional
transportation, storage and other asset-based value-added services to customers
such as new gas fueled power plants, local distribution companies, industrials
and end-users, marketers and others, we expect to expand our natural gas
pipeline business. We also plan to convert certain Panhandle facilities to
permit the throughput of liquid products.
EFFECTIVELY IMPLEMENT THE MICHIGAN ELECTRIC RESTRUCTURING LEGISLATION
Our Consumers subsidiary is a leading generator and distributor of
electricity and distributor of natural gas in the lower peninsula of Michigan.
After several years of discussion and uncertainty in the Michigan electric
utility industry, in June 2000 the Michigan legislature enacted electric utility
restructuring and related securitization legislation called the Customer Choice
and Electricity Reliability Act (the "Customer Choice Act"). The Customer Choice
Act required an immediate 5% rate reduction for residential customers that
reduces our revenues. In October 2000 and January 2001, the
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Michigan Public Service Commission ("MPSC") issued an order and a final order,
respectively, approving securitization of approximately $470 million in
qualified costs plus the expenses of securitization. Cost savings from
securitization depend upon the level of debt or equity securities ultimately
retired, the amortization schedule for the securitized qualified costs and the
interest rates of the retired debt securities and the securitization bonds.
These savings will only be determined once the securitization bonds are issued
and will offset substantially all of the CMS Energy revenue impact of the 5%
residential rate reduction, $51 million on an annual basis, that Consumers was
required to implement by the Customer Choice Act. Consumers accepted the final
financing order. The financing orders have been appealed by the Attorney General
of Michigan. We cannot predict the outcome of the appeal or its effect on the
schedule for issuance of the securitization bonds. Ultimately, sale of
securitization bonds will be required to offset substantially all of the CMS
Energy revenue impact of the rate reduction over the term of the bonds. The new
legislation also provided for rate freezes and rate caps as more fully discussed
below under "Risk Factors -- Risks Relating to CMS Energy -- New electric
restructuring legislation could adversely affect our business." In response,
Consumers must develop cost-effective solutions to manage the challenges of the
Customer Choice Act. For example, we intend to further intensify our efforts to
manage costs including the management of fuel costs and purchased power costs in
light of the rate freezes and rate caps.
INCREASE CONSUMERS' COMMODITY DELIVERY TO MEET CUSTOMER GROWTH AND EXPAND THE
RANGE OF ENERGY-RELATED SERVICES
Without regard to the Customer Choice Act, Consumers expects average annual
growth of approximately 2.5% per year in electric system deliveries over the
next five years based on a steadily growing customer base. Also, Consumers
currently anticipates gas deliveries, including gas customer choice deliveries
(excluding transportation to a natural gas-fueled, combined-cycle cogeneration
facility operated by the Midland Cogeneration Venture Limited Partnership and
off-system deliveries), to grow at an average annual rate of approximately 1%
over the next five years based primarily on a steadily growing customer base.
In addition to the delivery of electricity and natural gas, we offer a
variety of energy-related services to Consumers' electric and gas customers.
These services focus upon appliance maintenance, home safety, commodity choice
and assistance to customers purchasing heating, ventilation and air conditioning
equipment. We will continue to look for additional growth opportunities in
energy-related services for Consumers' customers.
EXPAND PRESENCE IN SELECT HIGH GROWTH DOMESTIC AND INTERNATIONAL MARKETS THROUGH
OUR DIVERSIFIED ENERGY BUSINESSES
We expect to continue to sharpen our geographic focus on key growth areas
where we already have significant investments and opportunities. This strategy
focuses predominantly on the central corridor of the United States.
Internationally, these markets are India, the Middle East, South America and
West Africa. In pursuing our global growth, we intend to make energy investments
that provide optimal returns and expansion opportunities for multiple existing
businesses. For example, we are seeking to capitalize on our West Africa oil and
gas reserves by expanding the undersea pipeline and onshore processing
facilities in this area. We will use the gas from the processing plant in a new
methanol-producing plant in West Africa. Our gas pipelines in Argentina are
being extended to carry fuel for power
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plants in that area. In addition, we are a partner in the first independent
power and water project in the United Arab Emirates and we are building our
third power plant in India.
OPTIMIZE OUR ASSETS THROUGH THE MARKETING, SERVICES AND TRADING BUSINESS
We intend to use our marketing, services and trading business to enhance
the return on our other businesses. This means that we plan to continue
centralizing the marketing of energy products produced by our various
non-utility businesses. Other strategies include expanding our industrial and
commercial energy services business to enhance our commodity marketing business
and developing risk management products that address customer needs.
CONTINUE MANAGEMENT OF OUR ASSET PORTFOLIO
We intend to enhance our long-term growth through an active portfolio
management program that entails the ongoing sale of assets. We expect to
reinvest the proceeds from this program in assets having greater potential for
synergies with our existing or planned assets. In particular, we are reviewing
our options regarding certain assets performing below prior expectations,
including generating assets in Argentina. As a part of the program, we also
continue to seek improvement in the operating efficiency and profitability of
all assets retained in our portfolio.
RECENT EQUITY ISSUANCES
On October 20, 2000, we sold 11 million shares of CMS Energy common stock.
Net proceeds from the sale totaled approximately $305 million which we have used
to repay borrowings under our Revolving Credit Facility.
On February 23, 2001, we sold 10 million shares of CMS Energy common stock.
Net proceeds from the sale totaled approximately $296 million which we have used
to repay borrowings under our Revolving Credit Facility. In connection with that
sale, we announced that we had indefinitely deferred the initial public offering
of up to 50% of the securities of CMS Oil and Gas Company, our wholly-owned oil
and gas exploration and production subsidiary.
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THE OFFERING
Issuer........................... CMS Energy Corporation.
Securities Offered............... $350 million principal amount of 8.50%
Senior Notes Due 2011 (the "Notes").
Maturity......................... April 15, 2011.
Interest Rate.................... The Notes will bear interest at the rate
of 8.50% per annum, payable semiannually
in arrears on April 15 and October 15
commencing on October 15, 2001.
Optional Redemption.............. The Notes will be redeemable at our
option, in whole or in part, at any time
or from time to time, on not less than 30
days' notice, at the redemption price of
100% of their principal amount, plus any
applicable premium and any accrued
interest to the date fixed for redemption.
Change in Control................ If a change in control were to occur, each
holder of Notes would be able to require
us to repurchase such Notes, in whole or
in part, at a price equal to 101% of the
principal amount of those Notes, plus any
accrued and unpaid interest.
Ranking.......................... The Notes will be unsecured debt
securities of the Company. As of December
31, 2000, we had outstanding approximately
$3.8 billion aggregate principal amount of
indebtedness (excluding subsidiaries),
none of which was secured. None of such
indebtedness would be senior to the Notes
and the Notes will not be senior to such
indebtedness. The Notes will be senior to
certain subordinated indebtedness of the
Company (excluding subsidiaries). The
Notes will rank equally in right of
payment with all other unsecured and
unsubordinated indebtedness of the Company
(excluding subsidiaries).
Certain Covenants................ The Indenture governing the Notes will
contain covenants that will, among other
things, limit our ability to pay dividends
or distributions, incur additional
indebtedness, incur additional liens,
sell, transfer or dispose of certain
assets, enter into certain transactions
with affiliates or enter into certain
mergers or consolidations.
Use of Proceeds.................. We intend to use the estimated net
proceeds of approximately $337.4 million
to reduce the outstanding balance of
approximately $250 million under our
Revolving Credit Facility. The remainder
of the net proceeds will be used to pay
down long-term debt or for general
corporate purposes.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected historical and pro forma financial information has
been derived from our historical consolidated financial statements. We have
prepared pro forma financial information to reflect our acquisition of the
common stock of the Panhandle Companies. Please refer to our Form 10-K for the
fiscal year ended December 31, 2000 which is incorporated by reference. The
financial information set forth below should be read in conjunction with our
consolidated financial statements, related notes and other financial information
incorporated by reference in the accompanying prospectus. See "Where To Find
More Information" in the accompanying prospectus.
YEAR ENDED DECEMBER 31,
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PRO
FORMA
1998 1999 1999(1) 2000
------- ------- ----------- ------
(UNAUDITED)
INCOME STATEMENT DATA:
Operating revenue........................ $ 5,141 $ 6,103 $ 6,216 $8,998
Operating expenses....................... 4,417 5,219 5,272 8,271
------- ------- ------- ------
Pretax operating income................ 724 884 944 727
Income taxes............................. 100 64 72 60
Consolidated net income before cumulative
effect of change in accounting
principle.............................. 242 277 287 41
Cumulative effect of change in accounting
for inventories, net of tax............ -- -- -- (5)(13)
Cumulative effect of change in accounting
for property taxes, net of tax(2)...... 43 -- -- --
------- ------- ------- ------
Consolidated net income.................. $ 285 $ 277 $ 287 $ 36
======= ======= ======= ======
Net income attributable to common
stocks(2)
CMS Energy............................. $ 272 $ 241(11) $ 251(11) $ 36
Class G................................ 13 36(11)(12) 36(11)(12) --
Average common shares outstanding
CMS Energy............................. 102 110 110 113
Class G................................ 8 9(12) 9(12) --
Earnings per average common share(2)
CMS Energy
Basic................................ $ 2.65 $ 2.18(11) $ 2.27(11) $ 0.32
Diluted.............................. 2.62 2.17(11) 2.26(11) 0.32
Class G Basic and Diluted................ 1.56 4.21(11)(12) 4.21(11)(12) --
Dividends declared per common share
CMS Energy............................. 1.26 1.39 1.39 1.46
Class G................................ 1.27 0.99(12) 0.99(12) --
OTHER DATA:
EBITDA(3)................................ $ 1,208 1,563 1,636(14) 1,693(14)
Cash flow
From operating activities.............. 516 917 912 453
From investing activities.............. (1,634) (3,564) (3,585) (867)
From financing activities.............. 1,150 2,678 2,678 464
Capital expenditures..................... 1,295 1,124 1,128 1,032
Ratio of EBITDA to interest expense...... 3.60x 2.95x 3.09x 2.87x
Ratio of earnings to fixed charges(4).... 1.59x 1.38x 1.45x --(15)
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AS OF DECEMBER 31,
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1998 1999 2000
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(IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 101 $ 132 $ 182
Net plant and property...................................... 6,040 8,121 7,835
Total assets................................................ 11,310 15,462 15,851
Long-term debt, including current maturities................ 5,019 7,539 7,477
Non-current portion of capital leases....................... 105 88 54
Notes payable............................................... 328 230 403
Other liabilities........................................... 3,304 4,875 5,042
Minority interest........................................... -- 222 88
Company-obligated mandatorily redeemable trust preferred
securities of:
Consumers Power Company Financing I(5).................... 100 100 100
Consumers Energy Company Financing II(5).................. 120 120 120
Consumers Energy Company Financing III(6)................. -- 175 175
CMS RHINOS Trust(7)....................................... -- 250 --
Company-obligated convertible trust preferred securities of:
CMS Energy Trust I(8)..................................... 173 173 173
CMS Energy Trust II(9).................................... -- 301 301
CMS Energy Trust III(10).................................. -- -- 220
Preferred stock of subsidiary............................... 238 44 44
Common stockholders' equity................................. 2,216 2,456 2,361
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(1) The pro forma selected financial information illustrates the effects of (i)
various restructuring, realignment, and elimination of activities between
the Panhandle Companies and Duke Energy Corporation prior to the closing of
the acquisition of the Panhandle Companies by CMS Energy, (ii) the
adjustments resulting from the acquisition of the Panhandle Companies and
(iii) financing transactions which include the public issuance of $800
million of senior notes by Panhandle, $850 million of senior notes by CMS
Energy and the private sale of $250 million of trust preferred securities
by CMS Energy.
(2) During the first quarter of 1998, our subsidiary, Consumers, implemented a
change in the method of accounting for property taxes which had the
cumulative effect of increasing other income by $66 million, including $18
million attributable to the portion of our business relating to Class G
common stock. Earnings, net of tax, increased by $43 million or $0.40 per
share for CMS Energy common stock and $12 million or $0.36 per share for
Class G common stock.
(3) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not intended to represent cash flow for the period,
nor is it presented as an alternative to operating income as an indicator
of operating performance, and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States and
is not indicative of operating income or cash flow from operations as
determined under GAAP.
(4) For the purpose of computing the ratio, earnings represent net income
before income taxes, net interest charges and the estimated interest
portions of lease rentals.
(5) The primary asset of Consumers Power Company Financing I is approximately
$103 million principal amount of 8.36% subordinated deferrable interest
notes due 2015 from Consumers. The primary asset of Consumers Energy
Company Financing II is $124 million principal amount of 8.20% subordinated
deferrable interest notes due 2027 from Consumers.
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(6) The primary asset of Consumers Energy Company Financing III is $180 million
principal amount of 9.25% subordinated deferrable interest notes due 2029
from Consumers.
(7) The primary asset of CMS RHINOS Trust was approximately $258 million
principal amount of floating rate, subordinated interest notes due 2001
from us. These securities were redeemed on August 22, 2000, using the
proceeds of the Premium Equity Participating Security Units issued on
August 22, 2000 and additional borrowings under the Revolving Credit
Facility.
(8) The primary asset of CMS Energy Trust I is approximately $178 million
principal amount of 7.75% convertible subordinated debentures due 2027 from
us.
(9) The primary asset of CMS Energy Trust II is approximately $310 million
principal amount of 8.625% convertible junior subordinated deferrable
interest debentures due 2004 from us.
(10) The primary asset of CMS Energy Trust III is approximately $226 million
principal amount of 7.25% subordinated deferrable notes due August 2004
from us.
(11) Reflects the reallocation of net income and earnings per share as a result
of the premium on exchange of Class G common stock. As a result, CMS
Energy's basic and diluted earnings per share were reduced $0.26 and $0.25,
respectively, and Class G's basic and diluted earnings per share were
increased $3.31.
(12) From January 1, 1999 to October 25, 1999.
(13) During 2000, CMS Energy implemented an SEC mandated change in the method
for accounting for inventories that has affected the accounting for CMS Oil
and Gas' oil and gas inventories, which had the cumulative effect of
decreasing pre-tax operating income by $7 million, and earnings, net of
tax, by $5 million, or $0.04 per basic and diluted share of CMS Energy
Common Stock. The effects of the accounting change on assets, liabilities
and equity are not material.
(14) Excludes the write-down of our investment in Nitrotec Corporation, a
proprietary gas processing company, of $84 million pre-tax in 1999 and of
our investment in Loy Yang A of $329 million pre-tax in 2000.
(15) For the year ended December 31, 2000, fixed charges exceeded earnings by
$124 million. Earnings as defined include a $329 million pretax impairment
loss on the Loy Yang A investment. The ratio of earnings to fixed charges
would have been 1.32x excluding this amount.
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RISK FACTORS
In considering whether to purchase our Notes, you should carefully consider
all the information we have included or incorporated by reference in this
prospectus supplement and the accompanying prospectus. In particular, you should
carefully consider the risk factors described below. In addition, please read
"Forward-Looking Information" on page S-16 of this prospectus supplement, where
we describe additional uncertainties associated with our business and the
forward-looking statements in this prospectus supplement and the accompanying
prospectus.
RISKS RELATED TO THE NOTES
WE DEPEND ON DIVIDENDS FROM OUR SUBSIDIARIES TO MEET OUR DEBT SERVICE
OBLIGATIONS
Due to our holding company structure we depend on dividends from our
subsidiaries to meet our debt obligations, including the payment of any
principal or interest on the Notes. None of these entities are or will be
obligated to pay any amounts due on the Notes. Therefore, the Notes are
effectively subordinated to the payment of interest, principal and preferred
distributions on the debt, preferred securities and other liabilities of
Consumers and Enterprises and each of their subsidiaries.
Restrictions contained in Consumers' mortgage bond indenture and preferred
stock provisions and other legal restrictions limit Consumers' ability to pay
dividends or acquire its own stock from us. Based upon its Articles of
Incorporation, the most restrictive provision, as of December 31, 2000,
Consumers would be able to pay an aggregate of $373 million in dividends to us.
In the four years ending December 31, 2000, Consumers paid out 74% of its
earnings in cash dividends to us. Enterprises is also limited in the amount of
dividends it is able to pay pursuant to the Revolving Credit Facility.
If we do not receive adequate dividends or distributions from our
subsidiaries, and jointly owned enterprises we may not be able to make principal
or interest payments on the Notes.
WE MAY BE UNABLE TO PURCHASE NOTES UPON A CHANGE OF CONTROL
In the event of a change of control of our Company, each holder of Notes
may require us to purchase all or a portion of its Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest. Our
ability to purchase the Notes will be limited by the terms of our other debt
agreements and our ability to finance the purchase. It is expected that we will
issue additional debt with similar change of control provisions in the future.
If this occurs, the financial requirements for any purchases could be increased
significantly. In addition, the terms of any debt securities issued to purchase
debt under these change of control provisions may be unfavorable to us. We
cannot assure holders of Notes that we will be able to finance these purchase
obligations or obtain consents to do so from holders of Notes under other debt
agreements restricting these purchases.
RISKS RELATING TO CMS ENERGY
WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD LIMIT OUR FINANCIAL FLEXIBILITY
As of December 31, 2000, we had outstanding approximately $3.8 billion
aggregate principal amount of indebtedness (excluding subsidiaries), none of
which was secured.
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None of such indebtedness would be senior to the Notes and the Notes will not be
senior to such indebtedness. On a consolidated basis, we and our subsidiaries
had approximately $8.3 billion in total indebtedness and mandatorily redeemable
trust preferred securities as of December 31, 2000. We may incur additional
indebtedness in the future. The level of our 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, 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 assets, to refinance all or a portion of our indebtedness or to obtain
additional financings. 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.
Covenants contained in our existing debt arrangements and guarantees limit,
among other things, the incurrence of indebtedness by CMS Energy and its
subsidiaries and require maintenance of a minimum net worth and fixed-charge
coverage ratio and a maximum debt-to-capitalization ratio. 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 FACE INCREASED COMPETITION, WHICH COULD REDUCE OUR MARKET SHARES AND PROFIT
MARGINS
Regulatory changes and other developments have resulted and will continue
to result in increased competition in our domestic energy businesses. Generally,
increased competition threatens our market shares in certain segments of our
business and can reduce our profit margins.
Increased competition and direct access in the gas industry. Regulatory
changes have been significant in our gas utility business. These changes have
resulted in increased competition from other sellers of natural gas for sale of
the gas commodity to our customers. As a result of the regulatory changes that
separated (unbundled) the transportation and storage of natural gas from the
sale of natural gas by interstate pipelines
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and Michigan gas distributors, Consumers offers unbundled services
(transportation and some storage) to its larger end-use customers who choose to
acquire gas supplies from alternative sources. Additionally, to prepare for the
unbundled market, Consumers is conducting an expanded gas customer choice pilot
program which, through March 2001, will allow 300,000 residential, commercial
and industrial retail gas sales customers to choose an alternative gas supplier
in direct competition with Consumers as a supplier of the gas commodity. In
October 2000 the MPSC issued orders that adopted the terms and conditions for
providing permanent gas customer choice for Michigan customers through which all
of Consumers' gas customers will be able to select an alternate gas supplier
beginning April 1, 2003. At this time, we do not know the full impact of
competition.
Increased competition and direct access in the electric industry. 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 direct access in the State of Michigan. Under the
Customer Choice Act, all electric customers will have the choice of electric
generation suppliers by January 1, 2002.
Increased competition in the gas pipeline industry. Since we have completed
the acquisition of the Panhandle Companies, a significant portion of our
domestic revenue and cash flow comes from our interstate pipeline business. The
Federal Energy Regulatory Commission ("FERC") policy allows the issuance of
certificates authorizing the construction of new interstate pipelines which are
competitive with existing pipelines. A number of new pipeline and pipeline
expansion projects have been approved or are pending approval by the FERC in
order to transport large additional volumes of natural gas to the midwestern
United States from Canada. These pipelines will be able to compete with
Panhandle's pipelines. Increased competition could reduce the volumes of gas
transported by Panhandle to their existing markets or cause them to lower rates
in order to meet competition. This could lower the financial benefits we receive
from the acquisition of the Panhandle Companies.
NEW ELECTRIC RESTRUCTURING LEGISLATION COULD ADVERSELY AFFECT OUR BUSINESS
Federal and state regulation of electric and natural gas utilities,
interstate pipelines and independent electric power producers 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.
In June 2000, the Michigan Legislature enacted the Customer Choice Act that
became effective June 5, 2000. The Customer Choice Act first reduced residential
rates by 5% then froze them as of the June 2000 effective date of this new
legislation through December 31, 2003. All other electric rates are frozen
through December 31, 2003 without first being reduced. After that date, electric
rates are subject to a rate cap. The length of the rate cap varies depending
upon whether the customer is a residential, commercial or industrial customer,
among other determinations. Ultimately, the rate cap could extend until December
31, 2013 depending upon whether Consumers and two other utilities jointly
complete expansion of available transmission capability in the state of Michigan
of at least 2,000 MW and do not exceed the market control test established by
the legislation (a requirement Consumers is currently in compliance with). Under
circumstances specified in the Customer Choice Act, certain costs can be
deferred for future recovery after the expiration of the rate cap period.
However, the rate cap could result in Consumers being unable to collect customer
rates sufficient to recover fully its cost of doing business. Some
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of these costs may be wholly or partially beyond Consumers' power to control. In
particular, to the extent Consumers may need to purchase power from wholesale
suppliers at market-based prices during the period when retail rates are frozen
or capped, it may be difficult to purchase power at prices that can be recovered
in rates. As a result, it is not certain that Consumers' profit margins in its
electric utility business will be maintained over the long run.
The Customer Choice Act and existing MPSC restructuring orders provide for
recovery of the stranded costs associated with customers purchasing power from
other sources. The Customer Choice Act also permits the MPSC annually to review
Consumers' stranded cost recovery charges implemented for the preceding 12
months, and adjust the stranded costs recovery charge (a true-up adjustment), by
way of supplemental surcharges or credits, to allow the netting of stranded
costs. In an order issued in October 2000, the MPSC initiated a proceeding to
implement the provisions of the Customer Choice Act regarding the calculation of
stranded costs. Consumers is uncertain how the MPSC will ultimately calculate
the amount of stranded costs and the true-up adjustments, and the manner in
which the annual stranded cost true-up operates.
The Customer Choice Act also allows for securitization of stranded costs,
which fit the definition under the Customer Choice Act of "qualified costs" for
securitization purposes, in order to offset the earnings impact of the 5%
residential rate reduction mandated by the legislation. In accordance with the
securitization provisions of the Customer Choice Act, Consumers filed an
application, and a supplement thereto, in July 2000, to begin the securitization
process for approximately $470 million in qualified costs. The MPSC issued a
financing order and a final financing order in October 2000 and January 2001,
respectively, authorizing securitization of approximately $470 million in
qualified costs plus the expenses of securitization. Cost savings from
securitization depend upon the level of debt or equity securities ultimately
retired, the amortization schedule for the securitized qualified costs and the
interest rates of the retired debt securities and the securitization bonds.
These savings will only be determined once the securitization bonds are issued
and will offset up to the full amount of the revenue impact of the 5%
residential rate reduction, $51 million on an annual basis, that Consumers was
required to implement by the Customer Choice Act. Consumers accepted the MPSC's
final financing order. The financing orders have been appealed by the Attorney
General of Michigan. We cannot predict the outcome of the appeal or its effect
on the schedule for issuance of the securitization bonds. Ultimately, sale of
securitization bonds will be required to offset substantially all of the CMS
Energy revenue impact of the rate reduction over the term of the bonds.
WE HAVE MADE SUBSTANTIAL INTERNATIONAL INVESTMENTS
Our international investments in approximately 20 countries in electric
generating facilities, oil and gas exploration, production and processing
facilities, natural gas pipelines and electric distribution systems face a
number of risks inherent in acquiring, developing and owning these types of
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 the investment may have to be
abandoned or disposed of at a loss. These factors
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could significantly adversely affect the financial results of the affected
subsidiary and, in turn, our growth plans for Enterprises' international
investments and our financial position and results of operations.
Financial risk during development phase. In developing new projects,
significant time and expense is required to prepare proposals or competitive
bids, obtain the numerous required permits, licenses and approvals, negotiate
the necessary agreements with governmental and private parties, and obtain
financing. Money spent for these purposes is at risk until all these elements
are successfully finalized. It is often impractical to finalize all elements
before significant sums have been spent. As a result, there is a risk that these
up-front expenditures will be of little value if one of the required approvals
or other elements is not finally achieved and the project does not go forward or
is not completed.
Expropriation and violation of agreements by third parties. International
investments of the type we are making 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.
Foreign currency risk. The local foreign currency may be devalued or 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.
WE COULD INCUR SIGNIFICANT CAPITAL EXPENDITURES TO COMPLY WITH ENVIRONMENTAL
STANDARDS
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.
The Environmental Protection Agency ("EPA") in 1997 introduced new
regulations regarding nitrogen oxide and particulate-related emissions that were
the subject of litigation. The United States Supreme Court recently found that
the EPA has power to revise the standards but found that the EPA implementation
plan was not lawful. In 1998, the EPA Administrator issued final regulations
requiring the State of Michigan to further limit nitrogen oxide emissions. The
EPA has also issued additional final regulations regarding nitrogen oxide
emissions which require certain generators, including some of Consumers electric
generating facilities, to achieve the same emission rate as that required by the
1998 plan. Various challenges to these final rules have filed. These regulations
will require us to make significant capital expenditures. The estimated cost to
Consumers would be between $290 million and $500 million, calculated in year
2000 dollars. Consumers anticipates that it will incur these capital
expenditures between 2000 and either 2003 and 2004. In addition, Consumers
expects to incur costs of removal related to this effort, but is unable to
predict the amount at this time.
Consumers may need an equivalent amount of capital expenditures to comply
with the new small particulate standards sometime after 2004 if those standards
become effective.
These and other required environmental expenditures may have a material
adverse effect upon our financial condition and results of operations.
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FORWARD-LOOKING INFORMATION
From time to time, we may make statements regarding our assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "Forward-Looking Statements" under the Private
Securities Litigation Reform Act of 1995. We caution that these statements may
and often do vary from actual results and the differences between these
statements and actual results can be material. Accordingly, we cannot assure you
that actual results will not differ materially from those expressed or implied
by the forward-looking statements. Some of the factors that could cause actual
achievements and events to differ materially from those expressed or implied in
any forward-looking statements are:
- the ability to achieve operating synergies and revenue enhancements;
- capital and financial market conditions, including the current price of
our common stock, interest rates and availability of financing;
- market perceptions of the energy industry, our company or any of our
subsidiaries;
- our or any of our subsidiaries' securities ratings;
- currency exchange controls;
- factors affecting utility and diversified energy operations such as
unusual weather conditions, catastrophic weather-related damage,
unscheduled generation outages, maintenance or repairs, unanticipated
changes to fossil fuel, nuclear fuel or gas supply costs or availability
due to higher demand, shortages, transportation problems or other
developments;
- environmental incidents;
- electric transmission or gas pipeline system constraints;
- international, national, regional and local economic, competitive and
regulatory conditions and developments;
- adverse regulatory or legal decisions, including environmental laws and
regulations;
- pace of implementation and provisions for deregulation of the natural gas
industry, whether by legislative or regulatory action;
- implementation of the Michigan electric industry restructuring
legislation, including the sale of securitization bonds;
- federal regulation of electric sales and transmission of electricity that
grants independent power producers, electricity marketers and other
utilities "direct access" to the interstate electric transmission systems
owned by electric utilities, creating opportunities for competitors to
market electricity to our wholesale customers;
- energy markets, including the timing and extent of unanticipated changes
in commodity prices for oil, coal, natural gas, natural gas liquids,
electricity and certain related products due to higher demand, shortages,
transportation problems or other developments;
- the timing and success of business development efforts;
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- potential disruption, expropriation or interruption of facilities or
operations due to accidents or political events and the ability to get 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;
- technological developments in energy production, delivery and usage;
- financial or regulatory accounting principles or policies;
- cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- limitations on our ability to control the development or operation of
projects in which our subsidiaries have minority interests; and
- other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
These and other factors are discussed more completely in our public filings
with the SEC, including our annual report on Form 10-K for the year ended
December 31, 2000.
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USE OF PROCEEDS
The net proceeds to us from this offering, after deducting underwriting
discounts and commissions, will be approximately $337.4 million. We intend to
use approximately $250 million of the net proceeds to us to reduce borrowings
under our $1 billion revolving credit facility with The Chase Manhattan Bank, as
lead agent (the "Revolving Credit Facility"). The remainder of the net proceeds
will be used to pay down long-term debt or for general corporate purposes. The
Revolving Credit Facility has a weighted average interest rate of 8.39% as of
February 28, 2001.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the years ended December
31, 1996 through 2000 are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998 1999 2000
----- ----- ----- ----- ----
Ratio of earnings to fixed charges............ 1.96x 1.78x 1.59x 1.38x -(1)
For the purpose of computing the ratio, earnings represent net income
before income taxes, net interest charges and the estimated interest portions of
lease rentals.
(1) For the year ended December 31, 2000, fixed charges exceeded earnings by
$124 million. Earnings as defined include a $329 million pretax impairment
loss on the Loy Yang A investment. The ratio of earnings to fixed charges
would have been 1.32x excluding this amount.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2000
(1) on an actual basis and (2) as adjusted to reflect the sale of approximately
$296 million of CMS Energy common stock on February 28, 2001 and the sale of
$350 million of Notes in this offering and the application of the net proceeds
as described under "Use of Proceeds," This table should be read in conjunction
with our consolidated financial statements and related notes included in the
incorporated documents as described under "Where to Find More Information" in
the accompanying prospectus.
AS OF
DECEMBER 31, 2000
-------------------
AS
ACTUAL ADJUSTED
------- --------
(UNAUDITED)
(IN MILLIONS)
Current portion of long-term debt and capital lease
obligations(1)(8)......................................... $ 707 $ 161
======= =======
Non-current portion of capital leases....................... $ 54 $ 54
Long-term debt:
8.50% Senior Notes due 2011(1)............................ -- 350
Other long-term debt (excluding current maturities)(1).... 6,770 6,683
------- -------
Total long-term debt................................. 6,824 7,087
Total stockholders' equity:
Company-obligated mandatorily redeemable preferred
securities of:
Consumers Power Company Financing I(2)................. 100 100
Consumers Energy Company Financing II(3)............... 120 120
Consumers Energy Company Financing III(4).............. 175 175
Company-obligated convertible preferred securities of:
CMS Energy Trust I(5).................................. 173 173
CMS Energy Trust II(6)................................. 301 301
CMS Energy Trust III(7)................................ 220 220
Preferred stock of subsidiary............................. 44 44
Common stockholders' equity(8)............................ 2,361 2,657
------- -------
Total stockholders' equity........................... 3,494 3,790
------- -------
Total capitalization.............................. $10,318 $10,877
======= =======
-------------------------
(1) Adjusted to reflect the issuance of $350 million aggregate principal amount
of 8.50% Senior Notes due 2011. Approximately $250 million of the net
proceeds from this offering will be used to reduce borrowings under the
Revolving Credit Facility. The remainder of the net proceeds will be used to
pay down long-term debt or for general corporate purposes.
(2) The primary asset of Consumers Power Company Financing I is approximately
$103 million principal amount of 8.36% subordinated deferrable interest
notes due 2015 from Consumers.
(3) The primary asset of Consumers Energy Company Financing II is approximately
$124 million principal amount of 8.20% subordinated deferrable interest
notes due 2027 from Consumers.
(4) The primary asset of Consumers Energy Company Financing III is $180 million
principal amount of 9.25% subordinated deferrable interest notes due 2029
from Consumers.
(5) The primary asset of CMS Energy Trust I is approximately $178 million
principal amount of 7.75% convertible subordinated debentures due 2027 from
the Company.
(6) The primary asset of CMS Energy Trust II is approximately $310 million
principal amount of 8.625% junior subordinated deferrable interest
debentures due 2004 from the Company.
(7) The primary asset of CMS Energy Trust III is approximately $226 million
principal amount of 7.25% subordinated deferrable notes due August 2004 from
the Company.
(8) Adjusted to reflect the sale of approximately $296 million of CMS Energy
common stock on February 28, 2001.
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THE COMPANY
OVERVIEW
CMS Energy is a leading diversified energy company operating in the United
States and in selected growth markets around the world. Our two principal
subsidiaries are Consumers and CMS Enterprises. Consumers is a public utility
that provides natural gas or electricity to almost six million of the 9.9
million residents in Michigan's lower peninsula. Enterprises, through
subsidiaries, is engaged in several energy businesses in the United States and
in approximately 20 countries on five continents.
In 2000, our consolidated operating revenue was $9.0 billion and our EBITDA
was of $1.693 billion. The following table shows the EBITDA contribution from
each of our business segments:
EBITDA
-----------------
AMOUNT % TOTAL
------ -------
(MILLIONS)
CONSUMERS
Consumers electric utility.................................. $ 792 46.8%
Consumers gas utility....................................... 211 12.4
------ -----
Total Consumers........................................... 1,003 59.2
ENTERPRISES
Independent power production(1)............................. 175 10.3
Natural gas transmission, storage and processing............ 317 18.7
Oil and gas exploration and production...................... 68 4.0
International energy distribution and other non-utility
operations................................................ 61 3.6
Marketing, services and trading............................. 19 1.2
------ -----
Total Enterprises......................................... 640 37.8
OTHER....................................................... 50 3.0
------ -----
Total..................................................... $1,693 100.0%
====== =====
-------------------------
(1) Excludes the write-down of our investment in Loy Yang A of $329 million
pre-tax ($268 million after-tax).
CONSUMERS
Consumers primarily consists of our electric and gas utility operations.
Consumers was formed in Michigan in 1968 and is the successor to a corporation
organized in Maine in 1910 and which did business in Michigan from 1915 to 1968.
Consumers' consolidated operations account for a majority of our total assets
and income, as well as a substantial portion of our operating revenue.
Consumers' service areas include automotive, metal, chemical, food and wood
products and a diversified group of other industries.
ELECTRIC UTILITY OPERATIONS
Based on the number of customers, Consumers' electric utility operations,
if independent, would be the twelfth largest electric utility company in the
United States. The electric operations of Consumers include the generation,
purchase, transmission, distribution and sale of electricity. In 2000, operating
revenue from this segment was $2,676 million and total electric sales were 41
billion kWh. At year-end 2000, it served
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customers in 61 of the 68 counties of Michigan's lower peninsula. Principal
cities served include Battle Creek, Flint, Grand Rapids, Jackson, Kalamazoo,
Midland, Muskegon and Saginaw. Consumers' electric utility customer base
includes a mix of residential, commercial and diversified industrial customers,
the largest segment of which is the automotive industry. Consumers' electric
operations are not dependent upon a single customer, or even a few customers,
and the loss of any one or even a few of such customers is not reasonably likely
to have a material adverse effect on its financial condition.
At December 31, 2000, Consumers' owned and operated 29 electric generating
plants with an aggregate of 6,437 MW of capacity. Also in 2000, Consumers
purchased 2,552 MW of net capacity from other power producers, which amounted to
34.8 percent of Consumers' total system requirements, the largest of which was
the Midland Cogeneration Venture Limited Partnership in which Consumers has a
49% interest through CMS Midland. Consumers also owns 4,467 miles of overhead
transmission lines operating at 120 kilovolts and above, 61,298 miles of
electric distribution overhead lines, and substations having an aggregate
transformer capacity of 40,254,830 kilovoltamperes.
Consumers generates electricity principally from coal and nuclear fuel.
Consumers has four generating plant sites that use coal as a fuel source and
constituted 73.2 percent of its baseload capacity in 2000. In 2000, these plants
produced a combined total of 17,926 million kWhs of electricity and required 8.5
million tons of coal. On December 31, 2000, Consumers' coal inventory amounted
to approximately 50 days' supply. During 2000, Consumers owned two nuclear power
plants of which only one was operating. The Big Rock nuclear power plant was
closed permanently in 1997 and is in the process of being decommissioned. During
2000, the Palisades nuclear power plant had net generation of 5,724 million
kWhs, constituting 23.4 percent of Consumers' baseload supply. Consumers
currently has two contracts for uranium concentrates sufficient to provide up to
43 percent of Consumers fuel supply requirements for 2001. Consumers also has
contracts for conversion services and enrichment services with quantity
flexibility ranging from 40 percent to 100 percent and 50 percent and 100
percent of its nuclear fuel requirements, respectively. If spot market prices
are below the contract price, Consumers will purchase only the minimum amount of
nuclear fuel required by the contracts. Conversely, if spot market prices are
above the contracts prices, Consumers will purchase the maximum amount of
nuclear fuel allowed by the contracts to meet its requirements.
GAS UTILITY OPERATIONS
Based on the number of customers, Consumers' gas utility operations, if
independent, would be the fifth largest gas utility company in the United
States. Consumers' gas utility operations purchase, transport, store, distribute
and sell natural gas. In 2000, total deliveries of natural gas sold by Consumers
and by other sellers over Consumers' pipeline and distribution network to
ultimate customers, including the MCV Partnership, totaled 410 Bcf. Operating
revenue for 2000 was $1,196 million. As of December 31, 2000, Consumers was
authorized to provide service in 54 of the 68 counties in Michigan's lower
peninsula. Principal cities served include Bay City, Flint, Jackson, Kalamazoo,
Lansing, Pontiac and Saginaw, as well as the suburban Detroit area, where nearly
900,000 of the gas customers are located. Consumers' gas operations are not
dependent upon a single customer, or even a few customers, and the loss of any
one or even a few of such customers is not reasonably likely to have a material
adverse effect on its financial condition.
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Consumers, together with its wholly owned subsidiary, Michigan Gas Storage,
owns 24,383 miles of distribution mains and 1,629 miles of transmission lines
throughout Michigan's lower peninsula. Consumers and its subsidiary own and
operate eight compressor stations with a total of 162,000 installed horsepower.
Consumers and its subsidiary also have 14 gas storage fields located across
Michigan with an aggregate storage capacity of 330.8 Bcf.
In 2000, Consumers purchased 37.2 percent of its required gas supply under
contracts with a duration of longer than one year. Consumers also has firm
transportation agreements with affiliates and other independent pipeline
companies for the delivery of over 80 percent of its total gas supply
requirements. These contracts have expiration dates ranging January 2002 to
April 2004. Consumers transports the balance of its required gas supply under
interruptible contracts.
ENTERPRISES
NATURAL GAS TRANSMISSION
CMS Gas Transmission, formed in 1988, owns, develops and manages domestic
and international natural gas facilities. In 2000, CMS Gas Transmission's
operating revenue was $906 million. In 1999, we expanded the importance of this
business segment with the acquisition of the Panhandle Companies.
In 1999, we acquired Panhandle Eastern Pipe Line Company and its principal
subsidiaries, Trunkline Gas Company and Pan Gas Storage Company, as well as
Panhandle Eastern Pipe Line Company affiliates, Trunkline LNG Company and
Panhandle Storage Company, from subsidiaries of Duke Energy. Immediately
following the acquisition, Trunkline LNG Company and Panhandle Storage Company
became wholly owned subsidiaries of Panhandle Eastern Pipe Line Company, which
is now a wholly owned subsidiary of CMS Gas Transmission.
Panhandle is primarily engaged in the interstate transmission and storage
of natural gas. Panhandle operates a large natural gas pipeline network,
providing customers in the Midwest and Southwest with a comprehensive array of
transportation services. Panhandle's major customers include 25 utilities
located primarily in the United States Midwest market area. Panhandle's combined
throughput was 1,374 Tbtu in 2000. A majority of Panhandle's revenue comes from
long-term service agreements with local distribution company customers.
Panhandle also provides firm transportation services under contract to gas,
marketers, producers, other pipelines, electric power generators and a variety
of end-users. In addition, the pipelines offer both firm and interruptible
transportation to customers on a short-term or seasonal basis. In 2000,
Panhandle's consolidated operating revenue was $483 million.
CMS Gas Transmission has a total of 15,734 miles of pipeline in the United
States, including 154 miles of projects under construction, with a daily
capacity of approximately 8.5 Bcf. Panhandle's portion of CMS Gas Transmission's
natural gas transmission system consists of four large diameter pipelines
extending approximately 1,300 miles from producing areas in the Anadarko Basin
of Texas, Oklahoma and Kansas through the states of Missouri, Illinois, Indiana,
Ohio and into Michigan. Trunkline Gas Company's transmission system extends
approximately 1,400 miles from the Gulf Coast areas of Texas and Louisiana
through the states of Arkansas, Mississippi, Tennessee, Kentucky, Illinois and
Indiana to a point on the Indiana-Michigan border. Internationally, at December
31,
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2000, CMS Gas Transmission had ownership interests in 5,482 miles of pipelines
in Argentina and Australia.
At December 31, 2000, CMS Gas Transmission had processing capabilities of
approximately 1.0 Bcf per day of natural gas, including a hydrocarbon
fractionation plant in Michigan with a capacity of 30,000 barrels per day.
Through Panhandle, CMS Gas Transmission owns and operates 51 compressor
stations. It also has six gas storage fields with an aggregate storage capacity
of 70 Bcf. One underground storage field is used for natural gas liquids. CMS
Gas Transmission currently has two gas storage fields under development. Through
subsidiaries, CMS Gas Transmission operates 4,569 miles of gas gathering systems
with total capacity of 1.5 Bcf per day.
CMS Gas Transmission, through Panhandle, owns and operates an LNG receiving
terminal. Panhandle also owns a one-third interest in a company that plans to
extend and to convert an existing 26-inch pipeline, currently owned by Trunkline
Gas Company, from natural gas transmission service to liquid products service by
the beginning of 2002.
CMS Gas Transmission has an ownership interest in a methanol plant under
construction in Equatorial Guinea, Africa. The plant is scheduled to go into
service in mid-2001 and will have a capacity of 2,500 metric tonnes per day.
INDEPENDENT POWER PRODUCTION
CMS Generation, formed in 1986, invests in, acquires, develops, constructs
and operates non-utility power generation plants in the United States and
abroad. In 2000, the independent power production business segment's operating
revenue, which includes revenues from CMS Generation, CMS Operating, S.A., the
MCV Facility and the MCV Partnership, was $500 million.
As of December 31, 2000, CMS Generation had ownership interests in
operating power plants totaling 8,365 gross MW (3,533 net MW) throughout the
United States and abroad. At December 31, 2000, additional plants totaling
approximately 3,553 gross MW are under construction or advanced development. The
following table details CMS Generation's interest in independent power plants in
the United States as well as abroad as
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of year-end 2000 (excluding the MCV facility and plants owned by CMS Operating,
S.A., discussed further below):
OWNERSHIP INTEREST GROSS CAPACITY
LOCATION FUEL TYPE (%) (MW)
-------- --------- ------------------ --------------
DOMESTIC
California........................ Wind 8.5 72
California........................ Wind 22.7 30
California........................ Wood 37.8 36
Connecticut....................... Scrap tire 50.0 31
Maine............................. Hydro 50.0 4
Michigan.......................... Wood 50.0 35
Michigan.......................... Wood 50.0 39
Michigan.......................... Natural Gas 100.0 160
Michigan.......................... Coal 50.0 62
Michigan.......................... Natural Gas 100.0 68
Michigan.......................... Natural Gas 100.0 156
New York.......................... Hydro 1.0 14
New York.......................... Hydro 50.0 3
North Carolina.................... Wood 50.0 45
Oklahoma.......................... Natural Gas 8.8 124
Virginia.......................... Hydro 55.0 3
INTERNATIONAL
Argentina......................... Hydro 17.2 1,320
Australia......................... Coal 49.6 2,000
Chile............................. Natural Gas 50.0 555
Ghana............................. Light Fuel Oil 90.0 224
India............................. Diesel 49.0 200
India............................. Natural Gas 33.2 235
Jamaica........................... Diesel 41.2 63
Latin America..................... Various Various 912
Morocco........................... Coal 50.0 1,008
Philippines....................... Coal 47.5 96
Philippines....................... Diesel 47.5 50
Thailand.......................... Coal 66.0 300
United Arab Emirates.............. Natural Gas 40.0 370
Venezuela......................... Diesel 70 150
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In 2000, CMS Generation sold its ownership interest in a 58 MW
hydroelectric generating project located in New York and its ownership interest
in a 239 MW natural gas-fueled generating plant in New Jersey.
Through CMS Operating, S.A., we own a 128 MW natural gas power plant, and a
92.6 percent ownership interest in a 540 MW natural gas power plant, each in
Argentina. Through CMS Midland we also own a 49 percent interest in the MCV
Partnership and through a trust, we have a 35 percent indirect beneficial
interest in the MCV Facility. The MCV Partnership was formed in January 1987 to
convert a portion of an abandoned Midland County, Michigan nuclear plant owned
by Consumers into the MCV Facility. The MCV Facility has gross capacity of
approximately 1,370 MW (671 net MW).
OIL AND GAS EXPLORATION AND PRODUCTION
CMS Oil and Gas, formed in 1967, conducts oil and gas exploration and
development operations in the United States, and in six other countries. In
2000, CMS Oil and Gas achieved production levels of 7.27 million barrels of oil,
condensate and plant products and 17.56 Bcf of gas. At January 1, 2001, CMS Oil
and Gas's proven oil and gas reserves total 234.6 million net equivalent barrels
reflecting a balanced portfolio of high-quality reserves, including 45.5 percent
oil and condensate and 54.5 percent natural gas.
The following table shows net oil and gas production by CMS Oil and Gas for
the years 1998 through 2000:
1998 1999 2000
------ ------ ------
Oil and condensate (MBbls)(1).......................... 7,307 7,288 6,980
Natural gas (MMcf)(1).................................. 26,495 26,412 17,564
Plant products (MBbls)(1).............................. 413 396 287
Reserves to annual production ratio
Oil (MMBbls)......................................... 11.5 15.2 14.7
Gas (Bcf)............................................ 21.3 29.9 43.7
-------------------------
(1) Revenue interest to CMS Oil and Gas.
The following table shows CMS Oil and Gas' estimated oil and gas reserves
for the year 2000.
SOUTH
U.S. AMERICA AFRICA TOTAL
---- ------- ------ -----
Estimated Proved Developed and Undeveloped
Reserves:
Oil (MMBbls)..................................... 6.2 15.9 84.3 106.6
Gas (Bcf)........................................ 81.5 7.0 679.4 767.9
Estimated Proved Developed Reserves(1):
Oil (MMBbls)..................................... 2.4 10.8 80.8 94.1
Gas (Bcf)........................................ 61.8 7.0 679.4 748.2
-------------------------
(1) The government license in Venezuela is an oil service contract whereby CMS
Oil and Gas is paid a fee per barrel for oil discovered, lifted, and
delivered to Maraven S.A., a subsidiary of Petroleos de Venezuela S.A.
Additionally, CMS Oil and Gas receives a
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fee for reimbursement of certain capital expenditures. The volumes presented
represent actual production with respect to which CMS Oil and Gas is paid a
per barrel fee.
In 2000, CMS Oil and Gas sold all of its Northern Michigan oil and gas
properties. In that same year, it also sold its working interest in oil reserves
located in Ecuador.
INTERNATIONAL ENERGY DISTRIBUTION
CMS Electric and Gas, formed in 1996, is involved in purchasing, investing
in and operating gas and electric distribution systems worldwide. In 2000,
operating revenue was $265 million.
As of December 31, 2000, CMS Electric and Gas had ownership interests in
electric distribution companies in Venezuela, Argentina and Brazil. These
electric distribution companies serve approximately 475,000 customers with
electricity sales of 3,166 GWh in 2000. These amounts exclude the sale in
January 2000 of CMS Electric and Gas' interest in Companhia Forca Luz Cataguazes
-- Leopoldina and its subsidiaries in Brazil. In December 2000, we sold
approximately one-half of our 48 percent interest in Empressa Distribuidora de
Electricidad de Entre Rios, S.A., an electric distribution utility serving the
province of Entre Rios, Argentina, and executed an agreement to sell the
remaining 24.56 percent in 2001.
MARKETING, SERVICES AND TRADING
CMS MST, formed in 1996, provides gas, oil, and electric marketing, risk
management and energy management services to industrial, commercial, utility and
municipal energy users throughout the United States and abroad. CMS MST has
grown dramatically since its inception. We intend to use CMS MST to enhance
performance of our assets, such as gas reserves and power plants. CMS MST
markets approximately 614 Bcf of natural gas, 37,781 Gwh of electricity, 31
million barrels of crude oil and 9 million barrels of natural gas liquids. From
1997 through 2000, CMS MST also performed energy management services for 350
projects. At December 31, 2000, CMS MST had more than 10,611 customers,
transported gas on more than 40 gas pipelines and was active in 39 states and
Canada and Brazil. In 2000, CMS MST's operating revenue was $3.3 billion.
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DESCRIPTION OF THE NOTES
GENERAL
The following information concerning the Notes supplements, and should be
read in conjunction with, the statements under "Description of Securities--Debt
Securities" in the accompanying prospectus. Capitalized terms not defined herein
are used as defined in the accompanying prospectus.
The Notes will be issued as a series of Senior Debentures under the senior
debt indenture as supplemented by the eleventh supplemental indenture thereto
dated as of March 29, 2001 (the "Supplemental Indenture"), and will be limited
in aggregate principal amount to $350 million.
The Notes will be unsecured debt securities of the Company.
As of December 31, 2000, the Company had outstanding approximately $3.8
billion aggregate principal amount of indebtedness (excluding subsidiaries),
none of which was secured. None of such indebtedness would be senior to the
Notes and the Notes will not be senior to such indebtedness, except that the
Notes will be senior to certain subordinated debentures in aggregate principal
amount of $714 million, issued in connection with certain preferred securities
of subsidiary trusts. The Notes will rank equally in right of payment with all
other unsecured and unsubordinated indebtedness of the Company (excluding
subsidiaries).
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. The Notes will be obligations exclusively of
CMS Energy. CMS Energy's ability to service its indebtedness, including the
Notes, is dependent primarily upon the earnings 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. The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments.
A substantial portion of the consolidated liabilities of CMS Energy has
been incurred by its subsidiaries. Therefore, CMS Energy's rights and the rights
of its creditors, including Holders of Notes, to participate in the distribution
of assets of any subsidiary upon the latter's liquidation or reorganization will
be subject to prior claims of the subsidiary's creditors, including trade
creditors, except to the extent that CMS Energy may itself be a creditor with
recognized claims against the subsidiary (in which case the claims of CMS Energy
would still be subject to the prior claims of any secured creditor of such
subsidiary and of any holder of indebtedness of such subsidiary that is senior
to that held by CMS Energy).
The Notes will be issued in the form of one or more global notes (each, a
"Global Note"), in registered form, without coupons, in denominations of $1,000
or an integral multiple thereof as described under "--Book-Entry System" below.
The Global Notes will be registered in the name of a nominee of the Depository
Trust Company ("DTC"). Except as set forth under "--Certificated Notes" below,
owners of beneficial interests in a Global Note will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of any such Note and will not be considered the registered
holder thereof under the senior debt indenture.
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PAYMENT AND MATURITY
The Notes will mature on April 15, 2011, and will bear interest at the rate
of 8.50% per annum. At maturity, the Company will pay the aggregate principal
amount of the Notes then outstanding.
Each Note will bear interest from the original date of issue, payable
semiannually in arrears on April 15, and October 15, commencing on October 15,
2001.
In any case where any interest payment date, redemption date, repurchase
date or maturity of any Note shall not be a Business Day (as hereinafter
defined) at any place of payment, then payment of interest or principal (and
premium, if any) need not be made on such date, but may be made on the next
succeeding Business Day at such place of payment with the same force and effect
as if made on the interest payment date, redemption date, repurchase date or at
maturity; and no interest shall accrue on the amount so payable for the period
from and after such interest payment date, redemption date, repurchase date or
maturity, as the case may be, to such Business Day.
OPTIONAL REDEMPTION
The Notes will be redeemable at the Company's option, in whole or in part,
at any time or from time to time, at a redemption price equal to 100% of the
principal amount of such Notes being redeemed plus the Applicable Premium, if
any, thereon at the time of redemption, together with accrued interest, if any,
thereon to the redemption date. In no event will the redemption price be less
than 100% of the principal amount of the Notes plus accrued interest, if any,
thereon to the redemption date.
The following definitions are used to determine the Applicable Premium:
"Applicable Premium" means, with respect to a Note (or portion thereof)
being redeemed at any time, the excess of (A) the present value at such time of
the principal amount of such Note (or portion thereof) being redeemed plus all
interest payments due on such Note (or portion thereof) after the redemption
date, which present value shall be computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the principal amount of such Note
(or portion thereof) being redeemed at such time. For purposes of this
definition, the present values of interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) (the
"Statistical Release") which has become publicly available at least two Business
Days prior to the redemption date or, in case of defeasance, prior to the date
of deposit (or, if such Statistical Release is no longer published, any publicly
available source of similar market data) most nearly equal to the then remaining
average life to stated maturity of the Notes; provided, however, that if the
average life to stated maturity of the Notes is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given.
If less than all of the Notes are to be redeemed, the trustee under the
senior debt indenture shall select, in such manner as it shall deem appropriate
and fair, the particular
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Notes or portions thereof to be redeemed. Notice of redemption shall be given by
mail not less than 30 nor more than 60 days prior to the date fixed for
redemption to the Holders of Notes to be redeemed (which, as long as the Notes
are held in the book-entry only system, will be DTC (or its nominee) or a
successor depositary); provided, however, that the failure to duly give such
notice by mail, or any defect therein, shall not affect the validity of any
proceedings for the redemption of Notes as to which there shall have been no
such failure or defect. On and after the date fixed for redemption (unless the
Company shall default in the payment of the Notes or portions thereof to be
redeemed at the applicable redemption price, together with accrued interest, if
any, thereon to such date), interest on the Notes or the portions thereof so
called for redemption shall cease to accrue.
No sinking fund is provided for the Notes.
PURCHASE OF NOTES UPON CHANGE IN CONTROL
In the event of any Change in Control (as defined below) each Holder of a
Note will have the right, at such Holder's option, subject to the terms and
conditions of the senior debt indenture, to require the Company to repurchase
all or any part of such Holder's Note on a date selected by the Company that is
no earlier than 60 days nor later than 90 days (the "Change in Control Purchase
Date") after the mailing of written notice by the Company of the occurrence of
such Change in Control, at a repurchase price payable in cash equal to 101% of
the principal amount of such Notes plus accrued interest, if any, thereon to the
Change in Control Purchase Date (the "Change in Control Purchase Price").
Within 30 days after the Change in Control Date, the Company is obligated
to mail to each Holder of a Note a notice regarding the Change in Control, which
notice shall state, among other things:
- that a Change in Control has occurred and that each such Holder has the
right to require the Company to repurchase all or any part of such
Holder's Notes at the Change in Control Purchase Price;
- the Change in Control Purchase Price;
- the Change in Control Purchase Date;
- the name and address of the Paying Agent; and
- the procedures that Holders must follow to cause the Notes to be
repurchased.
To exercise this right, a Holder must deliver a written notice (the "Change
in Control Purchase Notice") to the Paying Agent at its corporate trust office
in Detroit, Michigan, or any other office of the Paying Agent maintained for
such purposes, not later than 30 days prior to the Change in Control Purchase
Date. The Change in Control Purchase Notice shall state:
- the portion of the principal amount of any Notes to be repurchased, which
must be $1,000 or an integral multiple thereof;
- that such Notes are to be repurchased by the Company pursuant to the
applicable change-in-control provisions of the senior debt indenture; and
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- unless the Notes are represented by one or more Global Notes, the
certificate numbers of the Notes to be repurchased.
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent not later than three
Business Days prior to the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and, if applicable, the certificate
numbers of the Notes as to which the withdrawal notice relates and the principal
amount, if any, which remains subject to a Change in Control Purchase Notice.
If a Note is represented by a Global Note, the Depositary (as defined
herein) or its nominee will be the holder of such Note and therefore will be the
only entity that can require the Company to repurchase Notes upon a Change in
Control. To obtain repayment with respect to such Note upon a Change in Control,
the beneficial owner of such Note must provide to the broker or other entity
through which it holds the beneficial interest in such Note (1) the Change in
Control Purchase Notice signed by such beneficial owner, and such signature must
be guaranteed by a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. ("NASD") or a commercial
bank or trust company having an office or correspondent in the United States and
(2) instructions to such broker or other entity to notify the Depositary of such
beneficial owner's desire to cause the Company to repurchase such Notes. Such
broker or other entity will provide to the Paying Agent (1) a Change in Control
Purchase Notice received from such beneficial owner and (2) a certificate
satisfactory to the Paying Agent from such broker or other entity that it
represents such beneficial owner. Such broker or other entity will be
responsible for disbursing any payments it receives upon the repurchase of such
Notes by the Company.
Payment of the Change in Control Purchase Price for a Note in registered,
certificated form (a "Certificated Note") for which a Change in Control Purchase
Notice has been delivered and not withdrawn is conditioned upon delivery of such
Certificated Note (together with necessary endorsements) to the Paying Agent at
its office in Detroit, Michigan, or any other office of the Paying Agent
maintained for such purpose, at any time (whether prior to, on or after the
Change in Control Purchase Date) after the delivery of such Change in Control
Purchase Notice. Payment of the Change in Control Purchase Price for such
Certificated Note will be made promptly following the later of the Change in
Control Purchase Date or the time of delivery of such Certificated Note.
If the Paying Agent holds, in accordance with the terms of the senior debt
indenture, money sufficient to pay the Change in Control Purchase Price of a
Note on the Business Day following the Change in Control Purchase Date for such
Note, then, on and after such date, interest on such Note will cease to accrue,
whether or not such Note is delivered to the Paying Agent, and all other rights
of the Holder shall terminate (other than the right to receive the Change in
Control Purchase Price upon delivery of the Note).
Under the senior debt indenture, a "Change in Control" means an event or
series of events by which:
- the Company ceases to beneficially own, directly or indirectly, at least
80% of the total voting power of all classes of Capital Stock then
outstanding of Consumers (whether arising from issuance of securities of
the Company or Consumers, any direct or indirect transfer of securities
by the Company or Consumers, any merger, consolidation, liquidation or
dissolution of the Company or Consumers or
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otherwise); or any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as such term is used in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person or group shall be deemed to have "beneficial
ownership" of all shares that such person or group has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the Voting
Stock of the Company; or
- the Company consolidates with or merges into another corporation or
directly or indirectly conveys, transfers or leases all or substantially
all of its assets to any person, or any corporation consolidates with or
merges into the Company, in either event pursuant to a transaction in
which the outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities, or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is
changed into or exchanged for Voting Stock of the surviving corporation
and (B) the holders of the Voting Stock of the Company immediately prior
to such transaction retain, directly or indirectly, substantially
proportionate ownership of the Voting Stock of the surviving corporation
immediately after such transaction.
The senior debt indenture requires the Company to comply with the
provisions of Regulation 14E and any other tender offer rules under the Exchange
Act which may then be applicable in connection with any offer by the Company to
purchase Notes at the option of Holders upon a Change in Control. The Change in
Control purchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change in Control purchase feature, however, is not
the result of management's knowledge of any specific effort to accumulate shares
of its common stock or to obtain control of the Company by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by management to
adopt a series of anti-takeover provisions. Instead, the Change in Control
purchase feature is a term contained in many similar debt offerings and the
terms of such feature result from negotiations between the Company and the
underwriters. Management has no present intention to propose any anti-takeover
measures although it is possible that the Company could decide to do so in the
future.
No Note may be repurchased by the Company as a result of a Change of
Control if there has occurred and is continuing an Event of Default described
under "Events of Default" below or in the accompanying prospectus (other than a
default in the payment of the Change in Control Purchase Price with respect to
the Notes). In addition, the Company's ability to purchase Notes may be limited
by its financial resources and its inability to raise the required funds because
of restrictions on issuance of securities contained in other contractual
arrangements.
CERTAIN RESTRICTIVE COVENANTS
The senior debt indenture contains the covenants described below. Certain
capitalized terms used below are defined under the heading "Certain Definitions"
below.
LIMITATION ON RESTRICTED PAYMENTS
Under the terms of the senior debt indenture, so long as any of the Notes
are outstanding and until the Notes are rated BBB-- or above (or an equivalent
rating) by Standard & Poor's and one Other Rating Agency, at which time the
Company will be
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permanently released from the provisions of this "Limitation on Restricted
Payments," the Company will not, and will not permit any of its Restricted
Subsidiaries, directly or indirectly, to:
- declare or pay any dividend or make any distribution on the Capital Stock
of the Company to the direct or indirect holders of its Capital Stock
(except dividends or distributions payable solely in its Non-Convertible
Capital Stock or in options, warrants or other rights to purchase such
Non-Convertible Capital Stock and except dividends or distributions
payable to the Company or a Subsidiary);
- purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company; or
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity or scheduled repayment thereof, any
Subordinated Indebtedness (any such dividend, distribution, purchase,
redemption, repurchase, defeasing, other acquisition or retirement being
hereinafter referred to as a "Restricted Payment"),
if at the time the Company or such Subsidiary makes such Restricted Payment: (1)
an Event of Default, or an event that with the lapse of time or the giving of
notice or both would constitute an Event of Default, shall have occurred and be
continuing (or would result therefrom); or (2) the aggregate amount of such
Restricted Payment and all other Restricted Payments made since May 6, 1997
would exceed the sum of: (a) $100,000,000 plus 100% of 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 such Restricted Payment (or, in case such sum shall be
a deficit, minus 100% of the deficit) and (b) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of or contribution with respect
to its Capital Stock after May 6, 1997.
The foregoing provisions will not prohibit:
- dividends or other distributions paid in respect of any class of Capital
Stock issued by the Company in connection with the acquisition of any
business or assets by the Company or a Restricted Subsidiary where the
dividends or other distributions with respect to such Capital Stock are
payable solely from the net earnings of such business or assets;
- any purchase or redemption of Capital Stock of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Redeemable Stock or
Exchangeable Stock);
- dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividends would have complied with this
covenant; or
- payments pursuant to the Tax Sharing Agreement.
LIMITATION ON CERTAIN LIENS
Under the terms of the senior debt indenture, so long as any of the Notes
are outstanding, the Company shall not create, incur, assume or suffer to exist
any Lien upon or with respect to any of its property of any character, including
without limitation any shares of Capital Stock of Consumers or Enterprises,
without making effective provision whereby the Notes shall be (so long as any
such other creditor shall be so secured)
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equally and ratably secured. The foregoing restrictions shall not apply to (a)
Liens securing Indebtedness of the Company, provided that on the date such Liens
are created, and after giving effect to such Indebtedness, the aggregate
principal amount at maturity of all the secured Indebtedness of the Company at
such date shall not exceed 5% of Consolidated Net Tangible Assets or (b) certain
liens for taxes, pledges to secure workman's compensation, other statutory
obligations and Support Obligations, certain materialman's, mechanic's and
similar liens and certain purchase money liens.
LIMITATION ON ASSET SALES
Under the terms of the senior debt indenture, so long as any of the Notes
are outstanding, the Company may not sell, transfer or otherwise dispose of any
property or assets of the Company, including Capital Stock of any Consolidated
Subsidiary, in one transaction or a series of transactions in an amount which
exceeds $50,000,000 (an "Asset Sale") unless the Company shall (1) apply an
amount equal to such excess Net Cash Proceeds to permanently repay Indebtedness
of a Consolidated Subsidiary or Indebtedness of the Company which is pari passu
with the Notes or (2) invest an equal amount not so used in clause (1) in
property or assets of related business within 24 months after the date of the
Asset Sale (the "Application Period") or (3) apply such excess Net Cash Proceeds
not so used in (1) or (2) (the "Excess Proceeds") to make an offer, within 30
days after the end of the Application Period, to purchase from the Holders on a
pro rata basis an aggregate principal amount of Notes on the relevant purchase
date equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes on the relevant purchase date and
unpaid interest, if any, to the purchase date. The Company shall only be
required to make an offer to purchase Notes from Holders pursuant to subsection
(3) if the Excess Proceeds equal or exceed $25,000,000 at any given time.
The procedures to be followed by the Company in making an offer to purchase
Notes from the Holders with Excess Proceeds, and for the acceptance of such
offer by the Holders, shall be the same as those set forth above in "-- Purchase
of Notes Upon Change of Control" with respect to a Change in Control.
LIMITATION ON CONSOLIDATION, MERGER, SALE OR CONVEYANCE
In addition to the terms of the senior debt indenture relating to
consolidations or mergers described in the accompanying prospectus, so long as
any of the Notes are outstanding and until the Notes are rated BBB-- or above
(or an equivalent rating) by Standard & Poor's and one Other Rating Agency, at
which time the Company will be permanently released from the provisions of this
"Limitation on Consolidation, Merger, Sale or Conveyance" (but not from the
provisions described in the accompanying prospectus which permit a consolidation
or merger provided that the surviving corporation assumes the obligations of the
Company under the Notes and the senior debt indenture and is organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia), the Company shall not consolidate with or merge into
any other Person or sell, lease or convey the property of the Company in the
entirety or substantially as an entirety, unless (1) immediately after giving
effect to such transaction the Consolidated Net Worth of the surviving entity is
at least equal to the Consolidated Net Worth of the Company immediately prior to
the transaction, and (2) after giving effect to such transaction, the surviving
entity would be entitled to incur at least one dollar of additional Indebtedness
(other than revolving Indebtedness to banks)
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pursuant to the first paragraph under "-- Limitation on Consolidated
Indebtedness" below. Notwithstanding the foregoing provisions, such a
transaction may constitute a Change of Control as described in "-- Purchase of
Notes Upon Change in Control" above and give rise to the right of a Holder to
require the Company to repurchase all or part of such Holder's Notes.
LIMITATION ON CONSOLIDATED INDEBTEDNESS
Under the terms of the senior debt indenture, so long as any of the Notes
are outstanding and until the Notes are rated BBB- or above (or an equivalent
rating) by Standard & Poor's and one Other Rating Agency, at which time the
Company will be permanently released from the provisions of this "Limitation on
Consolidated Indebtedness," the Company will not, and will not permit any of its
Consolidated Subsidiaries to, issue, create, assume, guarantee, incur or
otherwise become liable for (collectively, "issue"), directly or indirectly, any
Indebtedness unless the Consolidated Coverage Ratio of the Company and its
Consolidated Subsidiaries for the four consecutive fiscal quarters immediately
preceding the issuance of such Indebtedness (as shown by a pro forma
consolidated income statement of the Company and its Consolidated Subsidiaries
for the four most recent fiscal quarters ending at least 30 days prior to the
issuance of such Indebtedness after giving effect to (1) the issuance of such
Indebtedness and (if applicable) the application of the net proceeds thereof to
refinance other Indebtedness as if such Indebtedness was issued at the beginning
of the period, (2) the issuance and retirement of any other Indebtedness since
the first day of the period as if such Indebtedness was issued or retired at the
beginning of the period and (3) the acquisition of any company or business
acquired by the Company or any Subsidiary since the first day of the period
(including giving effect to the pro forma historical earnings of such company or
business), including any acquisition which will be consummated contemporaneously
with the issuance of such Indebtedness, as if in each case such acquisition
occurred at the beginning of the period) exceeds a ratio of 1.7 to 1.0.
The foregoing limitation is subject to exceptions for:
- Indebtedness of the Company to banks not to exceed $1,000,000,000 in
aggregate outstanding principal amount at any time;
- Indebtedness outstanding on the date of the Supplemental Indenture and
certain refinancings thereof;
- certain refinancings and Indebtedness of the Company to a Subsidiary or
by a Subsidiary to the Company;
- Indebtedness of a Consolidated Subsidiary issued to acquire, develop,
improve, construct or to provide working capital for a gas, oil or
electric generation, exploration, production, distribution, storage or
transmission facility and related assets; provided that such Indebtedness
is without recourse to any assets of the Company, Consumers, Enterprises,
CMS Generation, CMS Oil & Gas, CMS Electric and Gas, CMS Gas
Transmission, CMS MST or any other Designated Enterprises Subsidiary;
- Indebtedness of a Person existing at the time at which such Person became
a Subsidiary and not incurred in connection with, or in contemplation of,
such Person becoming a Subsidiary;
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- Indebtedness issued by the Company not to exceed $150,000,000 in
aggregate outstanding principal amount at any time; and
- Indebtedness of a Consolidated Subsidiary in respect of rate reduction
bonds issued to recover electric restructuring transition costs of
Consumers provided that such Indebtedness is without recourse to the
assets of Consumers.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the senior
debt indenture. Reference is made to the senior debt indenture for a full
definition of all terms as well as any other capitalized terms used herein and
not otherwise defined.
"Business Day" means a day on which banking institutions in New York, New
York or Detroit, Michigan are not authorized or required by law or regulation to
close.
"Capital Lease Obligation" of a Person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or assets to
which such lease relates.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock or letter
stock; provided that Hybrid Preferred Securities are not considered Capital
Stock for purposes of this definition.
"CMS Electric and Gas" means CMS Electric and Gas Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"CMS Gas Transmission" means CMS Gas Transmission Company (formerly known
as CMS Gas Transmission and Storage Company), a Michigan corporation and wholly-
owned subsidiary of Enterprises.
"CMS Generation" means CMS Generation Co., a Michigan corporation and
wholly-owned subsidiary of Enterprises.
"CMS MST" means CMS Marketing, Services and Trading Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"CMS Oil & Gas" means, CMS Oil & Gas Co. (formerly known as, "CMS NOMECO
Oil & Gas Co."), a Michigan corporation and wholly-owned subsidiary of the
Company.
"Consolidated Assets" means, at any date of determination, the aggregate
assets of the Company and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.
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"Consolidated Coverage Ratio" with respect to any period means the ratio of
(1) the aggregate amount of Operating Cash Flow for such period to (2) the
aggregate amount of Consolidated Interest Expense for such period.
"Consolidated Current Liabilities" means, for any period, the aggregate
amount of liabilities of the Company and its Consolidated Subsidiaries which may
properly be classified as current liabilities (including taxes accrued as
estimated), after (1) eliminating all inter-company items between the Company
and any Consolidated Subsidiary and (2) deducting all current maturities of
long-term Indebtedness, all as determined in accordance with generally accepted
accounting principles.
"Consolidated Indebtedness" means, at any date of determination, the
aggregate Indebtedness of the Company and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that Consolidated Indebtedness shall not include
any subordinated debt owned by any Hybrid Preferred Securities Subsidiary.
"Consolidated Interest Expense" means, for any period, the total interest
expense in respect of Consolidated Indebtedness of the Company and its
Consolidated Subsidiaries, including, without duplication:
- interest expense attributable to capital leases,
- amortization of debt discount,
- capitalized interest,
- cash and noncash interest payments,
- commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing,
- net costs under Interest Rate Protection Agreements (including
amortization of discount) and
- interest expense in respect of obligations of other Persons deemed to be
Indebtedness of the Company or any Consolidated Subsidiaries under the
fifth or sixth bullet points of the definition of Indebtedness,
provided, however, that Consolidated Interest Expense shall exclude (a) any
costs otherwise included in interest expense recognized on early retirement of
debt and (b) any interest expense in respect of any Indebtedness of any
Subsidiary of Consumers, CMS Generation, CMS Oil & Gas, CMS Electric and Gas,
CMS Gas Transmission, CMS MST or any other Designated Enterprises Subsidiary,
provided that such Indebtedness is without recourse to any assets of the
Company, Consumers, Enterprises, CMS Generation, CMS Oil & Gas, CMS Electric and
Gas, CMS Gas Transmission, CMS MST or any other Designated Enterprises
Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income:
- any net income of any Person if such Person is not a Subsidiary, except
that (A) the Company's equity in the net income of any such Person for
such period
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shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to
the Company or a Consolidated Subsidiary as a dividend or other
distribution and (B) the Company's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated
Net Income;
- any net income of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition;
- any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of the Company or its Consolidated
Subsidiaries which is not sold or otherwise disposed of in the ordinary
course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person; and
- any net income of any Subsidiary of Consumers, CMS Generation, CMS Oil &
Gas, CMS Electric and Gas, CMS Gas Transmission, CMS MST or any other
Designated Enterprises Subsidiary whose interest expense is excluded from
Consolidated Interest Expense, provided, however, that for purposes of
this bullet point, any cash, dividends or distributions of any such
Subsidiary to the Company shall be included in calculating Consolidated
Net Income.
"Consolidated Net Tangible Assets" means, for any period, the total amount
of assets (less accumulated depreciation or amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, and after giving effect to purchase accounting and after
deducting therefrom, to the extent otherwise included, the amounts of:
- Consolidated Current Liabilities;
- minority interests in Consolidated Subsidiaries held by Persons other
than the Company or a Restricted Subsidiary;
- excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors as evidenced by Board
resolutions;
- any revaluation or other write-up in value of assets subsequent to
December 31, 1996, as a result of a change in the method of valuation in
accordance with generally accepted accounting principles;
- unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses organization or developmental expenses and other
intangible items;
- treasury stock; and
- any cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated
Current Liabilities.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the consolidated balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such Person not more
than 90 days prior to the taking of any action
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for the purpose of which the determination is being made (and adjusted for any
material events since such date), as (1) the par or stated value of all
outstanding Capital Stock plus (2) paid-in capital or capital surplus relating
to such Capital Stock plus (3) any retained earnings or earned surplus less (A)
any accumulated deficit, (B) any amounts attributable to Redeemable Stock and
(C) any amounts attributable to Exchangeable Stock.
"Consolidated Subsidiary" means, any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Company in accordance with
generally accepted accounting principles.
"Consumers" means Consumers Energy Company, a Michigan corporation, all of
whose common stock is on the date hereof owned by the Company.
"Designated Enterprises Subsidiary" means any wholly-owned subsidiary of
Enterprises formed after the date of the Supplemental Indenture which is
designated a Designated Enterprises Subsidiary by the Board of Directors.
"Enterprises" means CMS Enterprises Company, a Michigan corporation and
wholly-owned subsidiary of the Company.
"Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock nor Redeemable Stock).
"Holder" means the Person in whose name a Note is registered in the
security register kept by the Company for that purpose.
"Hybrid Preferred Securities" means any preferred securities issued by a
Hybrid Preferred Securities Subsidiary, where such preferred securities have the
following characteristics:
- such Hybrid Preferred Securities Subsidiary lends substantially all of
the proceeds from the issuance of such preferred securities to the
Company or Consumers in exchange for subordinated debt issued by the
Company or Consumers, respectively;
- such preferred securities contain terms providing for the deferral of
distributions corresponding to provisions providing for the deferral of
interest payments on such subordinated debt; and
- the Company or Consumers (as the case may be) makes periodic interest
payments on such subordinated debt, which interest payments are in turn
used by the Hybrid Preferred Securities Subsidiary to make corresponding
payments to the holders of the Hybrid Preferred Securities.
"Hybrid Preferred Securities Subsidiary" means any business trust (or
similar entity):
- all of the common equity interest of which is owned (either directly or
indirectly through one or more wholly-owned Subsidiaries of the Company
or Consumers) at all times by the Company or Consumers;
- that has been formed for the purpose of issuing Hybrid Preferred
Securities; and
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- substantially all of the assets of which consist at all times solely of
subordinated debt issued by the Company or Consumers (as the case may be)
and payments made from time to time on such subordinated debt.
"Indebtedness" of any Person means, without duplication:
- the principal of and premium (if any) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable;
- all Capital Lease Obligations of such Person;
- all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all obligations
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business);
- all obligations of such Person for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in the bullet points above)
entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
- all obligations of the type referred to in the bullet points above of
other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable as obligor,
guarantor or otherwise; and
- all obligations of the type referred to in the bullet points above of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured.
"Lien" means any lien, mortgage, pledge, security interest, conditional
sale, title retention agreement or other charge or encumbrance of any kind.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
aggregate proceeds of such Asset Sale including the fair market value (as
determined by the Board of Directors and net of any associated debt and of any
consideration other than Capital Stock received in return) of property other
than cash, received by the Company, net of (1) brokerage commissions and other
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (2) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (3) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (4) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
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liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with generally accepted accounting principles and (b) with respect
to any issuance or sale or contribution in respect of Capital Stock, the
aggregate proceeds of such issuance, sale or contribution, including the fair
market value (as determined by the Board of Directors and net of any associated
debt and of any consideration other than Capital Stock received in return) of
property other than cash, received by the Company, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof,
provided, however, that if such fair market value as determined by the Board of
Directors of property other than cash is greater than $25 million, the value
thereof shall be based upon an opinion from an independent nationally recognized
firm experienced in the appraisal or similar review of similar types of
transactions.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
"Other Rating Agency" shall mean any one of Fitch, Inc. or Moody's
Investors Service, Inc., and any successor to any of these organizations which
is a nationally recognized statistical rating organization.
"Operating Cash Flow" means, for any period, with respect to the Company
and its Consolidated Subsidiaries, the aggregate amount of Consolidated Net
Income after adding thereto Consolidated Interest Expense (adjusted to include
costs recognized on early retirement of debt), income taxes, depreciation
expense, Amortization Expense and any noncash amortization of debt issuance
costs, any nonrecurring, noncash charges to earnings and any negative accretion
recognition.
"Paying Agent" means any person authorized by the Company to pay the
principal of (and premium, if any) or interest on any of the Notes on behalf of
the Company. Initially, the Paying Agent is the trustee under the senior debt
indenture.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision of any government.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation; provided that
Hybrid Preferred Securities are not considered Preferred Stock for purposes of
this definition.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed prior to the first anniversary of the stated maturity
of the outstanding Notes or is redeemable at the option of the holder thereof at
any time prior to the first anniversary of the stated maturity of the
outstanding Notes.
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"Restricted Subsidiary" means any Subsidiary (other than Consumers and its
subsidiaries) of the Company which, as of the date of the Company's most recent
quarterly consolidated balance sheet, constituted at least 10% of the total
Consolidated Assets of the Company and its Consolidated Subsidiaries and any
other Subsidiary which from time to time is designated a Restricted Subsidiary
by the Board of Directors, provided that no Subsidiary may be designated a
Restricted Subsidiary if, immediately after giving effect thereto, an Event of
Default or event that, with the lapse of time or giving of notice or both, would
constitute an Event of Default would exist or the Company and its Restricted
Subsidiaries could not incur at least one dollar of additional Indebtedness
pursuant to the first paragraph under "Description of the Notes Limitation on
Consolidated Indebtedness," and (1) any such Subsidiary so designated as a
Restricted Subsidiary must be organized under the laws of the United States or
any State thereof, (2) more than 80% of the Voting Stock of such Subsidiary must
be owned of record and beneficially by the Company or a Restricted Subsidiary
and (3) such Restricted Subsidiary must be a Consolidated Subsidiary.
"Standard & Poor's" shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and any successor thereto which is
a nationally recognized statistical rating organization, or if such entity shall
cease to rate the Notes or shall cease to exist and there shall be no such
successor thereto, any other nationally recognized statistical rating
organization selected by the Company which is acceptable to the trustee.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the date of the Supplemental Indenture or thereafter incurred)
which is contractually subordinated or junior in right of payment to the Notes.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
"Support Obligations" means, for any person, without duplication, any
financial obligation, contingent or otherwise, of such person guaranteeing or
otherwise supporting any debt or other obligation of any other person in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such person, direct or indirect:
- to purchase or pay (or advance or supply funds for the purchase or
payment of) such debt or to purchase (or to advance or supply funds for
the purchase of) any security for the payment of such debt;
- to purchase property, securities or services for the purpose of assuring
the owner of such debt of the payment of such debt;
- to maintain working capital, equity capital, available cash or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such debt;
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- to provide equity capital under or in respect of equity subscription
arrangements (to the extent that such obligation to provide equity
capital does not otherwise constitute debt); or
- to perform, or arrange for the performance of, any non-monetary
obligations or non-funded debt payment obligations of the primary
obligor.
"Tax-Sharing Agreement" means the Amended and Restated Agreement for the
Allocation of Income Tax Liabilities and Benefits, dated January 1, 1994, as
amended or supplemented from time to time, by and among the Company, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).
EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the Notes
will constitute an "Event of Default" with respect to the Notes:
- default for 30 days in the payment of any interest on any of the Notes;
- default in the payment when due of any of the principal of or the
premium, if any, on any of the Notes, whether at maturity, upon
redemption, acceleration, purchase by the Company at the option of the
Holders or otherwise;
- default for 60 days by the Company in the observance or performance of
any other covenant or agreement contained in the senior debt indenture
relating to the Notes after written notice thereof as provided in the
senior debt indenture;
- certain events of bankruptcy, insolvency or reorganization relating to
the Company or Consumers;
- entry of final judgments against the Company or Consumers aggregating in
excess of $25,000,000 which remain undischarged or unbonded for 60 days;
or
- a default resulting in the acceleration of indebtedness of the Company or
Consumers in excess of $25,000,000, which acceleration has not been
rescinded or annulled within ten days after written notice of such
default as provided in the senior debt indenture.
If an Event of Default on the Notes shall have occurred and be continuing,
either the trustee or the Holders of not less than 25% in aggregate principal
amount of the Notes then outstanding may declare the principal of all the Notes
and the premium thereon and interest, if any, accrued thereon to be due and
payable immediately.
The senior debt indenture provides that the trustee will be under no
obligation to exercise any of its rights or powers under the senior debt
indenture at the request, order or direction of the Holders of the Notes, unless
such Holders shall have offered to the trustee reasonable indemnity. Subject to
such provisions for indemnity and certain other limitations contained in the
senior debt indenture, the Holders of a majority in aggregate principal amount
of the Senior Debentures of each affected series then outstanding (voting
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as one class) will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or exercising
any trust or power conferred on the trustee, with respect to the Senior
Debentures of such affected series.
The senior debt indenture provides that no Holder of Notes may institute
any action against the Company under the senior debt indenture (except actions
for payment of overdue principal, premium or interest) unless such Holder
previously shall have given to the trustee written notice of default and
continuance thereof and unless the Holders of not less than 25% in aggregate
principal amount of Senior Debentures of the affected series then outstanding
(voting as one class) shall have requested the trustee to institute such action
and shall have offered the trustee reasonable indemnity, the trustee shall not
have instituted such action within 60 days of such request and the trustee shall
not have received direction inconsistent with such request by the Holders of a
majority in aggregate principal amount of the Senior Debentures of the affected
series then outstanding (voting as one class).
The senior debt indenture requires the Company to furnish to the trustee
annually a statement as to the Company's compliance with all conditions and
covenants under the senior debt indenture. The senior debt indenture provides
that the trustee may withhold notice to the Holders of the Notes of any default
affecting such Notes (except defaults as to payment of principal, premium or
interest on the Notes) if it considers such withholding to be in the interests
of the Holders of the Notes.
BOOK-ENTRY SYSTEM
The Notes will be issued initially in the form of one or more Global Notes
that will be deposited with, or on behalf of, DTC, which will act as securities
depository for the Notes. The Notes will be issued as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). DTC and any
other depository which may replace DTC as depositary for the Notes are sometimes
referred to herein as the "Depositary." Except under the limited circumstances
described below, Notes represented by Global Notes will not be exchangeable for
Certificated Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, such Depositary or such nominee, as the case may be, will be
considered the sole registered holder of the individual Notes represented by
such Global Note for all purposes under the senior debt indenture. Payments of
principal of and premium, if any, and any interest on individual Notes
represented by a Global Note will be made to the Depositary or its nominee, as
the case may be, as the registered holder of such Global Note. Except as set
forth below, owners of beneficial interests in a Global Note will not be
entitled to have any of the individual Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of any such Note and will not be considered the registered holder
thereof under the senior debt indenture, including, without limitation, for
purposes of consenting to any amendment thereof or supplement thereto as
described in the accompanying prospectus.
The following is based upon information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to
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the provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants ("Direct Participants")
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the NASD. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable to
DTC and its Participants are on file with the Commission.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note ("Beneficial Owner") is
in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the
Notes are to be accomplished by entries made on the books of Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Notes, except in the event that use of
the book-entry system for one or more Notes is discontinued.
To facilitate subsequent transfers, all Global Notes deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Global Notes with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Notes; DTC's records reflect
only the identity of the Direct Participants to whose accounts such Notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Notes.
Under its usual procedures, DTC mails an Omnibus Proxy to the Company as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Notes are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Principal and interest payments on the Notes will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with
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securities held for the accounts of customers in bearer form or registered in
"street name" and will be the responsibility of such Participant and not of DTC,
any Agents, or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal and interest to DTC
is the responsibility of the Company, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving 90 days' notice to the Company or the
trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Certificated Notes are required to be printed and
delivered in exchange for the Notes represented by the Global Notes held by the
DTC. See "Certificated Notes."
In addition, the Company may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depositary). In that
event, Certificated Notes will be printed and delivered in exchange for the
Notes represented by the Global Notes held by DTC. See "-- Certificated Notes"
below.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC. The Company believes such information to be
reliable, but the Company takes no responsibility for the accuracy thereof.
None of the Company, the underwriters, the trustee, any paying agent or the
registrar for the Notes will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CERTIFICATED NOTES
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company by the
earlier of (1) 90 days from the date the Company receives notice to the effect
that the Depositary is unwilling or unable to act, or the Company determines
that the Depositary is unable to act or (2) the effectiveness of the
Depositary's resignation or failure to fulfill its duties as Depositary, the
Company will issue Certificated Notes in exchange for the Notes represented by
the Global Notes held by the Depositary. Further, within seven days after the
occurrence of an Event of Default described in the first, second or third bullet
points under "Description of Securities -- Events of Default" in the
accompanying prospectus, the Company will issue Certificated Notes in exchange
for Notes represented by a Global Note. In addition, the Company may at any time
and in its sole discretion determine not to have Notes represented by a Global
Note and, in such event, will issue individual Certificated Notes in exchange
for the Notes represented by the Global Note. In any such instance, the owner of
a beneficial interest in a Note represented by a Global Note will be entitled to
have such Notes registered in its name and will be entitled to physical delivery
of such Note in certificated form. Individual Certificated Notes so issued will
be issued in fully registered form, without coupons, in one or more authorized
denominations as described above under "-- General."
Certificated Notes will be exchangeable for other Certificated Notes of any
authorized denominations and of a like aggregate principal amount and tenor.
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Certificated Notes may be presented for exchange as provided above, and may
be presented for registration of transfer (duly endorsed, or accompanied by a
duly executed written instrument of transfer), at the office of the trustee, in
Detroit, Michigan (the "Security Registrar"). The Security Registrar will not
charge a service charge for any registration of transfer or exchange of Notes;
however, the Company may require payment by a Holder of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
therewith, as described in the senior debt indenture. Such transfer or exchange
will be effected upon the Security Registrar or such other transfer agent, as
the case may be, being satisfied with the documents of title and identity of the
person making the request. The Company may at any time designate additional
transfer agents with respect to the Notes.
The Company shall not be required to (a) issue, exchange or register the
transfer of any Certificated Note for a period of 15 days next preceding the
mailing of notice of redemption of such Note or (b) exchange or register the
transfer of any Certificated Note or portion thereof selected, called or being
called for redemption, except in the case of any Certificated Note to be
redeemed in part, the portion thereof not so to be redeemed.
If a Certificated Note is mutilated, destroyed, lost or stolen, it may be
replaced at the office of the Security Registrar upon payment by the Holder of
such expenses as may be incurred by the Company and the Security Registrar in
connection therewith and the furnishing of such evidence and indemnity as the
Company and the Security Registrar may require. Mutilated Notes must be
surrendered before new Notes will be issued.
S-46
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus supplement, the underwriters named
below have severally agreed to purchase, and CMS has agreed to sell to them,
severally, the principal amount of Notes indicated below:
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Credit Suisse First Boston Corporation...................... $192,500,000
ABN AMRO Incorporated....................................... 21,875,000
Banc of America Securities LLC.............................. 21,875,000
Barclays Capital Inc........................................ 21,875,000
Chase Securities Inc........................................ 21,875,000
CIBC World Markets Corp..................................... 21,875,000
Salomon Smith Barney Inc.................................... 21,875,000
BNP Paribas Securities Corp................................. 8,750,000
Scotia Capital (USA), Inc................................... 8,750,000
SG Cowen Securities Corporation............................. 8,750,000
------------
Total.................................................. $350,000,000
============
The underwriters are offering the Notes subject to their acceptance of the
Notes from CMS and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the Notes offered by this prospectus supplement are subject to the approval
of certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to take and pay for all of the Notes offered by this
prospectus supplement if any such Notes are taken.
The Notes are a new issue of securities with no established trading market.
CMS does not intend to apply for listing the Notes on any securities exchange or
for quotation through any inter-dealer quotation system. CMS has been advised by
the underwriters that they presently intend to make a market in the Notes as
permitted by applicable laws and regulations. The underwriters are not
obligated, however, to make a market in any of the Notes and any such market
making may be discontinued at any time without notice at the discretion of the
underwriters. No assurances can be given as to the liquidity of, or the trading
market for, the Notes.
In order to facilitate the offering of the Notes, Credit Suisse First
Boston Corporation may engage in transactions that stabilize, maintain or
otherwise affect the price of the Notes. Specifically, Credit Suisse First
Boston Corporation may over-allot in connection with the offering, creating a
short position in the Notes for its own account. In addition, to cover
over-allotments or to stabilize the price of the Notes, Credit Suisse First
Boston Corporation may bid for, and purchase, Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. Credit Suisse First Boston
S-47
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Corporation is not required to engage in these activities and may end any of
these activities at any time.
Affiliates of each of Banc of America Securities LLC, Barclays Capital
Inc., BNP Paribas Securities Corp., Chase Securities Inc., CIBC World Markets
Corp., Salomon Smith Barney Inc., Scotia Capital, (USA) Inc. and SG Cowen
Securities Corporation act as lenders to CMS under its Revolving Credit
Facility. Since the net proceeds of this offering will be used to reduce CMS's
outstanding balance under the Revolving Credit Facility, those affiliates may
receive over 10% of the net proceeds. Under the provisions of Rule 2710(c)(8) of
the Conduct Rules of the National Association of Securities Dealers, when NASD
members such as the underwriters distribute securities of a company in which
they or their affiliates intend to receive more than 10% of the net offering
proceeds, not including underwriter compensation, the yield at which the
securities are offered can be no lower than that recommended by the "qualified
independent underwriter," as such term is defined in Rule 2720 of the Conduct
Rules of the NASD. In accordance with these requirements, Credit Suisse First
Boston Corporation is assuming the responsibilities of acting as a "qualified
independent underwriter" in pricing the offering and has conducted due
diligence. The yield on the Notes, when sold to the public the public offering
price-set forth on the page of this prospectus supplement is lower than that
recommended by Credit Suisse First Boston Corporation. From time to time, some
of the underwriters and their affiliates have provided, and continue to provide,
investment banking and commercial banking services to CMS and its affiliates.
CMS has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the Notes are made. Any resale of the Notes in Canada must be made
under applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made under available statutory
exemptions or under a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
By purchasing the Notes in Canada and accepting a purchase confirmation a
purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
the purchaser is entitled under applicable provincial securities laws to
purchase the without the benefit of a prospectus qualified under those
securities laws,
S-48
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where required by law, that the purchaser is purchasing as principal and
not as agent, and
the purchaser has reviewed the text above under Resale Restrictions.
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named herein may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon us or such
persons. All or a substantial portion of our assets and the assets of such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgement against us or such persons in Canada or to
enforce a judgment obtained in Canadian courts against such issuer or persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Notes to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any of
the Notes acquired by the purchaser in this offering. The report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from Credit Suisse First Boston
Corporation. Only one report must be filed for all Notes acquired on the same
date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of the Notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Notes in
their particular circumstances and about the eligibility of the Notes for
investment by the purchaser under relevant Canadian legislation.
S-49
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LEGAL MATTERS
Opinions as to the legality of the Notes will be rendered for CMS by
Michael D. Van Hemert, Assistant General Counsel for CMS. Certain legal matters
with respect to the Notes will be passed upon for the underwriters by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. As of December 31, 2000 an
attorney currently employed by Skadden, Arps, Slate, Meagher & Flom LLP, and
formerly employed by CMS, owned approximately 51,734 shares of CMS common stock,
10 shares of Consumers $4.50 Series preferred stock, $100 par value, and $50,000
aggregate principal amount of certain debt securities issued by CMS. As of
December 31, 2000, Mr. Van Hemert beneficially owned approximately 4,500 shares
of CMS common stock.
EXPERTS
The consolidated financial statements and schedule of CMS as of December
31, 2000 and 1999, and for each of the three years in the period ended December
31, 2000 incorporated by reference in this prospectus supplement and the
accompanying prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
Future consolidated financial statements of CMS and the reports thereon of
Arthur Andersen LLP also will be incorporated by reference in this prospectus
supplement and the accompanying prospectus in reliance upon the authority of
that firm as experts in giving those reports to the extent that said firm has
audited said consolidated financial statements and consented to the use of their
reports thereon.
S-50
51
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA PRO FORMA ACQUISITION
---------------------------------------- --------------------------
ELIMINATION
CMS RESTRUCTURING OF DUKE
ENERGY PANHANDLE AND ENERGY ACQUISITION FINANCING
HISTORICAL HISTORICAL REALIGNMENT ACTIVITIES ADJUSTMENTS TRANSACTIONS
----------- ---------- ------------- ----------- ----------- ------------
Operating revenue..................... $6,103 $133 $ (3)(b) $(2)(g) $ --
Operating expenses
Operations and maintenance........... 4,370 43 (1)(a) 4(c)
Depreciation and amortization......... 595 14 (1)(a) (1)(d) 2(h)
Property and other taxes.............. 254 7 -- --
------ ---- --- ---- --- ----
5,219 64 (2) 3 2 --
------ ---- --- ---- --- ----
Pretax operating income............... 884 69 2 (6) (4) --
Other income (deductions)............. 49 5
Fixed charges......................... 592 19 2 (13)(e) 48(j)
(9)(k)
Income before income taxes............ 341 55 -- 7 (4) (39)
Income taxes.......................... 64 21 -- 2(f) (1)(i) (13)(l)
------ ---- --- ---- --- ----
Consolidated net income............... $ 277 $ 34 $ 5 $(3) $(26)
====== ==== === ==== === ====
Basic earnings per average common
share
CMS Energy........................... $ 2.18(o)
======
Class G.............................. $ 4.21(o)
======
Diluted earnings per average common
share
CMS Energy........................... $ 2.17(o)
======
Class G.............................. $ 4.21(o)
======
Average common shares outstanding..... 110
======
CMS Energy Class G.................... 9(o)
======
PRO FORMA ACQUISITION
------------------------
CMS
INTERCOMPANY ENERGY
ELIMINATIONS PRO FORMA
------------ ---------
Operating revenue..................... $ (4)(n) $6,216
(11)(m)
Operating expenses
Operations and maintenance........... (2)(n) 4,403
(11)(m)
Depreciation and amortization......... (1)(n) 608
Property and other taxes.............. 261
---- ------
(14) 5,272
---- ------
Pretax operating income............... (1) 944
Other income (deductions)............. 54
Fixed charges......................... 639
Income before income taxes............ (1) 359
Income taxes.......................... (1) 72
---- ------
Consolidated net income............... $ -- $ 287
==== ======
Basic earnings per average common
share
CMS Energy........................... $ 2.27(o)
======
Class G.............................. $ 4.21(o)
======
Diluted earnings per average common
share
CMS Energy........................... $ 2.26(o)
======
Class G.............................. $ 4.21(o)
======
Average common shares outstanding..... 110
======
CMS Energy Class G.................... 9(o)
======
See accompanying Notes to Unaudited Pro Forma Combined Income Statement.
F-1
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CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
RESTRUCTURING AND REALIGNMENT:
(a) To reflect the results of operations of Panhandle Storage Company and
Trunkline LNG Company, both acquired by CMS Energy, and the transfer of
Panhandle's interest in Northern Border Partners LP and certain non-operating
assets to other subsidiaries of Duke Energy under the provisions of the Stock
Purchase Agreement.
ELIMINATION OF DUKE ENERGY ACTIVITIES:
(b) To reflect the elimination of rental income earned by Panhandle on an
office building, which was transferred to Duke Energy under the provisions of
the Stock Purchase Agreement.
(c) To reflect the elimination of pension income recognized by Panhandle on
the overfunded pension plans of Duke Energy. Under the provisions of the Stock
Purchase Agreement, Duke Energy transferred to CMS Energy an amount of pension
assets equivalent to the Panhandle Companies' liabilities assumed by CMS Energy.
(d) To reflect the elimination of deprecation associated with an office
building and certain other assets, which were transferred to Duke Energy under
the provisions of the Stock Purchase Agreement.
(e) To reflect a reduction in interest expense relating to the settlement
of certain short-term notes payable to Duke Energy under the provisions of the
Stock Purchase Agreement.
(f) To reflect the income tax expense effects of the pro forma adjustments
(b) through (e) at an estimated rate of 35%.
ACQUISITION ADJUSTMENTS:
(g) To reflect the elimination of non-cash amortization of deferred credits
associated with a Trunkline LNG Company rate settlement.
(h) To reflect depreciation expense on the fair value of property, plant
and equipment prospectively depreciated over a revised estimated average
remaining life of 40 years. Also reflects amortization expense over a 40-year
period of the estimated goodwill recognized in the Acquisition.
(i) To reflect the income tax expense effects of pro forma adjustment (g)
and (h) at an estimated rate of 35%.
FINANCING TRANSACTIONS:
(j) To reflect the increase of interest expense relating to the issuance of
$800 million of Panhandle senior notes with a weighted average interest rate of
6.8% and $1.1 billion of CMS Energy senior notes and trust preferred securities
with a weighted average interest rate of 7.5%.
F-2
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CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED INCOME STATEMENT -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(k) To reflect the elimination of interest expense incurred in connection
with the utilization of bridge financing facilities.
(l) To reflect the income tax expense effects of pro forma adjustment (j)
and (k) at an estimated rate of 35%.
INTERCOMPANY ELIMINATIONS:
(m) To reflect the elimination of intercompany transactions between CMS
Energy and the Panhandle Companies.
(n) To eliminate three days of activity subsequent to the acquisition which
is included in CMS Energy historical amounts.
OTHER:
(o) Reflects Class G common stock as outstanding from January 1, 1999 to
October 25, 1999. Reflects the reallocation of net income and earnings per share
as a result of the premium on exchange of Class G common stock. As a result, CMS
Energy's basic and diluted earnings per share were reduced $0.26 and $0.25,
respectively, and Class G's basic and diluted earnings per share were increased
$3.31.
F-3
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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 securities 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.
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 December 15, 2000
55
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.
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and current reports, as well as other
information, with the Securities and Exchange Commission. You may read and copy
any reports or other information that we file at the SEC's public reference room
at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549. You may
obtain information on the operation of the public reference room by calling the
SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from
commercial document retrieval services and on the internet at the SEC's web site
at http://www.sec.gov.
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
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
"Description of Securities -- 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.
2
56
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. We also encourage you to review
the discussion of our Recent Developments on pages 3-4 of this prospectus that
should be read in conjunction with the audited financial statements incorporated
herein by reference.
SEC FILINGS
(FILE NO. 1-9513) PERIOD/DATE
----------------- -----------
- Registration Statement on Form
8-B/A................................. November 21, 1996.
- Annual Report on Form 10-K............ Year ended December 31, 1999.
- Quarterly Reports on Form 10-Q........ Quarters ended March 31, 2000, June 30,
2000 and September 30, 2000.
- Current Reports on Form 8-K........... Filed February 1, 2000, May 1, 2000,
June 5, 2000, July 6, 2000, August 15,
2000, October 2, 2000, October 12, 2000,
November 1, 2000 and December 11, 2000.
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.
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
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
Telephone: (313) 436-9200
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.
We also intend to enhance our long-term growth through an active portfolio
management program that entails the ongoing sale of assets. We expect to
reinvest the proceeds from this program in assets having greater potential for
synergies with our existing or planned assets. In particular, we are reviewing
our options regarding certain assets performing below prior expectations,
including generating assets in Argentina. We also continue to seek improvement
in the operating efficiency and profitability of all assets retained in our
portfolio.
3
57
CMS ENERGY CORPORATION
We are a leading diversified energy company operating in the United States
and around the world. Our two principal subsidiaries are Consumers Energy and
CMS Enterprises. Consumers is a public utility that provides natural gas or
electricity to almost 6 million of the approximately 9.5 million residents in
Michigan's lower peninsula. Enterprises, through subsidiaries, is engaged in
several domestic and international diversified energy businesses including:
- Natural gas transmission, storage and processing;
- Independent power production;
- Oil and gas exploration and production;
- International energy distribution; and
- Energy marketing, services and trading.
RECENT DEVELOPMENTS
On November 15, 2000, Consumers issued $125 million of Floating Rate Senior
Notes due November 15, 2001 and $100 million of Floating Rate Senior Notes due
November 15, 2002. Consumers used the proceeds to repay certain indebtedness
outstanding under a short-term line of credit with Bank One, N.A., indebtedness
under a revolving credit agreement with Bank One, N.A. and others, and other
various lines of credit.
On November 22, 2000, we filed a Registration Statement on Form S-1 for our
initial public offering of common stock in CMS Oil and Gas. The filing added
$300 million of CMS Oil and Gas common stock to $100 million already on file
under a previous registration for a total of up to $400 million of CMS Oil and
Gas common stock to be offered for sale. We expect to commence the offering
during the first quarter of 2001.
On December 11, 2000 we announced that we had written down during the
fourth quarter 2000 our entire investment in Loy Yang A, a 2000 megawatt power
plant and associated coal mine in Victoria, Australia. We have a 50% ownership
interest in Loy Yang A. The write down, which will have the effect of reducing
equity by approximately $267 million after taxes and currency translation, is a
result of our inability to attract a serious purchaser for the plant and the
probability of continued unfavorable electric market prices in Victoria,
Australia, which determine Loy Yang A's sales revenue. We intend to ultimately
sell our interest in Loy Yang A.
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%
of 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
4
58
- 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 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 Bank One Trust Company, National
Association, 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 Bank One Trust Company, National Association 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
"Description of Securities -- 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.
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The principal place of business of each Trust shall be c/o CMS Energy
Corporation, Fairlane Plaza South, 330 Town Center Drive, Suite 1100, Dearborn,
Michigan 48126-2712.
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 FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges and the ratio of earnings to fixed
charges and preferred stock dividends for each of the years ended December 31,
1995 through 1999, and for the nine months ended September 30, 2000 are as
follows:
NINE MONTHS
ENDED
SEPTEMBER 30,
2000 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges...... 1.31 1.38 1.59 1.78 1.96 1.90
Ratio of earnings to fixed charges and
preferred stock dividends............. 1.25 1.28 1.43 1.59 1.75 1.74
For the purpose of computing such ratios, earnings represent net income
before income taxes, net interest charges and the estimated interest portion of
lease rentals.
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
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
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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, copies of which
are filed as exhibits to the Registration Statement of which this prospectus is
a part, and by express reference to the Registration Statement on Form 8-B/A,
which is incorporated into this prospectus by reference. See "Where to Find More
Information" herein.
The authorized capital stock of CMS Energy consists of 250 million shares
of CMS Energy Common Stock, 60 million shares of Class G Common Stock, no par
value ("Class G Common Stock") and 10 million shares of CMS Energy Preferred
Stock, $.01 par value ("Preferred Stock"). The CMS Energy Common Stock and the
Class G Common Stock are sometimes together referred to herein as the "Common
Stock." Currently there is no Class G Common Stock issued and outstanding.
COMMON STOCK
When issued and outstanding, the Class G Common Stock is intended to
reflect the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers and Michigan Gas Storage, a
subsidiary of Consumers (such businesses, collectively, have been attributed to
the "Consumers Gas Group"). The CMS Energy Common Stock is intended to reflect
the performance of all businesses of CMS Energy and its subsidiaries, including
the businesses of the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to any outstanding shares of Class G Common
Stock.
Dividend Rights and Policy; Restrictions on Dividends
Dividends on the CMS Energy Common Stock are paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
CMS Energy, including the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to any outstanding shares of the Class G Common
Stock, and other factors. Dividends are payable out of the assets of CMS Energy
legally available therefore, including the Available Class G Dividend Amount (as
defined in the Articles of Incorporation).
When issued and outstanding, dividends on the Class G Common Stock are paid
at the discretion of the Board of Directors based primarily upon the earnings
and financial condition of the Consumers Gas Group, and, to a lesser extent, CMS
Energy as a whole. Dividends are payable out of the lesser of (i) the assets of
CMS Energy legally available therefore and (ii) the Available Class G Dividend
Amount.
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Although the Available Class G Dividend Amount is intended to reflect the amount
available for dividends to holders of any outstanding Class G Common Stock, it
is also legally available for dividends to holders of CMS Energy Common Stock.
CMS Energy, in the sole discretion of its Board of Directors could pay
dividends exclusively to the holders of CMS Energy Common Stock, exclusively to
the holders of any outstanding Class G Common Stock, or to the holders of both
of such classes in equal or unequal amounts.
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, including
dividends on CMS Energy Common Stock and any outstanding Class G 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 Common Stock may be
subject to the rights of the holders, if any, of the CMS Energy Preferred Stock
including the currently issued and outstanding Series A Mandatorily Convertible
Preferred Stock. As long as the Series A Mandatorily Convertible Preferred Stock
is outstanding, CMS Energy may not pay dividends on its Common Stock unless
certain conditions are met including, but not limited to, that dividends on the
Series A Preferred Stock have been paid. See "Preferred Stock -- Dividends".
There are restrictions on CMS Energy's ability to pay dividends contained
in certain revolving credit and term loan agreements, specifically the indenture
dated as of September 15, 1992, as amended and supplemented, between CMS Energy
and NBD Bank, as Trustee, and the indenture dated as of January 15, 1994, as
amended and supplemented, between CMS Energy and The Chase Manhattan Bank, as
Trustee. A discussion of specific restrictions on CMS Energy's ability to pay
dividends will be set forth in an accompanying prospectus supplement pursuant to
which convertible Senior Debentures, Subordinated Debentures, convertible Trust
Preferred Securities, Stock Purchase Contracts, Stock Purchase Units, or CMS
Energy Common Stock are offered.
Voting Rights
The holders of CMS Energy Common Stock vote with the holders of outstanding
Class G Common Stock as a single class, except on matters which would be
required by law or the Articles of Incorporation to be voted on by class. Each
holder of Common Stock is entitled to one vote for each share of 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 a class of Common Stock, voting as a separate class, 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 class
of stock, and to authorize any amendment to the Articles of Incorporation that
would increase or decrease the aggregate number of authorized shares
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of such class (except pursuant to Section 303 of the Michigan Business
Corporation Act, which, under certain circumstances, would enable the Board of
Directors to increase the number of authorized shares to satisfy the exchange
features of the Common Stock described below) or alter or change the powers,
preferences or special rights of the shares of such class 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 all the shares of either class of Common
Stock then outstanding, voting as a separate class, 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 such class of Common Stock, either
directly by amendment to the Articles of Incorporation or indirectly by
requiring the holders of such class 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 class 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 either class of Common Stock to block any
such merger or amendment which would adversely affect the powers or special
rights of holders of such class of Common Stock.
Preemptive Rights
The Articles of Incorporation provide that holders of 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 and any future holders of issued and
outstanding shares of Class G Common Stock shall be entitled to receive, on a
per share basis, the same portion of all of the assets of CMS Energy remaining
for distribution to the holders of Common Stock, regardless of whether or not
any of such assets were attributed to the Consumers Gas Group. 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 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 relative to outstanding shares of
Class G Common Stock will be appropriately adjusted so as to avoid any dilution
in aggregate voting or liquidation rights of either class of Common Stock. For
example, in case CMS Energy were to effect a two-for-one split of Class G Common
Stock, the per share liquidation rights of CMS Energy Common Stock would be
multiplied by two in order to avoid dilution in the aggregate liquidation rights
of holders of CMS Energy Common Stock and each post-split share of Class G
Common Stock would have one-half of a vote on matters voted upon by the
Shareholders.
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Exchanges
The Articles of Incorporation do not provide for either the mandatory or
optional exchange or redemption of CMS Energy Common Stock but do provide that
Class G Common Stock may be exchanged for CMS Energy Common Stock as described
in the Registration Statement on Form 8-B/A incorporated by reference herein. If
Class G Shares are issued and outstanding in the future, CMS Energy cannot
predict the impact of the potential for such exchanges on the market prices of
CMS Energy Common Stock.
CMS Energy may exchange future issued and outstanding shares of Class G
Common Stock for a proportionate number of shares of a subsidiary that holds all
the assets and liabilities attributed to the Consumers Gas Group, and no other
assets and liabilities. If CMS Energy transfers all or substantially all of the
properties and assets attributed to the Consumers Gas Group, CMS Energy is
required, subject to certain exceptions and conditions, to exchange each
outstanding share of Class G Common Stock for a number of shares of CMS Energy
Common Stock having a Fair Market Value (defined in the Articles of
Incorporation) equal to 110% of the Fair Market Value of one share of Class G
Common Stock.
In the event any shares of Class G Common Stock are issued and
outstanding,, CMS Energy may, in the sole discretion of the Board of Directors,
at any time, exchange each outstanding share of Class G Common Stock for a
number of shares of CMS Energy Common Stock having a Fair Market Value equal to
115% of the Fair Market Value of one share of Class G Common Stock.
CMS Energy cannot predict the impact of the potential for such exchanges on
the market prices of the CMS Energy Common Stock.
Transfer Agent and Registrar
CMS Energy Common Stock is transferable at Consumers Energy Company, 212 W.
Michigan Avenue, Jackson, MI 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 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.
Series A Mandatorily Convertible Preferred Stock
The Articles of Incorporation establish one series of preferred stock
designated as "Series A Mandatorily Convertible Preferred Stock" consisting of
125,000 shares with a liquidation preference of $1,000 per share. The Series A
Preferred Stock ranks prior to any series of our 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 Common Stock. The holders of
the Series A Preferred Stock have no preemptive rights.
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Dividends
Holders of Series A Preferred Stock are not entitled to receive dividends
prior to the rate reset date. The rate reset date is the earlier of the date
when remarketing of the Series A Preferred Stock begins or the date that there
is a failure to remarket the Series A Preferred Stock because it is legally
impossible. After such date, dividends on the Series A Preferred Stock are
payable quarterly in cash at the reset dividend rate. The reset dividend rate
per annum for each dividend period beginning on the rate reset date will
generally be equal to $1,000 times the sum of (1) 7.0% plus (2) the annual
dividend yield of a share of our Common Stock.
Dividends on the Series A Preferred Stock are cumulative and accrue to the
holders of Series A Preferred Stock whether or not they are declared and,
whether or not our earnings or financial condition are sufficient to pay such
dividends in whole or in part.
As long as any Series A Preferred Stock is outstanding, we may not pay
dividends or distributions on, or purchase, redeem or otherwise acquire, subject
to certain exceptions, shares of our Common Stock unless (1) full dividends on
the Series A Preferred Stock have been paid or set aside for payment, (2) all
required amounts for purchase or retirement of, or sinking funds for,
outstanding shares of Series A Preferred Stock have been paid or set aside and
(3) we are not in default of any of our obligations to redeem the Series A
Preferred Stock.
Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or
winding up our affairs, holders of Series A Preferred Stock will be entitled to
be paid in full in cash the amount of $1,000 per share as well as all accrued
dividends to the date of the distribution or payment, whether or not earned or
declared. However, this payment right is subject to the rights of any senior
stock or parity stock that is outstanding at that time. If, upon any
liquidation, dissolution or winding up of our affairs, Series A Preferred Stock
holders and parity stock holders are not paid in full then they shall share the
amount paid out in proportion to the full amounts they would have been entitled
to.
Voting Rights
The holders of the Series A Preferred Stock are not entitled to vote,
except as set forth below or as expressly required by applicable law.
So long as any shares of Series A Preferred Stock are outstanding, the
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock will be required for any
amendment of our Articles of Incorporation which will adversely affect the
powers, preferences, privileges or rights of the Series A Preferred Stock. In
addition, the affirmative vote or consent of the holders of a least a majority
of the outstanding shares of Series A Preferred Stock will be required to
authorize, issue or increase the authorized amount of any stock of any class or
series or any security convertible into stock of any class or series ranking
prior to the Series A Preferred Stock, or to authorize our merger or
consolidation with or into another corporation or a statutory share exchange
with another corporation, subject to certain exceptions.
Redemption
At any time following a redemption event and prior to a rate reset date, we
will have the right to redeem all outstanding shares of Series A Preferred Stock
at a price of $1,000 per share, plus accrued and unpaid dividends. A redemption
event means the occurrence of any of the following:
- our consolidation or merger with or into another entity, or a statutory
exchange of securities with another entity, unless in connection with
such transaction, our outstanding shares of Common Stock immediately
preceding the transaction are converted into, exchanged for or otherwise
represent at least a majority of the outstanding common stock of the
surviving or resulting entity; or
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- the sale or conveyance of all or substantially all of our assets to
another entity, other than our subsidiary.
Mandatory Conversion
Unless previously converted at the option of the holder as described in the
next paragraph, on the third anniversary of the rate reset date, each
outstanding share of Series A Preferred Stock will automatically convert into a
number of shares of our common stock at the "CMS mandatory conversion rate" plus
accrued and unpaid dividends. The CMS mandatory conversion rate equals the
following number of shares of our Common Stock per share of Series A Preferred
Stock, subject to adjustment:
- if the average trading price of a share of our Common Stock for the
20-trading day period immediately prior to the conversion date equals or
exceeds the product of the reset price and 1.10 (the "CMS threshold
appreciation price"), the quotient of $1,000 divided by the CMS threshold
appreciation price;
- if the average trading price of a share of our Common Stock for the
20-trading day period immediately prior to the conversion date is less
than the CMS threshold appreciation price but is greater than the reset
price, the quotient of $1,000 divided by the average trading price of a
share of our Common Stock for the 20-trading day period immediately prior
to the conversion date; and
- if the average trading price of a share of our Common Stock for the
20-trading day period immediately prior to the conversion date is less
than or equal to the reset price, the quotient of $1,000 divided by the
reset price.
Conversion at the Option of the Holder
At any time before the third anniversary of the rate reset date, each
outstanding share of Series A Preferred Stock is convertible at the option of
the holder into 24.779 shares of our Common Stock, subject to certain
anti-dilution adjustments and adjustment on the rate reset date.
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. Consumers' 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' ability to pay dividends is restricted by its First Mortgage
Bond Indenture (the "Mortgage Indenture") and its Articles of Incorporation
("Articles"). The Mortgage Indenture provides that Consumers can only pay
dividends on its common stock out of retained earnings accumulated subsequent to
September 30, 1945, provided that upon such payment, there shall remain of such
retained earnings an amount equivalent to any deficiency in maintenance and
replacement expenditures as compared with maintenance and replacement
requirements since December 31, 1945. Because of restrictions in its Articles
and Mortgage Indenture, Consumers was prohibited from paying dividends on its
common stock from June 1991 to December 31, 1992. However, as of December 31,
1992, Consumers effected a quasi-reorganization in which Consumers' accumulated
deficit of $574 million was eliminated against other paid-in capital. With the
accumulated deficit eliminated, Consumers satisfied the requirements under its
Mortgage Indenture and resumed paying dividends on its common stock in May 1993.
Consumers' Articles also 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
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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 (hereinafter defined) 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 January 1, 1996, between Consumers
and Bank of New York as Trustee ("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 Preferred Securities of Consumers Power
Company Financing I, the 8.20% Trust Securities of Consumers Energy Financing II
and the 9.25% Trust Originated Preferred Securities of Consumers Energy
Financing III (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 Indenture
or the trust agreements pursuant to which the Consumers Trust Preferred
Securities were issued, (ii) a default with respect to its payment of any
obligations under the Consumers Preferred 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
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' 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 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 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
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 Bank One Trust Company, National
Associations and the trustee under the subordinated debt indenture will be The
Bank of New York.
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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.
CONCERNING THE TRUSTEES
Each of Bank One Trust Company, National Association, 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.
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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.
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.
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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.
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
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- 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.
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
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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. As of September 30, 2000, Senior Indebtedness
of CMS Energy totaled approximately $8.7 billion.
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 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
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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 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.
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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 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
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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, 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
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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 Bank One Trust Company, National Association, 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 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
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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 a 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 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 Common Stock upon an election by
the holders of the Trust Preferred Securities to convert such Trust Preferred
Securities into CMS Energy Common Stock.
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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.
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
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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.
LEGAL OPINIONS
Opinions as to the legality of certain of the Offered Securities will be
rendered for CMS Energy by Michael D. Van Hemert, 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 Jay M. Silverman, 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.
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EXPERTS
The consolidated financial statements and schedules of CMS Energy as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999 incorporated by reference in this prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31, June 30, and September 30, 2000 and 1999, Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
thereon states that they did not audit and they did not express an opinion on
that interim consolidated financial information. Accordingly, the degree of
reliance on their report on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act, for their reports on the unaudited interim consolidated
financial information. This limitation of Section 11 responsibility is because
those reports are not a "report" or "part" of the registration statement
prepared or certified by the accountants within the meaning of Section 7 and 11
of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
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 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.
If dealers are used in the sale of Offered Securities, CMS Energy and/or
the Trusts will sell such Offered Securities to the 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
or through agents designated by CMS Energy and/or the Trusts from time to time.
Any agent involved in the offer or sale of
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the Offered Securities in respect to which this prospectus is delivered will be
named, and any commissions payable by CMS Energy and/or the Trusts to such agent
will be set forth, in the prospectus supplement relating thereto. Unless
otherwise indicated in the prospectus supplement, any such agent will be acting
on a best efforts basis for the period of its appointment.
The Offered Securities may be sold directly by CMS Energy and/or the Trust
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 Trust to indemnification by CMS Energy and/or the Trust
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 Trust 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.
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