<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313)436-9261
1-5611 CONSUMERS POWER COMPANY 38-0442310
(A Michigan Corporation)
212 West Michigan Avenue
Jackson, Michigan 49201
(517)788-1030
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CMS Energy Corporation, $.01 par value, shares outstanding
at July 31, 1994 - 86,072,098
Consumers Power Company, $10 par value, shares outstanding and privately
held by CMS Energy Corporation at July 31, 1994 - 84,108,789
<PAGE>
<PAGE> 2
CMS Energy Corporation
and
Consumers Power Company
Quarterly reports on Form 10-Q
to the Securities and Exchange Commission
for the Quarter Ended June 30, 1994
This combined Form 10-Q is separately filed by CMS Energy Corporation and
Consumers Power Company. Information contained herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, Consumers Power Company makes no
representation as to information relating to any other companies
affiliated with CMS Energy Corporation.
TABLE OF CONTENTS
Page
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PART I:
CMS Energy Corporation
Report of Independent Public Accountants. . . . . . . . . . . . 6
Consolidated Statements of Income . . . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows . . . . . . . . . . . . . 8
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Common Stockholders' Equity. . . . . 11
Condensed Notes to Consolidated Financial Statements. . . . . . 12
Management's Discussion and Analysis. . . . . . . . . . . . . . 27
Consumers Power Company
Report of Independent Public Accountants. . . . . . . . . . . . 42
Consolidated Statements of Income . . . . . . . . . . . . . . . 43
Consolidated Statements of Cash Flows . . . . . . . . . . . . . 44
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 45
Consolidated Statements of Common Stockholder's Equity. . . . . 47
Condensed Notes to Consolidated Financial Statements. . . . . . 48
Management's Discussion and Analysis. . . . . . . . . . . . . . 61
PART II:
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 72
Item 4. Submission of Matters to a Vote of Security Holders. . 75
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 76
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
<PAGE>
<PAGE> 3
GLOSSARY
Certain terms used in the text and financial statements are defined below.
ABATE . . . . . . . . . . . . . . Association of Businesses Advocating
Tariff Equity
Articles. . . . . . . . . . . . . Articles of Incorporation
Attorney General. . . . . . . . . Michigan Attorney General
bcf . . . . . . . . . . . . . . . Billion cubic feet
Big Rock. . . . . . . . . . . . . Big Rock Point nuclear plant, owned by
Consumers
Clean Air Act . . . . . . . . . . Federal Clean Air Act as amended on
November 15, 1990
CMS Energy. . . . . . . . . . . . CMS Energy Corporation
CMS Gas Transmission. . . . . . . CMS Gas Transmission and Storage
Company, a subsidiary of Enterprises
CMS Generation. . . . . . . . . . CMS Generation Co., a subsidiary of
Enterprises
CMS Holdings. . . . . . . . . . . CMS Midland Holdings Company, a
subsidiary of MGL
CMS Midland . . . . . . . . . . . CMS Midland, Inc., a subsidiary of MGL
Consumers . . . . . . . . . . . . Consumers Power Company
Court of Appeals. . . . . . . . . Michigan Court of Appeals
Detroit Edison. . . . . . . . . . The Detroit Edison Company
DNR . . . . . . . . . . . . . . . Michigan Department of Natural
Resources
DOE . . . . . . . . . . . . . . . U. S. Department of Energy
DSM . . . . . . . . . . . . . . . Demand-side management
Enterprises . . . . . . . . . . . CMS Enterprises Company, a subsidiary
of CMS Energy
EPA . . . . . . . . . . . . . . . Environmental Protection Agency
FASB. . . . . . . . . . . . . . . Financial Accounting Standards Board
FERC. . . . . . . . . . . . . . . Federal Energy Regulatory Commission
FMLP. . . . . . . . . . . . . . . First Midland Limited Partnership
GCR . . . . . . . . . . . . . . . Gas cost recovery
GPSLP . . . . . . . . . . . . . . Genesee Power Station Limited
Partnership
GTN . . . . . . . . . . . . . . . $250 million CMS Energy General Term
Notes, Series A
kWh . . . . . . . . . . . . . . . Kilowatt-hour
mcf . . . . . . . . . . . . . . . Thousand cubic feet
MCV . . . . . . . . . . . . . . . Midland Cogeneration Venture
MCV Bonds . . . . . . . . . . . . Collectively, senior secured lease
obligation bonds and subordinated
secured lease obligation bonds issued
in connection with the leveraged-lease
financing of the MCV Facility, and
tax-exempt PCRBs
MCV Facility. . . . . . . . . . . A natural gas-fueled, combined cycle
cogeneration facility operated by the
MCV Partnership
MCV Partnership . . . . . . . . . Midland Cogeneration Venture Limited
Partnership
MichCon . . . . . . . . . . . . . Michigan Consolidated Gas Company
Michigan Gas Storage. . . . . . . Michigan Gas Storage Company, a
subsidiary of Consumers
MMBtu . . . . . . . . . . . . . . Million British thermal unit
MMCG. . . . . . . . . . . . . . . Michigan Municipal Cooperative Group
MOAPA . . . . . . . . . . . . . . MOAPA Energy Limited Partnership, a
wholly owned affiliate of CMS
Generation
MPSC. . . . . . . . . . . . . . . Michigan Public Service Commission
MW. . . . . . . . . . . . . . . . Megawatts
NOMECO. . . . . . . . . . . . . . NOMECO Oil & Gas Co., a wholly owned
subsidiary of Enterprises
Notes . . . . . . . . . . . . . . Collectively,
Series A . . . . . . . . . . . . Series A Senior Deferred Coupon Notes
of CMS Energy due October 1, 1997
Series B . . . . . . . . . . . . Series B Senior Deferred Coupon Notes
of CMS Energy due October 1, 1999
NRC . . . . . . . . . . . . . . . Nuclear Regulatory Commission
O&M . . . . . . . . . . . . . . . Other operation and maintenance
expense
Order 636 . . . . . . . . . . . . Orders affecting interstate gas
pipelines, including Order 636A and
636B issued by the FERC in 1992, known
also as the Restructuring Rule
Palisades . . . . . . . . . . . . Palisades nuclear plant, owned by
Consumers
PCRB. . . . . . . . . . . . . . . Pollution control revenue bond
PPA . . . . . . . . . . . . . . . Power Purchase Agreement between
Consumers and the MCV Partnership with
a 35-year term commencing in March
1990
PSCR. . . . . . . . . . . . . . . Power supply cost recovery
PUHCA . . . . . . . . . . . . . . Public Utility Holding Company Act of
1935
PURPA . . . . . . . . . . . . . . Public Utility Regulatory Policies Act
of 1978
Revised Settlement Proposal . . . Request for approval of a settlement
proposal to resolve MCV cost recovery
issues, PURPA issues and court remand
as filed with the MPSC on July 7, 1992
and amended on September 8, 1992
SEC . . . . . . . . . . . . . . . Securities and Exchange Commission
Secured Credit Facility . . . . . $220 million secured Revolving Credit
Facility dated November 30, 1992
SERP. . . . . . . . . . . . . . . Supplemental Executive Retirement Plan
Settlement Order. . . . . . . . . MPSC Order issued March 31, 1993 in
MPSC Case Nos. U-10127, U-8871 and
others, and the rehearing order issued
May 26, 1993
SFAS. . . . . . . . . . . . . . . Statement of Financial Accounting
Standards
Superfund . . . . . . . . . . . . Comprehensive Environmental Response,
Compensation and Liability Act
Trunkline . . . . . . . . . . . . Trunkline Gas Company
Unsecured Credit Facility . . . . $400 million unsecured Revolving Credit
and Letter of Credit Facility dated as
of July 29, 1994
<PAGE> 5
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<PAGE>
<PAGE> 6
ARTHUR ANDERSEN & CO.
Report of Independent Public Accountants
To CMS Energy Corporation:
We have reviewed the accompanying consolidated balance sheets of
CMS Energy CORPORATION (a Michigan corporation) and subsidiaries as of
June 30, 1994 and 1993, and the related consolidated statements of income,
common stockholders' equity and cash flows for the three-month, six-month
and twelve-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statements of
long-term debt and preferred stock of CMS Energy Corporation and
subsidiaries as of December 31, 1993, and the related consolidated
statements of income, common stockholders' equity and cash flows for the
year then ended (not presented herein), and, in our report dated
January 28, 1994, we expressed an unqualified opinion on those statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1993, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
Arthur Andersen & Co.
Detroit, Michigan,
August 8, 1994.
<PAGE>
<PAGE> 7
<TABLE>
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Electric utility $ 549 $ 488 $1,094 $ 978 $2,193 $1,907
Gas utility 183 192 711 687 1,184 1,155
Oil and gas exploration and production 20 20 38 39 76 78
Independent power production 8 4 16 9 28 7
Natural gas pipeline, storage and marketing 36 37 78 73 147 128
Other - 1 1 2 4 5
---------------------------------------------------------
Total operating revenue 796 742 1,938 1,788 3,632 3,280
---------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel for electric generation 70 71 150 141 302 288
Purchased power - related parties 118 113 240 220 486 460
Purchased and interchange power 55 28 97 53 192 112
Cost of gas sold 123 132 495 481 815 797
Other 153 136 297 259 610 565
---------------------------------------------------------
Total operation 519 480 1,279 1,154 2,405 2,222
Maintenance 49 54 92 99 199 202
Depreciation, depletion and amortization 84 80 187 180 372 353
General taxes 36 46 97 106 184 192
---------------------------------------------------------
Total operating expenses 688 660 1,655 1,539 3,160 2,969
---------------------------------------------------------
PRETAX OPERATING INCOME (LOSS)
Electric utility 86 53 174 134 326 191
Gas utility 18 21 102 94 155 123
Oil and gas exploration and production 2 4 4 8 (1) 12
Independent power production 3 1 5 4 6 (5)
Natural gas pipeline, storage and marketing 3 2 6 4 9 7
Other (4) 1 (8) 5 (23) (17)
---------------------------------------------------------
Total pretax operating income 108 82 283 249 472 311
---------------------------------------------------------
INCOME TAXES 23 14 71 57 106 48
---------------------------------------------------------
NET OPERATING INCOME 85 68 212 192 366 263
---------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Income from contractual arrangements (MCV Bonds) - 8 - 16 16 33
Accretion income 4 3 7 7 13 15
Accretion expense (Note 2) (9) (9) (18) (18) (36) (18)
Loss on MCV power purchases - settlement - - - - - (520)
Other income taxes, net 4 1 7 6 18 174
Other, net 1 10 6 8 14 17
---------------------------------------------------------
Total other income (deductions) - 13 2 19 25 (299)
---------------------------------------------------------
FIXED CHARGES
Interest on long-term debt 47 50 93 101 196 191
Other interest 3 5 6 10 19 32
Capitalized interest (2) (1) (3) (2) (6) (4)
Preferred dividends 7 3 10 6 15 11
---------------------------------------------------------
Net fixed charges 55 57 106 115 224 230
---------------------------------------------------------
NET INCOME (LOSS) $ 30 $ 24 $ 108 $ 96 $ 167 $ (266)
=========================================================
AVERAGE COMMON SHARES OUTSTANDING 86 80 86 80 84 80
=========================================================
EARNINGS (LOSS) PER AVERAGE COMMON SHARE $ .35 $ .30 $ 1.27 $ 1.20 $ 1.99 $(3.33)
=========================================================
DIVIDENDS DECLARED PER COMMON SHARE $ .18 $ .12 $ .36 $ .24 $ .48 $ .48
=========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 8
<TABLE>
CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30 June 30
1994 1993 1994 1993
In Millions
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 108 $ 96 $ 167 $(266)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning depreciation of $24, $23,
$48 and $46, respectively) 187 180 372 353
Debt discount amortization 19 18 38 28
Capital lease amortization 14 16 28 38
Deferred income taxes and investment tax credit 49 52 53 (160)
Accretion expense (Note 2) 18 18 36 18
Accretion income - abandoned Midland project (7) (7) (13) (15)
MCV power purchases - settlement (Note 2) (45) (47) (82) (47)
Loss on MCV power purchases - settlement (Note 2) - - - 520
Other (6) (6) (9) (1)
Changes in other assets and liabilities 107 74 (59) 15
--------------------------------------------
Net cash provided by operating activities 444 394 531 483
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under
capital lease) (268) (230) (584) (524)
Investments in partnerships and unconsolidated subsidiaries (24) (25) (108) (37)
Investments in nuclear decommissioning trust funds (24) (23) (48) (46)
Cost to retire property, net (14) (13) (33) (18)
Deferred demand-side management costs (4) (28) (28) (47)
Proceeds from sale of property 1 - 2 11
Sale of subsidiary - - (14) -
Reduction of investments in MCV Bonds - - 322 10
Proceeds from Bechtel settlement - - - 46
Other (3) - (4) -
--------------------------------------------
Net cash used in investing activities (336) (319) (495) (605)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred stock 193 - 193 -
Proceeds from bank loans, notes and bonds 122 78 718 601
Issuance of common stock 17 - 149 -
Retirement of bonds (Note 8) (147) (51) (740) (55)
Increase (decrease) in notes payable, net (130) 26 (112) (297)
Repayment of bank loans (102) (91) (203) (92)
Payment of common stock dividends (31) (19) (61) (38)
Payment of capital lease obligations (12) (14) (24) (33)
Retirement of common stock (1) - (4) -
--------------------------------------------
Net cash provided by (used in) financing activities (91) (71) (84) 86
--------------------------------------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 17 4 (48) (36)
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 28 89 93 129
--------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 45 $ 93 $ 45 $ 93
============================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 9
<TABLE>
CMS Energy Corporation
Consolidated Balance Sheets
<CAPTION>
June 30 June 30
1994 December 31 1993
(Unaudited) 1993 (Unaudited)
In Millions
ASSETS
<S> <C> <C> <C>
PLANT AND PROPERTY (At Cost)
Electric $5,457 $5,347 $5,148
Gas 1,910 1,862 1,775
Oil and gas properties (full-cost method) 899 845 804
Other 326 294 249
----------------------------------
8,592 8,348 7,976
Less accumulated depreciation, depletion and amortization 4,173 4,022 3,910
----------------------------------
4,419 4,326 4,066
Construction work-in-progress 266 257 345
----------------------------------
4,685 4,583 4,411
----------------------------------
INVESTMENTS
First Midland Limited Partnership (Note 2) 215 213 210
Independent power production 121 115 55
Midland Cogeneration Venture Limited Partnership (Note 2) 67 67 68
Other 44 26 26
----------------------------------
447 421 359
----------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost,
which approximates market 45 28 93
Accounts receivable and accrued revenue, less
allowances of $4, $4 and $4, respectively (Note 8) 160 149 91
Inventories at average cost
Gas in underground storage 160 228 151
Materials and supplies 78 74 77
Generating plant fuel stock 26 41 27
Trunkline settlement (Note 3) 30 31 32
Deferred income taxes 19 17 -
Investment in MCV Bonds - - 322
Prepayments and other 124 195 118
----------------------------------
642 763 911
----------------------------------
NON-CURRENT ASSETS
Postretirement benefits 499 491 478
Nuclear decommissioning trust funds (Note 4) 191 165 137
Abandoned Midland project (Note 3) 155 162 169
Trunkline settlement (Note 3) 70 86 101
Other 318 293 202
----------------------------------
1,233 1,197 1,087
----------------------------------
TOTAL ASSETS $7,007 $6,964 $6,768
==================================
</TABLE>
<PAGE>
<PAGE> 10
<TABLE>
<CAPTION>
June 30 June 30
1994 December 31 1993
(Unaudited) 1993 (Unaudited)
In Millions
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<S> <C> <C> <C>
CAPITALIZATION (Note 8)
Common stockholders' equity $1,058 $ 966 $ 808
Preferred stock of subsidiary 356 163 163
Long-term debt 2,407 2,405 2,568
Non-current portion of capital leases 124 115 114
----------------------------------
3,945 3,649 3,653
----------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 262 368 237
Accounts payable 174 171 182
Accounts payable - related parties 39 46 51
Accrued taxes 141 233 160
Notes payable 129 259 241
MCV power purchases - settlement (Note 2) 82 82 81
Accrued refunds 41 28 64
Accrued interest 38 40 42
Deferred income taxes - - 35
Other 188 189 161
----------------------------------
1,094 1,416 1,254
----------------------------------
NON-CURRENT LIABILITIES
Postretirement benefits 560 540 525
Deferred income taxes 555 509 383
MCV power purchases - settlement (Note 2) 363 391 411
Deferred investment tax credits 186 191 196
Trunkline settlement (Note 3) 70 86 101
Regulatory liabilities for income taxes, net 16 6 71
Other (Note 4) 218 176 174
----------------------------------
1,968 1,899 1,861
----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 4)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $7,007 $6,964 $6,768
==================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 11
<TABLE>
CMS Energy Corporation
Consolidated Statements of Common Stockholders' Equity
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
In Millions
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
At beginning and end of period $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
-------------------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 1,684 1,539 1,672 1,539 1,543 1,537
Common Stock reacquired - - (1) - (4) -
Common Stock issued 4 - 17 - 149 -
Common Stock reissued - 4 - 4 - 6
-------------------------------------------------------------------
At end of period 1,688 1,543 1,688 1,543 1,688 1,543
-------------------------------------------------------------------
REVALUATION CAPITAL (Note 6)
At beginning of period 1 - - - - -
SFAS 115 - unrealized loss,
net of tax (2) - (1) - (1) -
-------------------------------------------------------------------
At end of period (1) - (1) - (1) -
-------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
At beginning of period (644) (751) (707) (813) (736) (432)
Net income (loss) 30 24 108 96 167 (266)
Common stock dividends declared (16) (9) (31) (19) (61) (38)
-------------------------------------------------------------------
At end of period (630) (736) (630) (736) (630) (736)
-------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY $1,058 $ 808 $1,058 $ 808 $1,058 $ 808
===================================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 12
CMS Energy Corporation
Condensed Notes to Consolidated Financial Statements
These financial statements and their related condensed notes should be
read along with the consolidated financial statements and notes contained
in the 1993 Form 10-K of CMS Energy Corporation that includes the Report
of Independent Public Accountants. In the opinion of management, the
unaudited information herein reflects all adjustments necessary to assure
the fair presentation of financial position, results of operations and
cash flows for the periods presented.
1: Corporate Structure and Basis of Presentation
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of
the Lower Peninsula of Michigan, is the principal subsidiary of CMS
Energy. Consumers' customer base includes a mix of residential,
commercial and diversified industrial customers, the largest of which is
the automotive industry. Enterprises is engaged in several non-utility
energy-related businesses including: 1) oil and gas exploration and
production, 2) development and operation of independent power production
facilities, 3) gas marketing services to utility, commercial and
industrial customers, and 4) transmission and storage of natural gas.
CMS Energy uses the equity method of accounting for investments in its
companies and partnerships where it has more than a 20 percent but less
than a majority ownership interest and includes these results in operating
revenue. For the three, six and 12 month periods ended June 30, 1994,
equity earnings were $5 million, $11 million and $19 million, respectively
and $3 million, $9 million and $7 million for the three, six and 12 month
periods ended June 30, 1993.
2: The Midland Cogeneration Venture
The MCV Partnership, which leases and operates the MCV Facility,
contracted to sell electricity to Consumers for a 35-year period beginning
in 1990 and to supply electricity and steam to The Dow Chemical Company
for 15- and 20-year periods, respectively. At June 30, 1994, Consumers,
through its subsidiaries, held the following assets related to the MCV:
1) CMS Midland owned a 49 percent general partnership interest in the MCV
Partnership; and 2) CMS Holdings held through the FMLP a 35 percent lessor
interest in the MCV Facility.
Power Purchases from the MCV Partnership
Consumers' obligation to purchase contract capacity from the MCV
Partnership under the PPA follows:
1995 and
Year 1992 1993 1994 thereafter
- ---- ---- ----- ----- ----------
MW 915 1,023 1,132 1,240
Prior to 1993, the MPSC only allowed Consumers to recover costs of power
purchased from the MCV Partnership based on delivered energy for up to 840
MW at rates less than Consumers paid. In March 1993, the MPSC approved,
with modifications, the Revised Settlement Proposal which had been co-
sponsored by Consumers, the MPSC staff and 10 small power and cogeneration
developers. These parties accepted the Settlement Order and the MCV
Partnership confirmed that it did not object to the modifications. ABATE
and the Attorney General have filed claims of appeal of the Settlement
Order with the Court of Appeals.
The Settlement Order determined the cost of power purchased from the MCV
Partnership that Consumers can recover from its electric retail customers
and significantly reduced the amount of future underrecoveries for these
power costs. Effective January 1993, the Settlement Order allowed
Consumers to recover substantially all of the payments for its ongoing
purchase of 915 MW of contract capacity from the MCV Partnership.
Capacity and energy purchases from the MCV Partnership above the 915 MW
level can be competitively bid into Consumers' next solicitation for power
or, if necessary, utilized for current power needs with a prudency review
and a cost recovery determination in annual PSCR cases. In either
instance, the MPSC would determine the levels of recovery from customers
for the power purchased. The Settlement Order also provides Consumers the
right to remarket to third parties the remaining contract capacity, the
cost of which Consumers is currently not authorized to recover from retail
customers.
The PPA requires Consumers to pay to the MCV Partnership a minimum
levelized average capacity charge of 3.77 cents per kWh, a fixed energy
charge and a variable energy charge based primarily on Consumers' average
cost of coal consumed. Consumers is scheduling deliveries of energy from
the MCV Partnership whenever it has energy available up to hourly
availability limits, or "caps," for the 915 MW of capacity authorized for
recovery in the Settlement Order. Consumers can recover an average 3.62
cents per kWh capacity charge and the prescribed energy charges associated
with the scheduled deliveries within the caps, whether or not those
deliveries are scheduled on an economic basis. Through December 1997,
there is no cap applied during on-peak hours to Consumers' recovery for
the purchase of capacity made available within the 915 MW authorized.
Recovery for purchases during off-peak hours is capped at 82 percent in
1994 and 1995, 84 percent in 1996 and 1997, increasing to 88.7 percent in
1998 and thereafter at which time the 88.7 percent cap is applicable
during all hours. For all economic energy deliveries above the caps to
915 MW, Consumers is allowed to recover 1/2 cent per kWh capacity payment
in addition to the corresponding energy charge.
In December 1992, Consumers recognized an after-tax loss of $343 million
for the present value of estimated future underrecoveries of power costs
under the PPA as a result of the Settlement Order. This loss included
management's best estimates regarding the future availability of the MCV
Facility, and the effect of the future power market on the amount, timing
and price at which various increments of the capacity above the MPSC-
authorized level could be resold. Except for adjustments to the above
loss to reflect the after-tax time value of money through accretion
expense, no additional losses are expected unless actual future experience
materially differs from management's estimates. Because the calculation
of the 1992 loss depended in part upon estimates of future unregulated
sales of energy to third parties, a more conservative or risk-free
investment rate of 7 percent was used to calculate $188 million of the
total $343 million after-tax loss. The remaining portion of the loss was
calculated using an 8.5 percent discount rate reflecting Consumers'
incremental borrowing rate as required by SFAS 90, Regulated Enterprises-
Accounting for Abandonments and Disallowances of Plant Costs. The after-
tax expense for the time value of money for the loss is estimated to be
$24 million in 1994, and various lower levels thereafter, including $22
million in 1995 and $20 million in 1996. Although the settlement loss was
recorded in 1992, Consumers' continues to experience cash underrecoveries
associated with the Settlement Order. These after-tax cash
underrecoveries, including fixed energy charges, totaled $33 million for
the first six months of 1994. Consumers believes there is and will be a
market for the resale of capacity purchases from the MCV Partnership above
the MPSC-authorized level. However, if Consumers is unable to sell any
capacity above the current MPSC-authorized level, future additional after-
tax losses and after-tax cash underrecoveries could be incurred.
Consumers' estimates of its 1994 and future after-tax cash underrecoveries
and possible additional losses for the next five years if none of the
additional capacity is sold are as follows:
After-tax, In Millions
1994 1995 1996 1997 1998
- ---------------------------------------------------------------------
Expected cash underrecoveries $56 $65 $62 $61 $ 8
Possible additional
underrecoveries and losses (a) $14 $20 $20 $22 $72
=====================================================================
(a) If unable to sell any capacity above the MPSC's authorized level
At December 31, 1993, and June 30, 1994, the after-tax, present value of
the Settlement Order liability totaled $307 million and $289 million,
respectively. The reduction in the Settlement Order liability reflects
after-tax cash underrecoveries related to capacity totaling $30 million,
partially offset by after-tax accretion expense of $12 million.
The PPA, while requiring payment of a fixed energy charge, contains a
"regulatory out" provision which permits Consumers to reduce the fixed
energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. In connection with the MPSC's approval of the Revised
Settlement Proposal, Consumers and the MCV Partnership are engaged in
arbitration proceedings under the PPA to determine whether Consumers is
entitled to exercise its regulatory out regarding fixed energy charges on
the portion of available MCV capacity above the current MPSC-authorized
levels. An arbitrator acceptable to both parties has been selected. If
the arbitrator determines that Consumers cannot exercise its regulatory
out, Consumers would be required to make these fixed energy payments to
the MCV Partnership even though Consumers may not be recovering these
costs. The arbitration proceedings will also determine who is entitled to
the fixed energy amounts for which Consumers did not receive full cost
recovery during the years prior to settlement. Although Consumers
believes its position on arbitration is sound and intends to aggressively
pursue its right to exercise the regulatory out, management cannot predict
the outcome of the arbitration proceedings or any possible settlement of
the matter. Accordingly, losses were recorded prior to 1993 for all fixed
energy amounts at issue in the arbitration. At June 30, 1994, $23 million
has been escrowed by Consumers and is included as a non-current asset in
Consumers' financial statements. In December 1993, Consumers made an
irrevocable offer to pay through September 15, 2007, fixed energy charges
to the MCV Partnership on all kWh delivered by the MCV Partnership to
Consumers from the contract capacity in excess of 915 MW, which represents
a portion of the fixed energy charges in dispute. Consumers made the
offer in connection with the sale of its remaining $309 million investment
in the MCV Bonds which was completed in 1993.
The lessors of the MCV Facility have filed a lawsuit in federal district
court in New York against CMS Energy, Consumers and CMS Holdings. It
alleges breach of contract, breach of fiduciary duty and negligent or
fraudulent misrepresentation relating to the MCV Partnership's failure to
object to the Settlement Order in light of Consumers' interpretation of
the Settlement Order, which is the subject of the arbitration between the
MCV Partnership and Consumers discussed above. The action alleges damages
in excess of $1 billion and seeks injunctive relief relative to Consumers'
payments of the fixed energy charges. CMS Energy and Consumers believe
that at all times they and CMS Holdings have conducted themselves properly
and that the action is without merit. It appears from the face of the
complaint that a significant portion of the alleged damages represent
fixed energy charges in dispute in the arbitration. CMS Energy and
Consumers have requested that the lawsuit be dismissed for lack of
jurisdiction and have commenced a lawsuit in Midland, Michigan, to address
these issues. While management believes that the possibility of the
alleged damages being awarded is remote, CMS Energy and Consumers are
unable to predict the outcome of this issue. In addition, CMS Holdings
has filed a lawsuit in the circuit court of Jackson, Michigan, seeking
reimbursement of $7 million of certain tax indemnification payments made
to its partners in the FMLP and owed to CMS Holdings. Consumers is unable
to predict the outcome of this issue.
In May 1994, Consumers was notified by the MCV that it was initiating
arbitration proceedings under the PPA to determine whether the energy
charge paid to the MCV is being properly calculated. Consumers believes
that its calculation of the energy charge is correct. The amount in
dispute, which relates to the period beginning in 1990 and continuing
through the term of the PPA, is estimated by the MCV Partnership to total
$8 million annually. The parties are in the process of selecting an
arbitrator and establishing a schedule for arbitration. Consumers cannot
predict the timing and outcome of these proceedings.
In July 1994, Consumers agreed to pay $30 million to terminate a separate
power purchase agreement with a 65 MW coal-fired cogeneration facility.
Consumers is seeking MPSC approval to substitute 65 MW of less expensive
contract capacity from the MCV Facility which Consumers is currently not
authorized to recover from retail customers. Consumers believes the
termination agreement and the proposed substitution of capacity represents
significant savings to its customers and will record a regulatory asset
for $30 million, which it believes will ultimately be recoverable in
rates.
PSCR Matters: Consistent with the terms of the 1993 Settlement Order,
Consumers withdrew its appeals of various MPSC orders issued in connection
with several PSCR cases. Consumers also agreed not to appeal any MCV-
related issues raised in future orders for these plan cases and related
reconciliations to the extent those issues are resolved by the Settlement
Order. In March 1994, the MPSC issued an order in the PSCR reconciliation
case for 1992 confirming Consumers' recovery for the purchase of 840 MW
from the MCV in accordance with the MPSC plan case order and allowing
recovery for the purchase of power above 840 MW based on replacement power
costs. In March 1994, the MPSC further confirmed, as part of a 1993 PSCR
plan case order, the recovery of MCV-related costs consistent with the
Settlement Order.
3: Rate Matters
Electric Rate Case
On May 10, 1994, the MPSC issued an order, granting Consumers a $58
million annual increase in its retail electric rates effective May 11,
1994. The order provides Consumers with higher revenues associated with
increased expenditures primarily related to capital additions, operation
and maintenance, higher depreciation and postretirement benefits computed
under SFAS 106, Employers' Accounting for Postretirement Benefits Other
than Pensions, and the continuation of certain demand-side management
programs at reduced levels. The MPSC order generally supported Consumers'
rate design proposal and reduced the level of subsidization of residential
customers by commercial and industrial customers. Residential customers
were assigned $40 million, which was 70 percent of the rate increase.
As finally revised, Consumers requested an electric rate increase for 1994
totaling $118 million and included an incremental increase request of $27
million in 1995. The MPSC's order did not provide Consumers with an
additional rate increase in 1995, but does allow Consumers to file a
separate rate-increase request for 1995. The order also differed from
Consumers' requested increase as it included a lower return on common
equity, a lower level of working capital, provided for a lower equity
ratio for Consumers' projected capital structure and reflected a $15
million decrease for lower property taxes due to a recent reduction in
state tax rates and a $9 million decrease for reduced demand-side
management program expenditures and miscellaneous costs which will not be
incurred. On June 9, 1994, Consumers filed a petition for rehearing and
clarification of this MPSC order. The petition requests reconsideration
of certain issues which include an incremental revenue requirement of $26
million for 1995, the level of rate cross-subsidization, the level of
future DSM expenditures and the calculation of DSM-related incentives and
penalties.
Special Rates: In June 1994, Consumers also filed a request with the MPSC,
seeking approval of a plan to offer competitive, special rates to certain
large qualifying customers. Consumers proposes to offer the new rates to
customers using high amounts of electricity that have expressed an
intention to or are capable of terminating purchases of electricity from
Consumers and have the ability to acquire energy from alternative sources.
To serve these customers, Consumers would use power purchases from the MCV
Partnership which exceed the 915 MW currently recoverable from electric
retail customers. The MPSC has granted an expedited hearing schedule on
this proposal that calls for final briefs to be filed in November 1994. A
final order is expected near the end of 1994.
Abandoned Midland Project: In 1984, Consumers abandoned construction of
its unfinished nuclear power plant located in Midland, Michigan, and
subsequently took a series of write-downs. In 1991, the MPSC issued
orders permitting recovery of a portion of the plant and Consumers began
collecting $35 million pretax annually for the next 10 years. Several
parties, including the Attorney General, have filed claims of appeal with
the Court of Appeals regarding MPSC orders issued in 1991 that specified
the recovery of abandoned investment. Thus far, the Court of Appeals has
not taken any action regarding these appeals.
Electric Demand-side Management: As a result of settlement discussions
regarding demand-side management and an MPSC order in 1991, Consumers
agreed to spend $65 million over two years on demand-side management
programs. Based on the MPSC's determination of Consumers' effectiveness
in implementing these programs, Consumers' future rate of return on common
equity may be adjusted either upward by up to 1 percent or downward by up
to 2 percent. This adjustment, if implemented, would be applied to
Consumers' retail electric tariff rates and be in effect for one year
following reconciliation hearings with the MPSC. The estimated revenue
effects of the potential adjustment range from an $11 million increase to
a $22 million decrease. The proceedings before the MPSC have started and
based on the criteria set out in the demand-side management settlement
agreement approved by the MPSC in 1992, Consumers has achieved all the
agreed-upon objectives. Consumers believes that the MPSC will ultimately
order a 1 percent increase on its return on common equity to be in effect
for one year. Accordingly, during the second quarter of 1994, Consumers
recognized $11 million in revenue, related to its demand-side management
program. A final order from the MPSC is expected by mid-1995.
In October 1993, Consumers completed the customer participation portion of
these DSM programs. In May 1994, as part of Consumers' electric rate
case, the MPSC issued an order that allowed Consumers to recover demand-
side management expenditures which exceeded $65 million. The order also
authorized Consumers to continue certain programs in 1994 through 1996.
Consumers is deferring program costs and amortizing the costs over the
period these costs are being recovered from its customers in accordance
with an accounting order issued by the MPSC in September 1992. The
unamortized balance of deferred costs at June 30, 1994 was $72 million.
PSCR Issues
Consumers began a planned refueling and maintenance outage at Palisades in
June 1993. Following several required, unanticipated repairs that
extended the outage, the plant returned to service in early November. In
addition, from mid-February through mid-June 1994, Palisades was
temporarily taken out of service to repair valve-leakage and conduct other
needed inspections and repairs. Recovery of replacement power costs
incurred by Consumers during these outages will be reviewed by the MPSC
during the 1993 and 1994 PSCR reconciliations of actual costs and revenues
to determine the prudency of actions taken during the outages. Any
finding of delay due to imprudence could result in disallowances of a
portion of replacement power costs. Net replacement power costs during
the outages were approximately $180,000 per day above the cost of fuel
incurred when the plant is operating. Consumers has conceded that one day
of the 1993 outage was inappropriate, while the MPSC staff has recommended
a 20-day disallowance totaling $3.7 million. See Note 4 for information
regarding the NRC's review of Palisades' performance.
Gas Rates
In July, 1994, the MPSC approved an agreement previously reached between
the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the
last six months of 1994. This charge against earnings will partially
offset costs related to state property taxes which have been reduced. The
agreement was reached in response to an assertion by the MPSC staff that
gas utility business earnings for 1993 were in excess of the currently
authorized level. The agreement also provides for an additional $4
million of 1995-related SFAS 106 costs to be charged against 1995 earnings
instead of being deferred. As part of the agreement, Consumers committed
to file a gas rate case before December 31, 1994, that will, among other
things, incorporate cost increases, including costs for postretirement
benefits computed under SFAS 106, into its retail gas rates. A final
order should be received approximately 9 to 12 months after the request is
filed. No assurance can be given as to the level of rates which will be
authorized by the MPSC. Consumers' gas distribution business is currently
authorized to earn a 13.25 percent rate of return on equity. Consumers'
most recent rate filing for its electric utility business resulted in an
approved rate of return on equity of 11.75 percent.
GCR Issues
The MPSC, in a February 1993 order, provided that the price payable to
certain intrastate gas producers by Consumers be reduced prospectively.
In a related case, Consumers was not allowed to recover $13 million of gas
supply costs incurred prior to February 8, 1993. Consumers previously had
accrued a loss sufficient for this issue. Future disallowances are not
anticipated, unless the remaining appeals filed by the intrastate
producers are successful.
In 1992, the FERC approved a settlement involving Consumers, Trunkline and
certain other parties, which resolved numerous claims and proceedings
concerning Trunkline liquified natural gas costs. The settlement
represents significant gas cost savings for Consumers and its customers in
future years. As part of the settlement, Consumers will not incur any
transition costs from Trunkline as a result of FERC Order 636. In 1992,
Consumers had recorded a liability and regulatory asset for the principal
amount of payments to Trunkline over a five-year period. In May 1993, the
MPSC approved a separate settlement agreement that provides Consumers with
full recovery of these costs over a five-year period. At June 30, 1994,
Consumers' remaining liability and regulatory asset were $100 million.
Other
A dispute involving pricing under contracts Consumers had with eight
direct gas suppliers has been recently resolved. The dispute revolved
around whether the price Consumers pays Trunkline for gas was the proper
reference price for these eight gas supply contracts. Consumers and seven
of the suppliers have agreed to enter into new contracts, at negotiated
rates, with initial terms ranging from one to three years. Consumers and
the remaining supplier agreed to terminate their existing contract.
Estimated losses for certain contingencies discussed in this note have
been accrued. Resolution of these contingencies is not expected to have a
material impact on Consumers' financial position or results of operations.
4: Commitments and Contingencies
Ludington Pumped Storage Plant Litigation
In 1986, the Attorney General filed a lawsuit on behalf of the State of
Michigan in the Circuit Court of Ingham County, seeking damages from
Consumers and Detroit Edison for alleged injuries to fishery resources
because of the operation of the Ludington Pumped Storage Plant. The state
sought $148 million (including $16 million of interest) for past injuries
and $89,000 per day for future injuries, with the latter amount to be
adjusted upon installation of "adequate" fish barriers and other changed
conditions.
In 1987, the Attorney General filed a second lawsuit alleging that
Consumers and Detroit Edison have breached a bottomlands lease agreement
with the state and asked that the lease be declared void. This complaint
was consolidated with the suit described in the preceding paragraph. In
1990, both of the lawsuits were dismissed on the basis of federal
preemption. In 1993, the Court of Appeals overturned the dismissal, as to
damages, effectively allowing the state to pursue its damages lawsuit
against Consumers and Detroit Edison, but generally affirmed the lower
court's ruling as to the breach of lease claim. The Court of Appeals'
ruling also limited any potential damages to those occurring no earlier
than 1983. The Michigan Supreme Court has granted Consumers', Detroit
Edison's and the Attorney General's requests for leave to appeal the Court
of Appeals' ruling, and a decision is expected in late 1995. Consumers
and Detroit Edison are seeking to have the trial court's dismissal of the
damages claim affirmed. The Attorney General is seeking to have the
dismissal of his lease claim overturned. Consumers is unable to predict
the outcome of these appeals or any liability that could be incurred
should the Supreme Court decide that the suit for damages may be pursued.
Each year since 1989, Consumers and Detroit Edison have complied with FERC
orders by installing a seasonal barrier net from April to October at the
Ludington plant site. The FERC is now considering whether the barrier net
(along with other actions by Consumers, including contributions to state
fish-stocking programs) would be a satisfactory permanent solution.
Environmental Matters
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on
information currently known by management, Consumers believes that it is
unlikely that its liability at any of the known Superfund sites,
individually or in total, will have a material adverse effect on its
financial position or results of operations.
Under Michigan's Environmental Response Act, Consumers expects that it
will ultimately incur clean-up costs at a number of sites, including some
of the 23 sites that formerly housed manufactured gas plant facilities,
even those in which it has a partial or no current ownership interest.
Parties other than Consumers with current or former ownership interests
may also be considered liable for site investigations and remedial
actions.
Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the
nature and extent of contamination at these sites and to determine which
of several possible remedial action alternatives, including no action, may
be required under the Environmental Response Act. The DNR has approved
two of three plans for remedial investigation/feasibility studies
submitted by Consumers and is currently reviewing the third.
The preliminary findings for the first remedial investigation/feasibility
study indicate that the expenditures for remedial action at this site are
likely to be minimal. However, Consumers did not believe that a single
site was representative of all of the sites. Data available to Consumers
and its continued internal studies have resulted in an estimate of
remedial action for all 23 sites of between $40 million and $140 million.
These estimates are based on undiscounted 1994 costs. At June 30, 1994,
Consumers has accrued a liability for $40 million, representing the
minimum amount in the range. Any significant change in assumptions such
as remediation technique, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial costs for
the sites.
Consumers believes that remedial costs are recoverable in rates as the
MPSC in 1993 addressed the question of recovery of investigation and
remedial costs for another Michigan gas utility as part of a gas rate
case. In that proceeding, the MPSC determined that prudent investigation
and remedial costs could be deferred and amortized over 10-year periods.
In order to be recovered in rates, prudent costs must be approved in a
rate case. Any costs amortized in years prior to filing a rate case may
not be recoverable. The MPSC stated that the length of the period may be
reviewed from time to time, but any revisions would be prospective. The
order further provided that the prudency review would include a review of
the utility's attempts to obtain reimbursement from others. The MPSC has
also approved similar deferred accounting requests by two other Michigan
utilities relative to investigation and remediation costs. Accordingly,
Consumers has recorded a regulatory asset for the same amount as the
accrued liability for anticipated recovery of these investigation and
remedial clean-up costs. Consumers has initiated discussions with certain
insurance companies regarding coverage for some or all of the costs which
may be incurred for these sites.
Included in the 1990 amendments to the federal Clean Air Act are
provisions that limit emissions of sulfur dioxide and nitrogen oxides and
require enhanced emissions monitoring. All of Consumers' coal-fueled
electric generating units burn low-sulfur coal and are presently operating
at or near the sulfur dioxide emission limits which will be effective in
2000. Beginning in 1995, certain coal-fueled generating units will
receive emissions allowances (all of Consumers' coal units will receive
allowances beginning in 2000). Based on projected emissions from these
units, Consumers expects to have excess allowances which may be sold or
saved for future use.
The Clean Air Act's provisions require Consumers to make capital
expenditures estimated to total $74 million through 1999 for completed,
in-process and possible modifications at coal-fired units based on current
regulations. Management believes that Consumers' annual operating costs
will not be materially affected.
The EPA has asked a number of utilities in the Great Lakes area to
voluntarily retire certain equipment containing specific levels of
polychlorinated biphenyls. While Consumers believes that it is largely in
compliance with the EPA's petition, it has agreed to a 10-year retirement
period for certain equipment included in the EPA's request. Consumers
does not anticipate that any additional costs will be incurred as a result
of this agreement.
In 1993, Consumers experienced increases in complaints relating to so-
called stray voltage. Claimants contend that stray voltage results when
small electrical currents present in grounded electric systems are
diverted from their intended path. Investigation by Consumers of prior
stray voltage complaints disclosed that many factors, including improper
wiring and malfunctioning of farm equipment, can lead to the stray voltage
phenomenon. Consumers maintains a policy of investigating all customer
calls regarding stray voltage and working with customers to address their
concerns including, when necessary, modifying the configuration of the
customer's hook-up to Consumers. A complaint seeking certification as a
class action suit was filed against Consumers in a local county circuit
court in 1993. The complaint alleged the existence of a purported class
that incurred damages in excess of $1 billion, primarily to certain
livestock owned by the purported class, as a result of stray voltage from
electricity being supplied by Consumers. Consumers believes the
allegations to be without merit and in March 1994, the circuit judge
hearing the complaint refused to grant class action status to the suit.
In April 1994, the plaintiffs in this action appealed the matter to the
Court of Appeals. Consumers believes that the various claims are
different enough to warrant separate trials, and that the circuit court's
denial of class-action status will be upheld. A number of individuals who
would have been part of the class action have refiled their claims as
separate lawsuits. At August 10, 1994, Consumers had 91 separate stray
voltage lawsuits pending.
Palisades Plant
In April 1993, the NRC approved the design of the dry spent fuel storage
casks now being used by Consumers at Palisades. In May 1993, the Attorney
General and certain other parties commenced litigation to block Consumers'
use of the storage casks, alleging that the NRC had failed to comply
adequately with the National Environmental Policy Act. The courts have
declined to prevent such use and have refused to issue temporary
restraining orders or stays. Several appeals relating to this matter are
now pending at the U.S. Sixth Circuit Court of Appeals. As of July 31,
1994, Consumers had loaded four dry storage casks with spent nuclear fuel
and expects to load nine additional casks in 1994 prior to Palisades' 1995
refueling. If Consumers is unable to continue to use the casks as
planned, significant costs could be incurred, including replacement power
costs during any resulting plant shutdown and costs related to removal of
the dry cask system. In March 1994, Consumers agreed to a request from
the NRC to complete certain tests and analysis regarding Consumers' cask
storage site at Palisades, including the effects of an earthquake on the
surrounding soil and the support pad on which the casks are placed. These
tests and analysis have been completed and conclude that the storage
system meets safety standards. The results were reviewed by the NRC
staff, and in May 1994, the NRC issued a preliminary report confirming the
safety of Consumers' dry cask storage system.
On August 2, 1994, Consumers announced that it would unload and replace
one of the four dry fuel storage casks at Palisades that contains spent
nuclear fuel. In examining radiographs during a review of the cask
manufacturer's quality assurance program, Consumers detected indications
of minor flaws in welds in the steel liner of the most recently loaded
cask. Although testing following cask loading did not disclose any
leakage from the cask, Consumers has nevertheless decided to remove the
spent fuel from this cask and insert it in another cask. Consumers has
examined the radiographs for all of the casks fabricated for it to date,
including the other three casks containing spent fuel, and have found all
other welds to be acceptable.
In November 1993, Palisades returned to service following a planned
refueling and maintenance outage that had been extended due to several
unanticipated repairs (see Note 3). The results of an NRC review of
Consumers' performance at Palisades published shortly thereafter showed a
decline in performance ratings for the plant. In order to provide NRC
senior management with a more in-depth assessment of plant performance,
the NRC conducted a diagnostic evaluation inspection at Palisades. The
inspection evaluated all aspects of nuclear plant operation and
management. The inspection, completed in June 1994, found performance,
operational and management deficiencies at Palisades. The NRC
acknowledged that the new Palisades senior management team, in place since
early 1994, had recognized and begun to address the problems at Palisades.
The NRC did not place Palisades on either of the NRC's "Troubled" or
"Declining Performance" lists. Consumers is required to file a response
to the NRC's diagnostic evaluation report by August 18, 1994, and is
currently finalizing a performance improvement plan which will form the
basis for that response. Attaining and maintaining acceptable performance
at Palisades will require continuing performance improvements and
additional expenditures at the plant, which have been included in
Consumers' total planned levels of expenditures.
Nuclear Decommissioning
Consumers collects estimated costs to decommission (decontamination and
dismantlement) its two nuclear plants through a monthly surcharge to
electric customers which currently totals $45 million annually. Consumers
currently estimates decommissioning costs of $208 million and $399
million, in 1993 dollars, for the Big Rock and Palisades nuclear plants,
respectively. Amounts collected from electric retail customers and
deposited in trusts, and earnings on the trusts, which are credited to
accumulated depreciation, are estimated to accumulate $425 million and
$1.2 billion for decommissioning Big Rock and Palisades, respectively.
The trust funds, which are estimated to earn 7.1 percent, will be used for
decommissioning Big Rock and Palisades at the end of their respective
license periods in 2000 and 2007. Consumers believes the amounts being
collected are adequate to meet its currently estimated decommissioning
costs and current NRC requirements. In order to meet those requirements,
Consumers prepared site-specific decommissioning cost estimates for Big
Rock and Palisades. In developing the estimates, Consumers assumed that
each plant site will be restored to conform with the adjacent landscape,
and that all contaminated equipment will be disassembled and disposed of
in a licensed burial facility. Consumers expects to file updated
decommissioning estimates with the MPSC on or before March 31, 1995. At
June 30, 1994, Consumers had an investment in a nuclear decommissioning
trust fund of $191 million for future decommissioning.
The staff of the SEC has questioned certain accounting practices of the
electric utility industry, including Consumers, regarding the recognition,
measurement and classification of decommissioning costs for nuclear
generating stations in the financial statements. In response to these
questions, the FASB has agreed to review the accounting for removal costs,
including decommissioning. If current electric utility industry
accounting practices for such decommissioning are changed: annual
provisions for decommissioning could increase; estimated costs for
decommissioning could be recorded as a liability rather than as
accumulated depreciation and; trust fund income from the external
decommissioning trusts could be reported as investment income rather than
as a reduction to decommissioning expense.
Commitments for Coal and Gas Supplies
Consumers has entered into coal supply contracts with various suppliers
for its coal-fired generating stations. These contracts have expiration
dates that range from 1994 to 2004. Generally, Consumers contracts for
approximately 70% of its annual coal requirements which in 1993 totalled
approximately $260 million. Consumers supplements its long-term contracts
with spot market purchases to fulfill its coal needs.
Consumers has entered into gas supply contracts with various suppliers for
its natural gas business. These contracts have expiration dates that
range from 1994 to 1999. Generally, Consumers contracts for approximately
75% of its annual gas requirements which in 1993 totalled approximately
$680 million. Consumers supplements its long-term contracts with spot-
market purchases to fulfill its gas needs.
Capital Expenditures
CMS Energy's estimated capital expenditures, including demand-side
management and new lease commitments, are $736 million for 1994, $741
million for 1995 and $633 million for 1996.
Public Utility Holding Company Act Exemption
CMS Energy is exempt from registration under PUHCA. However, the Attorney
General and the MMCG have asked the SEC to revoke CMS Energy's exemption
from registration under PUHCA. In 1992, the MPSC filed a statement with
the SEC recommending that CMS Energy's current exemption be revoked and a
new exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the SEC; Consumers could ultimately be
forced to divest either its electric or gas utility business; and
CMS Energy would be restricted from conducting businesses that are not
functionally related to the conduct of its utility business as determined
by the SEC. CMS Energy is opposing this request and believes it will
maintain its current exemption from registration under PUHCA.
Other
In addition to the matters disclosed in these notes, Consumers and certain
other subsidiaries of CMS Energy are parties to certain lawsuits and
administrative proceedings before various courts and governmental
agencies, arising from the ordinary course of business involving personal
injury and property damage, contractual matters, environmental issues,
federal and state taxes, rates, licensing and other matters.
Estimated losses for certain contingencies discussed in this note have
been accrued. The ultimate effect of the proceedings discussed in this
note is not expected to have a material impact on CMS Energy's financial
position or results of operations.
5: Effects of the Ratemaking Process
Consumers is subject to the provisions of SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Regulatory assets represent
probable future revenue to Consumers associated with certain incurred
costs as these costs are recovered through the ratemaking process. The
following regulatory assets (liabilities) which include both current and
non-current amounts, are reflected in the Consolidated Balance Sheets:
In Millions
June 30, 1994 Dec. 31, 1993 June 30, 1993
- ---------------------------------------------------------------------
Postretirement benefits $ 518 $ 510 $ 497
Income taxes 183 192 130
Abandoned Midland project 155 162 169
Trunkline settlement 100 117 133
Demand-side management -
deferred costs 72 71 51
Environmental clean-up 40 - -
DOE - decommissioning uranium
enrichment facility 32 33 36
Other 35 36 22
--------------------------------------
Total regulatory assets $1,135 $1,121 $1,038
=====================================================================
Income taxes $ (199) $ (195) $ (202)
Demand-side management -
deferred revenue (17) (17) (17)
--------------------------------------
Total regulatory liabilities $ (216) $ (212) $ (219)
=====================================================================
Consumers has MPSC orders to recover virtually all of its regulatory
assets through future rates and anticipates MPSC approval for recovery of
the remaining amounts.
6: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with original maturities of three months or less are considered cash
equivalents. Other cash flow activities and non-cash investing and
financing activities for the periods ended June 30 were:
In Millions
Six Months Ended Twelve Months Ended
- ---------------------------------------------------------------------
1994 1993 1994 1993
---- ---- ---- ----
Cash transactions
- -----------------
Interest paid (net of
amounts capitalized) $ 86 $ 100 $ 178 $ 208
Income taxes paid
(net of refunds) $ 23 $ 37 $ 18 $ 43
Non-cash transactions
- ---------------------
Nuclear fuel placed
under capital lease $ 3 $ 23 $ 8 $ 28
Other assets placed
under capital leases 7 21 16 48
Capital leases refinanced - 42 - 42
Assumption of debt - - - 15
=====================================================================
7: Financial Instruments
On January 1, 1994, CMS Energy adopted SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, requiring accounting for
investments in debt securities to be held to maturity at amortized cost;
otherwise debt and marketable equity securities are recorded at fair
value, with any unrealized gains or losses included in earnings if the
securities are for trading purposes or as a separate component of
stockholders' equity if the security is available for sale. CMS Energy
has nuclear decommissioning and SERP trusts classified as available for
sale securities with an amortized cost of $212 million and a fair market
value of $211 million. An unrealized loss on available for sale
securities of $2 million, $1 million and $1 million, net of taxes, is
included in common stockholders' equity for three, six and 12 months ended
June 30, 1994. CMS Energy also has certain equity investments classified
as trading securities with a carrying cost of $12 million and a fair
market value of $15 million. An unrealized gain (loss) on trading
securities of $(1) million, $2 million and $2 million, net of taxes, is
included in other income for three, six and 12 months ended June 30, 1994.
8: Capitalization and Other
CMS Energy
In January 1994, CMS Energy filed a registration statement with the SEC
permitting the issuance and sale of up to $250 million of GTNs. The net
proceeds are being used to reduce the amount of Notes outstanding and for
general corporate purposes. As of July 31, 1994, CMS Energy had committed
to issue approximately $40 million of GTNs with interest rates ranging
from 6.75 to 7.50 percent and to reduce the principle amount of Notes
outstanding by $55 million.
On July 29, 1994, CMS Energy refinanced its Secured Credit Facility with a
new $400 million Unsecured Credit Facility and extended the termination
date to June 30, 1997. At July 31, 1994, $129 million was outstanding at
a weighted average interest rate of 7.25 percent.
Consumers Power
Debt
Consumers has authorization from the FERC to issue or guarantee up to $900
million of short-term debt through December 31, 1994. Consumers has a
$470 million facility to finance seasonal working capital requirements and
unsecured, committed lines of credit aggregating $165 million. At June
30, 1994, Consumers had $100 million and $29 million, respectively,
outstanding under these facilities.
Consumers secures its first mortgage bonds by a mortgage and lien on
substantially all of its property. Consumers' ability to issue and sell
securities is restricted by certain provisions in its First Mortgage Bond
Indenture, Articles and the need for regulatory approvals in compliance
with appropriate state and federal law. In the first quarter of 1994,
Consumers redeemed first mortgage bonds totaling $100 million. These
redemptions completed Consumers' commitment to the MPSC, under the 1993
authorization to issue first mortgage bonds, to refinance certain long-
term debt.
In January 1993, Consumers entered into an interest rate swap agreement,
exchanging variable-rate interest for a fixed-rate interest of 5.2 percent
on the latest maturing $250 million of the then remaining $500 million
obligation under its long-term credit agreement. The swap arrangement has
the same term as the debt agreement and had the effect of increasing the
weighted average interest rate to 4.8 percent from 3.9 percent for the 12-
month period ended December 31, 1993. Under this credit agreement at
December 31, 1993, Consumers was required to make 10 remaining quarterly
principal payments of approximately $47 million. As of December 31, 1993,
the outstanding balance under this credit agreement totaled $469 million
with a weighted average interest rate of 4.0 percent.
Other
Consumers has an established $500 million trade receivables purchase and
sale program. At June 30, 1994, receivables sold under the agreement
totaled $205 million as compared to $285 million at December 31, 1993.
In March 1994, Consumers issued and sold 8 million shares of Consumers'
$2.08 Class A Preferred Stock (cumulative, without par value) with a
stated annual dividend rate of 8.32 percent. Net proceeds to Consumers
were $193 million. The stock is redeemable at the option of Consumers, on
or after April 1, 1999, at a redemption price of $25 per share plus
accrued dividends.
In May 1994, Consumers received a $100 million equity investment from CMS
Energy. The investment was consistent with CMS Energy's plan to improve
Consumers' capital structure and was recognized and included in the
capitalization structure employed by the MPSC as part of Consumers' most
recent electric rate order.
At December 31, 1992, Consumers effected a quasi-reorganization, an
elective accounting procedure in which Consumers' accumulated deficit of
$574 million was eliminated against other paid-in capital. This action
had no effect on CMS Energy's consolidated financial statements. As a
result of the quasi-reorganization and subsequent accumulated earnings,
Consumers resumed paying common stock dividends during 1993. Consumers
has continued paying common stock dividends in 1994, including $16 million
attributable to 1993 earnings, and $66 million, attributable to current
year earnings. Additionally, in July 1994, Consumers declared a $31
million common stock dividend which is payable in August 1994.
In January 1994, Consumers amended its nuclear fuel lease to include fuel
previously owned at Big Rock and further increased the maximum amount of
nuclear fuel that could be leased to $80 million. At June 30, 1994, $66
million was under lease.
In November 1992, the FASB issued SFAS 112, Employers' Accounting for
Postemployment Benefits, which Consumers adopted January 1, 1994.
Consumers pays for several postemployment benefits, the most significant
being workers' compensation. Because Consumers' postemployment benefit
plans do not vest or accumulate, the standard did not materially impact
Consumers' financial position or results of operations.
NOMECO
In November 1993, NOMECO amended the terms of its revolving credit
agreement and increased the amount to $110 million. At June 30, 1994, $83
million of revolving credit debt was outstanding at a weighted average
interest rate of 5.7 percent.
NOMECO has hedging arrangements which are used to reduce the risk of price
fluctuations for its gas purchases and its sale of oil and gas. These
arrangements limit potential gains/losses from any future
decrease/increase in the spot prices.
NOMECO has one gas supply hedge arrangement which is used to fix the price
that NOMECO will pay for gas to supply 100 percent of one gas sale
contract for the years 2001 - 2006 by purchasing the economic equivalent
of 10,000 MMBtu per day at a fixed, escalated price starting at $2.82 per
MMBtu in 2001. The settlement periods are each a one-year period ending
December 31, 2001 through 2006 on 3.65 MMBtu. If the "floating price,"
essentially the then current Gulf Coast spot price, for a period is higher
than the "fixed price," the seller pays NOMECO the difference, and vice
versa. If a party's exposure at any time exceeds $2 million, that party
is required to obtain a letter of credit in favor of the other party for
the excess over $2 million and up to $10 million, which is the maximum
exposure under this hedge arrangement. At December 31, 1993, the seller
had arranged a letter of credit in NOMECO's favor for $10 million.
NOMECO also periodically enters into oil and gas price hedging
arrangements to mitigate its exposure to price fluctuations on the sale of
crude oil and natural gas. As of December 31, 1993, NOMECO was party to
gas price collar contracts on 7.3 bcf of gas for the delivery months of
January through December 1994 at prices ranging from $2.05 to $2.30 per
MMBtu. These hedging arrangements are accounted for as hedges;
accordingly, any gains or losses are deferred and recognized on the
settlement dates. As of December 31, 1993 and June 30, 1994, the fair
value of these hedge arrangements was not materially different than the
book value.
Enterprises
In May 1994, MOAPA redeemed $22 million of Clark County, Nevada tax-exempt
bonds. The bonds had been included in current maturities on the balance
sheet and the funds held in a trust account had been included as other
current assets. The bonds were issued in 1990 for the purpose of
providing partial funding for the development of a proposed tires-to-
energy solid waste disposal and resource recovery facility. The bonds
were redeemed due to the Nevada Public Service Commission's rejection of a
signed power purchase agreement for the facility.
<PAGE>
<PAGE> 27
CMS Energy Corporation
Management's Discussion and Analysis (MD&A)
This MD&A should be read along with the MD&A in the 1993 Form 10-K of CMS
Energy.
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of
the Lower Peninsula of Michigan, is the principal subsidiary of CMS
Energy. Consumers' customer base includes a mix of residential,
commercial and diversified industrial customers, the largest of which is
the automotive industry. Enterprises is engaged in several non-utility
energy-related businesses including: 1) oil and gas exploration and
production, 2) development and operation of independent power production
facilities, 3) gas marketing services to utility, commercial and
industrial customers, and 4) storage and transmission of natural gas.
Consolidated earnings for the quarters ended June 30, 1994 and 1993
Consolidated net income totaled $30 million or 35 cents per share for the
second quarter of 1994, compared to $24 million or 30 cents per share for
the corresponding second quarter of 1993. The increased net income
reflects increased electric utility sales resulting from Michigan's
continuing economic growth and warmer temperatures. Net income also
benefited from a mid-May 1994 electric rate increase and the lowering of
property taxes in Michigan.
Consolidated earnings for the six months ended June 30, 1994 and 1993
Consolidated net income totaled $108 million or $1.27 per share for the
six months ended June 30, 1994, compared to $96 million or $1.20 per share
for the six months ended June 30, 1993. The increased net income reflects
increased electric utility sales and gas utility deliveries resulting from
increased motor vehicle production, increased levels of employment and the
overall strong economic expansion in Consumers' service territory. In
addition, net income benefited from a mid-May 1994 electric rate increase.
Consolidated earnings for the 12 months ended June 30, 1994 and 1993
Consolidated net income totaled $167 million or $1.99 per share for the 12
months ended June 30, 1994, compared to a net loss of $266 million or
$3.33 per share for the 12 months ended June 30, 1993. The increased net
income reflects the impact of the Settlement Order related to the cost
recovery for power purchases from the MCV Partnership, the benefit of
increased electric utility sales and gas utility deliveries, and the
impact of a mid-May 1994 electric rate increase.
Cash Position, Financing and Investing
CMS Energy's primary ongoing source of operating cash is dividends from
its principal subsidiaries. CMS Energy's consolidated operating cash
requirements are met by its operating and financing activities. CMS
Energy's consolidated cash from operations was derived mainly from
Consumers' sale and transportation of natural gas and its sale and
transmission of electricity and from NOMECO's sale of oil and natural gas.
Consolidated cash from operations for the first six months of 1994
primarily reflects the benefits of Consumers' record-setting electric
sales and significantly higher gas deliveries.
Financing Activities
As a result of the 1992 quasi-reorganization (see Note 8 of the Condensed
Notes to Consolidated Financial Statements), and subsequent accumulated
earnings, Consumers resumed paying common stock dividends during 1993.
Consumers has continued paying common stock dividends in 1994, including
$16 million attributable to 1993 earnings, and $66 million attributable to
current year earnings. Additionally, in July 1994, Consumers declared a
$31 million common stock dividend, payable in August 1994.
In January 1994, CMS Energy filed a shelf registration statement with the
SEC permitting the issuance and sale of up to $250 million of GTNs. The
net proceeds are being used to reduce the amount of Notes outstanding and
for general corporate purposes. As of July 31, 1994, CMS Energy had
committed to issue approximately $40 million of GTNs with interest rates
ranging from 6.75 to 7.50 percent and to reduce the principle amount of
Notes outstanding by $55 million.
During February and March 1994, Consumers continued to reduce its future
interest charges by retiring $100 million of high-cost first mortgage
bonds. Also, in March 1994, Consumers issued and sold 8 million shares of
Class A Preferred Stock (cumulative, without par value) with a stated
annual dividend rate of 8.32 percent. Net proceeds of $193 million from
the sale are targeted for general corporate purposes, including debt
retirement and improvements to Consumers' distribution systems.
On July 29, 1994, CMS Energy refinanced its Secured Credit Facility with a
new $400 million Unsecured Credit Facility and extended the termination
date to June 30, 1997. At July 31, 1994, $129 million was outstanding at
a weighted average interest rate of 7.25 percent.
Investing Activities
Capital expenditures (excluding assets placed under capital lease),
deferred demand-side management costs and investments in unconsolidated
subsidiaries totaled $296 million for the first six months of 1994 as
compared to $283 million for the first six months of 1993. These amounts
primarily represent capital investments in CMS Energy's electric and gas
utility segments, and the continued expansion of the non-utility business
segments. CMS Energy's expenditures for the first six months of 1994 for
its utility and non-utility businesses were $198 million and $98 million,
respectively.
Outlook
CMS Energy estimates that capital expenditures, including demand-side
management and new lease commitments, will total approximately $2.1
billion for the years 1994 through 1996. Cash generated by operations is
expected to satisfy a substantial portion of capital expenditures.
Additionally, CMS Energy will continue to evaluate capital markets in 1994
as a potential source of financing its subsidiaries' investing activities.
In Millions
Years Ended December 31 1994 1995 1996
- --------------------------------------------------------------------------
Electric utility $ 354 $ 388 $ 308
Gas utility 131 122 111
Oil and gas exploration and production 161 100 100
Independent power production 62 101 99
Natural gas pipeline, storage and marketing 28 30 15
------------------------
$ 736 $ 741 $ 633
============================================================================
Consumers' short-term sources of credit include a $470 million working
capital facility and unsecured, committed lines of credit totaling $165
million. At June 30, 1994, Consumers had $100 million and $29 million,
respectively, outstanding under these facilities. Consumers has FERC
authorization to issue or guarantee up to $900 million in short-term debt
through December 31, 1994. Consumers uses short-term borrowings to
finance working capital, seasonal fuel inventory and to pay for capital
expenditures between long-term financings. Consumers has an agreement
permitting the sales of certain accounts receivable for up to $500
million. At June 30, 1994, receivables sold totaled $205 million as
compared to $285 million at December 31, 1993.
Electric Utility Operations
Comparative Results of Operations
Electric Pretax Operating Income for the quarters ended June 30, 1994 and
1993: During the second quarter of 1994, electric pretax operating income
increased $33 million from the 1993 level. This increase reflects higher
electric system sales from both economic growth and the impact of warmer
weather on customer use of air conditioning equipment. Increased pretax
operating income also reflects the benefit of an electric rate increase
which went into effect during mid-May 1994 and the impact of lower
property taxes in Michigan. Also, during the second quarter of 1994,
Consumers recognized $11 million in revenue, related to DSM, based on
having achieved all objectives agreed-upon with the MPSC (see Note 3).
The increased sales growth is supported by Michigan's improvement in
employment and economic conditions. Several hourly, daily and monthly
records of electric use were also set during June 1994.
Electric Pretax Operating Income for the six months ended June 30, 1994
and 1993: The $40 million improvement in 1994 electric pretax operating
income compared to 1993 primarily is the result of increased electric
system sales and the May 1994 electric rate increase. Consumers Power
customers used more electricity during the first half of 1994 than in the
first half of any year in Consumers' history due in large part to
Michigan's increased levels of employment and overall economic expansion,
as well as record-setting warm temperatures in June.
Electric Pretax Operating Income for the 12 months ended June 30, 1994 and
1993: The $135 million improvement in 1994 electric pretax operating
income compared to 1993 primarily is the result of an increase of $75
million relating to the resolution of the recoverability of MCV power
purchase costs under the PPA, increased electric system sales of $58
million and the May 1994 electric rate increase, partially offset by
higher costs related to system reliability improvements.
The following table quantifies the impact of the major reasons for the
changes in electric pretax operating income for the periods ended June 30:
In Millions
Quarter ended Six months ended 12 months ended
1994 Over 1994 Over 1994 Over
(Under) 1993 (Under) 1993 (Under) 1993
- ------------------------------------------------------------------------
Sales growth $10 $20 $45
Weather 2 5 13
Resolution of MCV
power cost issues - - 75
Rate increases and other
regulatory issues 17 18 29
O&M, general taxes and
depreciation (a) 4 (3) (27)
----------------------------------------
Total change $33 $40 $135
========================================================================
(a) The 12 months ended variance was largely caused by Consumers' system
reliability improvement program.
Electric Sales: Electric system sales during the second quarter of 1994
totaled 8.0 billion kWh, a 6.2 percent increase from 1993 levels. During
the three month 1994 period, residential and commercial sales increased
3.8 percent and 5.7 percent, respectively, while industrial sales
increased 8.1 percent, in each case over the corresponding period in 1993.
Consumers' electric sales have benefited from improved employment and
economic conditions, including General Motors Corporation's decisions to
expand truck and car production in Michigan assembly plants. Electric
system sales during the six months ended June 30, 1994 totaled 16.3
billion kWh, a 5.8 percent increase from 1993 levels. During the six
month 1994 period, residential and commercial sales increased 4.2 percent
and 3.8 percent respectively, while industrial sales increased 7.4
percent. Electric system sales during the 12 months ended June 30, 1994
totaled 32.6 billion kWh, a 5.6 percent increase from 1993 levels. During
the 12 month ended 1994 period, residential and commercial sales increased
5.1 percent and 4.6 percent respectively, while industrial sales increased
7.3 percent. Growth in the industrial sales was the strongest in the
automotive and chemical sectors.
The following table quantifies electric sales by customer type for the
periods ended June 30:
Electric Sales Millions of kWh
Quarter ended Six months ended 12 months ended
1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------
Residential 2,318 2,234 5,157 4,947 10,276 9,782
Commercial 2,235 2,114 4,433 4,269 9,073 8,676
Industrial 3,139 2,905 6,001 5,589 11,953 11,143
Sales for resale 279 256 660 553 1,249 1,217
--------------------------------------------------
System sales (a) 7,971 7,509 16,251 15,358 32,551 30,818
==========================================================================
(a) Excludes intersystem exchanges of power with other utilities through
joint dispatching for the economic benefit of customers.
Power Costs: Power costs for the three-month period ending June 30, 1994
totaled $243 million, a $31 million increase from the corresponding 1993
period. This increase primarily reflects greater power purchases from
outside sources to meet increased sales demand and to supplement decreased
generation at Palisades due to an outage. Power costs for the six-month
period ending June 30, 1994 totaled $487 million, a $73 million increase
from the corresponding 1993 period essentially for the same reasons as the
quarter-over-quarter variance. Power costs for the 12-month period ending
June 30, 1994 totaled $980 million, an $120 million increase from the
corresponding 1993 period essentially for the same reasons as the quarter-
over-quarter and the six-month ended variances.
Electric Utility Rates
Power Purchases from the MCV Partnership: Consumers is obligated to
purchase 1,132 MW in 1994 and 1,240 MW in 1995 and thereafter, of contract
capacity from the MCV Partnership. In 1993, the MPSC issued the
Settlement Order that allows Consumers to recover substantially all
payments for 915 MW of contract capacity purchased from the MCV
Partnership. The market for the remaining 325 MW of contract capacity was
assessed at the end of 1992. This assessment, along with certain
estimates by Consumers, and other factors required by the Settlement
Order, resulted in Consumers recognizing an after-tax loss of $343 million
for the present value of estimated future underrecoveries of power
purchases from the MCV Partnership. Except for adjustments to reflect the
time value of money through accretion expense, no additional losses are
expected unless actual future experience materially differs from
management's estimates. ABATE and the Attorney General have filed claims
of appeal of the Settlement Order with the Court of Appeals. Although the
settlement loss was recorded in 1992, Consumers continues to experience
cash underrecoveries associated with the Settlement Order. These after-
tax cash underrecoveries totaled $33 million for the first six months of
1994. Consumers estimates that its after-tax cash underrecoveries will
total $56 million in 1994, increasing slightly for 1995 through 1997, and
then decreasing to $8 million in 1998. Possible additional losses for the
next five years if Consumers is unable to sell any capacity above the
MPSC's authorized level are estimated to be $14 million in 1994,
increasing slightly for 1995 through 1997, and then increasing to $72
million in 1998.
The PPA contains a "regulatory out" provision, permitting Consumers to
reduce the fixed energy charges payable to the MCV Partnership if
Consumers is not able to recover these amounts from its customers.
Consumers and the MCV Partnership are currently engaged in arbitration to
determine whether Consumers is entitled to exercise its rights under the
regulatory out provision. Consumers is escrowing the fixed energy amounts
in dispute until resolution of the arbitration is achieved.
The lessors of the MCV Facility have filed a lawsuit in federal district
court in New York against CMS Energy, Consumers and CMS Holdings, alleging
breach of contract, breach of fiduciary duty and negligent or fraudulent
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order. The action alleges damages in excess of $1 billion and
seeks injunctive relief relative to Consumers' payments of the fixed
energy charges. CMS Energy and Consumers believe that at all times they
and CMS Holdings have conducted themselves properly and that the action is
without merit. It appears from the face of the complaint that a
significant portion of the alleged damages represent fixed energy charges
in dispute in the arbitration. CMS Energy and Consumers have requested
that the lawsuit be dismissed for lack of jurisdiction and have commenced
a lawsuit in Midland, Michigan, to address these issues. While management
believes that the possibility of the alleged damages being awarded is
remote, CMS Energy and Consumers are unable to predict the outcome of this
issue. In addition, CMS Holdings has filed a lawsuit in a local circuit
court seeking reimbursement of $7 million of certain tax indemnification
payments made to its partners in the FMLP and owed to CMS Holdings.
Consumers is unable to predict the outcome of this issue.
In May 1994, Consumers was notified by the MCV that it was initiating
arbitration proceedings under the PPA to determine whether the energy
charge paid to the MCV is being properly calculated. Consumers believes
that its calculation of the energy charge is correct. The amount in
dispute, which relates to the period beginning in 1990 and continuing
through the term of the PPA, is estimated by the MCV Partnership to total
$8 million annually. The parties are in the process of selecting an
arbitrator and establishing a schedule for arbitration. Consumers cannot
predict the timing and outcome of these proceedings. For further
information regarding power purchases from the MCV Partnership, see Note
2.
In July 1994, Consumers agreed to pay $30 million to terminate a separate
power purchase agreement with a 65 MW coal-fired cogeneration facility.
Consumers is seeking MPSC approval to substitute 65 MW of less expensive
contract capacity from the MCV Facility which Consumers is currently not
authorized to recover from retail customers. Consumers believes the
termination agreement and the proposed substitution of capacity represents
significant savings to its customers and will record a regulatory asset
for $30 million, which it believes will ultimately be recoverable in
rates.
PSCR Issues: Consumers experienced an extended refueling and maintenance
outage at Palisades during 1993. From mid-February through mid-June 1994,
Palisades was temporarily taken out of service to repair valve-leakage and
conduct other needed inspections and repairs. Recovery of replacement
power costs and the prudency of actions taken during the outages will be
reviewed by the MPSC during the 1993 and 1994 PSCR reconciliations of
actual costs and revenues. For more information on the potential impact
of the outages, see Note 3.
Electric Rate Case: On May 10, 1994, the MPSC issued an order, granting
Consumers a $58 million annual increase in its retail electric rates
effective May 11, 1994. The order provides Consumers with higher revenues
associated with increased expenditures primarily related to capital
additions, operation and maintenance, higher depreciation and
postretirement benefits computed under SFAS 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, and the continuation of
certain demand-side management programs at reduced levels. The MPSC order
generally supported Consumers' rate design proposal and reduced the level
of subsidization of residential customers by commercial and industrial
customers. On June 9, 1994, Consumers filed a petition for rehearing and
clarification of this MPSC order. The petition requests reconsideration
of certain issues, which include an incremental revenue requirement of $26
million for 1995, the level of rate cross-subsidization, the level of
future DSM expenditures and the calculation of DSM-related incentives and
penalties.
Special Rates: In June 1994, Consumers also filed a request with the
MPSC, seeking approval of a plan to offer competitive, special rates to
certain large qualifying customers. Consumers proposes to offer the new
rates to customers using high amounts of electricity that have expressed
an intention to or are capable of terminating purchases of electricity
from Consumers and have the ability to acquire energy from alternative
sources. To serve these customers, Consumers would use power purchases
from the MCV Partnership which exceed the 915 MW currently recoverable
from electric retail customers. The MPSC has granted an expedited hearing
schedule that calls for final briefs to be filed in November 1994. A
final order is expected near the end of 1994. For further information,
see Note 3.
Electric Conservation Efforts
In 1993, Consumers completed the customer participation portion of several
demand-side management programs designed to encourage the efficient use of
energy. Based on the MPSC's determination of Consumers' effectiveness in
implementing these programs, Consumers' future rate of return on electric
common equity may be adjusted for one year either upward by up to 1
percent or downward by up to 2 percent. The proceedings before the MPSC
have started and based on the criteria set out in the demand-side
management settlement agreement approved by the MPSC in 1992, Consumers
has achieved all the agreed-upon objectives. Consumers believes that the
MPSC will ultimately order a 1 percent increase on its return on common
equity to be in effect for one year. Accordingly, during the second
quarter of 1994, Consumers recognized $11 million in revenue, related to
its demand-side management program. A final order from the MPSC is
expected by mid-1995. In May 1994, as part of Consumers' electric rate
case, the MPSC issued an order that authorized Consumers to continue
certain demand-side management programs at reduced levels. For further
information, see Note 3.
Electric Capital Expenditures
CMS Energy estimates capital expenditures, including deferred demand-side
management costs and new lease commitments, related to its electric
utility operations of $354 million for 1994, $388 million for 1995 and
$308 million for 1996. These amounts include an attributed portion of
anticipated capital expenditures for common plant and equipment.
Electric Environmental Matters
The 1990 amendment of the federal Clean Air Act significantly increased
the environmental constraints that utilities will operate under in the
future. While the Clean Air Act's provisions will require Consumers to
make certain capital expenditures in order to comply with the amendments
for nitrogen oxide reductions, Consumers' generating units are presently
operating at or near the sulfur dioxide emission limits which will be
effective in the year 2000. Therefore, management believes that
Consumers' annual operating costs will not be materially affected.
In 1990, the State of Michigan passed amendments to the Environmental
Response Act, under which Consumers expects that it will ultimately incur
costs at a number of sites, even those in which it has a partial or no
current ownership interest. Parties other than Consumers with current or
former ownership interests may also be considered liable for site
investigations and remedial actions. Consumers believes costs incurred
for both investigation and required remedial actions will be recovered in
rates or from others.
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on current
information, management believes it is unlikely that Consumers' liability
at any of the known Superfund sites, individually or in total, will have a
material adverse effect on its financial position or results of
operations. For further information regarding electric environmental
matters, see Note 4.
Electric Outlook
A recent NRC review of Consumers' performance at Palisades showed a
decline in performance. Management believes that an increased emphasis on
internal assessments will improve performance at Palisades. To provide
NRC senior management with a more in-depth assessment of plant
performance, the NRC conducted a diagnostic evaluation inspection at
Palisades. The inspection evaluated all aspects of nuclear plant
operation and management. The inspection, completed in June 1994, found
performance, operational and management deficiencies at Palisades. The
NRC acknowledged that the new Palisades senior management team, in place
since early 1994, had recognized and begun to address the problems at
Palisades. The NRC did not place Palisades on either of the NRC's
"Troubled" or "Declining Performance" lists. Consumers is required to
file a response to the NRC's diagnostic evaluation report by August 18,
1994, and is currently finalizing a performance improvement plan which
will form the basis for that response. Attaining and maintaining
acceptable performance at Palisades will require continuing performance
improvements and additional expenditures at the plant, which have been
included in Consumers' total planned level of expenditures.
Consumers' on-site storage pool at Palisades is at capacity, and it is
unlikely that the DOE will begin accepting any spent nuclear fuel by the
originally scheduled date in 1998. Consumers is using NRC-approved dry
casks, which are steel and concrete vaults, for temporary on-site storage.
Several appeals relating to NRC approval of the casks and Consumers' use
of the casks are now pending at the U.S. Sixth Circuit Court of Appeals.
If Consumers is unable to continue to use the casks as planned,
significant costs could be incurred, including replacement power costs
during any resulting plant shutdown and costs related to removal of the
dry cask system. In March 1994, Consumers agreed to a request from the
NRC to complete certain tests and analysis regarding Consumers' cask
storage site, including the effects of an earthquake on the surrounding
soil and the support pad on which the casks are placed. These tests and
analysis have been completed and conclude that the storage system is
adequate. The results were reviewed by the NRC staff, and in May 1994,
the NRC issued a preliminary report confirming the safety of Consumers'
dry cask storage system. For further information on Consumers' dry cask
storage, see Note 4.
The staff of the SEC has questioned certain accounting practices of the
electric utility industry, including Consumers, regarding the recognition,
measurement and classification of decommissioning costs for nuclear
generating stations in the financial statements. For further information
on nuclear decommissioning, see Note 4.
Consumers has experienced recent increases in complaints relating
primarily to the effect of so-called stray voltage on certain livestock.
A complaint seeking certification as a class action suit was filed in 1993
against Consumers alleging significant damages, primarily related to
certain livestock. Consumers believes the allegations to be without merit
and in March 1994, the circuit judge hearing the complaint refused to
grant class action status to the suit. This decision is being appealed by
the plaintiffs and a number of individuals who would have been part of the
class action have refiled their claims as separate lawsuits. At August
10, 1994, Consumers had 91 separate stray voltage lawsuits pending (see
Note 4).
Some of Consumers' larger industrial customers are exploring the
possibility of constructing and operating their own on-site generating
facilities. Consumers is actively working with these customers to develop
rate and service alternatives designed to compete with self-generation
options. Although Consumers' electric rates are competitive with other
regional utilities, Consumers has on file with the FERC two open access
interconnection tariffs which could have the effect of increasing
competition for wholesale customers. As part of its most recent electric
rate case, the MPSC reduced the level of rate subsidization of residential
customers by commercial and industrial customers so as to further improve
rate competitiveness for its largest customers. Consumers has also
requested MPSC authorization to offer special contract rates to attract
industrial and commercial customers into its service territory and to
retain certain customers using high amounts of electricity that have
expressed an intention and have the ability to acquire energy from other
sources (see Note 3).
In April 1994, the MPSC approved a framework for a five-year experimental
retail wheeling program for Consumers and Detroit Edison. Under the
experiment, up to 60 MW of Consumers' additional load requirements could
be met by retail wheeling. Rates to be used for the experiment have yet
to be determined and a final MPSC order on the program is not expected
until mid-1995. Consumers does not expect this experiment to have a
material impact on its financial position or results of operations.
On July 15, 1994, the FERC approved new 40-year licenses for 11 of
Consumers' hydroelectric plants, confirming planned environmental
expenditures. In issuing the licenses, the FERC approved, with
modifications, a settlement agreement signed by Consumers, the Attorney
General, the DNR and other state and federal officials. The parties to
the original settlement agreement have 30 days to approve the settlement
agreement as modified. The agreement requires Consumers to make payments
and investments which could total $30 million over the license periods for
such things as environmental safeguards and fishery habitat improvements.
Gas Utility Operations
Comparative Results of Operations
Gas Pretax Operating Income for the quarters ended June 30, 1994 and 1993:
During the second quarter of 1994 gas pretax operating income decreased
$3 million from the 1993 level. This decrease reflects lower gas
deliveries (both sales and transportation volumes), and higher costs
related to system reliability improvements.
Gas Pretax Operating Income for the six months ended June 30, 1994 and
1993: The $8 million improvement in 1994 gas pretax operating income
compared to 1993 reflects higher gas deliveries (both sales and
transportation volumes) and more favorable regulatory recovery of gas
costs, partially offset by higher costs related to system reliability
improvements.
Gas Pretax Operating Income for the 12 months ended June 30, 1994 and
1993: The $32 million improvement in 1994 gas pretax operating income
compared to 1993 reflects higher gas deliveries (both sales and
transportation volumes) and more favorable regulatory recovery of gas
costs.
The following table quantifies the impact of the major reasons for the
changes in gas pretax operating income for the periods ended June 30:
In Millions
Quarter ended Six months ended 12 months ended
1994 Over 1994 Over 1994 Over
(Under) 1993 (Under) 1993 (Under) 1993
- ------------------------------------------------------------------------
Deliveries $(4) $ 13 $21
Regulatory recovery
of gas cost 2 1 8
O&M, general taxes
and depreciation (1) (6) 3
-----------------------------------------
$(3) $ 8 $32
========================================================================
Gas Deliveries: Gas sales and gas transported during the second quarter
of 1994 totaled 71.7 bcf, a 3.7 percent decrease from the corresponding
1993 level. For the six months ended June 30, 1994 gas sales and gas
transported totaled 247.7 bcf, a 7.5 percent increase from the
corresponding 1993 level. For the 12 months ended June 30, 1994 gas sales
and gas transported totaled 425.1 bcf, a 6.5 percent increase from the
corresponding 1993 level.
The following table quantifies gas deliveries by customer type for the
periods ended June 30:
Gas Sales Thousands of Mcf
Quarter ended Six months ended 12 months ended
1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------
Residential 25,366 27,616 111,678 104,662 181,873 172,053
Commercial 7,404 8,347 36,237 33,810 58,306 55,025
Industrial 1,876 2,119 9,069 8,332 14,656 13,638
Other 135 24 241 109 362 190
---------------------------------------------------
Gas sales 34,781 38,106 157,225 146,913 255,197 240,906
Transportation
deliveries 14,064 14,551 39,387 37,530 72,333 68,413
Transportation for MCV 19,020 17,844 39,326 35,544 77,186 65,607
Off-system trans-
portation service 3,854 3,996 11,801 10,454 20,420 24,377
---------------------------------------------------
Total deliveries 71,719 74,497 247,739 230,441 425,136 399,303
==========================================================================
Cost of Gas Sold: The utility cost of gas sold for the second quarter of
1994 decreased $7 million from the 1993 level. The utility cost of gas
sold for the six months ended and 12 months ended June 30 increased $10
million and $2 million, respectively, from the corresponding 1993 levels.
These increases reflect higher deliveries partially offset by lower costs
per mcf. The lower costs per mcf are due to more favorable gas contracts
with interstate suppliers, resulting from the impact of FERC Order 636,
and the termination and expiration of high-cost contracts with certain
Michigan gas producers.
Gas Utility Rates
In July, 1994, the MPSC approved an agreement previously reached between
the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the
last six months of 1994. This charge against earnings will partially
offset costs related to state property taxes which have been reduced. The
agreement was reached in response to an assertion by the MPSC staff that
gas utility business earnings for 1993 were in excess of the currently
authorized level. The agreement also provides for an additional $4
million of 1995-related SFAS 106 costs to be charged against 1995 earnings
instead of being deferred. As part of the agreement, Consumers committed
to file a gas rate case before December 31, 1994, that will, among other
things, incorporate cost increases, including costs for postretirement
benefits computed under SFAS 106, into its retail gas rates. A final
order should be received approximately 9 to 12 months after the request is
filed. No assurance can be given as to the level of rates which will be
authorized by the MPSC. Consumers' gas distribution business is currently
authorized to earn a 13.25 percent rate of return on equity. Consumers'
most recent rate filing for its electric utility business resulted in an
approved rate of return on equity of 11.75 percent.
A dispute involving pricing under contracts Consumers had with eight
direct gas suppliers has been recently resolved. The dispute revolved
around whether the price Consumers pays Trunkline for gas was the proper
reference price for these eight gas supply contracts. Consumers and seven
of the suppliers have agreed to enter into new contracts, at negotiated
rates, with initial terms ranging from one to three years. Consumers and
the remaining supplier agreed to terminate their existing contract.
In July 1993, Michigan Gas Storage submitted a notice of rate change with
the FERC to revise its operation and maintenance expenses for 1993 and
update plant costs to reflect the addition of $27 million of new plant
additions in 1993 and began collecting the revised rates subject to refund
and a hearing in February 1994. In June 1994, the FERC approved a
stipulation and agreement in full settlement of the rate proceeding, which
provides Michigan Gas Storage with estimated annual revenues of $20
million. For further information regarding gas utility rates, see Note 3.
Gas Capital Expenditures
CMS Energy estimates capital expenditures, including new lease
commitments, related to its gas utility operations of $131 million for
1994, $122 million for 1995 and $111 million for 1996. These amounts
include an attributed portion of anticipated capital expenditures for
common plant and equipment.
Gas Environmental Matters
Under Michigan's Environmental Response Act, Consumers expects that it
will ultimately incur clean-up costs at a number of sites, including some
of the 23 sites that formerly housed manufactured gas plant facilities,
even those in which it has a partial or no current ownership interest.
Parties other than Consumers with current or former ownership interests
may also be considered liable for site investigations and remedial
actions.
Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the
nature and extent of contamination at these sites and to determine which
of several possible remedial action alternatives, including no action, may
be required under the Environmental Response Act. The DNR has approved
two of three plans for remedial investigation/feasibility studies
submitted by Consumers and is currently reviewing the third.
The preliminary findings for the first remedial investigation/feasibility
study indicate that the expenditures for remedial action at this site are
likely to be minimal. However, Consumers did not believe that a single
site was representative of all of the sites. Data available to Consumers
and its continued internal studies have resulted in an estimate of
remedial action for all 23 sites of between $40 million and $140 million.
These estimates are based on undiscounted 1994 costs. At June 30, 1994,
Consumers has accrued a liability for $40 million, representing the
minimum amount in the range. Any significant change in assumptions such
as remediation technique, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial costs for
the sites.
Consumers believes that remedial costs are recoverable in rates as the
MPSC in 1993 addressed the question of recovery of investigation and
remedial costs for another Michigan gas utility as part a gas rate case.
In that proceeding, the MPSC determined that prudent investigation and
remedial costs could be deferred and amortized over 10-year periods. In
order to be recovered in rates, prudent costs must be approved in a rate
case. Any costs amortized in years prior to filing a rate case may not be
recoverable. The MPSC stated that the length of the period may be
reviewed from time to time, but any revisions would be prospective. The
order further provided that the prudency review would include a review of
the utility's attempts to obtain reimbursement from others. The MPSC has
also approved similar deferred accounting requests by two other Michigan
utilities relative to investigation and remediation costs. Accordingly,
Consumers has recorded a regulatory asset for the same amount as the
accrued liability for anticipated recovery of these investigation and
remedial clean-up costs. Consumers has initiated discussions with certain
insurance companies regarding coverage for some or all of the costs which
may be incurred for these sites.
Oil and Gas Exploration and Production
Pretax Operating Income
Pretax operating income for the three months ended June 30, 1994 decreased
$2 million from the same period in 1993 primarily reflecting lower average
market prices for oil and gas partially offset by higher gas sales
volumes. Pretax operating income for the six months ended June 30, 1994
decreased $4 million from June 30, 1993 primarily for the same reasons
stated above. The twelve months ended June 30, 1994 pretax operating
income decrease of $13 million from the comparable period in 1993 reflects
lower average market prices for oil and gas and $10 million of
international write-offs for the 1994 period compared to $4 million in
1993.
Capital Expenditures
In June 1994, NOMECO acquired for $22.5 million a working interest in the
Espinal block in Colombia, South America, from Sun Company, Inc. The
block is operated by LASMO (Columbia Limited). The other interest holder
is Empresa Colombiana de Pelroleos (Ecopetrol), the Colombian State Oil
Company. The block which includes 250,000 acres is currently producing
5,000 barrels of oil per day and is expected to exceed 8,500 barrels per
day later this year. NOMECO estimates the block to contain at least 75
million barrels of proven oil reserves of which NOMECO's share is nine
million barrels, a 12.4 percent interest.
1994 capital expenditures also reflect pipeline and road construction and
development drilling in Ecuador. CMS Energy currently plans to invest
$361 million for the years 1994 through 1996 in its oil and gas
exploration and production operations. These anticipated capital
expenditures primarily reflect continued development of Ecuador and
Colombia oil, Michigan Antrim gas and further reserve acquisition.
Independent Power Production
Pretax Operating Income
Pretax operating income for the three months ended June 30, 1994 increased
$2 million from the 1993 period primarily reflecting additional equity
earnings by the CMS Generation subsidiaries due to the addition of new
electric generating capacity. Pretax operating income increased $1
million and $11 million for the six and twelve months ended June 30, 1994,
respectively over the comparable 1993 periods. These increases reflect
increases in subsidiary earnings and the addition of new electric
generating capacity.
Capital Expenditures
CMS Energy continued expansion of its independent power production segment
during the first six months of 1994. In January, CMS Generation announced
that S.T./CMS Electric Co. has a definitive agreement with the Tamil Nadu
State Electric Board in India to supply 250 MW of electric capacity and
energy from a lignite-fired plant to be built in Neyveli, India.
Construction of the $470 million plant is scheduled to begin in late 1994
or early 1995 with commercial operation scheduled in 1997. CMS Generation
will be the project manager and plant operator and will hold a 40 percent
ownership interest.
In March 1994, GPSLP, an unconsolidated affiliate of CMS Generation,
obtained financing for the Genesee Power Station principally with the
issuance and sale of $72 million of Michigan Strategic Fund Solid Waste
Disposal Revenue Refunding Bonds (Genesee Power Station Project) Series
1994. CMS Generation has a 50 percent ownership interest in GPSLP. In
April 1994, construction began on the 35 MW waste wood-fueled power plant
near Flint, Michigan. Completion of the project is scheduled for Spring
1996 with an estimated cost of $94 million.
In May 1994, CMS Generation announced it had acquired a 25 percent
ownership interest in a 235 MW mixed fuel independent power generation
project to be built in Jegurupadu, Andhra Pradesh, India. CMS Generation
will provide project management services and will be the operator of the
plant. The Andhra Pradesh State Electric Board has signed a 30 year
contract for the purchase of the plant's entire electric output.
Construction of the natural gas and naptha-fueled combined-cycle project
is expected to begin in late 1994, with completion scheduled by the end of
1996. The project is estimated to cost $300 million.
Also in May 1994, CMS Generation announced it had acquired a 25 percent
ownership interest in Magellan Utility Development Corporation, which is
developing a 300 MW coal-fired power project at Pinamucan in Batangas
Province, the Philippines. CMS Generation will be the project manager and
plant operator. Magellan Utility Development Corporation has signed a 25-
year power purchase agreement with the Manila Electric Company, the
largest private electric utility in the Philippines, for the plant's
entire electric output. Construction of the project is scheduled to begin
later this year. The plant is scheduled to be completed by year-end 1997
at a cost of $300 million. The project has the potential to be expanded
to 600 MW.
In June 1994, CMS Generation announced it had acquired a 41 percent
ownership interest in the Lujan de Cuyo electric generating plant in
western Argentina's Mendoza Province. CMS Generation is the lead
developer and will become the plant operator. This facility has the
potential to produce 412 MW of generating capacity from oil and natural
gas and currently sells 135 MW of capacity on the Argentine wholesale
electric market.
CMS Generation is in process of acquiring a 32.5 percent ownership
interest in two operating power plants totaling 135 MW of generating
capacity located on the island of Cebu in the Philippines. CMS Generation
is the managing partner of a consortium which purchased the plants, and
will also be the operator of the 93 MW coal- and oil-fueled Sangi station
and the 42 MW oil-fired Carmen station.
CMS Energy currently plans to invest $262 million relating to its
independent power production operations for the years 1994 through 1996,
primarily in domestic and international subsidiaries and partnerships.
Natural Gas Pipeline Storage and Marketing
Pretax Operating Income
Pretax operating income increased $1 million, $2 million and $2 million
for the three, six and twelve months ended June 30, 1994 compared to the
comparable 1993 periods, reflecting earnings growth from gas pipeline and
storage projects and gas marketed to end-users.
Capital Expenditures
CMS Energy continued its expansion of its natural gas pipeline, storage
and marketing segment during 1994. In the first quarter of 1994 CMS Gas
Transmission acquired a 50 percent ownership interest in Moss Bluff Gas
Storage Systems, an existing 5 bcf high deliverability salt cavern storage
facility on the Gulf Coast of Texas for $18 million. CMS Gas Transmission
has also agreed to develop an additional 4 bcf salt cavern at Moss Bluff
which is expected to be in service by the beginning of the winter of 1995-
1996.
In April 1994, CMS Gas Transmission entered into an agreement in principle
to develop a North American natural gas market center in southeastern
Michigan. The Grands Lacs Market Center will provide a major exchange and
storage point for natural gas buyers and sellers throughout the midwest
and northeast United States and Canada.
In June 1994, CMS Gas Transmission announced it had reached an agreement
with MichCon to jointly own proposed new natural gas pipeline facilities
in northern Michigan. The agreement, subject to approval by the MPSC,
will allow construction of an estimated $170 million of new natural gas
facilities to serve the growing Antrim gas production. Facilities to be
constructed under the agreement include a 25-mile pipeline in which CMS
Gas Transmission and MichCon will each hold a 50 percent ownership
interest and up to four jointly-owned gas treatment plants to remove
naturally occurring carbon dioxide from Antrim gas to meet pipeline
quality specifications. The new pipeline facilities will allow increased
gas production in Michigan's Antrim shale formation to be accessible to
the natural gas transmission systems of Consumers Power, Great Lakes Gas
Transmission, MichCon and ANR Pipeline Co. Depending on MPSC approval,
construction of the facilities could begin by late 1994.
CMS Energy currently plans to invest $73 million for the years 1994
through 1996 relating to its non-utility gas operations, continuing to
pursue development of natural gas storage, gas gathering and pipeline
operations both domestically and internationally.
Other
Other Income: Other income decreased $13 million and $17 million for the
second quarter of 1994 and the first half of 1994, respectively, when
compared to the corresponding 1993 periods, reflecting the impact of the
sale of the remaining MCV Bonds. The $324 million improvement in Other
Income when comparing the 12 months ended June 30, 1994 to the
corresponding 1993 period reflects the impact of the March, 1993
Settlement Order related to power purchases from the MCV Partnership. The
12 months ended June 30, 1993 included an after-tax $343 million charge
related to the Settlement Order.
Public Utility Holding Company Act Exemption: CMS Energy is exempt from
registration under PUHCA. However, the Attorney General and the MMCG have
asked the SEC to revoke CMS Energy's exemption from registration under
PUHCA. In 1992, the MPSC filed a statement with the SEC recommending that
CMS Energy's current exemption be revoked and a new exemption be issued
conditioned upon certain reporting and operating requirements. If CMS
Energy were to lose its current exemption, it would become more heavily
regulated by the SEC; Consumers could ultimately be forced to divest
either its electric or gas utility business; and CMS Energy would be
restricted from conducting businesses that are not functionally related to
the conduct of its utility business as determined by the SEC. CMS Energy
is opposing this request and believes it will maintain its current
exemption from registration under PUHCA.
(This page intentionally left blank)
<PAGE>
<PAGE> 42
ARTHUR ANDERSEN & CO.
Report of Independent Public Accountants
To Consumers Power Company:
We have reviewed the accompanying consolidated balance sheets of CONSUMERS
POWER COMPANY (a Michigan corporation and wholly owned subsidiary of
CMS Energy Corporation) and subsidiaries as of June 30, 1994 and 1993, and
the related consolidated statements of income, common stockholder's equity
and cash flows for the three-month, six-month and twelve-month periods
then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statements of
long-term debt and preferred stock of Consumers Power Company and
subsidiaries as of December 31, 1993, and the related consolidated
statements of income, common stockholder's equity and cash flows for the
year then ended (not presented herein), and, in our report dated
January 28, 1994, we expressed an unqualified opinion on those statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1993, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
Arthur Andersen & Co.
Detroit, Michigan,
August 8, 1994.
<PAGE>
<PAGE> 43
<TABLE>
Consumers Power Company
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
In Millions
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Electric $ 549 $ 488 $1,094 $ 978 $2,193 $1,907
Gas 183 192 711 687 1,184 1,155
Other 2 1 3 3 6 (1)
---------------------------------------------------------
Total operating revenue 734 681 1,808 1,668 3,383 3,061
---------------------------------------------------------
OPERATING EXPENSES AND TAXES
Operation
Fuel for electric generation 70 71 150 141 302 288
Purchased power - related parties 118 113 240 220 486 460
Purchased and interchange power 55 28 97 53 192 112
Cost of gas sold 93 100 427 417 687 685
Other 137 126 262 245 533 507
---------------------------------------------------------
Total operation 473 438 1,176 1,076 2,200 2,052
Maintenance 48 54 91 98 196 200
Depreciation, depletion and amortization 74 70 169 161 324 312
General taxes 34 45 94 103 179 187
---------------------------------------------------------
Total operating expenses 629 607 1,530 1,438 2,899 2,751
---------------------------------------------------------
PRETAX OPERATING INCOME (LOSS)
Electric 86 53 174 134 326 191
Gas 18 21 102 94 155 122
Other 1 - 2 2 3 (3)
---------------------------------------------------------
Total pretax operating income 105 74 278 230 484 310
INCOME TAXES 25 17 79 62 133 74
---------------------------------------------------------
NET OPERATING INCOME 80 57 199 168 351 236
---------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
MCV Bond income - 8 - 16 16 33
Dividends from affiliates 4 4 8 8 16 16
Accretion income 4 3 7 7 13 15
Accretion expense (Note 2) (9) (9) (18) (18) (36) (18)
Loss on MCV power purchases - settlement - - - - - (520)
Other income taxes, net 2 4 7 10 22 188
Other, net - - - (3) 4 (4)
---------------------------------------------------------
Total other income (deductions) 1 10 4 20 35 (290)
---------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 33 37 67 75 145 149
Other interest 2 4 5 10 17 23
Capitalized interest - - - (1) (1) (1)
---------------------------------------------------------
Net interest charges 35 41 72 84 161 171
---------------------------------------------------------
Net Income (Loss) 46 26 131 104 225 (225)
Preferred Stock Dividends 7 3 10 6 15 11
---------------------------------------------------------
NET INCOME (LOSS) AFTER DIVIDENDS ON PREFERRED STOCK $ 39 $ 23 $ 121 $ 98 $ 210 $ (236)
=========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 44
<TABLE>
Consumers Power Company
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30 June 30
1994 1993 1994 1993
------ ------ ------ ------
In Millions
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 131 $ 104 $ 225 $(225)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning depreciation of $24, $23,
$48 and $46, respectively) 169 161 324 312
Capital lease and other amortization 12 16 26 38
Deferred income taxes and investment tax credit 46 41 54 (164)
Accretion expense (Note 2) 18 18 36 18
Accretion income - abandoned Midland project (7) (7) (13) (15)
MCV power purchases - settlement (Note 2) (45) (47) (82) (47)
Loss on MCV power purchases - settlement (Note 2) - - - 520
Other (2) (3) (3) (6)
Changes in other assets and liabilities 48 44 (120) 47
------ ------ ------ ------
Net cash provided by operating activities 370 327 447 478
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under
capital lease) (194) (194) (451) (448)
Investments in nuclear decommissioning trust funds (24) (23) (48) (46)
Deferred demand-side management costs (4) (28) (28) (47)
Cost to retire property, net (14) (13) (33) (18)
Sale of subsidiary - - (14) -
Other 2 (1) 1 (2)
Proceeds from sale of property 1 1 2 11
Proceeds from Midland-related assets - - 322 10
Proceeds from loan to affiliate - - - 50
Proceeds from Bechtel settlement - - - 46
------ ------ ------ ------
Net cash used in investing activities (233) (258) (249) (444)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable, net (130) 26 (112) 113
Retirement of bonds (Note 8) (100) (46) (694) (50)
Repayment of bank loans (94) - (125) -
Payment of common stock dividends (82) (57) (158) (57)
Payment of capital lease obligations (11) (13) (23) (32)
Retirement of other long-term debt (7) - (8) -
Payment of preferred stock dividends (6) (6) (11) (11)
Proceeds from preferred stock 193 - 193 -
Contribution from stockholder 100 - 100 -
Proceeds from bonds - 58 586 58
------ ------ ------ ------
Net cash provided by (used in) financing activities (137) (38) (252) 21
------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS - 31 (54) 55
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 13 36 67 12
------ ------ ------ ------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 13 $ 67 $ 13 $ 67
====== ====== ====== ======
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 45
<TABLE>
Consumers Power Company
Consolidated Balance Sheets
<CAPTION>
June 30 June 30
1994 December 31 1993
(Unaudited) 1993 (Unaudited)
In Millions
ASSETS
<S> <C> <C> <C>
PLANT (At original cost)
Electric $5,457 $5,347 $5,148
Gas 1,873 1,837 1,754
Other 282 253 220
-----------------------------------
7,612 7,437 7,122
Less accumulated depreciation, depletion and amortization 3,689 3,550 3,465
-----------------------------------
3,923 3,887 3,657
Construction work-in-progress 265 248 345
-----------------------------------
4,188 4,135 4,002
-----------------------------------
INVESTMENTS
Stock of affiliates (Note 7) 310 291 290
First Midland Limited Partnership (Note 2) 215 213 210
Midland Cogeneration Venture Limited Partnership (Note 2) 67 67 68
Other 7 6 7
-----------------------------------
599 577 575
-----------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost,
which approximates market 13 13 67
Accounts receivable and accrued revenue, less
allowances of $4, $4 and $4, respectively (Note 8) 121 110 39
Accounts receivable - related parties 67 12 50
Inventories at average cost
Gas in underground storage 160 228 151
Materials and supplies 78 73 77
Generating plant fuel stock 26 41 27
Trunkline settlement (Note 3) 30 31 32
Postretirement benefits 25 25 25
Deferred income taxes 20 17 -
Investment in MCV Bonds - - 322
Prepayments and other 82 156 80
-----------------------------------
622 706 870
-----------------------------------
NON-CURRENT ASSETS
Postretirement benefits 493 485 472
Nuclear decommissioning trust funds (Note 4) 191 165 137
Abandoned Midland project (Note 3) 155 162 169
Trunkline settlement (Note 3) 70 86 101
Other 273 235 196
-----------------------------------
1,182 1,133 1,075
-----------------------------------
TOTAL ASSETS $6,591 $6,551 $6,522
===================================
</TABLE>
<PAGE>
<PAGE> 46
<TABLE>
<CAPTION>
June 30 June 30
1994 December 31 1993
(Unaudited) 1993 (Unaudited)
In Millions
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<S> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in-capital (Note 8) 491 391 391
Revaluation capital (Note 7) 11 - -
Retained earnings since December 31, 1992 93 54 41
-----------------------------------
1,436 1,286 1,273
Preferred stock (Note 8) 356 163 163
Long-term debt 1,746 1,839 1,985
Non-current portion of capital leases 116 106 105
-----------------------------------
3,654 3,394 3,526
-----------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 249 355 224
Accounts payable 153 148 169
Accounts payable - related parties 42 49 52
Notes payable 129 259 241
Accrued taxes 116 171 114
MCV power purchases - settlement (Note 2) 82 82 81
Accrued refunds 41 28 64
Accrued interest 35 39 39
Deferred income taxes - - 35
Other 180 183 159
-----------------------------------
1,027 1,314 1,178
-----------------------------------
NON-CURRENT LIABILITIES
Postretirement benefits 543 527 514
Deferred income taxes 535 485 355
MCV power purchases - settlement (Note 2) 363 391 411
Deferred investment tax credit 184 190 194
Trunkline settlement (Note 3) 70 86 101
Regulatory liabilities for income taxes, net 16 6 71
Other (Note 4) 199 158 172
-----------------------------------
1,910 1,843 1,818
-----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 4)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $6,591 $6,551 $6,522
===================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 47
<TABLE>
Consumers Power Company
Consolidated Statements of Common Stockholder's Equity
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
In Millions
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
At beginning and end of period $ 841 $ 841 $ 841 $ 841 $ 841 $ 841
---------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 391 391 391 391 391 965
Quasi-reorganization (Note 8) - - - - - (574)
Stockholder's contribution (Note 8) 100 - 100 - 100 -
---------------------------------------------------------
At end of period 491 391 491 391 491 391
---------------------------------------------------------
REVALUATION CAPITAL (NOTE 7)
At beginning of period 15 - - - - -
Implementation of SFAS 115 - January 1, 1994 - - 20 - 20 -
Change in unrealized loss, net of tax (4) - (9) - (9) -
---------------------------------------------------------
At end of period 11 - 11 - 11 -
---------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
At beginning of period 120 75 54 - 41 (240)
Net income (loss) 46 26 131 104 225 (225)
Common stock dividends declared (66) (57) (82) (57) (158) (57)
Preferred stock dividends declared (7) (3) (10) (6) (15) (11)
Quasi-reorganization (Note 8) - - - - - 574
---------------------------------------------------------
At end of period 93 41 93 41 93 41
---------------------------------------------------------
TOTAL COMMON STOCKHOLDER'S EQUITY $1,436 $1,273 $1,436 $1,273 $1,436 $1,273
=========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 48
Consumers Power Company
Condensed Notes to Consolidated Financial Statements
These financial statements and their related condensed notes should be
read along with the consolidated financial statements and notes contained
in the 1993 Form 10-K of Consumers Power Company that includes the Report
of Independent Public Accountants. In the opinion of management, the
unaudited information herein reflects all adjustments necessary to assure
the fair presentation of financial position, results of operations and
cash flows for the periods presented.
1: Corporate Structure
Consumers is a combination electric and gas utility company serving most
of the Lower Peninsula of Michigan, and is the principal subsidiary of
CMS Energy, an energy holding company. Consumers' customer base includes
a mix of residential, commercial and diversified industrial customers, the
largest of which is the automotive industry.
2: The Midland Cogeneration Venture
The MCV Partnership, which leases and operates the MCV Facility,
contracted to sell electricity to Consumers for a 35-year period beginning
in 1990 and to supply electricity and steam to The Dow Chemical Company
for 15- and 20-year periods, respectively. At June 30, 1994, Consumers,
through its subsidiaries, held the following assets related to the MCV:
1) CMS Midland owned a 49 percent general partnership interest in the MCV
Partnership; and 2) CMS Holdings held through the FMLP a 35 percent lessor
interest in the MCV Facility.
Power Purchases from the MCV Partnership
Consumers' obligation to purchase contract capacity from the MCV
Partnership under the PPA follows:
1995 and
Year 1992 1993 1994 thereafter
- ---- ---- ----- ----- ----------
MW 915 1,023 1,132 1,240
Prior to 1993, the MPSC only allowed Consumers to recover costs of power
purchased from the MCV Partnership based on delivered energy for up to 840
MW at rates less than Consumers paid. In March 1993, the MPSC approved,
with modifications, the Revised Settlement Proposal which had been co-
sponsored by Consumers, the MPSC staff and 10 small power and cogeneration
developers. These parties accepted the Settlement Order and the MCV
Partnership confirmed that it did not object to the modifications. ABATE
and the Attorney General have filed claims of appeal of the Settlement
Order with the Court of Appeals.
The Settlement Order determined the cost of power purchased from the MCV
Partnership that Consumers can recover from its electric retail customers
and significantly reduced the amount of future underrecoveries for these
power costs. Effective January 1993, the Settlement Order allowed
Consumers to recover substantially all of the payments for its ongoing
purchase of 915 MW of contract capacity from the MCV Partnership.
Capacity and energy purchases from the MCV Partnership above the 915 MW
level can be competitively bid into Consumers' next solicitation for power
or, if necessary, utilized for current power needs with a prudency review
and a cost recovery determination in annual PSCR cases. In either
instance, the MPSC would determine the levels of recovery from customers
for the power purchased. The Settlement Order also provides Consumers the
right to remarket to third parties the remaining contract capacity, the
cost of which Consumers is currently not authorized to recover from retail
customers.
The PPA requires Consumers to pay to the MCV Partnership a minimum
levelized average capacity charge of 3.77 cents per kWh, a fixed energy
charge and a variable energy charge based primarily on Consumers' average
cost of coal consumed. Consumers is scheduling deliveries of energy from
the MCV Partnership whenever it has energy available up to hourly
availability limits, or "caps," for the 915 MW of capacity authorized for
recovery in the Settlement Order. Consumers can recover an average 3.62
cents per kWh capacity charge and the prescribed energy charges associated
with the scheduled deliveries within the caps, whether or not those
deliveries are scheduled on an economic basis. Through December 1997,
there is no cap applied during on-peak hours to Consumers' recovery for
the purchase of capacity made available within the 915 MW authorized.
Recovery for purchases during off-peak hours is capped at 82 percent in
1994 and 1995, 84 percent in 1996 and 1997, increasing to 88.7 percent in
1998 and thereafter at which time the 88.7 percent cap is applicable
during all hours. For all economic energy deliveries above the caps to
915 MW, Consumers is allowed to recover 1/2 cent per kWh capacity payment
in addition to the corresponding energy charge.
In December 1992, Consumers recognized an after-tax loss of $343 million
for the present value of estimated future underrecoveries of power costs
under the PPA as a result of the Settlement Order. This loss included
management's best estimates regarding the future availability of the MCV
Facility, and the effect of the future power market on the amount, timing
and price at which various increments of the capacity above the MPSC-
authorized level could be resold. Except for adjustments to the above
loss to reflect the after-tax time value of money through accretion
expense, no additional losses are expected unless actual future experience
materially differs from management's estimates. Because the calculation
of the 1992 loss depended in part upon estimates of future unregulated
sales of energy to third parties, a more conservative or risk-free
investment rate of 7 percent was used to calculate $188 million of the
total $343 million after-tax loss. The remaining portion of the loss was
calculated using an 8.5 percent discount rate reflecting Consumers'
incremental borrowing rate as required by SFAS 90, Regulated Enterprises-
Accounting for Abandonments and Disallowances of Plant Costs. The after-
tax expense for the time value of money for the loss is estimated to be
$24 million in 1994, and various lower levels thereafter, including $22
million in 1995 and $20 million in 1996. Although the settlement loss was
recorded in 1992, Consumers' continues to experience cash underrecoveries
associated with the Settlement Order. These after-tax cash
underrecoveries, including fixed energy charges, totaled $33 million for
the first six months of 1994. Consumers believes there is and will be a
market for the resale of capacity purchases from the MCV Partnership above
the MPSC-authorized level. However, if Consumers is unable to sell any
capacity above the current MPSC-authorized level, future additional after-
tax losses and after-tax cash underrecoveries could be incurred.
Consumers' estimates of its 1994 and future after-tax cash underrecoveries
and possible additional losses for the next five years if none of the
additional capacity is sold are as follows:
After-tax, In Millions
1994 1995 1996 1997 1998
- ---------------------------------------------------------------------
Expected cash underrecoveries $56 $65 $62 $61 $ 8
Possible additional
underrecoveries and losses (a) $14 $20 $20 $22 $72
=====================================================================
(a) If unable to sell any capacity above the MPSC's authorized level
At December 31, 1993, and June 30, 1994, the after-tax, present value of
the Settlement Order liability totaled $307 million and $289 million,
respectively. The reduction in the Settlement Order liability reflects
after-tax cash underrecoveries related to capacity totaling $30 million,
partially offset by after-tax accretion expense of $12 million.
The PPA, while requiring payment of a fixed energy charge, contains a
"regulatory out" provision which permits Consumers to reduce the fixed
energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. In connection with the MPSC's approval of the Revised
Settlement Proposal, Consumers and the MCV Partnership are engaged in
arbitration proceedings under the PPA to determine whether Consumers is
entitled to exercise its regulatory out regarding fixed energy charges on
the portion of available MCV capacity above the current MPSC-authorized
levels. An arbitrator acceptable to both parties has been selected. If
the arbitrator determines that Consumers cannot exercise its regulatory
out, Consumers would be required to make these fixed energy payments to
the MCV Partnership even though Consumers may not be recovering these
costs. The arbitration proceedings will also determine who is entitled to
the fixed energy amounts for which Consumers did not receive full cost
recovery during the years prior to settlement. Although Consumers
believes its position on arbitration is sound and intends to aggressively
pursue its right to exercise the regulatory out, management cannot predict
the outcome of the arbitration proceedings or any possible settlement of
the matter. Accordingly, losses were recorded prior to 1993 for all fixed
energy amounts at issue in the arbitration. At June 30, 1994, $23 million
has been escrowed by Consumers and is included as a non-current asset in
Consumers' financial statements. In December 1993, Consumers made an
irrevocable offer to pay through September 15, 2007, fixed energy charges
to the MCV Partnership on all kWh delivered by the MCV Partnership to
Consumers from the contract capacity in excess of 915 MW, which represents
a portion of the fixed energy charges in dispute. Consumers made the
offer in connection with the sale of its remaining $309 million investment
in the MCV Bonds which was completed in 1993.
The lessors of the MCV Facility have filed a lawsuit in federal district
court in New York against CMS Energy, Consumers and CMS Holdings. It
alleges breach of contract, breach of fiduciary duty and negligent or
fraudulent misrepresentation relating to the MCV Partnership's failure to
object to the Settlement Order in light of Consumers' interpretation of
the Settlement Order, which is the subject of the arbitration between the
MCV Partnership and Consumers discussed above. The action alleges damages
in excess of $1 billion and seeks injunctive relief relative to Consumers'
payments of the fixed energy charges. CMS Energy and Consumers believe
that at all times they and CMS Holdings have conducted themselves properly
and that the action is without merit. It appears from the face of the
complaint that a significant portion of the alleged damages represent
fixed energy charges in dispute in the arbitration. CMS Energy and
Consumers have requested that the lawsuit be dismissed for lack of
jurisdiction and have commenced a lawsuit in Midland, Michigan, to address
these issues. While management believes that the possibility of the
alleged damages being awarded is remote, CMS Energy and Consumers are
unable to predict the outcome of this issue. In addition, CMS Holdings
has filed a lawsuit in the circuit court of Jackson, Michigan, seeking
reimbursement of $7 million of certain tax indemnification payments made
to its partners in the FMLP and owed to CMS Holdings. Consumers is unable
to predict the outcome of this issue.
In May 1994, Consumers was notified by the MCV that it was initiating
arbitration proceedings under the PPA to determine whether the energy
charge paid to the MCV is being properly calculated. Consumers believes
that its calculation of the energy charge is correct. The amount in
dispute, which relates to the period beginning in 1990 and continuing
through the term of the PPA, is estimated by the MCV Partnership to total
$8 million annually. The parties are in the process of selecting an
arbitrator and establishing a schedule for arbitration. Consumers cannot
predict the timing and outcome of these proceedings.
In July 1994, Consumers agreed to pay $30 million to terminate a separate
power purchase agreement with a 65 MW coal-fired cogeneration facility.
Consumers is seeking MPSC approval to substitute 65 MW of less expensive
contract capacity from the MCV Facility which Consumers is currently not
authorized to recover from retail customers. Consumers believes the
termination agreement and the proposed substitution of capacity represents
significant savings to its customers and will record a regulatory asset
for $30 million, which it believes will ultimately be recoverable in
rates.
PSCR Matters: Consistent with the terms of the 1993 Settlement Order,
Consumers withdrew its appeals of various MPSC orders issued in connection
with several PSCR cases. Consumers also agreed not to appeal any MCV-
related issues raised in future orders for these plan cases and related
reconciliations to the extent those issues are resolved by the Settlement
Order. In March 1994, the MPSC issued an order in the PSCR reconciliation
case for 1992 confirming Consumers' recovery for the purchase of 840 MW
from the MCV in accordance with the MPSC plan case order and allowing
recovery for the purchase of power above 840 MW based on replacement power
costs. In March 1994, the MPSC further confirmed, as part of a 1993 PSCR
plan case order, the recovery of MCV-related costs consistent with the
Settlement Order.
3: Rate Matters
Electric Rate Case
On May 10, 1994, the MPSC issued an order, granting Consumers a $58
million annual increase in its retail electric rates effective May 11,
1994. The order provides Consumers with higher revenues associated with
increased expenditures primarily related to capital additions, operation
and maintenance, higher depreciation and postretirement benefits computed
under SFAS 106, Employers' Accounting for Postretirement Benefits Other
than Pensions, and the continuation of certain demand-side management
programs at reduced levels. The MPSC order generally supported Consumers'
rate design proposal and reduced the level of subsidization of residential
customers by commercial and industrial customers. Residential customers
were assigned $40 million, which was 70 percent of the rate increase.
As finally revised, Consumers requested an electric rate increase for 1994
totaling $118 million and included an incremental increase request of $27
million in 1995. The MPSC's order did not provide Consumers with an
additional rate increase in 1995, but does allow Consumers to file a
separate rate-increase request for 1995. The order also differed from
Consumers' requested increase as it included a lower return on common
equity, a lower level of working capital, provided for a lower equity
ratio for Consumers' projected capital structure and reflected a $15
million decrease for lower property taxes due to a recent reduction in
state tax rates and a $9 million decrease for reduced demand-side
management program expenditures and miscellaneous costs which will not be
incurred. On June 9, 1994, Consumers filed a petition for rehearing and
clarification of this MPSC order. The petition requests reconsideration
of certain issues which include an incremental revenue requirement of $26
million for 1995, the level of rate cross-subsidization, the level of
future DSM expenditures and the calculation of DSM-related incentives and
penalties.
Special Rates: In June 1994, Consumers also filed a request with the
MPSC, seeking approval of a plan to offer competitive, special rates to
certain large qualifying customers. Consumers proposes to offer the new
rates to customers using high amounts of electricity that have expressed
an intention to or are capable of terminating purchases of electricity
from Consumers and have the ability to acquire energy from alternative
sources. To serve these customers, Consumers would use power purchases
from the MCV Partnership which exceed the 915 MW currently recoverable
from electric retail customers. The MPSC has granted an expedited hearing
schedule on this proposal that calls for final briefs to be filed in
November 1994. A final order is expected near the end of 1994.
Abandoned Midland Project: In 1984, Consumers abandoned construction of
its unfinished nuclear power plant located in Midland, Michigan, and
subsequently took a series of write-downs. In 1991, the MPSC issued
orders permitting recovery of a portion of the plant and Consumers began
collecting $35 million pretax annually for the next 10 years. Several
parties, including the Attorney General, have filed claims of appeal with
the Court of Appeals regarding MPSC orders issued in 1991 that specified
the recovery of abandoned investment. Thus far, the Court of Appeals has
not taken any action regarding these appeals.
Electric Demand-side Management: As a result of settlement discussions
regarding demand-side management and an MPSC order in 1991, Consumers
agreed to spend $65 million over two years on demand-side management
programs. Based on the MPSC's determination of Consumers' effectiveness
in implementing these programs, Consumers' future rate of return on common
equity may be adjusted either upward by up to 1 percent or downward by up
to 2 percent. This adjustment, if implemented, would be applied to
Consumers' retail electric tariff rates and be in effect for one year
following reconciliation hearings with the MPSC. The estimated revenue
effects of the potential adjustment range from an $11 million increase to
a $22 million decrease. The proceedings before the MPSC have started and
based on the criteria set out in the demand-side management settlement
agreement approved by the MPSC in 1992, Consumers has achieved all the
agreed-upon objectives. Consumers believes that the MPSC will ultimately
order a 1 percent increase on its return on common equity to be in effect
for one year. Accordingly, during the second quarter of 1994, Consumers
recognized $11 million in revenue, related to its demand-side management
program. A final order from the MPSC is expected by mid-1995.
In October 1993, Consumers completed the customer participation portion of
these DSM programs. In May 1994, as part of Consumers' electric rate
case, the MPSC issued an order that allowed Consumers to recover demand-
side management expenditures which exceeded $65 million. The order also
authorized Consumers to continue certain programs in 1994 through 1996.
Consumers is deferring program costs and amortizing the costs over the
period these costs are being recovered from its customers in accordance
with an accounting order issued by the MPSC in September 1992. The
unamortized balance of deferred costs at June 30, 1994 was $72 million.
PSCR Issues
Consumers began a planned refueling and maintenance outage at Palisades in
June 1993. Following several required, unanticipated repairs that
extended the outage, the plant returned to service in early November. In
addition, from mid-February through mid-June 1994, Palisades was
temporarily taken out of service to repair valve-leakage and conduct other
needed inspections and repairs. Recovery of replacement power costs
incurred by Consumers during these outages will be reviewed by the MPSC
during the 1993 and 1994 PSCR reconciliations of actual costs and revenues
to determine the prudency of actions taken during the outages. Any
finding of delay due to imprudence could result in disallowances of a
portion of replacement power costs. Net replacement power costs during
the outages were approximately $180,000 per day above the cost of fuel
incurred when the plant is operating. Consumers has conceded that one day
of the 1993 outage was inappropriate, while the MPSC staff has recommended
a 20-day disallowance totaling $3.7 million. See Note 4 for information
regarding the NRC's review of Palisades' performance.
Gas Rates
In July, 1994, the MPSC approved an agreement previously reached between
the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the
last six months of 1994. This charge against earnings will partially
offset costs related to state property taxes which have been reduced. The
agreement was reached in response to an assertion by the MPSC staff that
gas utility business earnings for 1993 were in excess of the currently
authorized level. The agreement also provides for an additional $4
million of 1995-related SFAS 106 costs to be charged against 1995 earnings
instead of being deferred. As part of the agreement, Consumers committed
to file a gas rate case before December 31, 1994, that will, among other
things, incorporate cost increases, including costs for postretirement
benefits computed under SFAS 106, into its retail gas rates. A final
order should be received approximately 9 to 12 months after the request is
filed. No assurance can be given as to the level of rates which will be
authorized by the MPSC. Consumers' gas distribution business is currently
authorized to earn a 13.25 percent rate of return on equity. Consumers'
most recent rate filing for its electric utility business resulted in an
approved rate of return on equity of 11.75 percent.
GCR Issues
The MPSC, in a February 1993 order, provided that the price payable to
certain intrastate gas producers by Consumers be reduced prospectively.
In a related case, Consumers was not allowed to recover $13 million of gas
supply costs incurred prior to February 8, 1993. Consumers previously had
accrued a loss sufficient for this issue. Future disallowances are not
anticipated, unless the remaining appeals filed by the intrastate
producers are successful.
In 1992, the FERC approved a settlement involving Consumers, Trunkline and
certain other parties, which resolved numerous claims and proceedings
concerning Trunkline liquified natural gas costs. The settlement
represents significant gas cost savings for Consumers and its customers in
future years. As part of the settlement, Consumers will not incur any
transition costs from Trunkline as a result of FERC Order 636. In 1992,
Consumers had recorded a liability and regulatory asset for the principal
amount of payments to Trunkline over a five-year period. In May 1993, the
MPSC approved a separate settlement agreement that provides Consumers with
full recovery of these costs over a five-year period. At June 30, 1994,
Consumers' remaining liability and regulatory asset were $100 million.
Other
A dispute involving pricing under contracts Consumers had with eight
direct gas suppliers has been recently resolved. The dispute revolved
around whether the price Consumers pays Trunkline for gas was the proper
reference price for these eight gas supply contracts. Consumers and seven
of the suppliers have agreed to enter into new contracts, at negotiated
rates, with initial terms ranging from one to three years. Consumers and
the remaining supplier agreed to terminate their existing contract.
Estimated losses for certain contingencies discussed in this note have
been accrued. Resolution of these contingencies is not expected to have a
material impact on Consumers' financial position or results of operations.
4: Commitments and Contingencies
Ludington Pumped Storage Plant Litigation
In 1986, the Attorney General filed a lawsuit on behalf of the State of
Michigan in the Circuit Court of Ingham County, seeking damages from
Consumers and Detroit Edison for alleged injuries to fishery resources
because of the operation of the Ludington Pumped Storage Plant. The state
sought $148 million (including $16 million of interest) for past injuries
and $89,000 per day for future injuries, with the latter amount to be
adjusted upon installation of "adequate" fish barriers and other changed
conditions.
In 1987, the Attorney General filed a second lawsuit alleging that
Consumers and Detroit Edison have breached a bottomlands lease agreement
with the state and asked that the lease be declared void. This complaint
was consolidated with the suit described in the preceding paragraph. In
1990, both of the lawsuits were dismissed on the basis of federal
preemption. In 1993, the Court of Appeals overturned the dismissal, as to
damages, effectively allowing the state to pursue its damages lawsuit
against Consumers and Detroit Edison, but generally affirmed the lower
court's ruling as to the breach of lease claim. The Court of Appeals'
ruling also limited any potential damages to those occurring no earlier
than 1983. The Michigan Supreme Court has granted Consumers', Detroit
Edison's and the Attorney General's requests for leave to appeal the Court
of Appeals' ruling, and a decision is expected in late 1995. Consumers
and Detroit Edison are seeking to have the trial court's dismissal of the
damages claim affirmed. The Attorney General is seeking to have the
dismissal of his lease claim overturned. Consumers is unable to predict
the outcome of these appeals or any liability that could be incurred
should the Supreme Court decide that the suit for damages may be pursued.
Each year since 1989, Consumers and Detroit Edison have complied with FERC
orders by installing a seasonal barrier net from April to October at the
Ludington plant site. The FERC is now considering whether the barrier net
(along with other actions by Consumers, including contributions to state
fish-stocking programs) would be a satisfactory permanent solution.
Environmental Matters
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on
information currently known by management, Consumers believes that it is
unlikely that its liability at any of the known Superfund sites,
individually or in total, will have a material adverse effect on its
financial position or results of operations.
Under Michigan's Environmental Response Act, Consumers expects that it
will ultimately incur clean-up costs at a number of sites, including some
of the 23 sites that formerly housed manufactured gas plant facilities,
even those in which it has a partial or no current ownership interest.
Parties other than Consumers with current or former ownership interests
may also be considered liable for site investigations and remedial
actions.
Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the
nature and extent of contamination at these sites and to determine which
of several possible remedial action alternatives, including no action, may
be required under the Environmental Response Act. The DNR has approved
two of three plans for remedial investigation/feasibility studies
submitted by Consumers and is currently reviewing the third.
The preliminary findings for the first remedial investigation/feasibility
study indicate that the expenditures for remedial action at this site are
likely to be minimal. However, Consumers did not believe that a single
site was representative of all of the sites. Data available to Consumers
and its continued internal studies have resulted in an estimate of
remedial action for all 23 sites of between $40 million and $140 million.
These estimates are based on undiscounted 1994 costs. At June 30, 1994,
Consumers has accrued a liability for $40 million, representing the
minimum amount in the range. Any significant change in assumptions such
as remediation technique, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial costs for
the sites.
Consumers believes that remedial costs are recoverable in rates as the
MPSC in 1993 addressed the question of recovery of investigation and
remedial costs for another Michigan gas utility as part of a gas rate
case. In that proceeding, the MPSC determined that prudent investigation
and remedial costs could be deferred and amortized over 10-year periods.
In order to be recovered in rates, prudent costs must be approved in a
rate case. Any costs amortized in years prior to filing a rate case may
not be recoverable. The MPSC stated that the length of the period may be
reviewed from time to time, but any revisions would be prospective. The
order further provided that the prudency review would include a review of
the utility's attempts to obtain reimbursement from others. The MPSC has
also approved similar deferred accounting requests by two other Michigan
utilities relative to investigation and remediation costs. Accordingly,
Consumers has recorded a regulatory asset for the same amount as the
accrued liability for anticipated recovery of these investigation and
remedial clean-up costs. Consumers has initiated discussions with certain
insurance companies regarding coverage for some or all of the costs which
may be incurred for these sites.
Included in the 1990 amendments to the federal Clean Air Act are
provisions that limit emissions of sulfur dioxide and nitrogen oxides and
require enhanced emissions monitoring. All of Consumers' coal-fueled
electric generating units burn low-sulfur coal and are presently operating
at or near the sulfur dioxide emission limits which will be effective in
2000. Beginning in 1995, certain coal-fueled generating units will
receive emissions allowances (all of Consumers' coal units will receive
allowances beginning in 2000). Based on projected emissions from these
units, Consumers expects to have excess allowances which may be sold or
saved for future use.
The Clean Air Act's provisions require Consumers to make capital
expenditures estimated to total $74 million through 1999 for completed,
in-process and possible modifications at coal-fired units based on current
regulations. Management believes that Consumers' annual operating costs
will not be materially affected.
The EPA has asked a number of utilities in the Great Lakes area to
voluntarily retire certain equipment containing specific levels of
polychlorinated biphenyls. While Consumers believes that it is largely in
compliance with the EPA's petition, it has agreed to a 10-year retirement
period for certain equipment included in the EPA's request. Consumers
does not anticipate that any additional costs will be incurred as a result
of this agreement.
In 1993, Consumers experienced increases in complaints relating to so-
called stray voltage. Claimants contend that stray voltage results when
small electrical currents present in grounded electric systems are
diverted from their intended path. Investigation by Consumers of prior
stray voltage complaints disclosed that many factors, including improper
wiring and malfunctioning of farm equipment, can lead to the stray voltage
phenomenon. Consumers maintains a policy of investigating all customer
calls regarding stray voltage and working with customers to address their
concerns including, when necessary, modifying the configuration of the
customer's hook-up to Consumers. A complaint seeking certification as a
class action suit was filed against Consumers in a local county circuit
court in 1993. The complaint alleged the existence of a purported class
that incurred damages in excess of $1 billion, primarily to certain
livestock owned by the purported class, as a result of stray voltage from
electricity being supplied by Consumers. Consumers believes the
allegations to be without merit and in March 1994, the circuit judge
hearing the complaint refused to grant class action status to the suit.
In April 1994, the plaintiffs in this action appealed the matter to the
Court of Appeals. Consumers believes that the various claims are
different enough to warrant separate trials, and that the circuit court's
denial of class-action status will be upheld. A number of individuals who
would have been part of the class action have refiled their claims as
separate lawsuits. At August 10, 1994, Consumers had 91 separate stray
voltage lawsuits pending.
Palisades Plant
In April 1993, the NRC approved the design of the dry spent fuel storage
casks now being used by Consumers at Palisades. In May 1993, the Attorney
General and certain other parties commenced litigation to block Consumers'
use of the storage casks, alleging that the NRC had failed to comply
adequately with the National Environmental Policy Act. The courts have
declined to prevent such use and have refused to issue temporary
restraining orders or stays. Several appeals relating to this matter are
now pending at the U.S. Sixth Circuit Court of Appeals. As of July 31,
1994, Consumers had loaded four dry storage casks with spent nuclear fuel
and expects to load nine additional casks in 1994 prior to Palisades' 1995
refueling. If Consumers is unable to continue to use the casks as
planned, significant costs could be incurred, including replacement power
costs during any resulting plant shutdown and costs related to removal of
the dry cask system. In March 1994, Consumers agreed to a request from
the NRC to complete certain tests and analysis regarding Consumers' cask
storage site at Palisades, including the effects of an earthquake on the
surrounding soil and the support pad on which the casks are placed. These
tests and analysis have been completed and conclude that the storage
system meets safety standards. The results were reviewed by the NRC
staff, and in May 1994, the NRC issued a preliminary report confirming the
safety of Consumers' dry cask storage system.
On August 2, 1994, Consumers announced that it would unload and replace
one of the four dry fuel storage casks at Palisades that contains spent
nuclear fuel. In examining radiographs during a review of the cask
manufacturer's quality assurance program, Consumers detected indications
of minor flaws in welds in the steel liner of the most recently loaded
cask. Although testing following cask loading did not disclose any
leakage from the cask, Consumers has nevertheless decided to remove the
spent fuel from this cask and insert it in another cask. Consumers has
examined the radiographs for all of the casks fabricated for it to date,
including the other three casks containing spent fuel, and have found all
other welds to be acceptable.
In November 1993, Palisades returned to service following a planned
refueling and maintenance outage that had been extended due to several
unanticipated repairs (see Note 3). The results of an NRC review of
Consumers' performance at Palisades published shortly thereafter showed a
decline in performance ratings for the plant. In order to provide NRC
senior management with a more in-depth assessment of plant performance,
the NRC conducted a diagnostic evaluation inspection at Palisades. The
inspection evaluated all aspects of nuclear plant operation and
management. The inspection, completed in June 1994, found performance,
operational and management deficiencies at Palisades. The NRC
acknowledged that the new Palisades senior management team, in place since
early 1994, had recognized and begun to address the problems at Palisades.
The NRC did not place Palisades on either of the NRC's "Troubled" or
"Declining Performance" lists. Consumers is required to file a response
to the NRC's diagnostic evaluation report by August 18, 1994, and is
currently finalizing a performance improvement plan which will form the
basis for that response. Attaining and maintaining acceptable performance
at Palisades will require continuing performance improvements and
additional expenditures at the plant, which have been included in
Consumers' total planned levels of expenditures.
Nuclear Decommissioning
Consumers collects estimated costs to decommission (decontamination and
dismantlement) its two nuclear plants through a monthly surcharge to
electric customers which currently totals $45 million annually. Consumers
currently estimates decommissioning costs of $208 million and $399
million, in 1993 dollars, for the Big Rock and Palisades nuclear plants,
respectively. Amounts collected from electric retail customers and
deposited in trusts, and earnings on the trusts, which are credited to
accumulated depreciation, are estimated to accumulate $425 million and
$1.2 billion for decommissioning Big Rock and Palisades, respectively.
The trust funds, which are estimated to earn 7.1 percent, will be used for
decommissioning Big Rock and Palisades at the end of their respective
license periods in 2000 and 2007. Consumers believes the amounts being
collected are adequate to meet its currently estimated decommissioning
costs and current NRC requirements. In order to meet those requirements,
Consumers prepared site-specific decommissioning cost estimates for Big
Rock and Palisades. In developing the estimates, Consumers assumed that
each plant site will be restored to conform with the adjacent landscape,
and that all contaminated equipment will be disassembled and disposed of
in a licensed burial facility. Consumers expects to file updated
decommissioning estimates with the MPSC on or before March 31, 1995. At
June 30, 1994, Consumers had an investment in a nuclear decommissioning
trust fund of $191 million for future decommissioning.
The staff of the SEC has questioned certain accounting practices of the
electric utility industry, including Consumers, regarding the recognition,
measurement and classification of decommissioning costs for nuclear
generating stations in the financial statements. In response to these
questions, the FASB has agreed to review the accounting for removal costs,
including decommissioning. If current electric utility industry
accounting practices for such decommissioning are changed: annual
provisions for decommissioning could increase; estimated costs for
decommissioning could be recorded as a liability rather than as
accumulated depreciation and; trust fund income from the external
decommissioning trusts could be reported as investment income rather than
as a reduction to decommissioning expense.
Commitments for Coal and Gas Supplies
Consumers has entered into coal supply contracts with various suppliers
for its coal-fired generating stations. These contracts have expiration
dates that range from 1994 to 2004. Generally, Consumers contracts for
approximately 70% of its annual coal requirements which in 1993 totalled
approximately $260 million. Consumers supplements its long-term contracts
with spot market purchases to fulfill its coal needs.
Consumers has entered into gas supply contracts with various suppliers for
its natural gas business. These contracts have expiration dates that
range from 1994 to 1999. Generally, Consumers contracts for approximately
75% of its annual gas requirements which in 1993 totalled approximately
$680 million. Consumers supplements its long-term contracts with spot-
market purchases to fulfill its gas needs.
Capital Expenditures
Consumers estimates capital expenditures, including demand-side management
and new lease commitments, of $485 million for 1994, $510 million for 1995
and $419 million for 1996.
Public Utility Holding Company Act Exemption
CMS Energy is exempt from registration under PUHCA. However, the Attorney
General and the MMCG have asked the SEC to revoke CMS Energy's exemption
from registration under PUHCA. In 1992, the MPSC filed a statement with
the SEC recommending that CMS Energy's current exemption be revoked and a
new exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the SEC; Consumers could ultimately be
forced to divest either its electric or gas utility business; and
CMS Energy would be restricted from conducting businesses that are not
functionally related to the conduct of its utility business as determined
by the SEC. CMS Energy is opposing this request and believes it will
maintain its current exemption from registration under PUHCA.
Other
In addition to the matters disclosed in these notes, Consumers and certain
of its subsidiaries are parties to certain lawsuits and administrative
proceedings before various courts and governmental agencies, arising from
the ordinary course of business involving personal injury and property
damage, contractual matters, environmental issues, federal and state
taxes, rates, licensing and other matters.
Estimated losses for certain contingencies discussed in this note have
been accrued. The ultimate effect of the proceedings discussed in this
note is not expected to have a material impact on Consumers' financial
position or results of operations.
5: Effects of the Ratemaking Process
Consumers is subject to the provisions of SFAS 71, Accounting for the
Effects of Certain Types of Regulation. Regulatory assets represent
probable future revenue to Consumers associated with certain incurred
costs as these costs are recovered through the ratemaking process. The
following regulatory assets (liabilities) which include both current and
non-current amounts, are reflected in the Consolidated Balance Sheets:
In Millions
June 30, 1994 Dec. 31, 1993 June 30, 1993
- ---------------------------------------------------------------------
Postretirement benefits $ 518 $ 510 $ 497
Income taxes 183 192 130
Abandoned Midland project 155 162 169
Trunkline settlement 100 117 133
Demand-side management -
deferred costs 72 71 51
Environmental clean-up 40 - -
DOE - decommissioning uranium
enrichment facility 32 33 36
Other 35 36 22
--------------------------------------
Total regulatory assets $1,135 $1,121 $1,038
=====================================================================
Income taxes $ (199) $ (195) $ (202)
Demand-side management -
deferred revenue (17) (17) (17)
--------------------------------------
Total regulatory liabilities $ (216) $ (212) $ (219)
=====================================================================
Consumers has MPSC orders to recover virtually all of its regulatory
assets through future rates and anticipates MPSC approval for recovery of
the remaining amounts.
6: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with original maturities of three months or less are considered cash
equivalents. Other cash flow activities and non-cash investing and
financing activities for the periods ended June 30 were:
In Millions
Six Months Ended Twelve Months Ended
- ---------------------------------------------------------------------
1994 1993 1994 1993
---- ---- ---- ----
Cash transactions
- -----------------
Interest paid (net of
amounts capitalized) $ 73 $ 91 $159 $187
Income taxes paid
(net of refunds) 55 93 53 30
Non-cash transactions
- ---------------------
Nuclear fuel placed
under capital lease $ 3 $ 23 $ 8 $ 28
Other assets placed
under capital leases 7 21 16 48
Capital leases refinanced - 42 - 42
Assumption of debt - - - 15
=====================================================================
7: Financial Instruments
On January 1, 1994, Consumers adopted SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, requiring accounting for
investments in debt securities to be held to maturity at amortized cost;
otherwise debt and marketable equity securities are recorded at fair
value, with any unrealized gains or losses included in earnings if the
securities are for trading purposes or as a separate component of
stockholders' equity if the securities are available for sale. The
implementation resulted in an increase in assets of $30 million with a
corresponding increase in stockholders' equity of $20 million, net of tax.
The amortized costs, fair values and gross unrealized gains (losses) for
available-for-sale securities at June 30, 1994, are as follows:
In Millions
Gross
Amortized Fair Unrealized
Available-for-sale securities Cost Value Gain (Loss)
- ---------------------------------------------------------------------
Common stock of CMS Energy $ 42 $ 61 $ 19
Nuclear decommissioning
and SERP trusts 206 204 (2)
=====================================================================
In addition, Consumers has an investment of $250 million in 10 shares of
Enterprises' preferred stock classified as held-to-maturity. Beginning in
1997, two shares of these securities are required to be redeemed each year
at a redemption price of $25 million per share.
8: Capitalization and Other
Debt
Consumers has authorization from the FERC to issue or guarantee up to $900
million of short-term debt through December 31, 1994. Consumers has a
$470 million facility to finance seasonal working capital requirements and
unsecured, committed lines of credit aggregating $165 million. At June
30, 1994, Consumers had $100 million and $29 million, respectively,
outstanding under these facilities.
Consumers secures its first mortgage bonds by a mortgage and lien on
substantially all of its property. Consumers' ability to issue and sell
securities is restricted by certain provisions in its First Mortgage Bond
Indenture, Articles and the need for regulatory approvals in compliance
with appropriate state and federal law. In the first quarter of 1994,
Consumers redeemed first mortgage bonds totaling $100 million. These
redemptions completed Consumers' commitment to the MPSC, under the 1993
authorization to issue first mortgage bonds, to refinance certain long-
term debt.
In January 1993, Consumers entered into an interest rate swap agreement,
exchanging variable-rate interest for a fixed-rate interest of 5.2 percent
on the latest maturing $250 million of the then remaining $500 million
obligation under its long-term credit agreement. The swap arrangement has
the same term as the debt agreement and had the effect of increasing the
weighted average interest rate to 4.8 percent from 3.9 percent for the 12-
month period ended December 31, 1993. Under this credit agreement at
December 31, 1993, Consumers was required to make 10 remaining quarterly
principal payments of approximately $47 million. As of December 31, 1993,
the outstanding balance under this credit agreement totaled $469 million
with a weighted average interest rate of 4.0 percent.
Other
Consumers has an established $500 million trade receivables purchase and
sale program. At June 30, 1994, receivables sold under the agreement
totaled $205 million as compared to $285 million at December 31, 1993.
In March 1994, Consumers issued and sold 8 million shares of Consumers'
$2.08 Class A Preferred Stock (cumulative, without par value) with a
stated annual dividend rate of 8.32 percent. Net proceeds to Consumers
were $193 million. The stock is redeemable at the option of Consumers, on
or after April 1, 1999, at a redemption price of $25 per share plus
accrued dividends.
In May 1994, Consumers received a $100 million equity investment from CMS
Energy. The investment was consistent with CMS Energy's plan to improve
Consumers' capital structure and was recognized and included in the
capitalization structure employed by the MPSC as part of Consumers' most
recent electric rate order.
At December 31, 1992, Consumers effected a quasi-reorganization, an
elective accounting procedure in which Consumers' accumulated deficit of
$574 million was eliminated against other paid-in capital. The fair
values of Consumers' assets and liabilities at the date of the quasi-
reorganization were determined by management to approximate their carrying
values and no material adjustments to the historical bases were made.
This action was approved by Consumers' Board of Directors and did not
require shareholder approval. As a result of the quasi-reorganization and
subsequent accumulated earnings, Consumers resumed paying common stock
dividends during 1993. Consumers has continued paying common stock
dividends in 1994, including $16 million attributable to 1993 earnings,
and $66 million, attributable to current year earnings. Additionally, in
July 1994, Consumers declared a $31 million common stock dividend which is
payable in August 1994.
In January 1994, Consumers amended its nuclear fuel lease to include fuel
previously owned at Big Rock and further increased the maximum amount of
nuclear fuel that could be leased to $80 million. At June 30, 1994, $66
million was under lease.
In November 1992, the FASB issued SFAS 112, Employers' Accounting for
Postemployment Benefits, which Consumers adopted January 1, 1994.
Consumers pays for several postemployment benefits, the most significant
being workers' compensation. Because Consumers' postemployment benefit
plans do not vest or accumulate, the standard did not materially impact
Consumers' financial position or results of operations.
<PAGE>
<PAGE> 61
Consumers Power Company
Management's Discussion and Analysis (MD&A)
This MD&A should be read along with the MD&A in the 1993 Form 10-K of
Consumers.
Consumers is a combination electric and gas utility company serving most
of the Lower Peninsula of Michigan, and is the principal subsidiary of
CMS Energy, an energy holding company. Consumers' customer base includes
a mix of residential, commercial and diversified industrial customers, the
largest of which is the automotive industry.
Consolidated earnings for the quarters ended June 30, 1994 and 1993
Consolidated net income after dividends on preferred stock totaled $39
million for the second quarter of 1994, compared to $23 million for the
corresponding second quarter of 1993. The increased net income reflects
increased electric sales resulting from Michigan's continuing economic
growth and warmer temperatures. Net income also benefited from a mid-May
1994 electric rate increase and the lowering of property taxes in
Michigan.
Consolidated earnings for the six months ended June 30, 1994 and 1993
Consolidated net income after dividends on preferred stock totaled $121
million for the six months ended June 30, 1994, compared to $98 million
for the six months ended June 30, 1993. The increased net income reflects
increased electric sales and gas deliveries resulting from increased motor
vehicle production, increased levels of employment and the overall strong
economic expansion in Consumers' service territory. In addition, net
income benefited from a mid-May 1994 electric rate increase.
Consolidated earnings for the 12 months ended June 30, 1994 and 1993
Consolidated net income after dividends on preferred stock totaled $210
million for the 12 months ended June 30, 1994, compared to a net loss of
$236 million for the 12 months ended June 30, 1993. The increased net
income reflects the impact of the Settlement Order related to the cost
recovery for power purchases from the MCV Partnership, the benefit of
increased electric sales and gas deliveries, and the impact of a mid-May
1994 electric rate increase.
Cash Position, Financing and Investing
Consumers' operating cash requirements are met by its operating and
financing activities. Consumers' cash from operations mainly resulted
from its sale and transportation of natural gas and its sale and
transmission of electricity. Cash from operations for the first six
months of 1994 reflects the benefits of record-setting electric sales and
significantly higher gas deliveries.
Financing Activities
As a result of the 1992 quasi-reorganization (see Note 8 of the Condensed
Notes to Consolidated Financial Statements), and subsequent accumulated
earnings, Consumers resumed paying common stock dividends during 1993.
Consumers has continued paying common stock dividends in 1994, including
$16 million attributable to 1993 earnings, and $66 million attributable to
current year earnings. Additionally, in July 1994, Consumers declared a
$31 million common stock dividend, payable in August 1994.
During February and March 1994, Consumers continued to reduce its future
interest charges by retiring $100 million of high-cost first mortgage
bonds. Also, in March 1994, Consumers issued and sold 8 million shares of
Class A Preferred Stock (cumulative, without par value) with a stated
annual dividend rate of 8.32 percent. Net proceeds of $193 million from
the sale are targeted for general corporate purposes, including debt
retirement and improvements to Consumers' distribution systems.
Investing Activities
Capital expenditures (excluding assets placed under capital lease) and
deferred demand-side management costs totaled $198 million for the first
six months of 1994 as compared to $222 million for the first six months of
1993. These amounts primarily represent capital investments in Consumers'
electric and gas utility segments.
Outlook
Consumers estimates that capital expenditures, including demand-side
management and new lease commitments, related to its electric and gas
utility operations will total $1.4 billion over the next three years.
Cash generated by operations is expected to satisfy a substantial portion
of these capital expenditures.
In Millions
Years Ended December 31 1994 1995 1996
- --------------------------------------------------------------------------
Consumers
Construction (including DSM) $448 $438 $347
Nuclear fuel lease 4 40 37
Capital leases other than nuclear fuel 27 27 28
Michigan Gas Storage 6 5 7
------------------------
$485 $510 $419
============================================================================
Consumers' short-term sources of credit include a $470 million working
capital facility and unsecured, committed lines of credit totaling $165
million. At June 30, 1994, Consumers had $100 million and $29 million,
respectively, outstanding under these facilities. Consumers has FERC
authorization to issue or guarantee up to $900 million in short-term debt
through December 31, 1994. Consumers uses short-term borrowings to
finance working capital, seasonal fuel inventory and to pay for capital
expenditures between long-term financings. Consumers has an agreement
permitting the sales of certain accounts receivable for up to $500
million. At June 30, 1994, receivables sold totaled $205 million as
compared to $285 million at December 31, 1993.
Electric Utility Operations
Comparative Results of Operations
Electric Pretax Operating Income for the quarters ended June 30, 1994 and
1993: During the second quarter of 1994, electric pretax operating income
increased $33 million from the 1993 level. This increase reflects higher
electric system sales from both economic growth and the impact of warmer
weather on customer use of air conditioning equipment. Increased pretax
operating income also reflects the benefit of an electric rate increase
which went into effect during mid-May 1994 and the impact of lower
property taxes in Michigan. Also, during the second quarter of 1994,
Consumers recognized $11 million in revenue, related to DSM, based on
having achieved all objectives agreed-upon with the MPSC (see Note 3).
The increased sales growth is supported by Michigan's improvement in
employment and economic conditions. Several hourly, daily and monthly
records of electric use were also set during June 1994.
Electric Pretax Operating Income for the six months ended June 30, 1994
and 1993: The $40 million improvement in 1994 electric pretax operating
income compared to 1993 primarily is the result of increased electric
system sales and the May 1994 electric rate increase. Consumers Power
customers used more electricity during the first half of 1994 than in the
first half of any year in Consumers' history due in large part to
Michigan's increased levels of employment and overall economic expansion,
as well as record-setting warm temperatures in June.
Electric Pretax Operating Income for the 12 months ended June 30, 1994 and
1993: The $135 million improvement in 1994 electric pretax operating
income compared to 1993 primarily is the result of an increase of $75
million relating to the resolution of the recoverability of MCV power
purchase costs under the PPA, increased electric system sales of $58
million and the May 1994 electric rate increase, partially offset by
higher costs related to system reliability improvements.
The following table quantifies the impact of the major reasons for the
changes in electric pretax operating income for the periods ended June 30:
In Millions
Quarter ended Six months ended 12 months ended
1994 Over 1994 Over 1994 Over
(Under) 1993 (Under) 1993 (Under) 1993
- ------------------------------------------------------------------------
Sales growth $10 $20 $45
Weather 2 5 13
Resolution of MCV
power cost issues - - 75
Rate increases and other
regulatory issues 17 18 29
O&M, general taxes and
depreciation (a) 4 (3) (27)
----------------------------------------
Total change $33 $40 $135
========================================================================
(a) The 12 months ended variance was largely caused by Consumers' system
reliability improvement program.
Electric Sales: Electric system sales during the second quarter of 1994
totaled 8.0 billion kWh, a 6.2 percent increase from 1993 levels. During
the three month 1994 period, residential and commercial sales increased
3.8 percent and 5.7 percent, respectively, while industrial sales
increased 8.1 percent, in each case over the corresponding period in 1993.
Consumers' electric sales have benefited from improved employment and
economic conditions, including General Motors Corporation's decisions to
expand truck and car production in Michigan assembly plants. Electric
system sales during the six months ended June 30, 1994 totaled 16.3
billion kWh, a 5.8 percent increase from 1993 levels. During the six
month 1994 period, residential and commercial sales increased 4.2 percent
and 3.8 percent respectively, while industrial sales increased 7.4
percent. Electric system sales during the 12 months ended June 30, 1994
totaled 32.6 billion kWh, a 5.6 percent increase from 1993 levels. During
the 12 month ended 1994 period, residential and commercial sales increased
5.1 percent and 4.6 percent respectively, while industrial sales increased
7.3 percent. Growth in the industrial sales was the strongest in the
automotive and chemical sectors.
The following table quantifies electric sales by customer type for the
periods ended June 30:
Electric Sales Millions of kWh
Quarter ended Six months ended 12 months ended
1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------
Residential 2,318 2,234 5,157 4,947 10,276 9,782
Commercial 2,235 2,114 4,433 4,269 9,073 8,676
Industrial 3,139 2,905 6,001 5,589 11,953 11,143
Sales for resale 279 256 660 553 1,249 1,217
--------------------------------------------------
System sales (a) 7,971 7,509 16,251 15,358 32,551 30,818
==========================================================================
(a) Excludes intersystem exchanges of power with other utilities through
joint dispatching for the economic benefit of customers.
Power Costs: Power costs for the three-month period ending June 30, 1994
totaled $243 million, a $31 million increase from the corresponding 1993
period. This increase primarily reflects greater power purchases from
outside sources to meet increased sales demand and to supplement decreased
generation at Palisades due to an outage. Power costs for the six-month
period ending June 30, 1994 totaled $487 million, a $73 million increase
from the corresponding 1993 period essentially for the same reasons as the
quarter-over-quarter variance. Power costs for the 12-month period ending
June 30, 1994 totaled $980 million, an $120 million increase from the
corresponding 1993 period essentially for the same reasons as the quarter-
over-quarter and the six-month ended variances.
Electric Utility Rates
Power Purchases from the MCV Partnership: Consumers is obligated to
purchase 1,132 MW in 1994 and 1,240 MW in 1995 and thereafter, of contract
capacity from the MCV Partnership. In 1993, the MPSC issued the
Settlement Order that allows Consumers to recover substantially all
payments for 915 MW of contract capacity purchased from the MCV
Partnership. The market for the remaining 325 MW of contract capacity was
assessed at the end of 1992. This assessment, along with certain
estimates by Consumers, and other factors required by the Settlement
Order, resulted in Consumers recognizing an after-tax loss of $343 million
for the present value of estimated future underrecoveries of power
purchases from the MCV Partnership. Except for adjustments to reflect the
time value of money through accretion expense, no additional losses are
expected unless actual future experience materially differs from
management's estimates. ABATE and the Attorney General have filed claims
of appeal of the Settlement Order with the Court of Appeals. Although the
settlement loss was recorded in 1992, Consumers continues to experience
cash underrecoveries associated with the Settlement Order. These after-
tax cash underrecoveries totaled $33 million for the first six months of
1994. Consumers estimates that its after-tax cash underrecoveries will
total $56 million in 1994, increasing slightly for 1995 through 1997, and
then decreasing to $8 million in 1998. Possible additional losses for the
next five years if Consumers is unable to sell any capacity above the
MPSC's authorized level are estimated to be $14 million in 1994,
increasing slightly for 1995 through 1997, and then increasing to $72
million in 1998.
The PPA contains a "regulatory out" provision, permitting Consumers to
reduce the fixed energy charges payable to the MCV Partnership if
Consumers is not able to recover these amounts from its customers.
Consumers and the MCV Partnership are currently engaged in arbitration to
determine whether Consumers is entitled to exercise its rights under the
regulatory out provision. Consumers is escrowing the fixed energy amounts
in dispute until resolution of the arbitration is achieved.
The lessors of the MCV Facility have filed a lawsuit in federal district
court in New York against CMS Energy, Consumers and CMS Holdings, alleging
breach of contract, breach of fiduciary duty and negligent or fraudulent
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order. The action alleges damages in excess of $1 billion and
seeks injunctive relief relative to Consumers' payments of the fixed
energy charges. CMS Energy and Consumers believe that at all times they
and CMS Holdings have conducted themselves properly and that the action is
without merit. It appears from the face of the complaint that a
significant portion of the alleged damages represent fixed energy charges
in dispute in the arbitration. CMS Energy and Consumers have requested
that the lawsuit be dismissed for lack of jurisdiction and have commenced
a lawsuit in Midland, Michigan, to address these issues. While management
believes that the possibility of the alleged damages being awarded is
remote, CMS Energy and Consumers are unable to predict the outcome of this
issue. In addition, CMS Holdings has filed a lawsuit in a local circuit
court seeking reimbursement of $7 million of certain tax indemnification
payments made to its partners in the FMLP and owed to CMS Holdings.
Consumers is unable to predict the outcome of this issue.
In May 1994, Consumers was notified by the MCV that it was initiating
arbitration proceedings under the PPA to determine whether the energy
charge paid to the MCV is being properly calculated. Consumers believes
that its calculation of the energy charge is correct. The amount in
dispute, which relates to the period beginning in 1990 and continuing
through the term of the PPA, is estimated by the MCV Partnership to total
$8 million annually. The parties are in the process of selecting an
arbitrator and establishing a schedule for arbitration. Consumers cannot
predict the timing and outcome of these proceedings. For further
information regarding power purchases from the MCV Partnership, see Note
2.
In July 1994, Consumers agreed to pay $30 million to terminate a separate
power purchase agreement with a 65 MW coal-fired cogeneration facility.
Consumers is seeking MPSC approval to substitute 65 MW of less expensive
contract capacity from the MCV Facility which Consumers is currently not
authorized to recover from retail customers. Consumers believes the
termination agreement and the proposed substitution of capacity represents
significant savings to its customers and will record a regulatory asset
for $30 million, which it believes will ultimately be recoverable in
rates.
PSCR Issues: Consumers experienced an extended refueling and maintenance
outage at Palisades during 1993. From mid-February through mid-June 1994,
Palisades was temporarily taken out of service to repair valve-leakage and
conduct other needed inspections and repairs. Recovery of replacement
power costs and the prudency of actions taken during the outages will be
reviewed by the MPSC during the 1993 and 1994 PSCR reconciliations of
actual costs and revenues. For more information on the potential impact
of the outages, see Note 3.
Electric Rate Case: On May 10, 1994, the MPSC issued an order, granting
Consumers a $58 million annual increase in its retail electric rates
effective May 11, 1994. The order provides Consumers with higher revenues
associated with increased expenditures primarily related to capital
additions, operation and maintenance, higher depreciation and
postretirement benefits computed under SFAS 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, and the continuation of
certain demand-side management programs at reduced levels. The MPSC order
generally supported Consumers' rate design proposal and reduced the level
of subsidization of residential customers by commercial and industrial
customers. On June 9, 1994, Consumers filed a petition for rehearing and
clarification of this MPSC order. The petition requests reconsideration
of certain issues, which include an incremental revenue requirement of $26
million for 1995, the level of rate cross-subsidization, the level of
future DSM expenditures and the calculation of DSM-related incentives and
penalties.
Special Rates: In June 1994, Consumers also filed a request with the
MPSC, seeking approval of a plan to offer competitive, special rates to
certain large qualifying customers. Consumers proposes to offer the new
rates to customers using high amounts of electricity that have expressed
an intention to or are capable of terminating purchases of electricity
from Consumers and have the ability to acquire energy from alternative
sources. To serve these customers, Consumers would use power purchases
from the MCV Partnership which exceed the 915 MW currently recoverable
from electric retail customers. The MPSC has granted an expedited hearing
schedule that calls for final briefs to be filed in November 1994. A
final order is expected near the end of 1994. For further information,
see Note 3.
Electric Conservation Efforts
In 1993, Consumers completed the customer participation portion of several
demand-side management programs designed to encourage the efficient use of
energy. Based on the MPSC's determination of Consumers' effectiveness in
implementing these programs, Consumers' future rate of return on electric
common equity may be adjusted for one year either upward by up to 1
percent or downward by up to 2 percent. The proceedings before the MPSC
have started and based on the criteria set out in the demand-side
management settlement agreement approved by the MPSC in 1992, Consumers
has achieved all the agreed-upon objectives. Consumers believes that the
MPSC will ultimately order a 1 percent increase on its return on common
equity to be in effect for one year. Accordingly, during the second
quarter of 1994, Consumers recognized $11 million in revenue, related to
its demand-side management program. A final order from the MPSC is
expected by mid-1995. In May 1994, as part of Consumers' electric rate
case, the MPSC issued an order that authorized Consumers to continue
certain demand-side management programs at reduced levels. For further
information, see Note 3.
Electric Capital Expenditures
Consumers estimates capital expenditures, including deferred demand-side
management costs and new lease commitments, related to its electric
utility operations of $354 million for 1994, $388 million for 1995 and
$308 million for 1996. These amounts include an attributed portion of
Consumers' anticipated capital expenditures for common plant and
equipment.
Electric Environmental Matters
The 1990 amendment of the federal Clean Air Act significantly increased
the environmental constraints that utilities will operate under in the
future. While the Clean Air Act's provisions will require Consumers to
make certain capital expenditures in order to comply with the amendments
for nitrogen oxide reductions, Consumers' generating units are presently
operating at or near the sulfur dioxide emission limits which will be
effective in the year 2000. Therefore, management believes that
Consumers' annual operating costs will not be materially affected.
In 1990, the State of Michigan passed amendments to the Environmental
Response Act, under which Consumers expects that it will ultimately incur
costs at a number of sites, even those in which it has a partial or no
current ownership interest. Parties other than Consumers with current or
former ownership interests may also be considered liable for site
investigations and remedial actions. Consumers believes costs incurred
for both investigation and required remedial actions will be recovered in
rates or from others.
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on current
information, management believes it is unlikely that Consumers' liability
at any of the known Superfund sites, individually or in total, will have a
material adverse effect on its financial position or results of
operations. For further information regarding electric environmental
matters, see Note 4.
Electric Outlook
A recent NRC review of Consumers' performance at Palisades showed a
decline in performance. Management believes that an increased emphasis on
internal assessments will improve performance at Palisades. To provide
NRC senior management with a more in-depth assessment of plant
performance, the NRC conducted a diagnostic evaluation inspection at
Palisades. The inspection evaluated all aspects of nuclear plant
operation and management. The inspection, completed in June 1994, found
performance, operational and management deficiencies at Palisades. The
NRC acknowledged that the new Palisades senior management team, in place
since early 1994, had recognized and begun to address the problems at
Palisades. The NRC did not place Palisades on either of the NRC's
"Troubled" or "Declining Performance" lists. Consumers is required to
file a response to the NRC's diagnostic evaluation report by August 18,
1994, and is currently finalizing a performance improvement plan which
will form the basis for that response. Attaining and maintaining
acceptable performance at Palisades will require continuing performance
improvements and additional expenditures at the plant, which have been
included in Consumers' total planned level of expenditures.
Consumers' on-site storage pool at Palisades is at capacity, and it is
unlikely that the DOE will begin accepting any spent nuclear fuel by the
originally scheduled date in 1998. Consumers is using NRC-approved dry
casks, which are steel and concrete vaults, for temporary on-site storage.
Several appeals relating to NRC approval of the casks and Consumers' use
of the casks are now pending at the U.S. Sixth Circuit Court of Appeals.
If Consumers is unable to continue to use the casks as planned,
significant costs could be incurred, including replacement power costs
during any resulting plant shutdown and costs related to removal of the
dry cask system. In March 1994, Consumers agreed to a request from the
NRC to complete certain tests and analysis regarding Consumers' cask
storage site, including the effects of an earthquake on the surrounding
soil and the support pad on which the casks are placed. These tests and
analysis have been completed and conclude that the storage system is
adequate. The results were reviewed by the NRC staff, and in May 1994,
the NRC issued a preliminary report confirming the safety of Consumers'
dry cask storage system. For further information on Consumers' dry cask
storage, see Note 4.
The staff of the SEC has questioned certain accounting practices of the
electric utility industry, including Consumers, regarding the recognition,
measurement and classification of decommissioning costs for nuclear
generating stations in the financial statements. For further information
on nuclear decommissioning, see Note 4.
Consumers has experienced recent increases in complaints relating
primarily to the effect of so-called stray voltage on certain livestock.
A complaint seeking certification as a class action suit was filed in 1993
against Consumers alleging significant damages, primarily related to
certain livestock. Consumers believes the allegations to be without merit
and in March 1994, the circuit judge hearing the complaint refused to
grant class action status to the suit. This decision is being appealed by
the plaintiffs and a number of individuals who would have been part of the
class action have refiled their claims as separate lawsuits. At August
10, 1994, Consumers had 91 separate stray voltage lawsuits pending (see
Note 4).
Some of Consumers' larger industrial customers are exploring the
possibility of constructing and operating their own on-site generating
facilities. Consumers is actively working with these customers to develop
rate and service alternatives designed to compete with self-generation
options. Although Consumers' electric rates are competitive with other
regional utilities, Consumers has on file with the FERC two open access
interconnection tariffs which could have the effect of increasing
competition for wholesale customers. As part of its most recent electric
rate case, the MPSC reduced the level of rate subsidization of residential
customers by commercial and industrial customers so as to further improve
rate competitiveness for its largest customers. Consumers has also
requested MPSC authorization to offer special rates to attract industrial
and commercial customers into its service territory and to retain certain
customers using high amounts of electricity that have expressed an
intention and have the ability to acquire energy from other sources (see
Note 3).
In April 1994, the MPSC approved a framework for a five-year experimental
retail wheeling program for Consumers and Detroit Edison. Under the
experiment, up to 60 MW of Consumers' additional load requirements could
be met by retail wheeling. Rates to be used for the experiment have yet
to be determined and a final MPSC order on the program is not expected
until mid-1995. Consumers does not expect this experiment to have a
material impact on its financial position or results of operations.
On July 15, 1994, the FERC approved new 40-year licenses for 11 of
Consumers' hydroelectric plants, confirming planned environmental
expenditures. In issuing the licenses, the FERC approved, with
modifications, a settlement agreement signed by Consumers, the Attorney
General, the DNR and other state and federal officials. The parties to
the original settlement agreement have 30 days to approve the settlement
agreement as modified. The agreement requires Consumers to make payments
and investments which could total $30 million over the license periods for
such things as environmental safeguards and fishery habitat improvements.
Gas Utility Operations
Comparative Results of Operations
Gas Pretax Operating Income for the quarters ended June 30, 1994 and 1993:
During the second quarter of 1994 gas pretax operating income decreased
$3 million from the 1993 level. This decrease reflects lower gas
deliveries (both sales and transportation volumes), and higher costs
related to system reliability improvements.
Gas Pretax Operating Income for the six months ended June 30, 1994 and
1993: The $8 million improvement in 1994 gas pretax operating income
compared to 1993 reflects higher gas deliveries (both sales and
transportation volumes) and more favorable regulatory recovery of gas
costs, partially offset by higher costs related to system reliability
improvements.
Gas Pretax Operating Income for the 12 months ended June 30, 1994 and
1993: The $33 million improvement in 1994 gas pretax operating income
compared to 1993 reflects higher gas deliveries (both sales and
transportation volumes) and more favorable regulatory recovery of gas
costs.
The following table quantifies the impact of the major reasons for the
changes in gas pretax operating income for the periods ended June 30:
In Millions
Quarter ended Six months ended 12 months ended
1994 Over 1994 Over 1994 Over
(Under) 1993 (Under) 1993 (Under) 1993
- ------------------------------------------------------------------------
Deliveries $(4) $ 13 $21
Regulatory recovery
of gas cost 2 1 8
O&M, general taxes
and depreciation (1) (6) 4
-----------------------------------------
$(3) $ 8 $33
========================================================================
Gas Deliveries: Gas sales and gas transported during the second quarter
of 1994 totaled 71.7 bcf, a 3.7 percent decrease from the corresponding
1993 level. For the six months ended June 30, 1994 gas sales and gas
transported totaled 247.7 bcf, a 7.5 percent increase from the
corresponding 1993 level. For the 12 months ended June 30, 1994 gas sales
and gas transported totaled 425.1 bcf, a 6.5 percent increase from the
corresponding 1993 level.
The following table quantifies gas deliveries by customer type for the
periods ended June 30:
Gas Sales Thousands of Mcf
Quarter ended Six months ended 12 months ended
1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------
Residential 25,366 27,616 111,678 104,662 181,873 172,053
Commercial 7,404 8,347 36,237 33,810 58,306 55,025
Industrial 1,876 2,119 9,069 8,332 14,656 13,638
Other 135 24 241 109 362 190
---------------------------------------------------
Gas sales 34,781 38,106 157,225 146,913 255,197 240,906
Transportation
deliveries 14,064 14,551 39,387 37,530 72,333 68,413
Transportation for MCV 19,020 17,844 39,326 35,544 77,186 65,607
Off-system trans-
portation service 3,854 3,996 11,801 10,454 20,420 24,377
---------------------------------------------------
Total deliveries 71,719 74,497 247,739 230,441 425,136 399,303
==========================================================================
Cost of Gas Sold: The cost of gas sold for the second quarter of 1994
decreased $7 million from the 1993 level. The cost of gas sold for the
six months ended and 12 months ended June 30 increased $10 million and $2
million, respectively, from the corresponding 1993 levels. These
increases reflect higher deliveries partially offset by lower costs per
mcf. The lower costs per mcf are due to more favorable gas contracts with
interstate suppliers, resulting from the impact of FERC Order 636, and the
termination and expiration of high-cost contracts with certain Michigan
gas producers.
Gas Utility Rates
In July, 1994, the MPSC approved an agreement previously reached between
the MPSC staff and Consumers, to charge $10 million of costs for
postretirement benefits computed under SFAS 106 against earnings over the
last six months of 1994. This charge against earnings will partially
offset costs related to state property taxes which have been reduced. The
agreement was reached in response to an assertion by the MPSC staff that
gas utility business earnings for 1993 were in excess of the currently
authorized level. The agreement also provides for an additional $4
million of 1995-related SFAS 106 costs to be charged against 1995 earnings
instead of being deferred. As part of the agreement, Consumers committed
to file a gas rate case before December 31, 1994, that will, among other
things, incorporate cost increases, including costs for postretirement
benefits computed under SFAS 106, into its retail gas rates. A final
order should be received approximately 9 to 12 months after the request is
filed. No assurance can be given as to the level of rates which will be
authorized by the MPSC. Consumers' gas distribution business is currently
authorized to earn a 13.25 percent rate of return on equity. Consumers'
most recent rate filing for its electric utility business resulted in an
approved rate of return on equity of 11.75 percent.
A dispute involving pricing under contracts Consumers had with eight
direct gas suppliers has been recently resolved. The dispute revolved
around whether the price Consumers pays Trunkline for gas was the proper
reference price for these eight gas supply contracts. Consumers and seven
of the suppliers have agreed to enter into new contracts, at negotiated
rates, with initial terms ranging from one to three years. Consumers and
the remaining supplier agreed to terminate their existing contract.
In July 1993, Michigan Gas Storage submitted a notice of rate change with
the FERC to revise its operation and maintenance expenses for 1993 and
update plant costs to reflect the addition of $27 million of new plant
additions in 1993 and began collecting the revised rates subject to refund
and a hearing in February 1994. In June 1994, the FERC approved a
stipulation and agreement in full settlement of the rate proceeding, which
provides Michigan Gas Storage with estimated annual revenues of $20
million. For further information regarding gas utility rates, see Note 3.
Gas Capital Expenditures
Consumers estimates capital expenditures, including new lease commitments,
related to its gas utility operations of $131 million for 1994, $122
million for 1995 and $111 million for 1996. These amounts include an
attributed portion of Consumers' anticipated capital expenditures for
common plant and equipment.
Gas Environmental Matters
Under Michigan's Environmental Response Act, Consumers expects that it
will ultimately incur clean-up costs at a number of sites, including some
of the 23 sites that formerly housed manufactured gas plant facilities,
even those in which it has a partial or no current ownership interest.
Parties other than Consumers with current or former ownership interests
may also be considered liable for site investigations and remedial
actions.
Consumers has prepared plans for remedial investigation/feasibility
studies for several of these manufactured gas plant sites to define the
nature and extent of contamination at these sites and to determine which
of several possible remedial action alternatives, including no action, may
be required under the Environmental Response Act. The DNR has approved
two of three plans for remedial investigation/feasibility studies
submitted by Consumers and is currently reviewing the third.
The preliminary findings for the first remedial investigation/feasibility
study indicate that the expenditures for remedial action at this site are
likely to be minimal. However, Consumers did not believe that a single
site was representative of all of the sites. Data available to Consumers
and its continued internal studies have resulted in an estimate of
remedial action for all 23 sites of between $40 million and $140 million.
These estimates are based on undiscounted 1994 costs. At June 30, 1994,
Consumers has accrued a liability for $40 million, representing the
minimum amount in the range. Any significant change in assumptions such
as remediation technique, nature and extent of contamination and
regulatory requirements, could impact the estimate of remedial costs for
the sites.
Consumers believes that remedial costs are recoverable in rates as the
MPSC in 1993 addressed the question of recovery of investigation and
remedial costs for another Michigan gas utility as part a gas rate case.
In that proceeding, the MPSC determined that prudent investigation and
remedial costs could be deferred and amortized over 10-year periods. In
order to be recovered in rates, prudent costs must be approved in a rate
case. Any costs amortized in years prior to filing a rate case may not be
recoverable. The MPSC stated that the length of the period may be
reviewed from time to time, but any revisions would be prospective. The
order further provided that the prudency review would include a review of
the utility's attempts to obtain reimbursement from others. The MPSC has
also approved similar deferred accounting requests by two other Michigan
utilities relative to investigation and remediation costs. Accordingly,
Consumers has recorded a regulatory asset for the same amount as the
accrued liability for anticipated recovery of these investigation and
remedial clean-up costs. Consumers has initiated discussions with certain
insurance companies regarding coverage for some or all of the costs which
may be incurred for these sites.
Other
Other Income: Other income decreased $9 million and $16 million for the
second quarter of 1994 and the first half of 1994, respectively, when
compared to the corresponding 1993 periods, reflecting the impact of the
sale of the remaining MCV Bonds. The $325 million improvement in Other
Income when comparing the 12 months ended June 30, 1994 to the
corresponding 1993 period reflects the impact of the March, 1993
Settlement Order related to power purchases from the MCV Partnership. The
12 months ended June 30, 1993 included an after-tax $343 million charge
related to the Settlement Order.
Public Utility Holding Company Act Exemption: CMS Energy is exempt from
registration under PUHCA. However, the Attorney General and the MMCG have
asked the SEC to revoke CMS Energy's exemption from registration under
PUHCA. In 1992, the MPSC filed a statement with the SEC recommending that
CMS Energy's current exemption be revoked and a new exemption be issued
conditioned upon certain reporting and operating requirements. If
CMS Energy were to lose its current exemption, it would become more
heavily regulated by the SEC; Consumers could ultimately be forced to
divest either its electric or gas utility business; and CMS Energy would
be restricted from conducting businesses that are not functionally related
to the conduct of its utility business as determined by the SEC.
CMS Energy is opposing this request and believes it will maintain its
current exemption from registration under PUHCA.
<PAGE>
<PAGE> 72
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The discussion below is limited to an update of developments that have
occurred in various judicial and administrative proceedings, many of which
are more fully described in CMS Energy's and Consumers' 1993 Forms 10-K
and in the Forms 10-Q for the quarter ended March 31, 1994. Reference is
made to the Notes to the Consolidated Financial Statements included herein
for additional information regarding various pending administrative and
judicial proceedings involving rate, operating and environmental matters.
(a) 1993 Electric Rate Case. On May 10, 1994, the MPSC issued a final
order in this case which increased annual electric revenues by $58
million, or about 2.8 percent, and approved an allowed rate of return on
common equity of 11.75%. The rate increase is effective for service
rendered on and after May 11, 1994. On June 9, 1994, Consumers filed a
petition for rehearing and clarification of this order. The petition
requests reconsideration of certain issues which include an incremental
revenue requirement of $26 million for 1995, the level of rate cross-
subsidization, the level of future DSM expenditures and the calculation of
DSM-related incentives and penalties. The Attorney General has also filed
a petition for rehearing raising certain issues regarding the mechanics of
SFAS 106 Employers' Accounting For Postretirement Benefits Other Than
Pensions cost recovery and other procedural matters. The MPSC has not
taken any action on these petitions at this time.
(b) Arbitration Proceedings between Consumers and the MCV Partnership. A
dispute has arisen between the MCV Partnership and Consumers relating to
the impact of the Settlement Order on the fixed energy charge payment
called for in the PPA and Consumers' ability to exercise its rights under
the regulatory out provision based on the issuance of the Settlement
Order. In accordance with the dispute resolution provisions set out in
the PPA, an arbitrator acceptable to both parties has been selected and
the arbitration of this dispute has commenced (the "MCV Fixed Energy
Charge Arbitration"). Document discovery and depositions were
substantially completed in early June. The schedule calls for depositions
of each party's designated experts in August and hearings before the
arbitrator in September and October. Consumers is unable to predict the
outcome of such arbitration proceedings or of any possible settlement of
the issues underlying this dispute.
On May 5, 1994, the MCV notified Consumers of its desire to commence a
second arbitration proceeding, this one regarding the meaning of Exhibit C
to the PPA. That exhibit sets forth the methodology for calculation of
the energy charge payable under the PPA. This same exhibit is included in
many of Consumers' power purchase agreements with qualifying facilities
and has been consistently applied to all agreements. The MCV Partnership
maintains that Consumers has misapplied or misinterpreted Exhibit C since
commercial operation in March 1990 and has estimated that beginning in
1995 it should receive an increase in energy charge revenues of at least
$8 million on an annual basis. Consumers believes that the PPA is clear
on the manner in which energy charges are to be calculated and that
Consumers has followed the specified procedure correctly throughout the
term of the PPA. The parties are in the process of selecting an
arbitrator and establishing a schedule. Consumers cannot predict the
timing or outcome of this arbitration.
(c) Lawsuit Filed by the Lessors of the MCV Facility. The lessors of the
MCV Facility have filed a lawsuit in federal district court in New York
against CMS Energy, Consumers and CMS Holdings. It alleges breach of
contract, breach of fiduciary duty and negligent or fraudulent
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order, which is the subject of an arbitration between the MCV
Partnership and Consumers. The action alleges damages in excess of $1
billion and seeks injunctive relief relative to Consumers' payments of the
fixed energy charge. CMS Energy and Consumers believe that at all times
they and CMS Holdings have conducted themselves properly and that the
action is without merit. They also believe that a significant portion of
the alleged damages represent fixed energy charges in dispute in the
arbitration. On March 28, 1994, Consumers commenced a lawsuit in State
Circuit Court in Midland County, Michigan seeking declaratory and
injunctive relief with respect to interpretation of the PPA. On July 26,
1994, at the request of the parties, the federal district court in New York
transferred the case to the suspense docket pending completion of the MCV
Fixed Energy Charge Arbitration. While management believes the
possibility of the alleged damages being awarded in this suit is remote,
CMS Energy and Consumers are unable to predict the outcome of this action.
In addition, on March 23, 1994, CMS Holdings filed suit in Circuit Court
in Jackson County, Michigan to obtain a refund of tax indemnity payments
owed to CMS Holdings by the other partners in First Midland Limited
Partnership pursuant to a partnership tax indemnification agreement. In
the suit CMS Holdings is claiming breach of contract, breach of covenant
of good faith and fair dealing and that no setoff may be claimed by the
other First Midland Partners. One of the partners in First Midland
Limited Partnership has paid approximately $1 million of the $8
million originally in dispute, but the remaining partners have
failed to pay their proportional parts of the refund and are claiming
that retention of the payment is justified as a setoff against
the larger amounts claimed by the lessor-plaintiffs in the New York
federal court action. Consumers is unable to predict the outcome of this
action.
(d) Retail Wheeling Proceedings. On April 11, 1994, the MPSC issued an
Opinion and Interim Order which approved the framework for a five year
experimental retail wheeling program for Consumers and Detroit Edison, and
remanded the case to the Administrative Law Judge to determine appropriate
rates and charges. The MPSC stated that the purpose of the experiment is
to gather and evaluate information regarding whether retail wheeling is in
the public interest and should occur on a permanent basis. The
experimental program will commence with each utility's next solicitation
of additional supply side resources.
The MPSC stated that the experimental program (i) would be limited to 60
MW for Consumers and 90 MW for Detroit Edison, (ii) would limit amounts
wheeled by individual participating customers to between 2 and 10 MW,
(iii) would be limited to customers served at transmission or
subtransmission voltage, (iv) would require retail wheeling customers to
assume responsibility to procure power from third party providers, and
(v) would allow participating customers to return to firm service at the
end of the experiment. The MPSC further stated that contracts between
suppliers and end-users using retail wheeling would be subject to prior
MPSC review and approval and that suppliers must have or obtain suitable
franchises to serve in the end-users location as well as obtain a
certificate of public convenience and necessity from the MPSC to provide
the electric service.
Under the schedule currently set for proceedings on the appropriate retail
wheeling rates, the utilities will file their direct cases in August 1994
with cross examination to begin in November 1994. Under this schedule, a
proposal for decision would not be issued before early 1995.
The Detroit Edison Company and the Attorney General filed claims of appeal
of this order. On June 15, 1994, the Court of Appeals issued an order
dismissing these appeals on the grounds that the order was not final and
therefore not appealable.
(e) Stray Voltage Lawsuit. Consumers experienced an increase in
complaints during 1993 relating to so-called stray voltage. Claimants
contend that stray voltage results when small electrical currents present
in grounded electric systems are diverted from their intended path.
Investigation by Consumers of prior stray voltage complaints disclosed
that many factors, including improper wiring and malfunctioning of on-farm
equipment can lead to the stray voltage phenomenon. Consumers maintains a
policy of investigating all customer calls regarding stray voltage and
working with customers to address their concerns including, when
necessary, modifying the configuration of the customer's hook-up to
Consumers. On October 27, 1993, a complaint seeking certification as a
class action suit was filed against Consumers in a local circuit court.
The complaint alleged that in excess of a billion dollars of damages,
primarily related to production by certain livestock owned by the
purported class, were being incurred as a result of stray voltage from
electricity being supplied by Consumers. Consumers believes the
allegations to be without merit and vigorously opposed the certification
of the class and this suit. On March 11, 1994, the court decided to deny
class certification for this complaint and to dismiss, subject to refiling
as separate suits, the October lawsuit with respect to all but one of the
named plaintiffs. On April 4, 1994, the plaintiffs appealed the court's
denial of class certification in this matter to the Court of Appeals.
Subsequent to the filing of this appeal and the submission of the
plaintiffs brief on this issue, the Court of Appeals on its own motion
issued an order which decided that since the lead case in the class action
suit had not been dismissed, the trial court's decision to deny class
certification was an interlocutory order and therefore not ripe for
appeal. The Court of Appeals Order also found that the trial court's
decision that the other named plaintiffs had been misjoined was final and
ripe for appeal. This issue had not been raised in the plaintiffs appeal
or brief. Consumers has addressed both issues in its brief filed with the
Court of Appeals on July 14, 1994 in support of the trial court's
decision. A number of individuals who would have been part of the class
action have refiled their claims as separate lawsuits. In total,
Consumers currently has 91 separate stray voltage cases pending.
(f) Gas Case Settlement. On June 13, 1994, Consumers filed an
application with the MPSC seeking approval of a settlement agreement
entered into between Consumers and the MPSC Staff concerning retail gas
rates. In summary, the settlement provides for the expensing of certain
SFAS 106-related retiree health care costs ($10 million in 1994 and $4.3
million in 1995) which otherwise would have been deferred for recovery
from customers in the future. This settlement alleviates the MPSC Staff's
concerns about the level of Consumers' earnings in the gas business and
was intended to avoid a rate reduction related to the property tax expense
reduction which will be experienced as a result of the recent legislation
and ballot initiative. On June 15, 1994, the Attorney General filed a
complaint with the MPSC seeking a gas rate reduction based upon the
reduction in property tax expense. The Attorney General also filed
objections to the proposed settlement. Subsequently, the Attorney General
filed a document indicating that he would withdraw his objections and
complaint if the MPSC ordered Consumers to file a general gas rate case by
the end of 1994. Consumers filed a statement indicating that it would
file such a case. On July 18, 1994, the MPSC issued an order approving
the settlement, dismissing the Attorney General's complaint and accepting
Consumers' commitment to file a general gas rate case by the end of 1994.
(g) Request for Approval of a Competitive "Rate K" Tariff. On June 15,
1994, Consumers filed an application with the MPSC seeking approval of a
competitive contract service tariff. This tariff would allow Consumers to
negotiate special rates with certain large customers who would otherwise
be likely to terminate or reduce their purchases of electricity from
Consumers in favor of some alternative source of power. The tariff would
also allow Consumers to sell all or some portion of the 325 MW block of
capacity Consumers is obligated to purchase from the MCV Partnership in
excess of the 915 MW for which the MPSC has allowed cost recovery.
Consumers requested in its application that the sale of the 325 MW block
be treated for accounting and ratemaking purposes on a non-jurisdictional
basis. On June 30, 1994, the MPSC issued an order which established a
hearing schedule for the Rate K request. In accordance therewith,
Consumers filed its direct case on July 21, 1994. The schedule would
allow for a final order by the end of 1994.
(h) Palisades Plant - Spent Nuclear Fuel Storage. In April 1993, the NRC
amended its regulations, effective May 7, 1993, to approve the design of
the dry spent fuel storage casks to be used by Consumers at Palisades. In
May 1993, the Attorney General and certain other parties commenced
litigation to block Consumers' use of the storage casks, alleging that the
NRC had failed to comply adequately with the National Environmental Policy
Act. As of July 31, 1994, the courts have declined to prevent such use
and have refused to issue temporary restraining orders or stays. Several
appeals related to this matter are now pending at the U.S. Sixth Circuit
Court of Appeals with oral arguments scheduled for October 11, 1994. As
of July 31, 1994, Consumers had loaded four dry storage casks with spent
nuclear fuel and expects to load additional casks prior to Palisades' 1995
refueling outage. On August 2, 1994 Consumers announced that it will
unload and replace one of the four dry storage casks previously loaded
because of minor flaws detected in the welds in the liner of the most
recently loaded cask. Although testing following cask loading did not
disclose any leakage from the cask, Consumers decided to remove the spent
fuel from the cask and insert it in another cask. Consumers has examined
the radiographs for all of the casks fabricated for it to date, including
the other three containing spent fuel, and has found all other welds
acceptable.
(j) Gas Supplier Dispute. Consumers has been involved in a dispute with
eight of its direct gas suppliers regarding the price to be paid for gas
supplied under the contracts. Lawsuits were pending in which the
suppliers were seeking open pricing and/or renegotiation of the pricing
provisions of their contracts. Certain of the suppliers also alleged that
absent such renegotiation they would have the right to terminate their
supply contracts with Consumers. Consumers disputed those claims.
Subsequently, Consumers and seven of the suppliers have agreed to enter
into new contracts at negotiated rates, with initial terms ranging from
one to three years. Consumers and the remaining supplier have agreed to
terminate their existing contract. Pursuant to these agreements the claims
made by the suppliers will be dismissed with prejudice.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on May 27, 1994, the
shareholders ratified the appointment of Arthur Andersen & Co. as
independent auditors of CMS Energy and Consumers for the year ended
December 31, 1994. The vote at CMS Energy was 73,780,207 in favor, and
381,429 against, with 545,383 abstaining. The vote at Consumers was
85,066,955 in favor, and 6,675 against, with 14,473 abstaining.
At the same meeting, shareholders elected all twelve nominees for the
office of director for both CMS Energy and Consumers. The total number of
votes cast at CMS Energy was 74,707,019. The votes for individual
nominees were as follows:
CMS ENERGY CORPORATION
Number of Votes
---------------
For Withheld Total
William T. McCormick, Jr. 73,659,297 1,047,722 74,707,019
James J. Duderstadt 73,737,474 969,545 74,707,019
Victor J. Fryling 73,732,910 974,109 74,707,019
Earl D. Holton 73,794,923 912,096 74,707,019
Lois A. Lund 73,694,306 1,012,713 74,707,019
Frank K. Merlotti 73,776,729 930,290 74,707,019
Willaim U. Parfet 73,794,440 912,579 74,707,019
Percy A. Pierre 73,773,196 933,823 74,707,019
S. Kinnie Smith, Jr. 73,733,450 973,569 74,707,019
Robert D. Tuttle 73,772,378 934,641 74,707,019
Kenneth Whipple 73,780,188 926,831 74,707,019
John B. Yasinsky 73,787,462 919,557 74,707,019
The total number of votes cast at Consumers was 85,088,103. The votes for
individual nominees were as follows:
CONSUMERS POWER COMPANY
Number of Votes
---------------
For Withheld Total
William T. McCormick, Jr. 85,071,463 16,640 85,088,103
James J. Duderstadt 85,071,786 16,317 85,088,103
Victor J. Fryling 85,072,155 15,948 85,088,103
Earl D. Holton 85,072,477 15,626 85,088,103
Lois A. Lund 85,071,724 16,379 85,088,103
Frank K. Merlotti 85,071,485 16,618 85,088,103
Willaim U. Parfet 85,072,377 15,726 85,088,103
Percy A. Pierre 85,072,229 15,874 85,088,103
S. Kinnie Smith, Jr. 85,072,005 16,098 85,088,103
Robert D. Tuttle 85,071,905 16,198 85,088,103
Kenneth Whipple 85,072,876 15,227 85,088,103
John B. Yasinsky 85,072,736 15,367 85,088,103
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(4) - CMS Energy: Credit Agreement dated as of July 29, 1994
among CMS Energy Corporation, the Banks, the Co-Agents, the
Documentation Agent and the Operational Agent, all as
defined therein, and the Exhibits thereto
(12) - CMS Energy: Statements regarding computation of Ratio of
Earnings to Fixed Charges
(15)(a) - CMS Energy: Letter of independent public accountant
(15)(b) - Consumers: Letter of independent public accountant
(27)(a) - CMS Energy: Financial Data Schedule
(27)(b) - Consumers: Financial Data Schedule
(b) Reports on Form 8-K
There have been no Current Reports on Form 8-K filed since the filing
of CMS Energy Corporation's and Consumers Power Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994.
<PAGE>
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.
CMS ENERGY CORPORATION
-------------------------
(Registrant)
Date: August 10, 1994 By A M Wright
-------------------------
Alan M. Wright
Senior Vice President and
Chief Financial Officer
CONSUMERS POWER COMPANY
-------------------------
(Registrant)
Date: August 10, 1994 By A M Wright
-------------------------
Alan M. Wright
Senior Vice President and
Chief Financial Officer
<PAGE>
<PAGE>
EXHIBIT NO. (4)<PAGE>
<PAGE>
[EXECUTION COPY]
__________________________________________________________________________
$400,000,000
CREDIT AGREEMENT
Dated as of July 29, 1994,
Among
CMS ENERGY CORPORATION
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A. and
UNION BANK
as Co-Agents
__________________________________________________________________________<PAGE>
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . 2
1.02. Computation of Time Periods . . . . . . . . . . . . . . . . 20
1.03. Accounting Terms. . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE II.
COMMITMENTS
2.01. The Commitments . . . . . . . . . . . . . . . . . . . . . . 21
2.02. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.03. Reduction of the Commitments. . . . . . . . . . . . . . . . 24
2.04. Computations of Outstandings. . . . . . . . . . . . . . . . 24
2.05. Extension of Termination Date . . . . . . . . . . . . . . . 24
ARTICLE III.
ADVANCES
3.01. Advances. . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.02. Conversion of Advances. . . . . . . . . . . . . . . . . . . 27
3.03. Interest Periods. . . . . . . . . . . . . . . . . . . . . . 28
3.04. Other Terms Relating to the
Making and Conversion of Advances. . . . . . . . . . . . 28
3.05. Repayment of Advances . . . . . . . . . . . . . . . . . . . 31
ARTICLE IV.
LETTERS OF CREDIT
4.01. LC Banks. . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.02. Letters of Credit . . . . . . . . . . . . . . . . . . . . . 33
4.03. LC Bank Fees . . . . . . . . . . . . . . . . . . . . . . . 33
4.04. Reimbursement to LC Banks . . . . . . . . . . . . . . . . . 34
4.05. Obligations Absolute. . . . . . . . . . . . . . . . . . . . 35
4.06. Liability of LC Banks and the Lenders . . . . . . . . . . . 36
ARTICLE V.
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
5.01. Payments and Computations . . . . . . . . . . . . . . . . . 37
5.02. Interest Rate Determination . . . . . . . . . . . . . . . . 39
5.03. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 39
5.04. Yield Protection. . . . . . . . . . . . . . . . . . . . . . 40
(a) Increased Costs. . . . . . . . . . . . . . . . 40
(b) Eurodollar Reserves. . . . . . . . . . . . . . 41
(c) Breakage . . . . . . . . . . . . . . . . . . . 41
(d) Capital. . . . . . . . . . . . . . . . . . . . 42
(e) Notices. . . . . . . . . . . . . . . . . . . . 42
(f) Survival of Obligations. . . . . . . . . . . . 43
5.05. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . 43
5.06. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI.
CONDITIONS PRECEDENT
6.01. Conditions Precedent to Commitment Closing. . . . . . . . . 45
6.02. Conditions Precedent to Financial Closing . . . . . . . . . 47
6.03. Conditions Precedent to Each Extension of Credit. . . . . . 48
6.04. Conditions Precedent to Certain Extensions of Credit. . . . 49
6.05. Reliance on Certificates. . . . . . . . . . . . . . . . . . 50
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
7.01. Representations and Warranties of the Borrower. . . . . . . 51
ARTICLE VIII.
COVENANTS OF THE BORROWER
8.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . 55
8.02. Negative Covenants. . . . . . . . . . . . . . . . . . . . . 58
8.03. Reporting Obligations . . . . . . . . . . . . . . . . . . . 66
ARTICLE IX.
DEFAULTS
9.01. Events of Default . . . . . . . . . . . . . . . . . . . . . 69
9.02. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE X.
THE AGENTS
10.01. Authorization and Action. . . . . . . . . . . . . . . . . . 73
10.02. Agents' Reliance, Etc.. . . . . . . . . . . . . . . . . . . 74
10.03. Citibank, Union Bank and Affiliates . . . . . . . . . . . . 74
10.04. Lender Credit Decision. . . . . . . . . . . . . . . . . . . 75
10.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . 75
10.06. Successor Agents. . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE XI.
MISCELLANEOUS
11.01. Amendments, Etc.. . . . . . . . . . . . . . . . . . . . . . 76
11.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . 77
11.03. No Waiver of Remedies . . . . . . . . . . . . . . . . . . . 78
11.04. Costs, Expenses and Indemnification . . . . . . . . . . . . 78
11.05. Right of Set-Off. . . . . . . . . . . . . . . . . . . . . . 79
11.06. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . 80
11.07. Assignments and Participation . . . . . . . . . . . . . . . 80
11.08. Confidentiality . . . . . . . . . . . . . . . . . . . . . . 85
11.09. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . 86
11.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 86
11.11. Relation of the Parties; No Beneficiary . . . . . . . . . . 86
11.12. Existing Banks' Waiver, Acknowledgement
and Release . . . . . . . . . . . . . . . . . . . . . . . . 87
11.13. Execution in Counterparts . . . . . . . . . . . . . . . . . 87
11.14. Survival of Agreement . . . . . . . . . . . . . . . . . . . 87
<PAGE>
<PAGE> iv
Exhibits
- --------
EXHIBIT 3.01 - Form of Notice of Borrowing
EXHIBIT 3.02 - Form of Notice of Conversion
EXHIBIT 4.01 - NYSEG Letter of Credit
EXHIBIT 5.03 - Form of Cash Collateral Agreement
EXHIBIT 6.02A - Form of Note
EXHIBIT 6.02B - Form of Enterprises Guaranty
EXHIBIT 6.02C - Form of Opinion of Sidley & Austin,
counsel for the Loan Parties
EXHIBIT 6.02D - Form of Opinion of King & Spalding,
counsel to the Agents
EXHIBIT 6.02E - Form of Opinion of Loomis, Ewert, Ederer,
Parsley, Davis & Gotting, P.C., special
Michigan counsel for the Loan Parties
EXHIBIT 8.03 - Form of Compliance Schedule
EXHIBIT 11.07 - Form of Lender Assignment
Schedules
- ---------
SCHEDULE I Applicable Lending Offices
SCHEDULE II Permitted Debt
<PAGE>
<PAGE>
CREDIT AGREEMENT
Dated as of July 29, 1994
THIS CREDIT AGREEMENT is made by and among:
(i) CMS Energy Corporation, a Michigan corporation (the
"Borrower"),
(ii) the banks (the "Banks") listed on the signature pages
hereof and the other Lenders (as hereinafter defined) from
time to time party hereto,
(iii) Citibank, N.A. ("Citibank") and Union Bank ("Union Bank"),
as co-administrative agents (individually a "Co-Agent" and
collectively the "Co-Agents") for the Lenders hereunder,
(iv) Citibank, as documentation agent (the "Documentation
Agent") for the Lenders hereunder,
(v) Union Bank, as operational agent (the "Operational Agent")
for the Lenders hereunder, and
(vi) The Chase Manhattan Bank, N.A., as co-manager (the "Co-
Manager").
PRELIMINARY STATEMENTS
The Borrower has requested the Banks to provide the credit
facilities hereinafter described in the amounts and on the terms and
conditions set forth herein. The Banks have so agreed on the terms and
conditions set forth herein, and the Agents have agreed to act as agents
for the Lenders on such terms and conditions.
The parties hereto acknowledge and agree that neither Consumers
(as hereinafter defined) nor any of its Subsidiaries (as hereinafter
defined) will be a party to, or will in any way be bound by any provision
of, this Agreement or any other Loan Document (as hereinafter defined),
and that no Loan Document will be enforceable against Consumers or any of
its Subsidiaries or their respective assets.
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings (such meanings to be
applicable to the singular and plural forms of the terms defined):
"Advance" means an Advance by a Lender to the Borrower
pursuant to Section 3.01 (or deemed made pursuant to Section
4.04(d)), and refers to a Base Rate Advance or a Eurodollar Rate
Advance (each of which shall be a "Type" of Advance). All
Advances by a Lender of the same Type, having the same Interest
Period and made or Converted on the same day shall be deemed to be
a single Advance by such Lender until repaid or next Converted.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not
limited to all directors and officers of such Person), controlled
by, or under direct or indirect common control with such Person.
A Person shall be deemed to control another entity if such Person
possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such entity,
whether through the ownership of voting securities, by contract,
or otherwise.
"Agent" means, as the context may require, the Co-Agents,
the Operational Agent or the Documentation Agent; and "Agents"
means any or all of the foregoing.
"Alternate Base Rate" means a fluctuating interest rate
per annum equal at all times to the highest of:
(a) the rate of interest announced publicly
by Union Bank in Los Angeles, California, from time to
time, as the Union Bank Reference Rate;
(b) 1/2 of one percent per annum above the
latest three-week moving average of secondary market
morning offering rates in the United States for
three-month certificates of deposit of major United States
money market banks, such three-week moving average being
determined weekly by the Operational Agent on the basis of
such rates reported by certificate of deposit dealers to
and published by the Federal Reserve Bank of New York or,
if such publication shall be suspended or terminated, on
the basis of quotations for such rates received by the
Operational Agent from three New York certificate of
deposit dealers of recognized standing selected by the
Operational Agent, in either case adjusted to the nearest
1/4 of one percent or, if there is no nearest 1/4 of one
percent, to the next higher 1/4 of one percent; and
(c) 1/2 of one percent per annum above the
Federal Funds Rate.
Each change in the Alternate Base Rate shall take effect
concurrently with any change in such base rate, moving average, or
Federal Funds Rate.
"Applicable Lending Office" means, with respect to each
Lender, (i) such Lender's Domestic Lending Office, in the case of
a Base Rate Advance, and (ii) such Lender's Eurodollar Lending
Office, in the case of a Eurodollar Rate Advance.
"Applicable Margin" means, on any date of determination,
(i) for a Base Rate Advance, 0.00% per annum, and (ii) for a
Eurodollar Rate Advance, 1.50% per annum.
Notwithstanding the foregoing, (i) each of the foregoing
Applicable Margins shall be increased by 0.50% per annum in the
event that, and at all times during which, the Senior Notes shall
be rated BB- (or its equivalent) or lower by (A) any three of S&P,
Fitch, Moody's and D&P, or (B) both S&P and Moody's, and (ii) the
foregoing Applicable Margin applicable to Eurodollar Rate Advances
shall be decreased by 0.50% per annum in the event that, and at
all times during which, the Senior Notes shall be rated BBB- (or
its equivalent) or higher by (x) any three of S&P, Fitch, Moody's
and D&P, or (y) both S&P and Moody's. The Applicable Margins
shall be increased or decreased in accordance with this definition
upon any change in the applicable ratings, and such increased or
decreased Applicable Margins shall be effective from the date of
announcement of any such new ratings. The Borrower agrees to
notify the Operational Agent promptly after each change in any
rating of the Senior Notes.
"Applicable Rate" means:
(i) in the case of each Base Rate Advance, a
rate per annum equal at all times to the sum of the
Alternate Base Rate in effect from time to time plus the
Applicable Margin in effect from time to time; and
(ii) in the case of each Eurodollar Rate
Advance comprising part of the same Borrowing, a rate per
annum during each Interest Period equal at all times to
the sum of the Eurodollar Rate for such Interest Period
plus the Applicable Margin in effect from time to time
during such Interest Period.
"Available Commitment" means, for each Lender on any day,
the unused portion of such Lender's Commitment, computed after
giving effect to all Extensions of Credit or prepayments to be
made on such day and the application of proceeds therefrom.
"Available Commitments" means the aggregate of the
Lenders' Available Commitments hereunder.
"Base Rate Advance" means an Advance that bears interest
as provided in Section 3.05(b)(i).
"Borrowing" means a borrowing consisting of Advances of
the same Type, having the same Interest Period and made or
Converted on the same day by the Lenders, ratably in accordance
with their respective Percentages. Any Borrowing consisting of
Advances of a particular Type may be referred to as being a
Borrowing of such "Type". All Advances of the same Type, having
the same Interest Period and made or Converted on the same day
shall be deemed a single Borrowing hereunder until repaid or next
Converted.
"Business Day" means a day of the year on which banks are
not required or authorized to close in New York City, Los Angeles,
California and Detroit, Michigan, and, if the applicable Business
Day relates to any Eurodollar Rate Advance, on which dealings are
carried on in the London interbank market.
"Cash Collateral Agreement" means the Cash Collateral
Agreement, dated as of the date hereof, between the Borrower and
the Operational Agent, for the benefit of the Lenders,
substantially in the form of Exhibit 5.03.
"Cash Dividend Income" means, for any period, the amount
of all cash dividends received by the Borrower from its
Subsidiaries during such period that are paid out of the net
income (without giving effect to any extraordinary gains in excess
of $5,000,000) of such Subsidiaries during such period.
"Commitment" means, for each Lender, the obligation of
such Lender to make Advances to the Borrower and to participate in
Extensions of Credit resulting from the issuance (or extension,
modification or amendment) of any Letter of Credit in an aggregate
amount no greater than the amount set forth opposite such Lender's
name on the signature pages hereof or, if such Lender has entered
into one or more Lender Assignments, set forth for such Lender in
the Register maintained by the Documentation Agent pursuant to
Section 11.07(c), in each such case as such amount may be reduced
from time to time pursuant to Section 2.03. "Commitments" means
the total of the Lenders' Commitments hereunder. The Commitments
shall in no event exceed $400 million.
"Commitment Closing" means the time at which each of the
conditions precedent enumerated in Section 6.01 shall have been
fulfilled to the satisfaction of the Lenders, the Co-Agents and
the Borrower. All transactions contemplated by the Commitment
Closing shall take place on or before July 29, 1994, at the
offices of King & Spalding, 120 West 45th Street, New York, New
York 10036, at 10:00 A.M., or such other place or time as the
parties hereto may mutually agree.
"Confidential Information" has the meaning assigned to
that term in Section 11.08.
"Consolidated Capital" means, at any date of
determination, the sum of (a) Consolidated Debt, (b) consolidated
equity of the common stockholders of the Borrower and the
Consolidated Subsidiaries, (c) consolidated equity of the
preference stockholders of the Borrower and the Consolidated
Subsidiaries and (d) consolidated equity of the preferred
stockholders of the Borrower and the Consolidated Subsidiaries, in
each case determined at such date in accordance with generally
accepted accounting principles.
"Consolidated Debt" means, at any date of determination,
the aggregate Debt of the Borrower and the Consolidated
Subsidiaries determined on a consolidated basis in accordance with
generally accepted accounting principles, provided that, for
purposes of this definition, (i) Debt shall not include any
obligation of the Borrower, the Guarantor and the Consolidated
Subsidiaries to the extent to which the obligation to pay, whether
for property, services or otherwise, has not yet arisen (other
than any such obligation the amount of which has been conclusively
determined (including, without limitation, any obligation with
respect to indebtedness for borrowed money or evidenced by bonds,
debentures, notes or other similar instruments) and is due and
payable at any time on or after such date of determination) and
(ii) clause (v) of the definition of "Support Obligations" shall
only include any potential liquidated damage payments provided for
in respect of the obligations referred to therein.
"Consolidated Subsidiary" means any Subsidiary whose
accounts are or are required to be consolidated with the accounts
of the Borrower in accordance with generally accepted accounting
principles.
"Consumers" means Consumers Power Company, a Michigan
corporation, all of whose common stock is on the date hereof owned
by the Borrower.
"Consumers Dividend Restriction" means any restriction
enacted or imposed after October 1, 1992 upon the ability of
Consumers to pay cash dividends to the Borrower in respect of
Consumers' capital stock, whether such restriction is imposed by
statute, regulation, decisions or rulings by the Michigan Public
Service Commission or the Federal Energy Regulatory Commission (or
any successor agency or agencies), final judgments of any court of
competent jurisdiction, indentures, agreements, contracts or
restrictions to which Consumers is a party or by which it is bound
or otherwise; provided, that no restriction on such dividends
existing on October 1, 1992 shall be a Consumers Dividend
Restriction at any time.
"Conversion", "Convert" or "Converted" refers to a
conversion of Advances of one Type into Advances of another Type,
or to the selection of a new, or the renewal of the same, Interest
Period for Advances, as the case may be, pursuant to Section 3.02.
"Convertible MIPS" means any and all preferred securities
issued by a newly-formed, special-purpose Subsidiary of the
Borrower in accordance with Section 8.02(b)(iii), which securities
shall be convertible into, and may be redeemed with, the common
stock of the Borrower.
"D&P" means Duff & Phelps, Inc. or any successor thereto.
"Debt" means, for any Person, any and all indebtedness,
liabilities and other monetary obligations of such Person (whether
for principal, interest, fees, costs, expenses or otherwise, and
whether contingent or otherwise) (i) for borrowed money or
evidenced by bonds, debentures, notes or other similar
instruments, (ii) to pay the deferred purchase price of property
or services (except trade accounts payable arising in the ordinary
course of business which are not overdue), (iii) as lessee under
leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital
leases, (iv) under reimbursement or similar agreements with
respect to letters of credit issued thereunder, (v) under any
interest rate swap, "cap", "collar" or other hedging agreements,
and (vi) to pay rent or other amounts under leases entered into in
connection with sale and leaseback transactions involving assets
of such Person being sold in connection therewith, and including,
without limitation, (x) Guaranty Obligations and (y) any
accumulated funding deficiency (as defined in Section 412(a) of
the Internal Revenue Code of 1986, as amended) for a Plan.
"Default Rate" means a rate per annum equal at all times
to the higher of (i) 2% per annum above the higher, from time to
time, of (A) the Applicable Rate for Eurodollar Rate Advances
immediately prior to such Default Rate becoming applicable and
(B) the Applicable Rate in effect from time to time for Base Rate
Advances, and (ii) the highest rate per annum payable pursuant to
the Indenture with respect to any principal amount of the Senior
Notes that is not paid when due.
"Dividend Coverage Ratio" means, at any date, the ratio of
(i) Pro Forma Dividend Amounts to (ii) Issuer Interest Expense, as
such terms are defined in the Indenture as in effect on the date
hereof.
"Dollars" and the sign "$" each means lawful money of the
United States.
"Domestic Lending Office" means, with respect to any
Lender, the office or affiliate of such Lender specified as its
"Domestic Lending Office" opposite its name on Schedule I hereto
or in the Lender Assignment pursuant to which it became a Lender,
or such other office or affiliate of such Lender as such Lender
may from time to time specify in writing to the Borrower and the
Operational Agent.
"Eligible Assignee" means (a) a commercial bank or trust
company organized under the laws of the United States, or any
State thereof; (b) a commercial bank organized under the laws of
any other country that is a member of the OECD, or a political
subdivision of any such country, provided that such bank is acting
through a branch or agency located in the United States; (c) the
central bank of any country that is a member of the OECD; and
(d) any other commercial bank or other financial institution
engaged generally in the business of extending credit or
purchasing debt instruments; provided, however, that (A) any such
Person shall also (i) have outstanding unsecured indebtedness that
is rated A- or better by S&P or A3 or better by Moody's (or an
equivalent rating by another nationally-recognized credit rating
agency of similar standing if neither of such corporations is then
in the business of rating unsecured indebtedness of entities
engaged in such businesses) or (ii) have combined capital and
surplus (as established in its most recent report of condition to
its primary regulator) of not less than $250,000,000 (or its
equivalent in foreign currency), (B) any Person described in
clause (b), (c), or (d), above, shall, on the date on which it is
to become a Lender hereunder, (i) be entitled to receive payments
hereunder without deduction or withholding of any United States
Federal income taxes (as contemplated by Section 5.06) and
(ii) not be incurring any losses, costs or expenses of the type
for which such Person could demand payment under Section 5.04(a)
or (d) (except to the extent that, in the absence of the making of
an assignment to such Person, the assigning Lender would have
incurred an equal or greater amount of such losses, costs or
expenses and such losses, costs or expenses would have been
payable by the Borrower to such assigning Lender hereunder), (C)
any Person described in clauses (a), (b), (c) and (d), above,
which is not a Lender shall, in addition, be acceptable to any LC
Bank based upon its then-existing credit criteria and (D) any
Person described in clause (d), above, shall, in addition, be
acceptable to the Co-Agents.
"Enterprises" means CMS Enterprises Company, a Michigan
corporation, all of whose common stock is on the date hereof owned
by the Borrower.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" means, with respect to any Person, any
trade or business (whether or not incorporated) that is a
"commonly controlled entity" within the meaning of the regulations
under Section 414 of the Internal Revenue Code of 1986, as
amended.
"Eurocurrency Liabilities" has the meaning assigned to
that term in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any
Lender, the office or affiliate of such Lender specified as its
"Eurodollar Lending Office" opposite its name on Schedule I hereto
or in the Lender Assignment pursuant to which it became a Lender
(or, if no such office or affiliate is specified, its Domestic
Lending Office), or such other office or affiliate of such Lender
as such Lender may from time to time specify in writing to the
Borrower and the Operational Agent.
"Eurodollar Rate" means, for each Interest Period for each
Eurodollar Rate Advance made as part of the same Borrowing, an
interest rate per annum equal to the average (rounded upward to
the nearest whole multiple of 1/16 of 1% per annum, if such
average is not such a multiple) of the rate per annum at which
deposits in U.S. dollars are offered by the principal office of
each of the Reference Banks in London, England to prime banks in
the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an
amount substantially equal to such Reference Bank's Eurodollar
Rate Advance made as part of such Borrowing and for a period equal
to such Interest Period. The Eurodollar Rate for the Interest
Period for each Eurodollar Rate Advance made as part of the same
Borrowing shall be determined by the Operational Agent on the
basis of applicable rates furnished to and received by the
Operational Agent from the Reference Banks two Business Days
before the first day of such Interest Period, subject, however, to
the provisions of Sections 3.04(c) and 5.02.
"Eurodollar Rate Advance" means an Advance that bears
interest as provided in Section 3.05(b)(ii).
"Eurodollar Reserve Percentage" of any Lender for each
Interest Period for each Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period (or if more than
one such percentage shall be so applicable, the daily average of
such percentages for those days in such Interest Period during
which any such percentage shall be so applicable) under Regulation
D or other regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for such Lender with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Event of Default" has the meaning specified in Section
9.01.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Existing Agreement" means the Amended and Restated Credit
Agreement, dated as of November 30, 1992, as amended and restated
as of October 15, 1993, among the Borrower, the lenders named
therein, the Co-Agents, the Documentation Agent and the
Operational Agent.
"Existing Banks" means the Banks party to the Existing
Agreement.
"Extension of Credit" means (i) the making of a Borrowing
(including, without limitation, any Conversion), (ii) the issuance
of a Letter of Credit, or (iii) the amendment of any Letter of
Credit having the effect of extending the stated termination date
thereof, increasing the LC Outstandings thereunder, or otherwise
altering any of the material terms or conditions thereof.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the
Operational Agent from three Federal funds brokers of recognized
standing selected by the Operational Agent.
"Fee Letter" has the meaning assigned to that term in
Section 2.02(d).
"Financial Closing" means the time at which each of the
conditions precedent enumerated in Section 6.02 have been
fulfilled to the satisfaction of the Lenders, the Co-Agents and
the Borrower. All transactions contemplated by the Financial
Closing shall take place on or before July 29, 1994, at the
offices of King & Spalding, 120 West 45th Street, New York, New
York 10036, at 10:00 A.M., or such other time as the parties
hereto may mutually agree.
"Fitch" means Fitch's Investors Services or any successor
thereto.
"Governmental Approval" means any authorization, consent,
approval, license, permit, certificate, exemption of, or filing or
registration with, any governmental authority or other legal or
regulatory body, required in connection with either (i) the
execution, delivery, or performance of any Loan Document by any
Loan Party, (ii) the grant and perfection of any Lien contemplated
by the Security Documents or (iii) the exercise by any Agent (on
behalf of the Lenders) of any right or remedy provided for under
any Security Document.
"Guarantor" means Enterprises.
"Guaranty" means the Guaranty, dated as of the date
hereof, by Enterprises in favor of the Documentation Agent and the
Lenders, substantially in the form of Exhibit 6.02B.
"Guaranty Obligations" means (i) direct or indirect
guaranties in respect of, and obligations to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect
of, Debt of any Person and (ii) other guaranty or similar
obligations in respect of the performance of others, including,
without limitation, Support Obligations; provided, however, that
Guaranty Obligations shall not include any unsecured subordinated
guaranty obligations of the Borrower with respect to the
Convertible MIPS (provided, that the terms and conditions of
subordination with respect to such guaranty obligations shall be
in form and substance satisfactory to the Majority Lenders).
"Hazardous Substance" means any waste, substance, or
material identified as hazardous, dangerous or toxic by any
office, agency, department, commission, board, bureau, or
instrumentality of the United States or of the State or locality
in which the same is located having or exercising jurisdiction
over such waste, substance or material.
"Indemnified Person" has the meaning assigned to that term
in Section 11.04(b).
"Indenture" means that certain Indenture, dated as of
September 15, 1992, between the Borrower and the Trustee, as
supplemented by the First Supplemental Indenture, dated as of
October 1, 1992, and the Second Supplemental Indenture, dated as
of October 1, 1992, as said Indenture may be further amended or
otherwise modified from time to time in accordance with its terms.
"Interest Period" has the meaning assigned to that term in
Section 3.03.
"LC Bank" means a Lender or other financial institution
designated by the Borrower, and acceptable to the Documentation
Agent and the Operational Agent, in accordance with Section
4.01(a), as the issuer of a Letter of Credit pursuant to an LC
Bank Agreement. It is understood and agreed that each Lender
shall be deemed to be acceptable to the Documentation Agent and
the Operational Agent for such purposes. As of the date hereof,
the Borrower has designated Union Bank and The Bank of Tokyo, Ltd.
as LC Banks, and the Agents have accepted such designees pursuant
to Section 4.01.
"LC Bank Agreement" means an agreement between an LC Bank
and the Borrower, in form and substance satisfactory to the
Documentation Agent and the Operational Agent, providing for the
issuance of one or more Letters of Credit, in form and substance
satisfactory to the Documentation Agent and the Operational Agent,
in support of a general corporate activity of the Borrower.
"LC Payment Notice" has the meaning assigned to that term
in Section 4.04(b).
"LC Outstandings" means, for any Letter of Credit on any
date of determination, the maximum amount available to be drawn
under such Letter of Credit (assuming the satisfaction of all
conditions for drawing enumerated therein).
"Lender Assignment" means an assignment and agreement
entered into by a Lender and an Eligible Assignee, and accepted by
the Documentation Agent, in substantially the form of
Exhibit 11.07.
"Lenders" means the Banks listed on the signature pages
hereof, each Eligible Assignee that shall become a party hereto
pursuant to Section 11.07 and, if and to the extent so provided in
Section 4.04(c), each LC Bank.
"Letter of Credit" means a letter of credit issued by an
LC Bank pursuant to Section 4.02, as such letter of credit may
from time to time be amended, modified or extended in accordance
with the terms of this Agreement and the LC Bank Agreement to
which it relates.
"Lien" has the meaning assigned to that term in Section
8.02(a).
"Loan Documents" means this Agreement, the Notes, the
Security Documents, the Fee Letter, the Cash Collateral Agreement,
the LC Bank Agreement(s) and all other agreements, instruments and
documents now or hereafter executed and/or delivered pursuant
hereto or thereto.
"Loan Party" means each of the Borrower and the Guarantor.
"Majority Lenders" means, on any date of determination,
Lenders that, collectively, on such date (i) have Percentages in
the aggregate of at least 66-2/3% and (ii) if the Commitments have
been terminated, hold at least 66-2/3% of the then aggregate
unpaid principal amount of the Advances owing to Lenders. Any
determination of those Lenders constituting the Majority Lenders
shall be made by the Co-Agents and shall be conclusive and binding
on all parties absent manifest error.
"Measurement Quarter" has the meaning assigned to that
term in Section 8.01(j).
"Moody's" means Moody's Investors Service, Inc. or any
successor thereto.
"Net Worth" means, with respect to any Person, the excess
of such Person's total assets over its total liabilities, total
assets and total liabilities each to be determined in accordance
with generally accepted accounting principles consistently
applied, excluding, however, from the determination of total
assets (i) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights,
patents, patent applications, licenses and rights in any thereof,
and other similar intangibles, (ii) cash held in a sinking or
other analogous fund established for the purpose of redemption,
retirement or prepayment of capital stock or Debt, and (iii) any
items not included in clauses (i) or (ii), above, that are treated
as intangibles in conformity with generally accepted accounting
principles.
"Nomeco" means NOMECO Oil & Gas Co., a Michigan
corporation, all of whose capital stock is on the date hereof
owned by Enterprises.
"Note" means a promissory note of the Borrower payable to
the order of a Lender, in substantially the form of Exhibit 6.02A.
"Noteholders" means, collectively, the owners of record
from time to time of the Senior Notes.
"Notice of Borrowing" has the meaning assigned to that
term in Section 3.01(a).
"NYSEG Letter of Credit" means the irrevocable standby
letter of credit, dated April 29, 1994, issued by The Bank of
Tokyo, Ltd. in favor of New York State Electric & Gas Corporation,
bearing letter of credit number 165-LCS-916840, a copy of which is
attached hereto as Exhibit 4.01. The NYSEG Letter of Credit shall
constitute a Letter of Credit hereunder.
"OECD" means the Organization for Economic Cooperation and
Development.
"PBGC" means the Pension Benefit Guaranty Corporation (or
any successor entity) established under ERISA.
"Percentage" means, for any Lender on any date of
determination, the percentage obtained by dividing such Lender's
Commitment on such day by the total of the Commitments on such
date, and multiplying the quotient so obtained by 100%.
"Permitted Investments" means each of the following so
long as no such Permitted Investment shall have a final maturity
later than six months from the date of investment therein:
(i) direct obligations of the United States,
or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States or any agency
thereof;
(ii) certificates of deposit or bankers'
acceptances issued, or time deposits held, or investment
contracts guaranteed, by any Lender, any nationally-
recognized securities dealer or any other commercial bank,
trust company, savings and loan association or savings
bank organized under the laws of the United States, or any
State thereof, or of any other country which is a member
of the OECD, or a political subdivision of any such
country, and in each case having outstanding unsecured
indebtedness that (on the date of acquisition thereof) is
rated AA- or better by S&P or Aa3 or better by Moody's (or
an equivalent rating by another nationally-recognized
credit rating agency of similar standing if neither of
such corporations is then in the business of rating
unsecured bank indebtedness);
(iii) obligations with any Lender, any other
bank or trust company described in clause (ii), above, or
any nationally-recognized securities dealer, in respect of
the repurchase of obligations of the type described in
clause (i), above, provided that such repurchase
obligations shall be fully secured by obligations of the
type described in said clause (i) and the possession of
such obligations shall be transferred to, and segregated
from other obligations owned by, such Lender, such other
bank or trust company or such securities dealer;
(iv) commercial paper rated (on the date of
acquisition thereof) A-1 or P-1 or better by S&P or
Moody's, respectively (or an equivalent rating by another
nationally-recognized credit rating agency of similar
standing if neither of such corporations is then in the
business of rating commercial paper); and
(v) any eurodollar certificate of deposit
issued by any Lender or any other commercial bank, trust
company, savings and loan association or savings bank
organized under the laws of the United States, or any
State thereof, or of any country which is a member of the
OECD, or a political subdivision of any such country, and
in each case having outstanding unsecured indebtedness
that (on the date of acquisition thereof) is rated AA- or
better by S&P or Aa3 or better by Moody's (or an
equivalent rating by another nationally-recognized credit
rating agency of similar standing if neither of such
corporations is then in the business of rating unsecured
bank indebtedness).
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"Plan" means, with respect to any Person, an employee
benefit plan (other than a Multiemployer Plan) maintained for
employees of such Person or any ERISA Affiliate of such Person and
covered by Title IV of ERISA.
"Plan Termination Event" means, with respect to any
Person, (i) a Reportable Event described in Section 4043 of ERISA
and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC
under such regulations), or (ii) the withdrawal of such Person or
any of its ERISA Affiliates from a Plan during a plan year in
which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to
terminate a Plan or the treatment of a Plan under Section 4041 of
ERISA, or (iv) the institution of proceedings to terminate a Plan
by the PBGC, or (v) any other event or condition which is
reasonably likely to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan.
"Recipient" has the meaning assigned to that term in
Section 11.08.
"Reference Banks" means Citibank, Union Bank and The
Toronto-Dominion Bank, or any additional or substitute Lenders as
may be selected from time to time to act as Reference Banks
hereunder by the Operational Agent, the Majority Lenders and the
Borrower.
"Register" has the meaning specified in Section 11.07(c).
"Request for Issuance" has the meaning assigned to that
term in Section 4.02(a).
"Required Lenders" means, on any date of determination,
Lenders that, collectively, on such date (i) hold at least 51% of
the then aggregate unpaid principal amount of the Advances owing
to Lenders and (ii) if no Advances are then outstanding, have
Percentages in the aggregate of at least 51%. Any determination
of those Lenders constituting the Required Lenders shall be made
by the Co-Agents and shall be conclusive and binding on all
parties absent manifest error.
"Restricted Subsidiary" means (i) Enterprises and (ii) any
other Subsidiary of the Borrower (other than Consumers and its
Subsidiaries) that, on a consolidated basis with any of its
Subsidiaries as of any date of determination, accounts for more
than 10% of the consolidated assets of the Borrower and its
Consolidated Subsidiaries.
"S&P" means Standard & Poor's Corporation or any successor
thereto.
"Security Documents" means the Guaranty and the Cash
Collateral Agreement.
"Senior Note Debt" means, collectively, all principal
indebtedness of the Borrower to the Noteholders now or hereafter
existing under the Senior Notes, together with interest and
premiums, if any, thereon and other amounts payable in respect
thereof or in connection therewith in accordance with the terms of
the Senior Notes or the Indenture.
"Senior Notes" means the Series A Senior Deferred Coupon
Notes Due 1997 and the Series B Senior Deferred Coupon Notes Due
1999 issued by the Borrower pursuant to the Indenture.
"Subsidiary" means, with respect to any Person, any
corporation or unincorporated entity of which more than 50% of the
outstanding capital stock (or comparable interest) having ordinary
voting power (irrespective of whether at the time capital stock
(or comparable interest) of any other class or classes of such
corporation or entity shall or might have voting power upon the
occurrence of any contingency) is at the time directly or
indirectly owned by said Person (whether directly or through one
or more other Subsidiaries). In the case of an unincorporated
entity, a Person shall be deemed to have more than 50% of
interests having ordinary voting power only if such Person's vote
in respect of such interests comprises more than 50% of the total
voting power of all such interests in the unincorporated entity.
"Support Obligations" means any obligation, contingent or
otherwise, of any 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, (i) 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, (ii) to
purchase property, securities or services for the purpose of
assuring the owner of such Debt of the payment of such Debt,
(iii) 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, (iv) 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 (v) to perform, or
arrange for the performance of, any non-monetary obligations or
non-funded debt payment obligations (including, without
limitation, guaranties of capacity support payments under power
purchase or other similar arrangements) of the primary obligor.
"Tax Sharing Agreement" means the Agreement for the
Allocation of Income Tax Liabilities and Benefits, dated as of
January 1, 1990, by and among the Borrower, each of the members of
the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"Termination Date" means the earlier to occur of (i) June
30, 1997 or such later date to which the Termination Date is
extended in accordance with Section 2.05 and (ii) the date of
termination or reduction in whole of the Commitments pursuant to
Section 2.03 or 9.02.
"Trustee" has the meaning assigned to that term in the
Indenture.
"Type" has the meaning assigned to such term (i) in the
definition of "Advance" when used in such context and (ii) in the
definition of "Borrowing" when used in such context.
"Unmatured Default" means an event that, with the giving
of notice or lapse of time or both, would constitute an Event of
Default.
SECTION 1.02. Computation of Time Periods. Unless otherwise
indicated, each reference in this Agreement to a specific time of day is a
reference to New York City time. In the computation of periods of time
under this Agreement, any period of a specified number of days or months
shall be computed by including the first day or month occurring during
such period and excluding the last such day or month. In the case of a
period of time "from" a specified date "to" or "until" a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
generally accepted accounting principles consistent with those applied in
the preparation of the financial statements referred to in Section
7.01(e).
ARTICLE II
COMMITMENTS
SECTION 2.01. The Commitments. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make Advances to the
Borrower and to participate in the issuance of Letters of Credit (and the
LC Outstandings thereunder) during the period from the date of the
Financial Closing until the Termination Date in an aggregate outstanding
amount not to exceed on any day such Lender's Available Commitment (after
giving effect to all Extensions of Credit to be made on such day and the
application of the proceeds thereof). Within the limits hereinafter set
forth, the Borrower may request Extensions of Credit hereunder, prepay
Advances, or reduce or cancel Letters of Credit, and use the resulting
increase in the Available Commitments for further Extensions of Credit in
accordance with the terms hereof.
SECTION 2.02. Fees. (a) The Borrower agrees to pay to the
Operational Agent for the account of each Lender a commitment fee on the
average daily amount of such Lender's Available Commitment at the rate of
0.375% per annum, from the date hereof, in the case of each Bank, and from
the effective date specified in the Lender Assignment pursuant to which it
became a Lender, in the case of each other Lender, until the Termination
Date, payable quarterly in arrears on the last day of each January, April,
July and October, commencing the first such date to occur following the
date hereof, and on the Termination Date.
(b) The Borrower agrees to pay to the Operational Agent for
the account of each Bank a participation fee equal to (i) 0.35% of such
Bank's Commitment, if the amount of such Bank's initial commitment was
equal to or in excess of $15,000,000 and less than $30,000,000, or
(ii) 0.55% of such Bank's Commitment, if the amount of such Bank's initial
commitment was equal to or in excess of $30,000,000, such fee to be
payable on the date of the Commitment Closing.
(c) The Borrower agrees to pay to the Operational Agent for
the account of each Lender a commission on the average daily aggregate
amount of the LC Outstandings from the date hereof until the Termination
Date at a rate per annum equal to the Applicable Margin with respect to
Eurodollar Rate Advances from time to time, payable quarterly in arrears
on the last day of each January, April, July and October, commencing on
July 31, 1994, and on the Termination Date; provided, however, that with
respect to Letters of Credit that support only performance obligations of
the Borrower or any of its Subsidiaries, such commission shall be at a
rate per annum equal to 50% of the Applicable Margin with respect to
Eurodollar Rate Advances from time to time. The determination (the
"Initial Determination") of whether a particular Letter of Credit supports
only performance obligations of the Borrower or any of its Subsidiaries
shall be made by the Co-Agents prior to the issuance of such Letter of
Credit, and the foregoing Letter of Credit commission shall, subject to
clauses (i) and (ii), below, be payable in accordance with such Initial
Determination. The Documentation Agent shall promptly give notice of the
Initial Determination to the Borrower and each Lender. If the Initial
Determination of the Co-Agents is that, for capital requirements purposes,
such Letter of Credit supports only performance obligations of the
Borrower or any of its Subsidiaries, then each Lender shall, within 90
days after its receipt of notice of the Initial Determination from the
Documentation Agent, provide written notice to the Documentation Agent
stating whether it concurs with and approves the Initial Determination.
The failure of any Lender to so respond within such 90-day period shall be
deemed to constitute an approval by such Lender of the Initial
Determination. If the Majority Lenders do not concur with and approve the
Initial Determination within such period, (i) the Borrower shall pay to
the Operational Agent for the account of each Lender an amount equal to
the excess, if any, of (A) the Letter of Credit commission that would have
been payable by the Borrower pursuant to the first sentence of this
subsection (c) (without giving effect to the proviso thereto) with respect
to such Letter of Credit over (B) the actual Letter of Credit commission
paid by the Borrower pursuant to this subsection (c) with respect to such
Letter of Credit, such amount to be payable immediately upon the
Borrower's receipt of notice from the Documentation Agent stating that the
Majority Lenders failed to concur with and approve the Initial
Determination, and (ii) the Letter of Credit commission payable by the
Borrower with respect to such Letter of Credit shall be at the rate
specified in the first sentence of this subsection (c) (without giving
effect to the proviso thereto). If the Initial Determination of the Co-
Agents is that, for capital requirements purposes, a particular Letter of
Credit supports only financial obligations of the Borrower or any of its
Subsidiaries and, within 30 days after the Documentation Agent gives
notice of such Initial Determination to the Borrower and each Lender, the
Co-Agents determine that such Letter of Credit in fact supports only
performance obligations of the Borrower or any of its Subsidiaries, the
Documentation Agent shall promptly notify the Borrower and each Lender of
such determination (the "Final Determination") and each Lender shall,
within 90 days after its receipt of notice of the Final Determination from
the Documentation Agent, provide written notice to the Documentation Agent
stating whether it concurs with and approves the Final Determination. The
failure of any Lender to so respond within such 90-day period shall be
deemed to constitute an approval by such Lender of the Final
Determination. If the Majority Lenders concur with and approve the Final
Determination within such period, (1) an amount equal to the excess, if
any, of (x) the actual Letter of Credit commission paid by the Borrower
pursuant to this subsection (c) with respect to such Letter of Credit over
(y) the Letter of Credit commission that would have been payable by the
Borrower pursuant to the proviso to the first sentence of this subsection
(c) with respect to such Letter of Credit, shall be set off and deducted
by the Borrower from all subsequent Letter of Credit commissions payable
pursuant to this subsection (c) until such amount has been set off and
deducted in full, and (2) the Letter of Credit commission payable by the
Borrower with respect to such Letter of Credit shall be at the rate
specified in the proviso to the first sentence of this subsection (c). In
connection with the Lenders' review of each Initial Determination and
Final Determination, the Borrower shall provide to each Lender all
supporting information regarding the applicable Letter of Credit and such
other information as any Lender, through the Documentation Agent, may
reasonably request.
(d) In addition to the fees provided for in subsections (a),
(b) and (c), above, the Borrower shall pay to the Operational Agent, for
the account of the Co-Agents, such other fees as are provided for in that
certain letter agreement between the Borrower and the Co-Agents (the "Fee
Letter") entered into separately herefrom and dated the date hereof.
SECTION 2.03. Reduction of the Commitments. (a) The
Borrower may, upon at least five Business Days' notice to each Co-Agent,
terminate in whole or reduce ratably in part the unused portions of the
Commitments; provided that any such partial reduction shall be in the
aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(b) On each date that the Borrower repurchases Senior Notes
from any Noteholder as the result of a Change in Control (as defined in
the Indenture), the Commitments of the Lenders shall automatically be
ratably reduced by an amount equal in the aggregate to the product of (i)
the Commitments on such date (after giving effect to all Extensions of
Credit to be made on such date and the application of the proceeds
thereof) and (ii) the percentage obtained by dividing (A) the aggregate
principal amount of such Senior Notes being repurchased by (B) the
aggregate principal amount of the Senior Note Debt then outstanding.
SECTION 2.04. Computations of Outstandings. Whenever reference
is made in this Agreement to the principal amount outstanding on any date
under this Agreement, such reference shall refer to the sum of (i) the
aggregate principal amount of all Advances outstanding on such date plus
(ii) the aggregate LC Outstandings of all Letters of Credit outstanding on
such date, in each case after giving effect to all Extensions of Credit to
be made on such date and the application of the proceeds thereof. At no
time shall the principal amount outstanding under this Agreement exceed
the aggregate amount of the Commitments. References to the unused portion
of the Commitments shall refer to the excess, if any, of the Commitments
over the principal amount outstanding hereunder; and references to the
unused portion of any Lender's Commitment shall refer to such Lender's
Percentage of the unused Commitments.
SECTION 2.05. Extension of Termination Date. At least 30 but not
more than 90 days prior to each anniversary of the date of the Commitment
Closing (but in any event no later than 60 days prior to the then-
scheduled Termination Date), the Borrower may, by delivering a written
notice to such effect to the Operational Agent (each such request being
irrevocable), request that each Lender consent to a one-year extension of
the Termination Date. Upon receipt of any such notice, the Operational
Agent shall promptly communicate such request to the Lenders. Within 30
days following the giving of such notice by the Borrower, the Lenders
shall indicate to the Operational Agent whether the Borrower's request to
so extend the then-scheduled Termination Date is acceptable to the Lenders
(and, if so, the conditions, if any, relating to such acceptance), it
being understood that the unanimous written consent of the Lenders shall
be required to effect any such request, that the determination by each
Lender will be in its sole and absolute discretion and that the failure of
any Lender to so respond within such period shall be deemed to constitute
a refusal by such Lender to consent to such request (with the result being
that such request is denied). The Operational Agent shall promptly notify
the Borrower and the Lenders of the result of such request, and if such
request shall have been consented to by all of the Lenders, the
Termination Date shall be extended to the first anniversary of the then-
scheduled Termination Date; provided, however, that the Termination Date
shall be so extended notwithstanding the existence of one or more Lenders
(the "Nonextending Lenders") that have elected not to extend (or failed to
notify the Operational Agent of its (or their) consent to extend) if
(i) such Nonextending Lender(s) has (or have) been replaced in the full
amount of its (or their) Commitment(s) pursuant to Section 11.07(g) and
(ii) no Event of Default or Unmatured Default shall then have occurred and
be continuing. If a Nonextending Lender is not so replaced pursuant to
Section 11.07(g), the Commitments of all of the Lenders shall
automatically terminate on the then-scheduled Termination Date.
ARTICLE III
ADVANCES
SECTION 3.01. Advances. (a) The Borrower may request a Borrowing
(other than a Conversion) by delivering a notice (a "Notice of Borrowing")
to the Operational Agent no later than 12:00 noon (New York City time) on
the fourth Business Day or, in the case of Base Rate Advances, on the
first Business Day, prior to the date of the proposed Borrowing. The
Operational Agent shall give each Lender prompt notice of each Notice of
Borrowing. Each Notice of Borrowing shall be in substantially the form of
Exhibit 3.01 and shall specify the requested (i) date of such Borrowing,
(ii) Type of Advances to be made in connection with such Borrowing and
(iii) Interest Period, if any, for such Advances. Each proposed Borrowing
shall conform to the requirements of Sections 3.03 and 3.04.
(b) Each Lender shall, before 12:00 noon (New York City time)
on the date of such Borrowing, make available for the account of its
Applicable Lending Office to the Operational Agent at the Operational
Agent's address referred to in Section 11.02, in same day funds, such
Lender's Percentage of such Borrowing. After the Operational Agent's
receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article VI, the Operational Agent will make such funds
available to the Borrower at the Operational Agent's aforesaid address;
provided, however, that the proceeds of the initial Extension of Credit
shall be applied directly by the Operational Agent on the date of the
Financial Closing to the prepayment in full of all outstanding principal,
accrued interest and other amounts then owing under the Existing
Agreement. In connection therewith, each Existing Bank hereby waives the
five Business Days' notice requirement under Section 2.03(a) of the
Existing Agreement in order to permit such prepayment to be made.
Notwithstanding the foregoing, unless the Operational Agent shall have
received notice from a Lender prior to the date of any Borrowing that such
Lender will not make available to the Operational Agent such Lender's
Percentage of such Borrowing, the Operational Agent may assume that such
Lender has made such Percentage available to the Operational Agent on the
date of such Borrowing in accordance with the first sentence of this
subsection (b), and the Operational Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding
amount.
(c) If and to the extent that any Lender (a "non-performing
Lender") shall not have made available to the Operational Agent, in
accordance with subsection (b), above, such Lender's Percentage of any
Borrowing, the non-performing Lender and the Borrower severally agree to
repay to the Operational Agent forthwith on demand corresponding amounts,
together with interest thereon for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Operational Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to Advances made in connection with such Borrowing
and (ii) in the case of such Lender, the Federal Funds Rate. Within the
limits of each Lender's Available Commitment hereunder and subject to the
other terms and conditions set forth in this Agreement for the making of
Advances, the Borrower may request (and the Lenders shall honor) one or
more additional Borrowings from the performing Lenders to fund such
repayment to the Operational Agent. If a non-performing Lender shall
repay to the Operational Agent such corresponding amount in full (with
interest as above provided), (x) the Operational Agent shall apply such
corresponding amount and interest to the repayment to the Operational
Agent (or repayment of Advances made to fund such repayment to the
Operational Agent), and shall make any remainder available to the Borrower
and (y) such amount so repaid shall be deemed to constitute such Lender's
Advance, made as part of such Borrowing for purposes of this Agreement as
if funded concurrently with the other Advances made as part of such
Borrowing, and such Lender shall forthwith cease to be deemed a
non-performing Lender; if and so long as such non-performing Lender shall
not repay such amount, and unless and until an Eligible Assignee shall
have assumed and performed the obligations of such non-performing Lender,
all computations by the Operational Agent of Percentages, Commitments and
payments hereunder shall be made without regard to the Commitments, or
outstanding Advances, of such non-performing Lender, and any amounts paid
to the Operational Agent for the account of such non-performing Lender
shall be held by the Operational Agent in trust for such Lender in a
non-interest-bearing special purpose account. Nothing herein shall in any
way limit, waive or otherwise reduce any claims that any party hereto may
have against any non-performing Lender. The failure of any Lender to make
the Advance to be made by it as part of any Borrowing shall not relieve
any other Lender of its obligation, if any, hereunder to make its Advance
on the date of such Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make the Advance to be made by such other
Lender on the date of any Borrowing.
SECTION 3.02. Conversion of Advances. The Borrower may from time
to time Convert any Advance (or portion thereof) of any Type to one or
more Advances of the same or any other Type by delivering a notice of such
Conversion (a "Notice of Conversion") to the Operational Agent no later
than 12:00 noon (New York City time) on (x) the fourth Business Day prior
to the date of any proposed Conversion into a Eurodollar Rate Advance and
(y) the first Business Day prior to the date of any proposed Conversion
into a Base Rate Advance. The Operational Agent shall give each Lender
prompt notice of each Notice of Conversion. Each Notice of Conversion
shall be in substantially the form of Exhibit 3.02 and shall specify the
requested (i) date of such Conversion, (ii) Type of, and Interest Period,
if any, applicable to, the Advances (or portions thereof) proposed to be
Converted, (iii) Type of Advances to which such Advances (or portions
thereof) are proposed to be Converted, (iv) initial Interest Period, if
any, to be applicable to the Advances resulting from such Conversion and
(v) aggregate amount of Advances (or portions thereof) proposed to be
Converted. Each proposed Conversion shall be subject to the provisions of
Sections 3.03 and 3.04.
SECTION 3.03. Interest Periods. The period between the date of
each Eurodollar Rate Advance and the date of payment in full of such
Advance shall be divided into successive periods of months or days
("Interest Periods") for purposes of computing interest applicable
thereto. The initial Interest Period for each such Advance shall begin on
the day such Advance is made, and each subsequent Interest Period shall
begin on the last day of the immediately preceding Interest Period for
such Advance. The duration of each Interest Period shall be 1, 2, 3, or 6
months, as the Borrower may, in accordance with Section 3.01 or 3.02,
select; provided, however, that:
(i) the Borrower may not select any Interest Period
that ends after the Termination Date; and
(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the last
day of such Interest Period shall occur on the next succeeding
Business Day, provided that if such extension would cause the last
day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur
on the next preceding Business Day.
SECTION 3.04. Other Terms Relating to the Making and Conversion
of Advances. (a) Notwithstanding anything in Section 3.01 or 3.02 to the
contrary:
(i) each Borrowing (other than a Borrowing deemed
made under Section 4.04(d)) shall be in an aggregate amount not
less than $10,000,000, or an integral multiple of $1,000,000 in
excess thereof (or such lesser amount as shall be equal to the
total amount of the Available Commitments on such date, after
giving effect to all other Extensions of Credit to be made on such
date), and shall consist of Advances of the same Type, having the
same Interest Period and made or Converted on the same day by the
Lenders ratably according to their respective Percentages;
provided, however, that the initial Borrowing shall be in an
aggregate amount sufficient to repay in full all outstanding
principal, accrued interest and other amounts owing under the
Existing Agreement as of the date of the Financial Closing;
(ii) the Borrower may request that more than one
Borrowing be made on the same day;
(iii) at no time shall more than ten different
Borrowings comprising Eurodollar Rate Advances be outstanding
hereunder;
(iv) no Eurodollar Rate Advance may be Converted on a
date other than the last day of the Interest Period applicable to
such Advance unless the corresponding amounts, if any, payable to
the Lenders pursuant to Section 5.04(c) are paid contemporaneously
with such Conversion;
(v) if the Borrower shall either fail to give a
timely Notice of Conversion pursuant to Section 3.02 in respect of
any Advances or fail, in any Notice of Conversion that has been
timely given, to select the duration of any Interest Period for
Advances to be Converted into Eurodollar Rate Advances in
accordance with Section 3.03, such Advances shall, on the last day
of the then existing Interest Period therefor, automatically
Convert into, or remain as, as the case may be, Base Rate
Advances; and
(vi) if, on the date of any proposed Conversion, any
Event of Default or Unmatured Default shall have occurred and be
continuing, all Advances then outstanding shall, on such date,
automatically Convert into, or remain as, as the case may be, Base
Rate Advances; provided, however, that with respect to any
Unmatured Default that occurs and is continuing as a result of the
failure of the Borrower to comply with the ratio set forth in
Section 8.01(j), any such Advances may be Converted into
Eurodollar Rate Advances with an Interest Period not to exceed
three months in duration.
(b) If any Lender shall notify the Operational Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other
governmental authority asserts that it is unlawful, for such Lender or its
Applicable Lending Office to perform its obligations hereunder to make, or
to fund or maintain, Eurodollar Rate Advances hereunder, (i) to the extent
that any such notice shall be given at least three Business Days before
the date of any requested Borrowing, the right of the Borrower to select
Eurodollar Rate Advances for such Borrowing or any subsequent Borrowing
from such Lender shall be forthwith suspended until the earlier to occur
of the date upon which (A) such Lender shall cease to be a party hereto
and (B) it is no longer unlawful for such Lender to make, fund or maintain
Eurodollar Rate Advances, and (ii) if the maintenance of Eurodollar Rate
Advances then outstanding through the last day of the Interest Period
therefor would cause such Lender to be in violation of such law,
regulation or assertion, the Borrower shall either prepay or Convert all
Eurodollar Rate Advances from such Lender within five days after such
notice. Promptly upon becoming aware that the circumstances that caused
such Lender to deliver such notice no longer exist, such Lender shall
deliver notice thereof to the Operational Agent (but the failure to do so
shall impose no liability upon such Lender). Promptly upon receipt of such
notice from such Lender (or upon such Lender's assigning all of its
Commitments, Advances, participation and other rights and obligations
hereunder to an Eligible Assignee), the Operational Agent shall deliver
notice thereof to the Borrower and the Lenders and such suspension shall
terminate.
(c) If (i) only one, or none, of the Reference Banks furnishes
timely information to the Operational Agent for determining the Eurodollar
Rate for Eurodollar Rate Advances to be made in connection with any
proposed Borrowing or (ii) the Majority Lenders shall, at least one
Business Day before the date of any requested Borrowing, notify the
Operational Agent that the Eurodollar Rate for Eurodollar Rate Advances to
be made in connection with such Borrowing will not adequately reflect the
cost to such Majority Lenders of making, funding or maintaining their
respective Eurodollar Rate Advances for such Borrowing, the right of the
Borrower to select Eurodollar Rate Advances for such Borrowing and any
subsequent Borrowing shall be suspended until the Operational Agent shall
notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist, and each Advance to be made or Converted in
connection with such Borrowing shall be a Base Rate Advance.
(d) If any Lender shall have delivered a notice to the
Operational Agent described in Section 3.04(b), or shall become a non-
performing Lender under Section 3.01(c) or Section 4.04(c), and if and so
long as such Lender shall not have withdrawn such notice or corrected such
non-performance in accordance with said Section 3.01(c) or Section
4.04(c), the Borrower or the Co-Agents may demand that such Lender assign
in accordance with Section 11.07, to one or more Eligible Assignees
designated by the Borrower or the Co-Agents, all (but not less than all)
of such Lender's Commitment, Advances, participation and other rights and
obligations hereunder; provided that any such demand by the Borrower
during the continuance of an Event of Default or Unmatured Default shall
be ineffective without the consent of the Majority Lenders. If, within 30
days following any such demand by the Co-Agents or the Borrower, any such
Eligible Assignee so designated shall fail to consummate such assignment
on terms reasonably satisfactory to such Lender, or the Borrower and the
Co-Agents shall have failed to designate any such Eligible Assignee, then
such demand by the Borrower or the Co-Agents shall become ineffective, it
being understood for purposes of this provision that such assignment shall
be conclusively deemed to be on terms reasonably satisfactory to such
Lender, and such Lender shall be compelled to consummate such assignment
forthwith, if such Eligible Assignee (i) shall agree to such assignment in
substantially the form of the Lender Assignment attached hereto as Exhibit
11.07 and (ii) shall tender payment to such Lender in an amount equal to
the full outstanding dollar amount accrued in favor of such Lender
hereunder (as computed in accordance with the records of the Operational
Agent).
(e) Each Notice of Borrowing and Notice of Conversion shall be
irrevocable and binding on the Borrower. In the case of any Borrowing
which the related Notice of Borrowing or Notice of Conversion specifies is
to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify
each Lender against any loss, cost or expense incurred by such Lender as a
result of any failure to fulfill, on or before the date specified in such
Notice of Borrowing or Notice of Conversion for such Borrowing, the
applicable conditions (if any) set forth in this Article III (other than
failure pursuant to the provisions of Section 3.04(b) or (c) hereof) or in
Article VI, including, without limitation, any such loss (including loss
of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender when such Advance, as
a result of such failure, is not made on such date.
SECTION 3.05. Repayment of Advances. (a) Principal. The
Borrower shall repay the principal amount of the Advances on the
Termination Date.
(b) Interest. The Borrower shall pay interest on the unpaid
principal amount of each Advance owing to each Lender from the date of
such Advance until such principal amount shall be paid in full, at the
Applicable Rate for such Advance (except as otherwise provided in this
subsection (b)), payable as follows:
(i) Base Rate Advances. If such Advance is a Base
Rate Advance, interest thereon shall be payable quarterly in
arrears on the last day of each January, April, July and October,
on the date of any Conversion of such Base Rate Advance and on the
date such Base Rate Advance shall become due and payable or shall
otherwise be paid in full; provided that any amount of principal
that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on
which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to the
Default Rate.
(ii) Eurodollar Rate Advances. If such Advance is a
Eurodollar Rate Advance, interest thereon shall be payable on the
last day of such Interest Period and, if the Interest Period for
such Advance has a duration of more than three months, on that day
of each third month during such Interest Period that corresponds
to the first day of such Interest Period (or, if any such month
does not have a corresponding day, then on the last day of such
month); provided that any amount of principal that is not paid
when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, from the date on which such amount
is due until such amount is paid in full, payable on demand, at a
rate per annum equal at all times to the Default Rate.
ARTICLE IV
LETTERS OF CREDIT
SECTION 4.01. LC Banks. Subject to the terms and conditions
hereof, the Borrower may from time to time identify and arrange for one or
more financial institutions to act as LC Banks hereunder. Any such
designation by the Borrower shall be notified to the Documentation Agent
and the Operational Agent at least five Business Days prior to the first
date upon which the Borrower proposes that such LC Bank issue its first
Letter of Credit, so as to provide adequate time for such proposed LC Bank
to be approved by such Agents hereunder. In that regard, the Borrower
agrees to use its best efforts to so identify and arrange for Lenders to
serve in such capacity, provided that nothing contained herein shall be
deemed to require any Lender to agree to act as an LC Bank, if it does not
so desire. Within two Business Days following the receipt of any such
designation of a proposed LC Bank (other than any Lender so designated),
the Documentation Agent and the Operational Agent shall notify the
Borrower as to whether such designee is acceptable to such Agents.
SECTION 4.02. Letters of Credit. (a) Each Letter of Credit shall
be issued (or the stated maturity thereof extended or terms thereof
modified or amended) on not less than three Business Days' prior written
notice thereof to the Operational Agent (which shall promptly distribute
copies thereof to the Lenders) and the relevant LC Bank. Each such notice
(a "Request for Issuance") shall specify (i) the date (which shall be a
Business Day) of issuance of such Letter of Credit (or the date of
effectiveness of such extension, modification or amendment) and the stated
expiry date thereof (which shall be no later than the Termination Date),
(ii) the proposed stated amount of such Letter of Credit (which shall not
be less than $500,000) and (iii) such other information as shall
demonstrate compliance of such Letter of Credit with the requirements
specified therefor in this Agreement and the relevant LC Bank Agreement.
Each Request for Issuance shall be irrevocable unless modified or
rescinded by the Borrower not less than two days prior to the proposed
date of issuance (or effectiveness) specified therein. Not later than
12:00 noon (New York City time) on the proposed date of issuance (or
effectiveness) specified in such Request for Issuance, and upon
fulfillment of the applicable conditions precedent and the other
requirements set forth herein and in the relevant LC Bank Agreement, such
LC Bank shall issue (or extend, amend or modify) such Letter of Credit and
provide notice and a copy thereof to the Operational Agent, which shall
promptly furnish copies thereof to the Lenders.
(b) Each Lender severally agrees with such LC Bank to
participate in the Extension of Credit resulting from the issuance (or
extension, modification or amendment) of such Letter of Credit, in the
manner and the amount provided in Section 4.04(b), and the issuance of
such Letter of Credit shall be deemed to be a confirmation by such LC Bank
and each Lender of such participation in such amount.
SECTION 4.03. LC Bank Fees. The Borrower shall pay directly to
each LC Bank the letter of credit fees, if any, specified to be paid
pursuant to the terms of the LC Bank Agreement to which such LC Bank is a
party at the times, and in the manner, specified in such LC Bank
Agreement.
SECTION 4.04. Reimbursement to LC Banks. (a) The Borrower
hereby agrees to pay to the Operational Agent for the account of each LC
Bank, on demand made by such LC Bank to the Borrower and the Operational
Agent, on and after each date on which such LC Bank shall pay any amount
under the Letter of Credit issued by such LC Bank, a sum equal to the
amount so paid plus interest on such amount from the date so paid by such
LC Bank until repayment to such LC Bank in full at a fluctuating interest
rate per annum equal at all times to the interest rate hereunder for Base
Rate Advances.
(b) If any LC Bank shall not have been reimbursed in full for
any payment made by such LC Bank under the Letter of Credit issued by such
LC Bank on the date of such payment, such LC Bank shall give the
Operational Agent and each Lender prompt notice thereof (an "LC Payment
Notice") no later than 12:00 noon (New York City time) on the Business Day
immediately succeeding the date of such payment by such LC Bank. Each
Lender severally agrees to purchase a participation in the reimbursement
obligation of the Borrower to such LC Bank under subsection (a), above, by
paying to the Operational Agent for the account of such LC Bank an amount
equal to such Lender's Percentage of such unreimbursed amount paid by such
LC Bank, plus interest on such amount at a rate per annum equal to the
Federal Funds Rate from the date of such payment by such LC Bank to the
date of payment to such LC Bank by such Lender. Each such payment by a
Lender shall be made not later than 3:00 P.M. (New York City time) on the
later to occur of (i) the Business Day immediately following the date of
such payment by such LC Bank and (ii) the Business Day on which such
Lender shall have received an LC Payment Notice from such LC Bank. Each
Lender's obligation to make each such payment to the Operational Agent for
the account of such LC Bank shall be several and shall not be affected by
the occurrence or continuance of an Unmatured Default or Event of Default
or the failure of any other Lender to make any payment under this Section
4.04. Each Lender further agrees that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(c) The failure of any Lender to make any payment to the
Operational Agent for the account of an LC Bank in accordance with
subsection (b), above, shall not relieve any other Lender of its
obligation to make payment, but no Lender shall be responsible for the
failure of any other Lender. If any Lender (a "non-performing Lender")
shall fail to make any payment to the Operational Agent for the account of
an LC Bank in accordance with subsection (b), above, within five Business
Days after the LC Payment Notice relating thereto, then, for so long as
such failure shall continue, such LC Bank shall be deemed, for purposes of
Section 5.05 and Article IX hereof and the Security Documents, to be a
Lender hereunder owed an Advance in an amount equal to the outstanding
principal amount due and payable by such Lender to the Operational Agent
for the account of such LC Bank pursuant to subsection (b), above.
(d) Each participation purchased by a Lender under
subsection (b), above, shall constitute a Base Rate Advance deemed made by
such Lender to the Borrower on the date of such payment by the relevant LC
Bank under the Letter of Credit issued by such LC Bank (irrespective of
the Borrower's noncompliance, if any, with the conditions precedent for
Advances hereunder); and all such payments by the Lenders in respect of
any one such payment by such LC Bank shall constitute a single Borrowing
hereunder.
SECTION 4.05. Obligations Absolute. The payment obligations of
each Lender under Section 4.04(b) and of the Borrower under this Agreement
in respect of any payment under any Letter of Credit and any Advance made
under Section 4.04(d) shall be unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of any
Loan Document or any other agreement or instrument relating
thereto or to such Letter of Credit;
(ii) any amendment or waiver of, or any consent to
departure from, all or any of the Loan Documents;
(iii) the existence of any claim, set-off, defense or
other right which the Borrower may have at any time against any
beneficiary, or any transferee, of such Letter of Credit (or any
Persons for whom any such beneficiary or any such transferee may
be acting), any LC Bank, or any other Person, whether in
connection with this Agreement, the transactions contemplated
herein or by such Letter of Credit, or any unrelated transaction;
(iv) any statement or any other document presented
under such Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(v) payment in good faith by any LC Bank under the
Letter of Credit issued by such LC Bank against presentation of a
draft or certificate which does not comply with the terms of such
Letter of Credit; or
(vi) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
SECTION 4.06. Liability of LC Banks and the Lenders. The
Borrower assumes all risks of the acts and omissions of any beneficiary or
transferee of any Letter of Credit. Neither the LC Bank that has issued
such Letter of Credit, the Lenders nor any of their respective officers,
directors, employees, agents or Affiliates shall be liable or responsible
for (a) the use that may be made of such Letter of Credit or any acts or
omissions of any beneficiary or transferee thereof in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or
of any endorsement thereon, even if such documents should prove to be in
any or all respects invalid, insufficient, fraudulent or forged;
(c) payment by such LC Bank against presentation of documents that do not
comply with the terms of such Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such Letter of
Credit; or (d) any other circumstances whatsoever in making or failing to
make payment under such Letter of Credit, except that the Borrower shall
have the right to bring suit against such LC Bank, and such LC Bank shall
be liable to the Borrower and any Lender, to the extent of any direct, as
opposed to consequential, damages suffered by the Borrower or such Lender
which the Borrower or such Lender proves were caused by such LC Bank's
wilful misconduct or gross negligence, including such LC Bank's wilful
failure to make timely payment under such Letter of Credit following the
presentation to it by the beneficiary thereof of a draft and accompanying
certificate(s) which strictly comply with the terms and conditions of such
Letter of Credit. In furtherance and not in limitation of the foregoing,
any LC Bank may accept sight drafts and accompanying certificates
presented under the Letter of Credit issued by such LC Bank that appear on
their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
Notwithstanding the foregoing, no Lender shall be obligated to indemnify
the Borrower for damages caused by any LC Bank's wilful misconduct or
gross negligence, and the obligation of the Borrower to reimburse the
Lenders hereunder shall be absolute and unconditional, notwithstanding the
gross negligence or wilful misconduct of any LC Bank.
ARTICLE V
PAYMENTS, COMPUTATIONS AND
YIELD PROTECTION
SECTION 5.01. Payments and Computations. (a) The Borrower shall
make each payment hereunder and under the other Loan Documents not later
than 11:00 A.M. (New York City time) on the day when due in U.S. Dollars
to the Operational Agent at its address referred to in Section 11.02 in
same day funds; any payment received after 2:00 P.M. (New York City time)
shall be deemed to have been received at the start of business on the next
succeeding Business Day, unless the Operational Agent shall have received
from, or on behalf of, the Borrower a Federal Reserve reference number
with respect to such payment before 3:00 P.M. (New York City time). The
Operational Agent will promptly thereafter cause to be distributed like
funds relating to the payment of principal, interest, fees or other
amounts payable to the Lenders, to the respective Lenders to which the
same are payable, for the account of their respective Applicable Lending
Offices, in each case to be applied in accordance with the terms of this
Agreement. If and to the extent that any distribution of any payment from
the Borrower required to be made to any Lender pursuant to the preceding
sentence shall not be made in full by the Operational Agent on the date
such payment was received by the Operational Agent, the Operational Agent
shall pay to such Lender, upon demand, interest on the unpaid amount of
such distribution, at a rate per annum equal to the Federal Funds Rate,
from the date of such payment by the Borrower to the Operational Agent to
the date of payment in full by the Operational Agent to such Lender of
such unpaid amount. Upon the Operational Agent's acceptance of a Lender
Assignment and recording of the information contained therein in the
Register pursuant to Section 11.07, from and after the effective date
specified in such Lender Assignment, the Operational Agent shall make all
payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Lender
Assignment shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) The Borrower hereby authorizes the Operational Agent, each
Lender and each LC Bank, if and to the extent payment owed to the
Operational Agent, such Lender or such LC Bank, as the case may be, is not
made when due hereunder (or, in the case of a Lender, under the Note held
by such Lender), to charge from time to time against any or all of the
Borrower's accounts with the Operational Agent, such Lender or such LC
Bank, as the case may be, any amount so due.
(c) All computations of interest based on the Alternate Base
Rate and of fees payable pursuant to Section 2.02(a) shall be made by the
Operational Agent on the basis of a year of 365 or 366 days, as the case
may be. All other computations of interest and fees hereunder (including
computations of interest based on the Eurodollar Rate and the Federal
Funds Rate) shall be made by the Operational Agent on the basis of a year
of 360 days. In each such case, such computation shall be made for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
such determination by the Operational Agent or a Lender shall be
conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under any other Loan
Document shall be stated to be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of
payment of interest and fees hereunder; provided, however, that if such
extension would cause payment of interest on or principal of Eurodollar
Rate Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day and such
reduction of time shall in such case be included in the computation of
payment of interest hereunder.
(e) Unless the Operational Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full,
the Operational Agent may assume that the Borrower has made such payment
in full to the Operational Agent on such date, and the Operational Agent
may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such
Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Operational Agent, such Lender shall repay to the
Operational Agent forthwith on demand such amount distributed to such
Lender, together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays
such amount to the Operational Agent, at the Federal Funds Rate.
(f) Any amount payable by the Borrower hereunder or under any
of the Notes that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall (to the fullest extent permitted by law)
bear interest, from the date when due until paid in full, at a rate per
annum equal at all times to the Default Rate payable on demand.
SECTION 5.02. Interest Rate Determination. (a) Each Reference
Bank agrees to furnish to the Operational Agent timely information for the
purpose of determining the Eurodollar Rate for each Interest Period. If
any one or more of the Reference Banks shall not furnish such timely
information to the Operational Agent for the purpose of determining any
such interest rate, the Operational Agent shall determine such interest
rate on the basis of timely information furnished by the remaining
Reference Banks, subject to Section 3.04(b).
(b) The Operational Agent shall give prompt notice to the
Borrower and the Lenders of the applicable interest rate determined by the
Operational Agent for purposes of Section 3.05(b)(i) or (ii), and the
Eurodollar Rate, if any, furnished by each Reference Bank for the purpose
of determining the applicable interest rate under Section 3.05(b)(ii).
SECTION 5.03. Prepayments. The Borrower shall have no right to
prepay any principal amount of any Advances other than as provided in
subsections (a) and (b), below.
(a) The Borrower may, upon at least five Business
Days' notice to the Operational Agent stating the proposed date
and aggregate principal amount of the prepayment, and if such
notice is given, the Borrower shall, prepay the outstanding
principal amounts of Advances made as part of the same Borrowing,
in whole or ratably in part, together with (i) accrued interest to
the date of such prepayment on the principal amount prepaid and
(ii) in the case of Eurodollar Rate Advances, any amount payable
to the Lenders pursuant to Section 5.04(c); provided, however,
that each partial prepayment shall be in an aggregate principal
amount not less than the product of (x) $1,000,000 and (y) the
number of Lenders existing at the time of such prepayment.
(b) On the date of any termination or optional or
mandatory reduction of the Commitments pursuant to Section 2.03,
the Borrower shall pay or prepay so much of the principal amount
outstanding under this Agreement as shall be necessary in order
that such aggregate principal amount outstanding will not exceed
the Commitments following such termination or reduction, together
with (i) accrued interest to the date of such prepayment on the
principal amount repaid and (ii) in the case of prepayments of
Eurodollar Rate Advances, any amount payable to the Lenders
pursuant to Section 5.04(c). Any prepayments required by this
subsection (b) shall be applied to outstanding Base Rate Advances
up to the full amount thereof before they are applied, first, to
outstanding Eurodollar Rate Advances and, second, as cash
collateral, pursuant to the Cash Collateral Agreement, to secure
LC Outstandings.
SECTION 5.04. Yield Protection. (a) Increased Costs. If, due
to either (i) the introduction of or any change in or in the
interpretation of any law or regulation after the date hereof, or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) issued or
made after the date hereof, there shall be reasonably incurred any
increase in (A) the cost to any Lender of agreeing to make or making,
funding or maintaining Eurodollar Rate Advances, or of participating in
the issuance, maintenance or funding of any Letter of Credit, or (B) the
cost to any LC Bank of issuing or maintaining any Letter of Credit, then
the Borrower shall from time to time, upon demand by such Lender or LC
Bank, as the case may be (with a copy of such demand to the Operational
Agent), pay to the Operational Agent for the account of such Lender or LC
Bank, as the case may be, additional amounts sufficient to compensate such
Lender or LC Bank, as the case may be, for such increased cost. A
certificate as to the amount of such increased cost and giving a
reasonable explanation thereof, submitted to the Borrower and the
Operational Agent by such Lender or such LC Bank, as the case may be,
shall constitute such demand and shall be conclusive and binding for all
purposes, absent manifest error.
(b) Eurodollar Reserves. The Borrower shall pay to the
Operational Agent for the account of each Lender, so long as such Lender
shall be required under regulations of the Board of Governors of the
Federal Reserve System to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities, additional
interest on the unpaid principal amount of each Eurodollar Rate Advance of
such Lender, from the date of such Advance until such principal amount is
paid in full, at an interest rate per annum equal at all times to the
remainder obtained by subtracting (i) the Eurodollar Rate for the Interest
Period for such Advance from (ii) the rate obtained by dividing such
Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve
Percentage of such Lender for such Interest Period, payable on each date
on which interest is payable on such Advance. Such additional interest
shall be determined by such Lender and notified to the Borrower and the
Operational Agent. A certificate as to the amount of such additional
interest, submitted to the Borrower and the Operational Agent by such
Lender, shall be conclusive and binding for all purposes, absent manifest
error.
(c) Breakage. If, due to any prepayment pursuant to Section
5.03, an acceleration of maturity of the Advances pursuant to Section
9.01, or any other reason, any Lender receives payments of principal of
any Eurodollar Rate Advance other than on the last day of the Interest
Period relating to such Advance, or if the Borrower shall Convert any
Eurodollar Rate Advances on any day other than the last day of the
Interest Period therefor, the Borrower shall, promptly after demand by
such Lender (with a copy of such demand to the Operational Agent), pay to
the Operational Agent for the account of such Lender any amounts required
to compensate such Lender for additional losses, costs, or expenses
(including anticipated lost profits) that such Lender may reasonably incur
as a result of such payment or Conversion, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund or
maintain such Advance. For purposes of this subsection (c), a certificate
setting forth the amount of such additional losses, costs, or expenses and
giving a reasonable explanation thereof, submitted to the Borrower and the
Operational Agent by such Lender, shall constitute such demand and shall
be conclusive and binding for all purposes, absent manifest error.
(d) Capital. If any Lender or LC Bank determines that
(i) compliance with any law or regulation or any guideline or request from
any central bank or other governmental authority (whether or not having
the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Lender or LC Bank, whether directly,
or indirectly as a result of commitments of any corporation controlling
such Lender or LC Bank (but without duplication), and (ii) the amount of
such capital is increased by or based upon (1) the existence of such
Lender's or LC Bank's commitment to lend or issue or participate in any
Letter of Credit hereunder, or (2) the participation in or issuance or
maintenance of any Letter of Credit or Advance and (3) other similar such
commitments, then, upon demand by such Lender or LC Bank, the Borrower
shall immediately pay to the Operational Agent for the account of such
Lender or LC Bank from time to time as specified by such Lender or LC Bank
additional amounts sufficient to compensate such Lender or LC Bank in the
light of such circumstances, to the extent that such Lender or LC Bank
reasonably determines such increase in capital to be allocable to the
transactions contemplated hereby. A certificate as to such amounts and
giving a reasonable explanation thereof (to the extent permitted by law),
submitted to the Borrower and the Operational Agent by such Lender or LC
Bank, shall be conclusive and binding for all purposes, absent manifest
error.
(e) Notices. Each Lender hereby agrees to use its best
efforts to notify the Borrower of the occurrence of any event referred to
in subsection (a), (b), (c) or (d) of this Section 5.04 promptly after
becoming aware of the occurrence thereof. The failure of any Lender to
provide such notice or to make demand for payment under said subsection
shall not constitute a waiver of such Lender's rights hereunder; provided
that, notwithstanding any provision to the contrary contained in this
Section 5.04, the Borrower shall not be required to reimburse any Lender
for any amounts or costs incurred under (i) subsection (a), (c) or (d),
above, more than 90 days prior to the date that such Lender notifies the
Borrower in writing thereof, and (ii) subsection (b), above, more than 180
days prior to the date that such Lender notifies the Borrower in writing
thereof, in each case unless, and to the extent that, any such amounts or
costs so incurred shall relate to the retroactive application of any event
notified to the Borrower which entitles such Lender to such compensation.
If any Lender shall subsequently determine that any amount demanded and
collected under this Section 5.04 was done so in error, such Lender will
promptly return such amount to the Borrower.
(f) Survival of Obligations. Subject to subsection (e),
above, the Borrower's obligations under this Section 5.04 shall survive
the repayment of all other amounts owing to the Lenders, the Agents and
the LC Banks under the Loan Documents and the termination of the
Commitments. If and to the extent that the obligations of the Borrower
under this Section 5.04 are unenforceable for any reason, the Borrower
agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law.
SECTION 5.05. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) on account of the Advances owing to
it (other than pursuant to Section 5.04) in excess of its ratable share of
payments obtained by all the Lenders on account of the Advances of such
Lenders, such Lender shall forthwith purchase from the other Lenders such
participation in the Advances owing to them as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment
is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to
the proportion of (i) the amount of such Lender's required repayment to
(ii) the total amount so recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 5.05 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. Notwithstanding the
foregoing, if any Lender shall obtain any such excess payment
involuntarily, such Lender may, in lieu of purchasing participations from
the other Lenders in accordance with this Section 5.05, on the date of
receipt of such excess payment, return such excess payment to the
Operational Agent for distribution in accordance with Section 5.01(a).
SECTION 5.06. Taxes. (a) All payments by the Borrower hereunder
and under the other Loan Documents shall be made in accordance with
Section 5.01, free and clear of and without deduction for all present or
future taxes, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each
Lender, each LC Bank and each Agent, taxes imposed on its overall net
income, and franchise taxes imposed on it by the jurisdiction under the
laws of which such Lender, LC Bank or Agent (as the case may be) is
organized or any political subdivision thereof and, in the case of each
Lender, taxes imposed on its overall net income, and franchise taxes
imposed on it by the jurisdiction of such Lender's Applicable Lending
Office or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder or
under any other Loan Document to any Lender, LC Bank or Agent, (i) the sum
payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 5.06) such Lender, LC Bank or Agent (as the
case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or
under any other Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender, LC Bank and Agent
for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes and any Other Taxes imposed by any jurisdiction on
amounts payable under this Section 5.06) paid by such Lender, LC Bank or
Agent (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether
or not such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date such Lender, LC
Bank or Agent (as the case may be) makes written demand therefor;
provided, that such Lender, LC Bank or Agent (as the case may be) shall
not be entitled to demand payment under this Section 5.06 for an amount if
such demand is not made within one year following the date upon which such
Lender, LC Bank or Agent (as the case may be) shall have been required to
pay such amount.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Documentation Agent, at its address referred
to in Section 11.02, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Each Bank represents and warrants that either (i) it is
organized under the laws of a jurisdiction within the United States or
(ii) it has delivered to the Borrower or the Operational Agent duly
completed copies of such form or forms prescribed by the Internal Revenue
Service indicating that such Bank is entitled to receive payments without
deduction or withholding of any United States federal income taxes, as
permitted by the Internal Revenue Code of 1986, as amended. Each other
Lender agrees that, on or prior to the date upon which it shall become a
party hereto, and upon the reasonable request from time to time of the
Borrower or the Operational Agent, such Lender will deliver to the
Borrower and the Operational Agent either (A) a statement that it is
organized under the laws of a jurisdiction within the United States or
(B) duly completed copies of such form or forms as may from time to time
be prescribed by the United States Internal Revenue Service, indicating
that such Lender is entitled to receive payments without deduction or
withholding of any United States federal income taxes, as permitted by the
Internal Revenue Code of 1986, as amended. Each Bank that has delivered,
and each other Lender that hereafter delivers, to the Borrower and the
Operational Agent the form or forms referred to in the two preceding
sentences further undertakes to deliver to the Borrower and the
Operational Agent further copies of such form or forms, or successor
applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or
inaccurate in any respect. Each Lender represents and warrants that each
such form supplied by it to the Operational Agent and the Borrower
pursuant to this subsection (e), and not superseded by another form
supplied by it, is or will be, as the case may be, complete and accurate.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions Precedent to Commitment Closing. The
Commitments of the Lenders to make, or to participate in, as the case may
be, Extensions of Credit under Article III hereof shall not become
effective until the following conditions precedent shall have been
fulfilled:
(a) The Documentation Agent shall have received the following,
each dated the date of the Commitment Closing (unless otherwise specified
below), in form and substance satisfactory to the Lenders and in
sufficient copies for each Lender:
(i) Certified copies of the resolutions of the Board
of Directors, or of the Executive Committee of the Board of
Directors, of the Borrower authorizing the Borrower to enter into
this Agreement, the Notes and the other Loan Documents to which it
is, or is to be, a party, and of all documents evidencing other
necessary corporate action and governmental approvals, if any,
with respect to this Agreement, the Notes and such Loan Documents.
(ii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names, true signatures
and incumbency of (A) the officers of the Borrower authorized to
sign this Agreement, the Notes and the other Loan Documents to
which it is, or is to be, a party, and the other documents to be
delivered hereunder and thereunder and (B) the representatives of
the Borrower authorized to sign notices to be provided under this
Agreement and the other Loan Documents to which it is, or is to
be, a party, which representatives shall be acceptable to the Co-
Agents.
(iii) Copies of the Certificate of Incorporation (or
comparable charter document) and by-laws of the Borrower, together
with all amendments thereto, certified by the Secretary or an
Assistant Secretary of the Borrower.
(iv) An irrevocable notice from the Borrower
requesting termination of the "Commitments" under the Existing
Agreement effective automatically on such date upon the
satisfaction (or waiver) of the other conditions precedent set
forth in this Section 6.01.
(v) Such other approvals, opinions and documents as
any Lender, through the Documentation Agent, may reasonably
request as to the legality, validity, binding effect or
enforceability of this Agreement and the other Loan Documents to
which the Borrower is, or is to be, a party, or the financial
condition, results of operations, properties or business, of the
Borrower and its Consolidated Subsidiaries.
(b) The following statements shall be true and the
Documentation Agent shall have received a certificate of a duly authorized
officer of the Borrower, dated the date of the Commitment Closing and in
sufficient copies for each Lender, stating that:
(i) the representations and warranties set forth in
Section 7.01 of this Agreement are true and correct on and as of
the date of the Commitment Closing as though made on and as of
such date, and
(ii) no event has occurred and is continuing that
constitutes an Unmatured Default or an Event of Default.
(c) The Borrower shall have paid all fees under or referenced
in Section 2.02 hereof, to the extent then due and payable.
(d) The Commitment Closing shall have occurred on or prior to
July 29, 1994.
SECTION 6.02. Conditions Precedent to Financial Closing. The
obligation of each Lender to make its initial Extension of Credit is
subject to the fulfillment of the conditions precedent that the
Documentation Agent shall have received, on or before the day of the
initial Extension of Credit, the following, each dated such day (except
where specified otherwise below), in form and substance satisfactory to
each Lender (except where otherwise specified below) and (except for the
Notes) in sufficient copies for each Lender:
(i) A Note, payable to the order of each Lender then
party hereto, duly executed by the Borrower.
(ii) The Security Documents duly executed by the
respective parties named therein as guarantors or pledgors,
together with evidence of the completion of all other actions as
may be necessary or, in the opinion of the Co-Agents and counsel
for the Co-Agents, desirable to perfect the security interests and
liens created by the Security Documents.
(iii) The Fee Letter, duly executed by the Borrower.
(iv) Certified copies of (A) the resolutions of the
Board of Directors, or of the Executive Committee of the Board of
Directors, of Enterprises authorizing Enterprises to enter into
the Loan Documents to which it is a party and (B) all other
corporate or similar action required to authorize the execution,
delivery and performance thereof on behalf of Enterprises.
(v) A certificate of the Secretary or Assistant
Secretary of Enterprises certifying the names and true signatures
of (A) the officers of Enterprises authorized to sign the Loan
Documents to which it is a party and all other documents to be
delivered in connection herewith or therewith on behalf of
Enterprises and (B) the representatives of Enterprises authorized
to sign notices to be provided under the Loan Documents to which
it is a party, which representatives shall be acceptable to the
Co-Agents.
(vi) A certified copy of Schedule II hereto, in form
and substance reasonably satisfactory to the Co-Agents.
(vii) Favorable opinions of:
(A) Sidley & Austin, counsel for the Loan
Parties, in substantially the form of Exhibit 6.02C and as
to such other matters as the Majority Lenders, through the
Documentation Agent, may reasonably request;
(B) King & Spalding, counsel to the Agents,
in substantially the form of Exhibit 6.02D and as to such
other matters as the Majority Lenders, through the
Documentation Agent, may reasonably request; and
(C) Loomis, Ewert, Ederer, Parsley, Davis &
Gotting, P.C., special Michigan counsel for the Loan
Parties, in substantially the form of Exhibit 6.02E and as
to such other matters as the Majority Lenders, through the
Documentation Agent, may reasonably request.
SECTION 6.03. Conditions Precedent to Each Extension of Credit.
The obligation of each Lender or LC Bank, as the case may be, to make an
Extension of Credit (including the initial Extension of Credit) shall be
subject to the further conditions precedent that, on the date of such
Extension of Credit and after giving effect thereto:
(a) the following statements shall be true (and each
of the giving of the applicable notice or request with respect
thereto and the making of such Extension of Credit without prior
correction by the Borrower shall (to the extent that such
correction has been previously consented to by the Lenders and the
LC Banks) constitute a representation and warranty by the Borrower
that, on the date of such Extension of Credit, such statements are
true):
(i) the representations and warranties
contained in Section 7.01 of this Agreement (other than
those contained in subsections (e)(ii) and (f) thereof),
in Section 7 of the Cash Collateral Agreement and in
Section 6 of the Guaranty (other than those contained in
subsections (f)(ii) and (g) thereof) are correct on and as
of the date of such Extension of Credit, before and after
giving effect to such Extension of Credit and to the
application of the proceeds thereof, as though made on and
as of such date; and
(ii) no Event of Default has occurred and is
continuing, or would result from such Extension of Credit
or the application of the proceeds thereof; and
(b) the Documentation Agent shall have received such
other approvals, opinions and documents as any Lender or LC Bank,
through the Documentation Agent, may reasonably request as to the
legality, validity, binding effect or enforceability of the Loan
Documents or the financial condition, results of operations,
properties or business of the Borrower and its Consolidated
Subsidiaries.
SECTION 6.04. Conditions Precedent to Certain Extensions of
Credit. The obligation of each Lender or LC Bank, as the case may be, to
make an Extension of Credit (including the initial Extension of Credit)
that would (after giving effect to all Extensions of Credit on such date
and the application of proceeds thereof) increase the principal amount
outstanding hereunder, or to make an Extension of Credit of the type
described in clause (ii) or (iii) of the definition thereof (except any
amendment of a Letter of Credit the sole effects of which are to extend
the stated termination date thereof and/or to make nonmaterial
modifications thereto), shall be subject to the further conditions
precedent that, on the date of such Extension of Credit and after giving
effect thereto:
(a) the following statements shall be true (and each
of the giving of the applicable notice or request with respect
thereto and the making of such Extension of Credit without prior
correction by the Borrower shall (to the extent that such
correction has been previously consented to by the Lenders and the
LC Banks) constitute a representation and warranty by the Borrower
that, on the date of such Extension of Credit, such statements are
true):
(i) the representations and warranties
contained in subsections (e)(ii) and (f) of Section 7.01
of this Agreement and in subsections (f)(ii) and (g) of
the Guaranty are correct on and as of the date of such
Extension of Credit, before and after giving effect to
such Extension of Credit and to the application of the
proceeds thereof, as though made on and as of such date;
and
(ii) no Unmatured Default has occurred and is
continuing, or would result from such Extension of Credit
or the application of the proceeds thereof; and
(b) the Documentation Agent shall have received such
other approvals, opinions and documents as any Lender or LC Bank,
through the Documentation Agent, may reasonably request.
SECTION 6.05. Reliance on Certificates. The Lenders, the LC
Banks and each Agent shall be entitled to rely conclusively upon the
certificates delivered from time to time by officers of the Borrower and
the other Loan Parties as to the names, incumbency, authority and
signatures of the respective persons named therein until such time as the
Documentation Agent may receive a replacement certificate, in form
acceptable to the Documentation Agent, from an officer of such Person
identified to the Documentation Agent as having authority to deliver such
certificate, setting forth the names and true signatures of the officers
and other representatives of such Person thereafter authorized to act on
behalf of such Person.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower, each of its Restricted Subsidiaries and
Consumers is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and is duly
qualified to do business in, and is in good standing in, all other
jurisdictions where the nature of its business or the nature of property
owned or used by it makes such qualification necessary.
(b) The execution, delivery and performance by the Borrower of
each Loan Document to which it is or will be a party (i) are within the
Borrower's corporate powers, (ii) have been duly authorized by all
necessary corporate action and (iii) do not and will not (A) require any
consent or approval of the stockholders of the Borrower, (B) violate any
provision of the charter or by-laws of the Borrower or of law, (C) violate
any legal restriction binding on or affecting the Borrower, (D) result in
a breach of, or constitute a default under, any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or
affected, or (E) result in or require the creation of any Lien (other than
pursuant to the Loan Documents) upon or with respect to any of its
properties.
(c) No Governmental Approval is required.
(d) This Agreement is, and each other Loan Document to which
the Borrower will be a party when executed and delivered hereunder will
be, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms; subject to
the qualification, however, that the enforcement of the rights and
remedies herein and therein is subject to bankruptcy and other similar
laws of general application affecting rights and remedies of creditors and
the application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(e) (i) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at December 31, 1993, and the related
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Consolidated Subsidiaries for the fiscal year then ended,
together with the report thereon of Arthur Andersen & Co. included in the
Borrower's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and the unaudited consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as at March 31, 1994 and the related
unaudited consolidated statements of income, retained earnings and cash
flows for the three-month period then ended, copies of each of which have
been furnished to each Lender, fairly present (subject, in the case of
such balance sheets and statements of income for the three months ended
March 31, 1994 to year-end adjustments) the financial condition of the
Borrower and its Consolidated Subsidiaries as at such dates and the
results of operations of the Borrower and its Consolidated Subsidiaries
for the periods ended on such dates, all in accordance with generally
accepted accounting principles consistently applied. (ii) Since December
31, 1993, except as disclosed in the Borrower's Quarterly Report on Form
10-Q for the period ended March 31, 1994, there has been no material
adverse change in the business, financial condition or results of
operations of the Borrower and its Subsidiaries, considered as a whole, or
in the Borrower's ability to perform its obligations under this Agreement
or any other Loan Document to which it is or will be a party. (iii) The
Borrower has no material liabilities or obligations except as reflected in
the foregoing financial statements and in Schedule II hereto, as evidenced
by the Loan Documents and as may be incurred, in accordance with the terms
of this Agreement, in the ordinary course of business (as presently
conducted) following the date of this Agreement.
(f) Except as disclosed in the Borrower's Quarterly Report on
Form 10-Q for the period ended March 31, 1994, there are no pending or
threatened actions, suits or proceedings against or, to the knowledge of
the Borrower, affecting the Borrower or any of its Subsidiaries or the
properties of the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, that would, if adversely determined,
reasonably be expected to materially adversely affect the financial
condition, properties, business or operations of the Borrower and it
Subsidiaries, considered as a whole, or affect the legality, validity or
enforceability of this Agreement or any other Loan Document.
(g) All insurance required by Section 8.01(b) is in full force
and effect.
(h) No Plan Termination Event has occurred nor is reasonably
expected to occur with respect to any Plan of the Borrower or any of its
ERISA Affiliates which would result in a material liability to the
Borrower, except as disclosed and consented to by the Majority Lenders in
writing from time to time. Since the date of the most recent Schedule B
(Actuarial Information) to the annual report of the Borrower (Form 5500
Series), if any, there has been no material adverse change in the funding
status of the Plans referred therein and no "prohibited transaction" has
occurred with respect thereto which is reasonably expected to result in a
material liability to the Borrower. Neither the Borrower nor any of its
ERISA Affiliates has incurred nor reasonably expects to incur any material
withdrawal liability under ERISA to any Multiemployer Plan, except as
disclosed and consented to by the Majority Lenders in writing from time to
time.
(i) No fire, explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (except for any such circumstance, if
any, which is covered by insurance which coverage has been confirmed and
not disputed by the relevant insurer) affecting the properties, business
or operations of the Borrower, Consumers or any Restricted Subsidiary has
occurred that could reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations of
(i) the Borrower and its Subsidiaries, considered as a whole, or
(ii) Consumers and its Subsidiaries, considered as a whole.
(j) The Borrower and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes
shown thereon to be due, including interest and penalties, or, to the
extent the Borrower or any of its Subsidiaries is contesting in good faith
an assertion of liability based on such returns, has provided adequate
reserves for payment thereof in accordance with generally accepted
accounting principles.
(k) No extraordinary judicial, regulatory or other legal
constraints exist which limit or restrict Consumers' ability to declare or
pay cash dividends with respect to its capital stock.
(l) The Borrower owns 100% of the outstanding shares of common
stock of Enterprises.
(m) The Borrower owns not less than 80% of the outstanding
shares of common stock of Consumers.
(n) The Guarantor has a Net Worth of not less than $10
million.
(o) As of the date of the Financial Closing, Nomeco is a
Subsidiary of Enterprises and Enterprises owns 100% of the outstanding
shares of common stock thereof.
(p) The CMS Energy Corporation 1994-1997 Financial Forecast,
dated March 30, 1994 (the "Projections"), previously delivered by the
Borrower to the Co-Agents, are based upon assumptions that the Borrower
believed were reasonable at the time the Projections were delivered, and
all other financial information previously delivered by the Borrower to
the Co-Agents are true and correct in all material respects as at the
dates and for the periods indicated therein.
(q) The executed and delivered Cash Collateral Agreement
creates a valid, perfected, first priority Lien in the Collateral (other
than the "Account", as such term is defined therein) described therein,
subject only to Liens permitted by Section 8.02(a), and all filings and
other actions necessary to perfect and protect such security interests
have been taken.
(r) The Borrower is not engaged in the business of extending
credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System), and no proceeds of any Advance or any drawing under any
Letter of Credit will be used to buy or carry any margin stock or to
extend credit to others for the purpose of buying or carrying any margin
stock.
(s) The Borrower is not an investment company (within the
meaning of the Investment Company Act of 1940, as amended).
(t) No proceeds of any Extension of Credit or any drawing
under any Letter of Credit will be used to acquire any equity security of
a class that is registered pursuant to Section 12 of the Exchange Act.
(u) Following application of the proceeds of each Extension of
Credit, not more than 25 percent of the value of the assets of the
Borrower and its Subsidiaries on a consolidated basis will be margin stock
(within the meaning of Regulation U issued by the Board of Governors of
the Federal Reserve System).
ARTICLE VIII
COVENANTS OF THE BORROWER
SECTION 8.01. Affirmative Covenants. So long as any Note shall
remain unpaid, any Letter of Credit shall remain outstanding or any Lender
shall have any Commitment:
(a) Payment of Taxes, Etc. The Borrower shall pay and
discharge, and each of its Subsidiaries shall pay and discharge, before
the same shall become delinquent, all taxes, assessments and governmental
charges, royalties or levies imposed upon it or upon its property except,
in the case of taxes, to the extent the Borrower or any Subsidiary, as the
case may be, is contesting the same in good faith and by appropriate
proceedings and has set aside adequate reserves for the payment thereof in
accordance with generally accepted accounting principles.
(b) Maintenance of Insurance. The Borrower shall maintain,
and each of its Restricted Subsidiaries and Consumers shall maintain,
insurance covering the Borrower, each of its Restricted Subsidiaries,
Consumers and their respective properties in effect at all times in such
amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general
geographical area in which the Borrower, its Restricted Subsidiaries and
Consumers operates, either with reputable insurance companies or, in whole
or in part, by establishing reserves of one or more insurance funds,
either alone or with other corporations or associations.
(c) Preservation of Existence, Etc. The Borrower shall
preserve and maintain, and each of its Restricted Subsidiaries and
Consumers shall preserve and maintain, its corporate existence, material
rights (statutory and otherwise) and franchises, and take such other
action as may be necessary or advisable to preserve and maintain its right
to conduct its business in the states where it shall be conducting its
business.
(d) Compliance with Laws, Etc. The Borrower shall comply, and
each of its Restricted Subsidiaries and Consumers shall comply, in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including without
limitation any such laws, rules, regulations and orders relating to
zoning, environmental protection, use and disposal of Hazardous
Substances, land use, construction and building restrictions, and employee
safety and health matters relating to business operations.
(e) Inspection Rights. Subject to the requirements of laws or
regulations applicable to the Borrower or its Subsidiaries, as the case
may be, and in effect at the time, at any time and from time to time upon
reasonable notice, the Borrower shall permit (i) the Co-Agents and their
respective agents and representatives to examine and make copies of and
abstracts from the records and books of account of, and the properties of,
the Borrower or any of its Subsidiaries and (ii) the Co-Agents, each of
the Lenders, and their respective agents and representatives to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries
with the Borrower and its Subsidiaries and their respective officers,
directors and accountants, in each case, to the extent that any out-of-
pocket expenses are incurred in connection therewith at such time as no
Event of Default or Unmatured Default shall have occurred and be
continuing, at the expense of the Co-Agents, each of the Lenders, or their
respective agents and representatives, as the case may be.
(f) Keeping of Books. The Borrower shall keep, and each of
its Subsidiaries shall keep, proper records and books of account, in which
full and correct entries shall be made of all financial transactions of
the Borrower and its Subsidiaries and the assets and business of the
Borrower and its Subsidiaries, in accordance with generally accepted
accounting principles consistently applied.
(g) Maintenance of Properties, Etc. The Borrower shall
maintain, and each of its Restricted Subsidiaries shall maintain, in
substantial conformity with all laws and material contractual obligations,
good and marketable title to all of its properties which are used or
useful in the conduct of its business; provided, however, that the
foregoing shall not restrict the sale of any asset of the Borrower or any
Restricted Subsidiary to the extent not prohibited by Section 8.02(i). In
addition, the Borrower shall preserve, maintain, develop, and operate, and
each of its Subsidiaries shall preserve, maintain, develop and operate, in
substantial conformity with all laws and material contractual obligations,
all of its material properties which are used or useful in the conduct of
its business in good working order and condition, ordinary wear and tear
excepted.
(h) Use of Proceeds. The Borrower shall apply all proceeds of
the initial Extension of Credit to the repayment in full and termination
of all outstanding obligations under the Existing Agreement, whether for
principal, interest, fees, or otherwise (and, in furtherance thereof, the
Borrower hereby expressly and irrevocably authorizes the Operational Agent
to so apply such proceeds to such repayment), and use all subsequent
Extensions of Credit for general corporate purposes (subject to the terms
and conditions of this Agreement).
(i) Consolidated Leverage Ratio. The Borrower shall maintain
a ratio of Consolidated Debt to Consolidated Capital of 0.74 to 1 or less.
(j) Cash Dividend Coverage Ratio. The Borrower shall
maintain, as of the last day of each fiscal quarter of the Borrower (in
each case, the "Measurement Quarter"), a ratio of (i) Cash Dividend Income
for the four-fiscal-quarter period ending on the last day of the fiscal
quarter immediately preceding such Measurement Quarter to (ii) interest
expense (including, without limitation, all commitment fees and letter of
credit commissions payable with respect to Debt of the Borrower) accrued
by the Borrower during such period, of not less than 2.0 to 1; provided,
that the Borrower shall be deemed not to be in breach of the foregoing
covenant if, during the applicable Measurement Quarter, it has
(A) permanently reduced the Commitments and the principal amount
outstanding hereunder pursuant to the terms of this Agreement such that
the amount determined pursuant to clause (ii), above, when recalculated on
a pro forma basis assuming that the amount of such reduced Commitments and
principal amount outstanding was in effect at all times during such four-
fiscal-quarter period, would result in the Borrower being in compliance
with such ratio, and/or (B) increased Cash Dividend Income during such
Measurement Quarter such that the ratio of (x) Cash Dividend Income for
the four-fiscal-quarter period ending on the last day of such Measurement
Quarter to (y) the amount determined pursuant to clause (ii), above (as
recalculated pursuant to clause (A), above), equals or exceeds 2.0 to 1;
and provided further, that until the Borrower so reduces such Commitments
and principal amount outstanding and/or increases Cash Dividend Income
during such Measurement Quarter, the Borrower may not request any
additional Extensions of Credit (other than Conversions).
(k) Refinancing of Senior Note Debt. In connection with any
refinancings of the Senior Note Debt, the Borrower shall cause the
maturity thereof to be no sooner than the earlier to occur of (i) the
third anniversary of the date of any such refinancing and (ii) the then-
scheduled maturity date of the Senior Notes being refinanced.
(l) Further Assurances. The Borrower shall promptly execute
and deliver all further instruments and documents, and take all further
action, that may be necessary or that any Lender through the Documentation
Agent may reasonably request in order to give effect to the transactions
contemplated by this Agreement and the other Loan Documents. In addition,
the Borrower will use all reasonable efforts to duly obtain or make
Governmental Approvals required from time to time on or prior to such date
as the same may become legally required.
SECTION 8.02. Negative Covenants. So long as any Note shall
remain unpaid, any Letter of Credit shall remain outstanding or any Lender
shall have any Commitment, the Borrower shall not, without the written
consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Restricted Subsidiaries to create, incur, assume or
suffer to exist, any lien, security interest, or other charge or
encumbrance (including the lien or retained security title of a
conditional vendor) of any kind, or any other type of arrangement intended
or having the effect of conferring upon a creditor a preferential interest
upon or with respect to any of its properties of any character (including,
without limitation, capital stock of Consumers, Enterprises, Nomeco and
any of the Borrower's other directly-owned Subsidiaries and accounts) (any
of the foregoing being referred to herein as a "Lien"), whether now owned
or hereafter acquired, or sign or file, or permit any of its Restricted
Subsidiaries to sign or file, under the Uniform Commercial Code of any
jurisdiction a financing statement which names the Borrower or any
Restricted Subsidiary as debtor, sign, or permit any of its Restricted
Subsidiaries to sign, any security agreement authorizing any secured party
thereunder to file such financing statement, or assign, or permit any of
its Restricted Subsidiaries to assign, accounts, excluding, however, from
the operation of the foregoing restrictions the Liens created under the
Loan Documents and the following:
(i) Liens for taxes, assessments or governmental
charges or levies to the extent not past due;
(ii) cash pledges or deposits to secure
(A) obligations under workmen's compensation laws or similar
legislation, (B) public or statutory obligations of the Borrower
or any of its Restricted Subsidiaries, or (C) Support Obligations
of the Borrower permitted by Section 8.02(b)(ii), provided that
the aggregate amount of pledges or deposits securing such Support
Obligations shall not exceed $20 million at any one time
outstanding;
(iii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other
similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which have been fully bonded
and are being contested in good faith; and
(iv) purchase money Liens or purchase money security
interests upon or in property acquired or held by the Borrower or
any of its Restricted Subsidiaries in the ordinary course of
business to secure the purchase price of such property or to
secure indebtedness incurred solely for the purpose of financing
the acquisition of any such property to be subject to such Liens
or security interests, or Liens or security interests existing on
any such property at the time of acquisition, or extensions,
renewals or replacements of any of the foregoing for the same or a
lesser amount, provided that no such Lien or security interest
shall extend to or cover any property other than the property
being acquired and no such extension, renewal or replacement shall
extend to or cover property not theretofore subject to the Lien or
security interest being extended, renewed or replaced, and
provided, further, that the aggregate principal amount of the Debt
at any one time outstanding secured by Liens permitted by this
clause (iv) shall not exceed $10,000,000.
(b) Debt. Create, incur, assume or suffer to exist, or permit
any of its Restricted Subsidiaries to create, incur, assume or suffer to
exist, any Debt other than:
(i) Guaranty Obligations (A) arising by reason of the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of the Borrower's or
such Restricted Subsidiary's business, and (B) in the form of
indemnities in respect of unfiled mechanics' liens and Liens
permitted under Section 8.02(a)(iii);
(ii) unsecured Debt of the Borrower not to exceed in
the aggregate, at any one time outstanding, an amount equal to the
greater of (A) $850 million and (B) 4.5 times the Cash Dividend
Income for the immediately preceding four-calendar-quarter period;
provided, however, that in the event that more than 20% (in book
value) of the assets of Nomeco are sold, or Enterprises owns less
than 80% of the capital stock of Nomeco (as the result of a sale,
merger, dilution following the issuance of additional capital
stock by Nomeco, or otherwise), (1) the amount referred to in
clause (A), above, shall be reduced by $70 million and (2) an
amount (the "Nomeco Dividend Reduction Amount") equal to the
product of (w) the relative percentage of capital stock or assets
sold or transferred or of dilution of Enterprise's ownership
interest in the capital stock of Nomeco, as the case may be, and
(x) the amount of dividends received by Enterprises from Nomeco
(but only to the extent of the amount of dividends received by the
Borrower from Enterprises) during the four-calendar-quarter period
immediately preceding the date of such sale, merger, or dilution,
shall be subtracted from Cash Dividend Income for purposes of the
calculation contained in clause (B), above (provided that, for
purposes of the calculation contained in clause (B), above, on any
date of determination following such four-calendar-quarter period,
the Nomeco Dividend Reduction Amount shall be deemed to have been
allocated among, and subtracted from Cash Dividend Income in each
of, such four calendar quarters on a pro rata basis based on the
amount of dividends received by Enterprises from Nomeco (but only
to the extent of the amount of dividends received by the Borrower
from Enterprises) during each of such quarters), and in each case
the recalculated amount of unsecured Debt of the Borrower
permitted pursuant to this subsection (ii) (after taking into
account such reduction and subtraction) shall be effective on the
date of such sale, merger, or dilution, as the case may be; and
provided further, however, that in the event that the Borrower
owns less than 100% of the common stock of Consumers (as the
result of a sale, merger, dilution following the issuance of
additional common stock by Consumers, or otherwise), (I) the
amount referred to in clause (A), above, shall be reduced by a
fraction, the numerator of which shall be an amount equal to the
product of (y) the relative percentage of common stock or assets
sold or transferred or of dilution of the Borrower's ownership
interest in the common stock of Consumers, as the case may be, and
(z) the amount of dividends (the "Consumers Dividends") received
by the Borrower directly or indirectly from Consumers during the
four-calendar-quarter period immediately preceding the date of
such sale, merger or dilution (such numerator amount being
referred to herein as the "Consumers Dividend Portion"), and the
denominator of which shall be Cash Dividend Income for such period
and (II) the Consumers Dividend Portion shall be subtracted from
Cash Dividend Income for purposes of the calculation contained in
clause (B), above (provided that, for purposes of the calculation
contained in clause (B), above, on any date of determination
following such four-calendar-quarter period, the Consumers
Dividend Portion shall be deemed to have been allocated among, and
subtracted from Cash Dividend Income in each of, such four
calendar quarters on a pro rata basis based on the amount of
Consumers Dividends received by the Borrower during each of such
quarters), and in each case the recalculated amount of unsecured
Debt of the Borrower permitted pursuant to this subsection (ii)
(after taking into account such reduction and subtraction) shall
be effective on the date of such sale, merger, or dilution, as the
case may be;
(iii) unsecured subordinated Debt of the Borrower
purchased with the proceeds from the sale of any Convertible MIPS
(referred to herein as the "Subordinated Debentures") in an
aggregate principal amount not to exceed 50% of the aggregate
liquidation preference value of such Convertible MIPS; provided,
however, that in connection with any issuances of Convertible
MIPS, (1) the liquidation preference value of the Convertible MIPS
in respect of all such issuances shall not exceed $150,000,000 in
the aggregate, (2) the terms and conditions of subordination with
respect to the Subordinated Debentures shall be in form and
substance satisfactory to the Majority Lenders, (3) the Borrower
shall have the right at any time and from time to time during the
term of the Subordinated Debentures to defer interest payments
with respect thereto for up to a 60-month period (the "Deferral
Period"), (4) at all times during the term of the Subordinated
Debentures, the last day of the then-remaining Deferral Period
(after giving effect to all monthly periods in which the Borrower
failed to pay interest on the Subordinated Debentures) shall occur
at least 365 days after the then-scheduled Termination Date, and
(5) the Borrower shall provide to the Lenders such approvals,
legal opinions (including, without limitation, opinions with
respect to substantive consolidation and equitable subordination)
and documents as any Lender, through the Documentation Agent, may
reasonably request; and
(iv) Debt set forth in Schedule II hereto.
(c) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of its Restricted Subsidiaries to create, incur,
assume or suffer to exist, any obligations as lessee for the rental or
hire of real or personal property of any kind under leases or agreements
to lease (other than leases which constitute Debt) having an original term
of one year or more which would cause the aggregate direct or contingent
liabilities of the Borrower and its Restricted Subsidiaries in respect of
all such obligations payable in any period of 12 consecutive calendar
months to exceed $10,000,000.
(d) Investments in Other Persons. Upon the occurrence and
during the continuance of an Event of Default or an Unmatured Default
(other than an Unmatured Default that occurs and is continuing prior to
the last day of any Measurement Quarter resulting from the failure of the
Borrower to comply with the ratio set forth in Section 8.01(j)), make, or
permit any of its Restricted Subsidiaries to make, any loan or advance to
any Person or purchase or otherwise acquire any capital stock, obligations
or other securities of, make any capital contribution to, or otherwise
invest in, any Person, other than Permitted Investments.
(e) Restricted Payments. Declare or pay, or permit any of its
Restricted Subsidiaries to declare or pay, directly or indirectly, any
dividend, payment or other distribution of assets, properties, cash,
rights, obligations or securities on account of any share of any class of
capital stock of the Borrower or any of its Restricted Subsidiaries (other
than (1) stock splits and dividends payable solely in nonconvertible
equity securities of the Borrower and (2) distributions made to the
Borrower or a Restricted Subsidiary), or purchase, redeem, retire, or
otherwise acquire for value, or permit any of its Restricted Subsidiaries
to purchase, redeem, retire, or otherwise acquire for value, any shares of
any class of capital stock of the Borrower or any of its Restricted
Subsidiaries or any warrants, rights, or options to acquire any such
shares, now or hereafter outstanding, or make, or permit any of its
Restricted Subsidiaries to make, any distribution of assets to any of its
shareholders (other than distributions to the Borrower or a Restricted
Subsidiary) (any such dividend, payment, distribution, purchase,
redemption, retirement or acquisition being hereinafter referred to as a
"Restricted Payment"), unless (i) no Unmatured Default or Event of Default
has occurred and is continuing or would occur as a result of such
Restricted Payment, and (ii) after giving effect thereto, the aggregate
amount of all such Restricted Payments made since September 30, 1993 shall
not have exceeded the sum of (A) $120,000,000, (B) 100% of Consolidated
Net Income (as defined in the Indenture in effect on the date hereof)
accrued during the period (treated as one accounting period) from
September 30, 1993 to the end of the most recent fiscal quarter of the
Borrower ending at least 45 days prior to the date of such Restricted
Payment (or, in case such amount shall be a deficit, minus 100% of such
deficit), and (C) the aggregate Net Proceeds (as defined in the Indenture
in effect on the date hereof) received by the Borrower from any issuance
or sale of, or contribution with respect to, its capital stock subsequent
to September 30, 1993; provided, however, that the foregoing shall not
prohibit (1) any purchase or redemption of capital stock of the Borrower
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, capital stock of the Borrower (other than Redeemable
Stock or Exchangeable Stock (as such terms are defined in the Indenture in
effect on the date hereof)), provided that such purchase or redemption
shall be excluded from the calculation of the amount of Restricted
Payments permitted by this subsection (e); (2) dividends or other
distributions paid in respect of any class of the Borrower's capital stock
issued in respect of the acquisition of any business or assets by the
Borrower 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; (3) dividends paid within 60
days after the date of declaration thereof if at such date of declaration
such dividend would have complied with this subsection (e), provided that
at the time of payment of such dividend, no Unmatured Default or Event of
Default shall have occurred and be continuing (or result therefrom), and
provided further that such dividends shall be included (without
duplication) in the calculation of the amount of Restricted Payments
permitted by this subsection (e); or (4) payments made by the Borrower or
any Restricted Subsidiary pursuant to the Tax Sharing Agreement. For
purposes of this subsection (e), the amount of any Restricted Payment not
in the form of cash shall be the fair market value of such Restricted
Payment as determined in good faith by the Board of Directors of the
Borrower, provided that if the value of the non-cash portion of such
Restricted Payment as determined by the Borrower's Board of Directors is
in excess of $25 million, such value shall be based on an opinion from a
nationally-recognized firm acceptable to the Co-Agents experienced in the
appraisal of similar types of property or transactions.
(f) Compliance with ERISA. (i) Permit to exist any
"accumulated funding deficiency" (as defined in Section 412(a) of the
Internal Revenue Code of 1986), (ii) terminate, or permit any ERISA
Affiliate to terminate, any Plan so as to result in any material (in the
opinion of the Majority Lenders) liability of the Borrower, any Restricted
Subsidiary or Consumers to the PBGC, or (iii) permit to exist any
occurrence of any Reportable Event (as defined in Title IV of ERISA), or
any other event or condition, which presents a material (in the opinion of
the Majority Lenders) risk of such a termination by the PBGC of any Plan
and such a material liability to the Borrower, any Restricted Subsidiary
or Consumers.
(g) Transactions with Affiliates. Enter into, or permit any
of its Subsidiaries to enter into, any transaction with any of its
Affiliates unless such transaction is on terms no less favorable to the
Borrower or such Subsidiary than if the transaction had been negotiated in
good faith on an arm's-length basis with a non-Affiliate.
(h) Mergers, Etc. Merge with or into or consolidate with or
into, or permit any of its Restricted Subsidiaries, Consumers or Nomeco to
merge with or into or consolidate with or into, any other Person, except
that (1) any Restricted Subsidiary (other than Enterprises) may merge into
any other Restricted Subsidiary; (2) Nomeco may merge with or into
Enterprises or the Borrower; (3) Nomeco may merge with or into any other
Person, provided that, in connection with such merger, Enterprises shall
have received fair consideration (as determined by the Board of Directors
of Enterprises or the Borrower); (4) any Restricted Subsidiary may merge
with or into the Borrower, and the Borrower may merge with any other
Person, provided that, immediately after giving effect to any such merger,
(A) no event shall occur and be continuing which constitutes an Unmatured
Default or an Event of Default, (B) the Borrower is the surviving
corporation, and (C) the Borrower shall not be liable with respect to any
Debt or allow its property to be subject to any Lien which it could not
become liable with respect to or allow its property to become subject to
under this Agreement or any other Loan Document on the date of such
transaction; (5) Consumers may merge with any other Person, provided that,
immediately after giving effect thereto, (A) no event shall occur and be
continuing which constitutes an Unmatured Default or an Event of Default,
(B) Consumers is the surviving corporation, (C) the Borrower shall
continue to own not less than 80% of the outstanding shares of common
stock of Consumers and (D) Consumers' Net Worth shall be equal to or
greater than its Net Worth immediately prior to such merger; and (6) any
Person (other than the Borrower and its Affiliates) may merge with or into
Enterprises, provided that, immediately after giving effect thereto,
(A) no event shall occur and be continuing which constitutes an Unmatured
Default or an Event of Default, (B) Enterprises is the surviving
corporation, (C) Enterprises' Net Worth shall be equal to or greater than
its Net Worth immediately prior to such merger and (D) Enterprises shall
not be liable with respect to any Debt or allow its property to be subject
to any Lien which it could not become liable with respect to or allow its
property to become subject to under this Agreement, the Guaranty or any
other Loan Document on the date of such transaction; provided, that after
giving effect to any merger described in clause (2), (3), or (5), above,
the Borrower shall be in compliance with Section 8.02(b)(ii).
(i) Sales, Etc., of Assets. Sell, lease, transfer, assign, or
otherwise dispose of all or any substantial part of its assets, or permit
any of its Restricted Subsidiaries to sell, lease, transfer, or otherwise
dispose of all or any substantial part of its assets, except (i) to give
effect to a transaction permitted by subsection (h), above, or subsection
(j), below, and (ii) subject to Section 8.02(b)(ii), Enterprises may sell,
lease, transfer, assign, or otherwise dispose of all or any substantial
part of its assets (A) to give effect to a sale, transfer or other
disposition of the common stock or assets of Nomeco pursuant to any
transaction permitted by Section 8(h)(iii) of the Guaranty and (B) to any
other Restricted Subsidiary (in each case subject to compliance with
Section 7(h) of the Guaranty immediately after giving effect to any such
transaction).
(j) Maintenance of Ownership of Subsidiaries. Sell, transfer,
assign or otherwise dispose of any shares of capital stock of any of its
Restricted Subsidiaries or Consumers (other than preferred or preference
stock of Consumers) or any warrants, rights or options to acquire such
capital stock, or permit any Restricted Subsidiary or Consumers to issue,
sell, transfer, assign or otherwise dispose of any shares of its capital
stock (other than preferred or preference stock of Consumers) or the
capital stock of any other Restricted Subsidiary or any warrants, rights
or options to acquire such capital stock, except to give effect to a
transaction permitted by subsection (h), above, and Section 8(h)(iii) of
the Guaranty; provided, however, that the Borrower may sell, transfer,
assign or otherwise dispose of not more than 20% of the common stock of
Consumers, provided that after giving effect to such transaction the
Borrower shall be in compliance with Section 8.02(b)(ii).
(k) Amendment of Tax Sharing Agreement. Directly or
indirectly, amend, modify, supplement, waive compliance with, seek a
waiver under, or assent to noncompliance with, any term, provision or
condition of the Tax Sharing Agreement if the effect of such amendment,
modification, supplement, waiver or assent is to (i) reduce materially any
amounts otherwise payable to, or increase materially any amounts otherwise
owing or payable by, the Borrower thereunder, or (ii) change materially
the timing of any payments made by or to the Borrower thereunder.
SECTION 8.03. Reporting Obligations. So long as any Note shall
remain unpaid, any Letter of Credit shall remain outstanding or any Lender
shall have any Commitment, the Borrower will, unless the Majority Lenders
shall otherwise consent in writing, furnish to each Lender, the following:
(a) as soon as possible and in any event within five
days after the Borrower knows or should have reason to know of the
occurrence of each Unmatured Default or Event of Default
continuing on the date of such statement, a statement of the chief
financial officer or chief accounting officer of the Borrower
setting forth details of such Unmatured Default or Event of
Default and the action that the Borrower proposes to take with
respect thereto;
(b) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such quarter and
consolidated statements of income and retained earnings and of
cash flows of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter (which requirement shall be deemed
satisfied by the delivery of the Borrower's quarterly report on
Form 10-Q for such quarter), all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief
financial officer or chief accounting officer of the Borrower as
having been prepared in accordance with generally accepted
accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section
7.01(e), together with (A) a schedule (substantially in the form
of Exhibit 8.03 appropriately completed) of the computations used
by the Borrower in determining compliance with the covenants
contained in Sections 8.01(i), 8.01(j) and 8.02(b)(ii) and, after
the enactment of any Consumers Dividend Restriction, the ratio set
forth in Section 9.01(k), and (B) a certificate of said officer
stating that no Unmatured Default or Event of Default has occurred
and is continuing or, if an Unmatured Default or Event of Default
has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower proposes to take with
respect thereto;
(c) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower and its
Subsidiaries, a copy of the Annual Report on Form 10-K (or any
successor form) for the Borrower and its Subsidiaries for such
year, including therein a consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of such fiscal year
and consolidated statements of income and retained earnings and of
cash flows of the Borrower and its Subsidiaries for such fiscal
year, accompanied by a report thereon of Arthur Andersen & Co. or
another nationally-recognized independent public accounting firm,
together with a schedule in form satisfactory to the Majority
Lenders of the computations used by such accounting firm in
determining, as of the end such fiscal year, compliance with the
covenants contained in Sections 8.01(i), 8.01(j) and 8.02(b)(ii)
and, after the enactment of any Consumers Dividend Restriction,
the ratio set forth in Section 9.01(k);
(d) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Borrower, a balance sheet of the Borrower as at
the end of such quarter and statements of income and retained
earnings and of cash flows of the Borrower for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief
financial officer or chief accounting officer of the Borrower as
having been prepared in accordance with generally accepted
accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section
7.01(e);
(e) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, a balance
sheet of the Borrower as at the end of such fiscal year and
statements of income and retained earnings and of cash flows of
the Borrower for such fiscal year, all in reasonable detail and
duly certified (subject to year-end audit adjustments) by the
chief financial officer or chief accounting officer of the
Borrower as having been prepared in accordance with generally
accepted accounting principles consistent with those applied in
the preparation of the financial statements referred to in Section
7.01(e);
(f) as soon as possible and in any event (A) within
30 days after the Borrower knows or has reason to know that any
Plan Termination Event described in clause (i) of the definition
of Plan Termination Event with respect to any Plan of the Borrower
or any ERISA Affiliate of the Borrower has occurred and could
reasonably be expected to result in a material liability to the
Borrower and (B) within 10 days after the Borrower knows or has
reason to know that any other Plan Termination Event with respect
to any Plan of the Borrower or any ERISA Affiliate of the Borrower
has occurred and could reasonably be expected to result in a
material liability to the Borrower, a statement of the chief
financial officer or chief accounting officer of the Borrower
describing such Plan Termination Event and the action, if any,
which the Borrower proposes to take with respect thereto;
(g) promptly after receipt thereof by the Borrower or
any of its ERISA Affiliates from the PBGC copies of each notice
received by the Borrower or any such ERISA Affiliate of the PBGC's
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(h) promptly and in any event within 30 days after
the filing thereof with the Internal Revenue Service, copies of
each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) with respect to each Plan (if any) to which the
Borrower is a contributing employer;
(i) promptly after receipt thereof by the Borrower or
any of its ERISA Affiliates from a Multiemployer Plan sponsor, a
copy of each notice received by the Borrower or any of its ERISA
Affiliates concerning the imposition or amount of withdrawal
liability in an aggregate principal amount of at least $250,000
pursuant to Section 4202 of ERISA in respect of which the Borrower
is reasonably expected to be liable;
(j) promptly after the Borrower becomes aware of the
occurrence thereof, notice of all actions, suits, proceedings or
other events of the type described in Section 7.01(f);
(k) promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports
which the Borrower sends to its public security holders (if any),
copies of all regular, periodic and special reports which the
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with
any national securities exchange, pursuant to the Exchange Act,
and copies of all final prospectuses with respect to any
securities issued or to be issued by the Borrower or any of its
Subsidiaries;
(l) as soon as possible and in any event within five
days after the occurrence of any material default under any
material agreement to which the Borrower or any of its
Subsidiaries is a party, which default would materially adversely
affect the financial condition, business, results of operations or
property of the Borrower and its Subsidiaries, considered as a
whole, any of which is continuing on the date of such certificate,
a certificate of the chief financial officer of the Borrower
setting forth the details of such material default and the action
which the Borrower or any such Subsidiary proposes to take with
respect thereto; and
(m) promptly after requested, such other information
respecting the business, properties, condition or operations,
financial or otherwise, of the Borrower and its Subsidiaries as
any Agent or the Majority Lenders may from time to time reasonably
request in writing.
ARTICLE IX
DEFAULTS
SECTION 9.01. Events of Default. If any of the following events
(each an "Event of Default") shall occur and be continuing after the
applicable grace period and notice requirement (if any), the Co-Agents and
the Lenders shall be entitled to exercise the remedies set forth in
Section 9.02:
(a) The Borrower shall fail to pay (i) any principal of any
Note when due or (ii) any interest thereon within two Business Days after
such interest shall have become due; or
(b) Any representation or warranty made by or on behalf of any
Loan Party in any Loan Document or certificate or other writing delivered
pursuant thereto shall prove to have been incorrect in any material
respect when made or deemed made; or
(c) The Borrower or any of its Subsidiaries shall fail to
perform or observe any term or covenant on its part to be performed or
observed contained in Section 8.01(c), (h), (i) or (j) or in Section 8.02
hereof, or the Guarantor shall fail to perform or observe any term or
covenant on its part to be performed or observed contained in Sections
7(h), 7(j) or 8 of the Guaranty (and the Borrower, each Lender and each
Agent hereby agrees that an Event of Default under this subsection (c)
shall be given effect as if the defaulting Subsidiary were a party to this
Agreement); or
(d) The Borrower or any of its Subsidiaries shall fail to
perform or observe any other term or covenant on its part to be performed
or observed contained in any Loan Document and any such failure shall
remain unremedied, after written notice thereof shall have been given to
the Borrower by the Documentation Agent, for a period of 10 Business Days
(and the Borrower, each Lender and each Agent hereby agrees that an Event
of Default under this subsection (d) shall be given effect as if the
defaulting Subsidiary were a party to this Agreement); or
(e) Any Loan Party, any Restricted Subsidiary or Consumers
shall fail to pay any of its Debt (including any interest or premium
thereon but excluding Debt evidenced by the Notes) (i) aggregating, in the
case of each Loan Party and each Restricted Subsidiary, $6,000,000 or more
or, in the case of Consumers, $25,000,000 or more, or (ii) arising under
the Indenture or any Senior Note, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
shall continue after the applicable grace period, if any, specified in any
agreement or instrument relating to such Debt; or any other default under
any agreement or instrument relating to any such Debt, or any other event,
shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default
or event is to accelerate, or to permit the acceleration of, the maturity
of such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof; unless in each such case
the obligee under or holder of such Debt shall have waived in writing such
circumstance so that such circumstance is no longer continuing; or
(f) (i) Any Loan Party, any Restricted Subsidiary or Consumers
shall generally not pay its debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make an
assignment for the benefit of creditors; or (ii) any proceeding shall be
instituted by or against any Loan Party, any Restricted Subsidiary or
Consumers seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of its debts under any law relating to
bankruptcy, insolvency, or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of
its property and, in the case of a proceeding instituted against any Loan
Party, either such proceeding shall remain undismissed or unstayed for a
period of 60 days or any of the actions sought in such proceeding
(including without limitation the entry of an order for relief against
such Loan Party, a Restricted Subsidiary or Consumers or the appointment
of a receiver, trustee, custodian or other similar official for such Loan
Party, such Restricted Subsidiary or Consumers or any of its property)
shall occur; or (iii) any Loan Party, any Restricted Subsidiary or
Consumers shall take any corporate or other action to authorize any of the
actions set forth above in this subsection (f); or
(g) Any judgment or order for the payment of money in excess
of $6,000,000 shall be rendered against any Loan Party or its properties
and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of
30 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(h) Any material provision of any Loan Document, after
execution hereof or delivery thereof under Article VI, shall for any
reason other than the express terms hereof or thereof cease to be valid
and binding on any party thereto; or any Loan Party shall so assert in
writing; or
(i) The Cash Collateral Agreement after delivery under Article
VI hereof shall for any reason, except to the extent permitted by the
terms thereof or due to any failure by any Agent to take any action on its
part to be performed under applicable law in order to maintain such
perfection, ceases to create a valid and perfected first priority Lien (to
the extent purported to be granted by the Cash Collateral Agreement) in
any of the Collateral described therein; or
(j) At any time any LC Bank shall have been served with or
otherwise subjected to a court order, injunction, or other process or
decree issued or granted at the instance of the Borrower restraining or
seeking to restrain such LC Bank from paying any amount under any Letter
of Credit issued by it and either (i) there has been a drawing under such
Letter of Credit which such LC Bank would otherwise be obligated to pay or
(ii) the stated expiration date or any reduction of the stated amount of
such Letter of Credit has occurred but the right of the beneficiary to
draw thereunder has been extended in connection with the pendency of the
related court action or proceeding; or
(k) There shall be imposed or enacted any Consumers Dividend
Restriction, the result of which is that the Dividend Coverage Ratio shall
be less than 1.15 to 1 at any time after the later to occur of (i) the
date of the imposition of such Consumers Dividend Restriction and
(ii) October 1, 1995.
SECTION 9.02. Remedies. If any Event of Default has occurred and
is continuing, then the Co-Agents shall at the request, or may with the
consent, of the Required Lenders, upon notice to the Borrower (i) declare
the Commitments and the obligation of each Lender to make Advances (other
than Advances under Section 4.04 hereof) and of any LC Bank to issue a
Letter of Credit to be terminated, whereupon the same shall forthwith
terminate, (ii) declare the Notes, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest and all
such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower, (iii) provide from the
proceeds of any Collateral (as defined in the Cash Collateral Agreement)
for cash collateralization of LC Outstandings, and (iv) exercise in
respect of any and all collateral, in addition to the other rights and
remedies provided for herein and in the Security Documents or otherwise
available to the Co-Agents or the Lenders, all the rights and remedies of
a secured party on default under the Uniform Commercial Code in effect in
the State of New York and in effect in any other jurisdiction in which
collateral is located at that time; provided, however, that in the event
of an actual or deemed entry of an order for relief with respect to the
Borrower under the Federal Bankruptcy Code, (A) the Commitments and the
obligation of each Lender to make Advances and of any LC Bank to issue any
Letter of Credit shall automatically be terminated and (B) the Notes, all
such interest and all such amounts shall automatically become and be due
and payable, without presentment, demand, protest or any notice of any
kind, all of which are hereby expressly waived by the Borrower.
Notwithstanding anything to the contrary contained herein, no notice given
or declaration made by the Co-Agents pursuant to this Section 9.02 shall
affect (i) the obligation of any LC Bank to make any payment under any
Letter of Credit issued by such LC Bank in accordance with the terms of
such Letter of Credit or (ii) the participatory interest of each Lender in
each such payment.
ARTICLE X
THE AGENTS
SECTION 10.01. Authorization and Action. Each Lender and LC Bank
hereby appoints and authorizes each of the Agents to take such action as
agent on its behalf and to exercise such powers under this Agreement as
are delegated to such Agents by the terms hereof, together with such
powers as are reasonably incidental thereto. The Operational Agent is
hereby expressly authorized on behalf of each Lender and each LC Bank,
without hereby limiting any implied authority, to receive on behalf of
each of the Lenders any payment of principal of, or interest on, the Notes
and all other amounts accrued thereunder or hereunder paid to the
Operational Agent, and promptly to distribute in accordance with Section
5.01(a) to each Lender its proper share of all payments so received. Each
Agent is hereby expressly authorized on behalf of each Lender and each LC
Bank, without hereby limiting any implied authority, to distribute to each
Lender copies of all notices, agreements and other materials as provided
for in this Agreement and any other Loan Document received by such Agent.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Notes), the Agents
shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
the Majority Lenders, and such instructions shall be binding upon all
Lenders, all LC Banks and all holders of Notes; provided, however, that
the Agents shall not be required to take any action that exposes any Agent
to personal liability or that is contrary to this Agreement or applicable
law. Each Agent agrees to give to each Lender prompt notice of each
notice given to it by the Borrower pursuant to the terms of this
Agreement.
SECTION 10.02. Agents' Reliance, Etc. Neither any Agent nor any
of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection
with any Loan Document, except for its or their own gross negligence or
wilful misconduct. Without limitation of the generality of the foregoing:
(i) each Agent may treat the payee of any Note as the holder thereof until
the Documentation Agent receives and accepts a Lender Assignment entered
into by the Lender which is the payee of such Note, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 11.07; (ii) each
Agent may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts;
(iii) the Agents make no warranty or representation to any Lender and
shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with any Loan Document; (iv) no
Agent shall have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of any Loan
Document on the part of the Borrower or to inspect any property (including
the books and records) of the Borrower; (v) no Agent shall be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Loan Document; and (vi) no Agent
shall incur liability under or in respect of any Loan Document by acting
upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, cable, telex, telecopy or other
teletransmission) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 10.03. Citibank, Union Bank and Affiliates. With respect
to its Commitment and the Note issued to it, each of Citibank and Union
Bank shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not an Agent; and
the term "Lender" or "Lenders" shall, unless otherwise expressly
indicated, include Citibank and Union Bank each in its individual
capacity. Citibank and Union Bank and their respective Affiliates may
accept deposits from, lend money to, act as trustee under indentures of,
and generally engage in any kind of business with, the Borrower, any of
its Subsidiaries, its Affiliates and any Person who may do business with
or own securities of the Borrower or any such Subsidiary or Affiliate, all
as if Citibank and Union Bank were not an Agent and without any duty to
account therefor to the Lenders.
SECTION 10.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Agents or any
other Lender and based on the financial information referred to in Section
7.01(e) and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Agents or any other Lender and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement.
SECTION 10.05. Indemnification. The Lenders agree to indemnify
the Agents (to the extent not reimbursed by the Borrower), ratably
according to the respective principal amounts of the Notes then held by
each of them (or if no Notes are at the time outstanding or if any Notes
are held by Persons which are not Lenders, ratably according to the
respective Percentages of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against the Agents in
any way relating to or arising out of this Agreement or any action taken
or omitted by the Agents under this Agreement, provided that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agents' gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agents promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by the Agents in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations,
legal proceedings or otherwise) of, or legal advice in respect of rights
or responsibilities under, this Agreement to the extent that the Agents
are entitled to reimbursement for such expenses pursuant to Section 11.04
but are not reimbursed for such expenses by the Borrower.
SECTION 10.06. Successor Agents. Each Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower and
may be removed at any time with or without cause by the Majority Lenders,
with any such resignation or removal to become effective only upon the
appointment of a successor Agent in such capacity, pursuant to this
Section 10.06. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Agent in such capacity which
shall be a Lender or another commercial bank or trust company reasonably
acceptable to the Borrower organized under the laws of the United States,
or of any State thereof. If no successor Agent shall have been so
appointed by the Majority Lenders, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then
the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent in such capacity, which shall be a Lender or shall be another
commercial bank or trust company organized under the laws of the United
States or of any State thereof reasonably acceptable to the Borrower.
Upon the acceptance of any appointment as an Agent hereunder by a
successor Agent and the execution and delivery by the Borrower and the
successor Agent of an agreement relating to the fees to be paid to the
successor Agent under Section 2.02(d) hereof in connection with its acting
as an Agent hereunder, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as an Agent, the provisions of this
Article X shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was an Agent in such capacity under this
Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Majority Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Lenders,
do any of the following: (i) waive, modify or eliminate any of the
conditions specified in Article VI, (ii) increase the Commitments of the
Lenders that may be maintained hereunder or subject the Lenders to any
additional obligations, (iii) reduce the principal of, or interest on, the
Notes, any Applicable Margin or any fees or other amounts payable
hereunder (other than fees payable to the Operational Agent pursuant to
Section 2.02(d)), (iv) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts
payable hereunder (other than fees payable to the Operational Agent
pursuant to Section 2.02(d)), (v) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Lenders which shall be required for the Lenders or any of them to take any
action hereunder, (vi) amend any Loan Document in a manner intended to
prefer one or more Lenders over any other Lenders, (vii) amend Section
2.03(b) or this Section 11.01, or (viii) release any collateral or change
any provision of any Security Document providing for the release of
collateral; and provided, further, that no amendment, waiver or consent
shall, unless in writing and signed by each Agent in addition to the
Lenders required above to take such action, affect the rights or duties of
any Agent under this Agreement or any Note. Any request from the Borrower
for any amendment, waiver or consent under this Section 11.01 shall be
addressed to the Documentation Agent.
SECTION 11.02. Notices, Etc. All notices and other
communications provided for hereunder and under the other Loan Documents
shall be in writing (including telegraphic, facsimile, telex or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered, (i) if to the Borrower, at its address at Fairlane Plaza South,
330 Town Center Drive, Suite 1100, Dearborn, Michigan 48126, Attention:
Denise M. Sturdy, Esq., Assistant General Counsel, with a copy to Doris F.
Galvin, Vice President and Treasurer, 212 West Michigan Avenue, Jackson,
Michigan 49201; (ii) if to any Bank, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; (iii) if to any LC Bank,
at its address specified in the LC Bank Agreement to which it is a party;
(iv) if to any Lender other than a Bank, at its Domestic Lending Office
specified in the Lender Assignment pursuant to which it became a Lender;
(v) if to the Operational Agent, at its address at 445 South Figueroa
Street, 15th Floor, Los Angeles, California 90071, Attention: Utilities
Department Head; and (vi) if to the Documentation Agent, at its address at
399 Park Avenue, New York, New York 10043, Attention: Utilities
Department Head; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All
such notices and communications shall, when mailed, telegraphed,
telecopied, telexed or cabled, be effective five days after when deposited
in the mails, or when delivered to the telegraph company, telecopied,
confirmed by telex answerback or delivered to the cable company,
respectively, except that notices and communications to any Agent pursuant
to Article II, III, or X shall not be effective until received by such
Agent.
SECTION 11.03. No Waiver of Remedies. No failure on the part of
the Borrower, any Lender, any LC Bank or any Agent to exercise, and no
delay in exercising, any right hereunder or under any Note shall operate
as a waiver thereof; nor shall any single or partial exercise of any such
right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 11.04. Costs, Expenses and Indemnification. (a) The
Borrower agrees to (i) reimburse on demand all reasonable costs and
expenses of each Agent (including, without limitation, reasonable fees and
expenses of counsel to the Agents) in connection with (A) the preparation,
negotiation, execution and delivery of the Loan Documents and (B) the care
and custody of any and all collateral, and any proposed modification,
amendment, or consent relating to any Loan Document, and (ii) to pay on
demand all reasonable costs and expenses of each Agent and, on and after
the date upon which the Notes become or are declared to be due and payable
pursuant to Section 9.02 or an Event of Default specified in Section
9.01(a) shall have occurred and be continuing, each Lender (including,
without limitation, reasonable fees and expenses of counsel to the Agents,
special Michigan counsel to the Lenders and, from and after such date,
counsel for each Lender (including the allocated costs and expenses of in-
house counsel)) in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement, the Notes
and the other documents to be delivered hereunder.
(b) The Borrower hereby agrees to indemnify and hold each
Lender, each Agent, each LC Bank and their respective officers, directors,
employees, professional advisors and affiliates (each, an "Indemnified
Person") harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses (including reasonable attorney's fees and
expenses, whether or not such Indemnified Person is named as a party to
any proceeding or is otherwise subjected to judicial or legal process
arising from any such proceeding) which any of them may incur or which may
be claimed against any of them by any Person:
(i) by reason of or in connection with the execution,
delivery or performance of any of the Loan Documents or any
transaction contemplated thereby, or the use by the Borrower of
the proceeds of any Extension of Credit;
(ii) in connection with any documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of any of the Loan Documents;
or
(iii) in connection with or resulting from the
utilization, storage, disposal, treatment, generation,
transportation, release or ownership of any Hazardous Substance
(i) at, upon or under any property of the Borrower or any of its
Affiliates or (ii) by or on behalf of the Borrower or any of its
Affiliates at any time and in any place;
provided, however, that nothing contained in this subsection (b) shall
constitute a relinquishment or waiver of the Borrower's rights to any
independent claim that the Borrower may have against any Indemnified
Person for such Indemnified Person's gross negligence or wilful
misconduct, but no Lender shall be liable for any such conduct on the part
of any Agent or any other Lender, and no Agent shall be liable for any
such conduct on the part of any Lender.
(c) The Borrower's other obligations under this Section 11.04
shall survive the repayment of all amounts owing to the Lenders, the LC
Banks and the Agents under the Loan Documents and the termination of the
Commitments. If and to the extent that the obligations of the Borrower
under this Section 11.04 are unenforceable for any reason, the Borrower
agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law.
SECTION 11.05. Right of Set-off. (a) Upon (i) the occurrence
and during the continuance of any Event of Default and (ii) the making of
the request or the granting of the consent specified by Section 9.02 to
authorize the Co-Agents to declare the Notes due and payable pursuant to
the provisions of Section 9.02, each Lender and LC Bank is hereby
authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender or LC Bank to or for the
credit or the account of the Borrower, against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement
and the Note held by such Lender or the LC Bank Agreement to which such LC
Bank is a party, as the case may be, irrespective of whether or not such
Lender or LC Bank shall have made any demand under this Agreement or such
Note or such LC Bank Agreement and although such obligations may be
unmatured. Each Lender and LC Bank agrees to notify promptly the Borrower
after any such set-off and application made by such Lender or LC Bank,
provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender and
LC Bank under this Section 11.05 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which
such Lender and LC Bank may have.
(b) The Borrower agrees that it shall have no right of
off-set, deduction or counterclaim in respect of its obligations
hereunder, and that the obligations of the Lenders hereunder are several
and not joint. Nothing contained herein shall constitute a relinquishment
or waiver of the Borrower's rights to any independent claim that the
Borrower may have against any Agent or any Lender for such Agent's or such
Lender's, as the case may be, gross negligence or wilful misconduct, but
no Lender shall be liable for any such conduct on the part of any Agent or
any other Lender, and no Agent shall be liable for any such conduct on the
part of any Lender.
SECTION 11.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agents
and when the Documentation Agent shall have been notified by each Bank
that such Bank has executed it and thereafter shall be binding upon and
inure to the benefit of the Borrower, the Agents and each Lender and their
respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without
the prior written consent of the Lenders.
SECTION 11.07. Assignments and Participation. (a) Each Lender
may, with the consent of the Borrower (such consent not to be unreasonably
withheld or delayed), assign to one or more banks or other entities all or
a portion of its rights and obligations under this Agreement and the other
Loan Documents (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) each such assignment shall be of a constant,
and not a varying, percentage of all of the assigning Lender's rights and
obligations under this Agreement, (ii) the amount of the Commitment of the
assigning Lender being assigned pursuant to each such assignment
(determined as of the date of the Lender Assignment with respect to such
assignment) shall in no event be less than the lesser of the amount of
such Lender's Commitment and $10,000,000 and shall be an integral multiple
of $5,000,000, (iii) each such assignment shall be to an Eligible
Assignee, and (iv) the parties to each such assignment shall execute and
deliver to the Documentation Agent (with a copy to the Operational Agent),
for its acceptance and recording in the Register, a Lender Assignment,
together with any Note or Notes subject to such assignment and a
processing and recordation fee of $2,500; and provided further, however,
that the consent of the Borrower shall not be required for any assignments
by a Lender to any of its Affiliates or to any other Lender or any of its
Affiliates. Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in each Lender Assignment, which
effective date shall be at least five Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it
pursuant to such Lender Assignment, have the rights and obligations of a
Lender hereunder and (B) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it to
an Eligible Assignee pursuant to such Lender Assignment, relinquish its
rights and be released from its obligations under this Agreement (and, in
the case of a Lender Assignment covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto); provided, however, that the
limitation set forth in clause (iii), above, shall not apply if an Event
of Default shall have occurred and be continuing and the Co-Agents shall
have declared all Advances to be immediately due and payable hereunder.
The Documentation Agent agrees to give prompt notice to the Lenders and
the Borrower of any assignment or participation of its rights and
obligations as a Bank hereunder. Notwithstanding anything to the contrary
contained in this Agreement, any Lender may at any time assign all or any
portion of the Advances owing to it to any Affiliate of such Lender. The
assigning Lender shall promptly notify the Borrower of any such
assignment. No such assignment, other than to an Eligible Assignee, shall
release the assigning Lender from its obligations hereunder.
(b) By executing and delivering a Lender Assignment, the
Lender assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other
than as provided in such Lender Assignment, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection
with any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or
any other instrument or document furnished pursuant thereto; (ii) such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or
the performance or observance by the Borrower of any of its obligations
under any Loan Document or any other instrument or document furnished
pursuant thereto; (iii) such assignee confirms that it has received a copy
of each Loan Document, together with copies of the financial statements
referred to in Section 7.01(e) and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to
enter into such Lender Assignment; (iv) such assignee will, independently
and without reliance upon the Agents, such assigning Lender or any other
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents; (v) such assignee
confirms that it is an Eligible Assignee (unless an Event of Default shall
have occurred and be continuing and the Co-Agents shall have declared all
Advances to be immediately due and payable hereunder, in which case no
such confirmation is necessary); (vi) such assignee appoints and
authorizes each Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to each
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of
the Loan Documents are required to be performed by it as a Lender.
(c) The Documentation Agent shall maintain at its address
referred to in Section 11.02 a copy of each Lender Assignment delivered to
and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of
the Advances owing to, each Lender from time to time (the "Register").
The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agents and the
Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a Lender Assignment executed by an
assigning Lender and an assignee representing that it is an Eligible
Assignee, together with any Note or Notes subject to such assignment, the
Documentation Agent shall, if such Lender Assignment has been completed
and is in substantially the form of Exhibit 11.07, (i) accept such Lender
Assignment, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. Within five
Business Days after its receipt of such notice, the Borrower, at its own
expense, shall execute and deliver to the Documentation Agent in exchange
for the surrendered Note or Notes a new Note to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it pursuant to
such Lender Assignment and, if the assigning Lender has retained a
Commitment hereunder, a new Note to the order of the assigning Lender in
an amount equal to the Commitment retained by it hereunder. Such new Note
or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Lender Assignment and shall otherwise be in
substantially the form of Exhibit 6.02A.
(e) Each Lender may sell participations to one or more banks
or other entities in or to all or a portion of its rights and obligations
under the Loan Documents (including, without limitation, all or a portion
of its Commitment, the Advances owing to it and the Note or Notes held by
it); provided, however, that (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note
for all purposes of this Agreement, and (iv) the Borrower, the Agents and
the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 11.07, disclose to the assignee or participant or proposed
assignee or participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower; provided that,
prior to any such disclosure, the assignee or participant or proposed
assignee or participant shall agree, in accordance with the terms of
Section 11.08, to preserve the confidentiality of any Confidential
Information received by it from such Lender.
(g) If any Lender (or any bank or other entity to which such
Lender has sold a participation) shall (i) make any demand for payment
under Section 5.04(a) or (d), or (ii) determine not to extend the
Termination Date in response to any request by the Borrower pursuant to
Section 2.05, then (A) in the case of any demand made under clause (i),
above, within 30 days after any such demand (if, but only if, such
demanded payment has been made by the Borrower) or notice, and (B) in the
case of the occurrence of the event described in clause (ii), above,
within 20 days after such occurrence, the Borrower may, with the approval
of the Agents (which approval shall not be unreasonably withheld) and
provided that no Event of Default or Unmatured Default shall then have
occurred and be continuing, demand that such Lender assign in accordance
with this Section 11.07 to one or more Eligible Assignees designated by
the Borrower all (but not less than all) of such Lender's Commitment and
the Advances owing to it within the period ending on the later to occur of
(x) the last day in the period described in clause (A) or (B), above, as
applicable, and (y) the last day of the longest of the then current
Interest Periods for such Advances. If any such Eligible Assignee
designated by the Borrower shall fail to consummate such assignment on
terms acceptable to such Lender, or if the Borrower shall fail to
designate any such Eligible Assignees for all or part of such Lender's
Commitment or Advances, then such demand by the Borrower shall become
ineffective; it being understood for purposes of this subsection (g) that
such assignment shall be conclusively deemed to be on terms acceptable to
such Lender, and such Lender shall be compelled to consummate such
assignment to an Eligible Assignee designated by the Borrower, if such
Eligible Assignee (1) shall agree to such assignment by entering into a
Lender Assignment with such Lender and (2) shall offer compensation to
such Lender in an amount equal to all amounts then owing by the Borrower
to such Lender hereunder and under the Note made by the Borrower to such
Lender, whether for principal, interest, fees, costs or expenses (other
than the demanded payment referred to in clause (i), above, and payable by
the Borrower as a condition to the Borrower's right to demand such
assignment), or otherwise. In addition, in the case of any amount
demanded for payment by any Lender (or such a participant) pursuant to
Section 5.04(a) or (d), the Borrower may, in the case of any such Lender,
with the approval of the Agents (which approval shall not be unreasonably
withheld) and provided that no Event of Default or Unmatured Default shall
then have occurred and be continuing, terminate all (but not less than
all) such Lender's Commitment and prepay all (but not less than all) such
Lender's Advances not so assigned, together with all interest accrued
thereon to the date of such prepayment and all fees, costs and expenses
and other amounts then owing by the Borrower to such Lender hereunder and
under the Note made by the Borrower to such Lender, at any time from and
after such later occurring day in accordance with Sections 2.03 and 5.03
hereof (but without the requirement stated therein for ratable treatment
of the other Lenders), if and only if, after giving effect to such
termination and prepayment, the sum of the aggregate principal amount of
the Advances of all Lenders then outstanding does not exceed the then
remaining Commitments of the Lenders. Notwithstanding anything set forth
above in this subsection (g) to the contrary, the Borrower shall not be
entitled to compel the assignment by any Lender demanding payment under
Section 5.04(a) of its Commitment and Advances or terminate and prepay the
Commitment and Advances of such Lender if, prior to or promptly following
any such demand by the Borrower, such Lender shall have changed or shall
change, as the case may be, its Applicable Lending Office for its
Eurodollar Rate Advances so as to eliminate the further incurrence of such
increased cost. In furtherance of the foregoing, any such Lender
demanding payment or giving notice as provided above agrees to use
reasonable efforts to so change its Applicable Lending Office if, to do
so, would not result in the incurrence by such Lender of additional costs
or expenses which it deems material or, in the sole judgment of such
Lender, be inadvisable for regulatory, competitive or internal management
reasons.
(h) Anything in this Section 11.07 to the contrary
notwithstanding, any Lender may assign and pledge all or any portion of
its Commitment and the Advances owing to it to any Federal Reserve Bank
(and its transferees) as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank. No such assignment shall
release the assigning Lender from its obligations hereunder.
SECTION 11.08. Confidentiality. In connection with the
negotiation and administration of this Agreement and the other Loan
Documents, the Loan Parties have furnished and will from time to time
furnish to the Agents and the Lenders (each, a "Recipient") written
information which is identified to the Recipient when delivered as
confidential (such information, other than any such information which
(i) was publicly available, or otherwise known to the Recipient, at the
time of disclosure, (ii) subsequently becomes publicly available other
than through any act or omission by the Recipient or (iii) otherwise
subsequently becomes known to the Recipient other than through a Person
whom the Recipient knows to be acting in violation of his or its
obligations to such Loan Party, being hereinafter referred to as
"Confidential Information"). The Recipient will not knowingly disclose
any such Confidential Information to any third party (other than to those
persons who have a confidential relationship with the Recipient), and will
take all reasonable steps to restrict access to such information in a
manner designed to maintain the confidential nature of such information,
in each case until such time as the same ceases to be Confidential
Information or as such Loan Party may otherwise instruct. It is
understood, however, that the foregoing will not restrict the Recipient's
ability to freely exchange such Confidential Information with prospective
participants in or assignees of the Recipient's position herein, but the
Recipient's ability to so exchange Confidential Information shall be
conditioned upon any such prospective participant's entering into an
agreement as to confidentiality similar to this Section 11.08. It is
further understood that the foregoing will not prohibit the disclosure of
any or all Confidential Information if and to the extent that such
disclosure may be required (i) by a regulatory agency or otherwise in
connection with an examination of the Recipient's records by appropriate
authorities, (ii) pursuant to court order, subpoena or other legal process
or (iii) otherwise, as required by law; in the event of any required
disclosure under clause (ii) or (iii), above, the Recipient agrees to use
reasonable efforts to inform the Borrower as promptly as practicable to
the extent not prohibited by law.
SECTION 11.09. Waiver of Jury Trial. THE BORROWER, THE AGENTS,
THE CO-MANAGER, THE LC BANKS AND THE LENDERS EACH HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR
THEREUNDER.
SECTION 11.10. Governing Law. This Agreement and the Notes shall
be governed by, and construed in accordance with, the laws of the State of
New York. The Borrower, the Lenders, the LC Banks, the Co-Manager and the
Agents each (i) irrevocably submits to the jurisdiction of any New York
State court or Federal court sitting in New York City in any action
arising out of any Loan Document, (ii) agrees that all claims in such
action may be decided in such court, (iii) waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum and
(iv) consents to the service of process by mail. A final judgment in any
such action shall be conclusive and may be enforced in other
jurisdictions. Nothing herein shall affect the right of any party to serve
legal process in any manner permitted by law or affect its right to bring
any action in any other court.
SECTION 11.11. Relation of the Parties; No Beneficiary. No term,
provision or requirement, whether express or implied, of any Loan
Document, or actions taken or to be taken by any party thereunder, shall
be construed to create a partnership, association, or joint venture
between such parties or any of them. No term or provision of the Loan
Documents shall be construed to confer a benefit upon, or grant a right or
privilege to, any Person other than the parties hereto.
SECTION 11.12. Existing Banks' Waiver, Acknowledgement and
Release. The Existing Banks hereby waive compliance by the Borrower with
the requirement contained in Section 5.03(b) of the Existing Agreement for
the Borrower to provide, upon the termination in full of the "Commitments"
under the Existing Agreement on the date hereof, cash collateral to secure
LC Outstandings with respect to the NYSEG Letter of Credit. The Lenders
acknowledge and agree that the NYSEG Letter of Credit shall constitute a
Letter of Credit for all purposes under this Agreement. In addition, the
Existing Banks hereby release their Lien on all of the Collateral (as
defined in the Existing Agreement) and direct the Documentation Agent to
return all such Collateral to the Borrower.
SECTION 11.13. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute one and
the same Agreement.
SECTION 11.14. Survival of Agreement. All covenants,
agreements, representations and warranties made herein and in the
certificates pursuant hereto shall be considered to have been relied upon
by the Agents and the Lenders and shall survive the making by the Lenders
of the Extensions of Credit and the execution and delivery to the Lenders
of the Notes evidencing the Extensions of Credit and shall continue in
full force and effect so long as any Note or any amount due hereunder is
outstanding and unpaid or any Commitment of any Lender has not been
terminated. <PAGE>
<PAGE> S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as
of the date first above written.
CMS ENERGY CORPORATION
By /s/ A M Wright
----------------------------
Senior Vice President and
Chief Financial Officer
CITIBANK, N.A.,
as Co-Agent and Documentation
Agent
By /s/ Emily J. Eisenlohr, attorney-in-
fact
------------------------------------
Vice President
UNION BANK,
as Co-Agent and Operational Agent
By /s/ John M. Edmonston
------------------------------------
Vice President
THE CHASE MANHATTAN BANK,
N.A., as Co-Manager
By /s/ Richard W. Cortright, Jr.
------------------------------------
Vice President
<PAGE>
<PAGE> S-2
S-2
Commitment Bank
- ---------- ----
$32,000,000 CITIBANK, N.A.
By /s/ Emily J. Eisenlohr
------------------------------------
Title: Attorney-in-fact
VP, Citicorp Securities <PAGE>
<PAGE> S-3
S-3
Commitment Bank
- ---------- ----
$32,000,000 UNION BANK
By /s/ John M. Edmonston
------------------------------------
Title: V.P.
<PAGE>
<PAGE> S-4
S-4
Commitment Bank
- ---------- ----
$32,000,000 THE CHASE MANHATTAN BANK, N.A.
By /s/ Richard W. Cortright, Jr.
------------------------------------
Title: Vice President
<PAGE>
<PAGE> S-5
S-5
Commitment Bank
- ---------- ----
$31,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Michael Murphy
------------------------------------
Title: Vice President
<PAGE>
<PAGE> S-6
S-6
Commitment Bank
- ---------- ----
$30,000,000 BANK OF AMERICA NT&SA
By /s/
------------------------------------
Title: Vice President
<PAGE>
<PAGE> S-7
S-7
Commitment Bank
- ---------- ----
$30,000,000 BANK OF SCOTLAND
By /s/
-----------------------------------
Title: Vice President
<PAGE>
<PAGE> S-8
S-8
Commitment Bank
- ---------- ----
$30,000,000 BARCLAYS BANK PLC
By /s/ John P. Burke
------------------------------------
Title: Associate Director
<PAGE>
<PAGE> S-9
S-9
Commitment Bank
- ---------- ----
$30,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Sheila J. O'Connell
-----------------------------------
Title: Managing Director<PAGE>
<PAGE> S-10
S-10
Commitment Bank
- ---------- ----
$30,000,000 THE TORONTO-DOMINION BANK
By /s/ Debbie A. Greene
-----------------------------------
Title: Mgr. Cr. Admin.
<PAGE>
<PAGE> S-11
S-11
Commitment Bank
- ---------- ----
$25,000,000 MICHIGAN NATIONAL BANK
By /s/ Mark S. Aben
-----------------------------------
Title: Vice President<PAGE>
<PAGE> S-12
S-12
Commitment Bank
- ---------- ----
$23,000,000 CONTINENTAL BANK
By /s/ Ronald E. McKaig
-----------------------------------
Title: Vice President
<PAGE>
<PAGE> S-13
S-13
Commitment Bank
- ---------- ----
$15,000,000 BHF-BANK
By /s/
-----------------------------------
Title: Attorney / Senior Vice
President<PAGE>
<PAGE> S-14
S-14
Commitment Bank
- ---------- ----
$15,000,000 THE BANK OF NEW YORK
By /s/
-----------------------------------
Title: Vice President <PAGE>
<PAGE> S-15
S-15
Commitment Bank
- ---------- ----
$15,000,000 THE FIRST NATIONAL BANK OF BOSTON
By /s/
-----------------------------------
Title: Director <PAGE>
<PAGE> S-16
S-16
Commitment Bank
- ---------- ----
$15,000,000 CANADIAN IMPERIAL BANK OF COMMERCE, NEW
YORK AGENCY
By /s/ Margaret McTigue
-----------------------------------
Title: Authorized Signatory
<PAGE>
<PAGE> S-17
S-17
Commitment Bank
- ---------- ----
$15,000,000 NATIONAL WESTMINSTER BANK PLC
By /s/ Karen N. Grafe
-----------------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK PLC, NASSAU
BRANCH
By /s/ Karen N. Grafe
-----------------------------------
Title: Vice President
$40,000,000 Total Commitments
<PAGE>
<PAGE>
EXHIBIT 3.01
FORM OF NOTICE OF BORROWING
Union Bank, as Operational
Agent for the Lenders parties
to the Credit Agreement
referred to below
Attention: Paula Maguire Reese
Assistant Vice President
[Date]
Ladies and Gentlemen:
The undersigned, CMS Energy Corporation, refers to the
Credit Agreement, dated as of July 29, 1994 (as amended, modified or
supplemented from time to time, the "Credit Agreement", the terms defined
therein and not otherwise defined herein being used herein as therein
defined), among the Borrower, the Lenders named therein, the Co-Agents,
the Documentation Agent and the Operational Agent, and hereby gives you
notice, irrevocably, pursuant to Section 3.01 of the Credit Agreement that
the undersigned hereby requests a Borrowing under the Credit Agreement,
and in that connection sets forth below the information relating to such
Borrowing (the "Proposed Borrowing") as required by Section 3.01(a) of the
Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
___________, 19__.
(ii) The Type of Advances comprising the Proposed
Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing is
$___________.
(*)[(iv) The initial Interest Period for each Advance
made as part of the Proposed Borrowing is ____ months.]
The undersigned hereby acknowledges that the delivery of
this Notice of Borrowing shall constitute a representation and warranty by
the Borrower that, on the date of the Proposed Borrowing, the statements
contained in Sections 6.03(a) and 6.04(a) of the Credit Agreement are
true.
Very truly yours,
CMS ENERGY CORPORATION
By_________________________________
Title:
___________________________
(*) To be included for a Proposed Borrowing comprised of Eurodollar
Rate Advances.
<PAGE>
<PAGE>
EXHIBIT 3.02
FORM OF NOTICE OF CONVERSION
Union Bank, as Operational
Agent for the Lenders parties
to the Credit Agreement
referred to below
Attention: [Paula Maguire Reese]
Assistant Vice President
[Date]
Ladies and Gentlemen:
The undersigned, CMS Energy Corporation, refers to the
Credit Agreement, dated as of July 29, 1994 (as amended, modified or
supplemented from time to time, the "Credit Agreement", the terms defined
therein and not otherwise defined herein being used herein as therein
defined), among the Borrower, the Lenders named therein, the Co-Agents,
the Documentation Agent and the Operational Agent, and hereby gives you
notice, irrevocably, pursuant to Section 3.02 of the Credit Agreement that
the undersigned hereby requests a Conversion under the Credit Agreement,
and in that connection sets forth below the information relating to such
Conversion (the "Proposed Conversion") as required by Section 3.02 of the
Credit Agreement:
(i) The Business Day of the Proposed Conversion is
___________________, _______.
(ii) The Type of Advances comprising the Proposed
Conversion is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Conversion
is $_________________.
(iv) The Type of Advances to which such Advances are
proposed to be Converted is [Base Rate Advances] [Eurodollar Rate
Advances].
(v) The Interest Period for each Advance made as part
of the Proposed Conversion is ____ month(s). (*)
The undersigned hereby certifies that the Borrower's
request for the Proposed Conversion is made in compliance with Sections
3.02, 3.03 and 3.04 of the Credit Agreement. The undersigned hereby
acknowledges that the delivery of this Notice of Conversion shall
constitute a representation and warranty by the Borrower that, on the date
of the Proposed Conversion, [(i)] the statements contained in Section
6.03(a) of the Credit Agreement are true and [(ii) no Unmatured Default
[(other than an Unmatured Default resulting from the failure of the
Borrower to comply with the ratio set forth in Section 8.01(j) of the
Credit Agreement)](**) has occurred and is continuing].(***)
Very truly yours,
CMS ENERGY CORPORATION
By________________________________
Title:
_____________________
(*) Delete for Base Rate Advances
(**) Include only if an Unmatured Default has occurred and is
continuing as the result of the failure of the Borrower to comply
with the ratio set forth in Section 8.01(j) of the Credit
Agreement. In such case, a Conversion into Eurodollar Rate
Advances with an Interest Period not to exceed three months in
duration is permitted pursuant to Section 3.04(a)(vi) of the
Credit Agreement.
(***) Delete if Conversion is into Base Rate Advances.<PAGE>
<PAGE>
EXHIBIT 5.03
FORM OF CASH COLLATERAL AGREEMENT
CASH COLLATERAL AGREEMENT, dated as of __________, 1994, made by
CMS ENERGY CORPORATION, a Michigan corporation (the "Pledgor"), to Union
Bank ("Union Bank"), as operational agent (the "Operational Agent") for
the lenders (the "Lenders") parties to the Credit Agreement (as
hereinafter defined).
PRELIMINARY STATEMENTS
(1) Citibank, N.A. and Union Bank, as Co-Agents, and the
Lenders have entered into a Credit Agreement, dated as of July 29, 1994
(said Agreement as it may hereafter be amended or otherwise modified from
time to time, being the "Credit Agreement", the terms defined therein and
not otherwise defined herein being used herein as therein defined), with
the Pledgor.
(2) Pursuant to Section 5.03(b) of the Credit Agreement, any
prepayments required by such subsection are to be applied to outstanding
Base Rate Advances up to the full amount thereof before they are applied,
first, to outstanding Eurodollar Rate Advances and, second, as cash
collateral, pursuant to this Agreement, to secure LC Outstandings.
(3) The cash collateral referenced in preliminary statement
(2), above, shall be deposited by the Operational Agent in a special
non-interest-bearing cash collateral account (the "Account") with the
Operational Agent at its office at 445 South Figueroa Street, 15th Floor,
Los Angeles, California 90071, Account No. 2200412004 (or at such other
office of the Operational Agent as the Operational Agent may, from time to
time, notify the Pledgor), in the name of the Pledgor but under the sole
control and dominion of the Operational Agent and subject to the terms of
this Agreement.
NOW THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Pledgor hereby agrees with the Operational Agent
for its benefit and the ratable benefit of the Lenders as follows:
SECTION 1. Pledge and Assignment. The Pledgor hereby pledges and
assigns to the Operational Agent for its benefit and the ratable benefit
of the Lenders, and grants to the Operational Agent for its benefit and
the ratable benefit of the Lenders a security interest in, the following
collateral (the "Collateral"):
(i) the Account, all funds held therein and all
certificates and instruments, if any, from time to time
representing or evidencing the Account;
(ii) all Investments (as hereinafter defined) from
time to time, and all certificates and instruments, if any, from
time to time representing or evidencing the Investments;
(iii) all notes, certificates of deposit, deposit
accounts, checks and other instruments from time to time hereafter
delivered to or otherwise possessed by the Operational Agent for
or on behalf of the Pledgor in substitution for or in addition to
any or all of the then existing Collateral;
(iv) all interest, dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the
then existing Collateral; and
(v) all proceeds of any and all of the foregoing
Collateral.
SECTION 2. Security for Obligations. This Agreement secures the
payment of all reimbursement obligations of the Borrower now or hereafter
existing with respect to LC Outstandings, and all obligations of the
Pledgor now or hereafter existing under this Agreement (all such
obligations of the Borrower and the Pledgor being the "Obligations").
Without limiting the generality of the foregoing, this Agreement secures
the payment of all amounts which constitute part of the Obligations and
would be owed by the Borrower to the Operational Agent or the Lenders
under the Credit Agreement and the Notes but for the fact that they are
unenforceable or not allowable due to of the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower.
SECTION 3. Delivery of Collateral. All certificates or
instruments, if any, representing or evidencing the Collateral shall be
delivered to and held by or on behalf of the Operational Agent pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Operational Agent.
The Operational Agent shall have the right, at any time upon the
occurrence and during the continuance of an Event of Default or an
Unmatured Default, in its discretion and without notice to the Pledgor, to
transfer to or to register in the name of the Operational Agent or any of
its nominees any or all of the Collateral. In addition, the Operational
Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 4. Maintaining the Account. So long as any Lender has
any Commitment or any Note shall remain unpaid:
(a) The Pledgor will maintain the Account with the
Operational Agent.
(b) It shall be a term and condition of the Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Account and except as otherwise provided
by the provisions of Section 6 and Section 13, that no amount
(including interest on the Account, if any) shall be paid or
released to or for the account of, or withdrawn by or for the
account of, the Pledgor or any other Person (other than the
Operational Agent and the Lenders) from the Account.
The Account shall be subject to such applicable laws, and such applicable
regulations of the Board of Governors of the Federal Reserve System and of
any other appropriate banking or governmental authority, as may now or
hereafter be in effect.
SECTION 5. Investing of Amounts in the Account. If requested by
the Pledgor, the Operational Agent will, subject to the provisions of
Section 6 and Section 13, from time to time (a) invest amounts on deposit
in the Account in such Permitted Investments as the Pledgor may select and
the Operational Agent may approve and (b) invest interest paid on the
Permitted Investments referred to in clause (a), above, and reinvest other
proceeds of any such Permitted Investments which may mature or be sold, in
each case in such Permitted Investments as the Pledgor may select and the
Operational Agent may approve (the Permitted Investments referred to in
clauses (a) and (b), above, being collectively "Investments"). Interest
and proceeds that are not invested or reinvested in Investments as
provided above shall be deposited and held in the Account.
SECTION 6. Release of Amounts. So long as no Event of Default
or Unmatured Default shall have occurred and be continuing, the
Operational Agent will pay and release to the Pledgor or at its order,
upon the request of the Pledgor, (a) amounts of credit balance of the
Account and of principal of any other Collateral when matured or sold to
the extent that (i) the sum of the credit balance of the Account plus the
aggregate outstanding principal amount of all other Collateral exceeds
(ii) the aggregate amount of LC Outstandings in respect of all Letters of
Credit and all other amounts owing by the Pledgor hereunder, (b) all
amounts in the Account if the Commitments exceed the aggregate amount of
LC Outstandings in respect of all Letters of Credit and all other amounts
owing by the Pledgor hereunder and (c) all interest and earnings on the
Investments deposited and held in the Account.
SECTION 7. Representations and Warranties. The Pledgor
represents and warrants as follows:
(a) The Pledgor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement.
(b) The pledge and assignment of the Collateral pursuant to
this Agreement creates a valid and perfected first priority security
interest in the Collateral, securing the payment of the Obligations.
(c) No consent of any other Person and no authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required (i) for the pledge
and assignment by the Pledgor of the Collateral pursuant to this Agreement
or for the execution, delivery or performance of this Agreement by the
Pledgor, (ii) for the perfection or maintenance of the security interest
created hereby (including the first priority nature of such security
interest) or (iii) for the exercise by the Operational Agent of its rights
and remedies hereunder.
(d) There are no conditions precedent to the effectiveness of
this Agreement that have not been satisfied or waived.
(e) The Pledgor has, independently and without reliance upon
the Operational Agent or any Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
SECTION 8. Further Assurances. The Pledgor agrees that at any
time and from time to time, at the expense of the Pledgor, the Pledgor
will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that
the Operational Agent may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or
to enable the Operational Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral.
SECTION 9. Transfers and Other Liens. The Pledgor agrees that
it will not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, or (ii) create or permit to exist any lien, security interest,
option or other charge or encumbrance upon or with respect to any of the
Collateral, except for the security interest under this Agreement.
SECTION 10. Operational Agent Appointed Attorney-in-Fact. The
Pledgor hereby appoints the Operational Agent the Pledgor's
attorney-in-fact, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time
upon the occurrence and during the continuance of an Event of Default or
Unmatured Default or otherwise to the extent that the Operational Agent
shall reasonably deem any action to be necessary in order to maintain its
security interest in the Collateral, in the Operational Agent's
discretion, to take any action and to execute any instrument which the
Operational Agent may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor
representing any interest payment, dividend or other distribution in
respect of the Collateral or any part thereof and to give full discharge
for the same.
SECTION 11. Operational Agent May Perform. If the Pledgor fails
to perform any agreement contained herein, the Operational Agent may
itself perform, or cause performance of, such agreement, and the expenses
of the Operational Agent incurred in connection therewith shall be payable
by the Pledgor under Section 14.
SECTION 12. The Operational Agent's Duties. The powers
conferred on the Operational Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Operational Agent shall have no duty as to any Collateral,
as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Operational Agent or any Lender has or is
deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral. The Operational Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Operational Agent accords its own
property.
SECTION 13. Remedies upon Default. If any Event of Default
shall have occurred and be continuing:
(a) The Operational Agent may, without notice to the
Pledgor except as required by law and at any time or from time to
time, charge, set-off and otherwise apply all or any part of the
Account against the Obligations or any part thereof.
(b) The Operational Agent may also exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of New York at that
time (the "Code") (whether or not the Code applies to the affected
Collateral), and may also, without notice except as specified
below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of the Operational
Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Operational Agent may
deem commercially reasonable. The Pledgor agrees that, to the
extent notice of sale shall be required by law, at least ten days'
notice to the Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall
constitute reasonable notification. The Operational Agent shall
not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Operational Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to
which it was so adjourned.
(c) Any cash held by the Operational Agent as
Collateral and all cash proceeds received by the Operational Agent
in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral may, in the discretion of
the Operational Agent, be held by the Operational Agent as
collateral for, and/or then or at any time thereafter be applied
(after payment of any amounts payable to the Operational Agent
pursuant to Section 14) in whole or in part by the Operational
Agent for the ratable benefit of the Lenders against, all or any
part of the Obligations in such order as the Operational Agent
shall elect. Any surplus of such cash or cash proceeds held by
the Operational Agent and remaining after payment in full of all
the Obligations shall be paid over to the Pledgor or to whomsoever
may be lawfully entitled to receive such surplus.
SECTION 14. Expenses. The Pledgor will upon demand pay to the
Operational Agent the amount of any and all reasonable expenses, including
the reasonable fees and expenses of its counsel and of any experts and
agents, which the Operational Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of the
Operational Agent or the Lenders hereunder or (iv) the failure by the
Pledgor to perform or observe any of the provisions hereof.
SECTION 15. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the
Pledgor herefrom shall in any event be effective unless the same shall be
in writing and signed by the Operational Agent, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 16. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, facsimile, telex or cable communication) and mailed,
telegraphed, telecopied, telexed, cabled or delivered, if to the Pledgor,
at its address at Fairlane Plaza South, 330 Town Center Drive, Suite 1100,
Dearborn, Michigan 48126, Attention: Rodger A. Kershner, Esq., with a
copy to Doris F. Galvin, Vice President, 212 West Michigan Avenue,
Jackson, Michigan 49201, and if to the Operational Agent, at its address
specified in the Credit Agreement, or, as to either party, at such other
address as shall be designated by such party in a written notice to the
other party. All such notices and communications shall, when mailed,
telegraphed, telecopied, telexed or cabled, be effective five days after
when deposited in the mails, or when delivered to the telegraph company,
telecopied, confirmed by telex answerback or delivered to the cable
company, respectively.
SECTION 17. Continuing Security Interest; Assignments under
Credit Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect
until the later of (x) the payment in full of the Obligations and all
other amounts payable under this Agreement and (y) the expiration or
termination of the Commitments, (ii) be binding upon the Pledgor, its
successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Operational Agent, the Lenders and their respective
successors, transferees and assigns. Without limiting the generality of
the foregoing clause (iii), any Lender may assign or otherwise transfer
all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its
Commitment, the Advances owing to it and any Note held by it) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender herein or otherwise,
subject, however, to the provisions of Article X (concerning the Agents)
and Section 11.07 of the Credit Agreement. Upon the later of the payment
in full of the Obligations and all other amounts payable under this
Agreement and the expiration or termination of the Commitments, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination, the
Operational Agent will, at the Pledgor's expense, return to the Pledgor
such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Pledgor such
documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 18. Governing Law; Terms. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, except to the extent that perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral
are governed by the laws of a jurisdiction other than the State of New
York. Unless otherwise defined herein or in the Credit Agreement, terms
defined in Article 9 of the Code are used herein as therein defined.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
CMS ENERGY CORPORATION
By____________________________
Title:
ACCEPTED AND AGREED:
UNION BANK, as Operational Agent
By_______________________________________________
Vice President
<PAGE>
<PAGE>
EXHIBIT 6.02A
FORM OF PROMISSORY NOTE
U.S.$______________ Dated: ____________, 19___
FOR VALUE RECEIVED, the undersigned, CMS ENERGY
CORPORATION, a Michigan corporation (the "Borrower"), HEREBY PROMISES TO
PAY to the order of _______________________ (the "Lender") for the account
of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the principal sum of U.S.$[amount of the Lender's
Commitment in figures] or, if less, the aggregate principal amount of all
Advances (as defined below) made by the Lender to the Borrower pursuant to
the Credit Agreement outstanding on the Termination Date (as defined in
the Credit Agreement).
The Borrower promises to pay interest on the unpaid
principal amount of each Advance from the date of such Advance until such
principal amount is paid in full, at such interest rates, and payable at
such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of
the United States of America to Union Bank, as Operational Agent, at its
offices at 445 South Figueroa Street, 15th Floor, Los Angeles, California
90071, in same day funds. Each Advance made by the Lender to the Borrower
pursuant to the Credit Agreement, and all payments made on account of the
principal amount thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on the grid attached hereto which is part of
this Promissory Note, provided that the failure to so record any Advance
or any payment on account thereof shall not affect the payment obligations
of the Borrower hereunder or under the Credit Agreement.
This Promissory Note is one of the Notes referred to in,
and is entitled to the benefits of, the Credit Agreement, dated as of
July 29, 1994 (as amended, modified or supplemented from time to time, the
"Credit Agreement", the terms defined therein and not otherwise defined
herein being used herein as therein defined), among the Borrower, the
Lender and certain other Lenders parties thereto, the Co-Agents, the
Documentation Agent and the Operational Agent, and the Security Documents
referred to therein and entered into pursuant thereto. The Credit
Agreement, among other things, (i) provides for the making of advances
(the "Advances") by the Lender to the Borrower from time to time in an
aggregate amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such
Advance being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of
certain stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.
CMS ENERGY CORPORATION
By__________________________________
Senior Vice President and
Chief Financial Officer
<PAGE>
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
______________________________________________________________________
Amount of
Amount Principal Unpaid
of Paid or Principal Notation
Date Advance Prepaid Balance Made By
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
<PAGE>
<PAGE>
EXHIBIT 6.02B
FORM OF ENTERPRISES GUARANTY
GUARANTY, dated as of July ___, 1994, made by CMS ENTERPRISES
COMPANY, a corporation organized and existing under the laws of the State
of Michigan (the "Guarantor"), in favor of the Lenders (the "Lenders")
parties to the Credit Agreement (as defined below) and Citibank, N.A.
("Citibank"), as documentation agent (the "Documentation Agent") for the
Lenders.
PRELIMINARY STATEMENTS
(1) Citibank and Union Bank, as Co-Agents, and the Lenders
have entered into a Credit Agreement, dated as of July 29, 1994 (said
Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "Credit Agreement", the terms defined therein and not
otherwise defined herein being used herein as therein defined), with CMS
Energy Corporation, a corporation organized and existing under the laws of
the State of Michigan (the "Borrower"). The Guarantor will derive
substantial direct and indirect benefit from the transactions contemplated
by the Credit Agreement.
(2) It is a condition precedent to the making of Advances by
the Lenders under the Credit Agreement that the Guarantor shall have
executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make Advances under the Credit Agreement, the
Guarantor hereby agrees as follows:
SECTION 1. Certain Defined Terms. As used in this Guaranty, the
following terms shall have the following meanings (such meanings to be
applicable to the singular and plural forms of the terms defined):
"Consolidated Subsidiary" means any Subsidiary whose
accounts are or are required to be consolidated with the accounts
of the Guarantor in accordance with generally accepted accounting
principles.
"Net Worth" means, as to the Guarantor, the excess of its
total assets over its total liabilities, total assets and total
liabilities each to be determined in accordance with generally
accepted accounting principles consistent with those applied in
the preparation of the financial statements referred to in Section
6(f), excluding, however, from the determination of total assets
(i) goodwill, organizational expenses, research and development
expenses, trademarks, trade names, copyrights, patents, patent
applications, licenses and rights in any thereof, and other
similar intangibles, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption,
retirement or prepayment of capital stock or Debt, and (iii) any
items not included in clauses (i) or (ii), above, that are treated
as intangibles in conformity with generally accepted accounting
principles.
"Restricted Subsidiary" means any Restricted Subsidiary
that is a Subsidiary of Enterprises.
SECTION 2. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all obligations of the Borrower now or
hereafter existing under the Credit Agreement and the Notes, whether for
principal, interest, fees, expenses or otherwise (such obligations being
the "Obligations"), and agrees to pay any and all expenses (including
reasonable fees and expenses of counsel) incurred by the Agents or the
Lenders in enforcing any rights under this Guaranty. Without limiting the
generality of the foregoing, the Guarantor's liability shall extend to all
amounts which constitute part of the Obligations and would be owed by the
Borrower to the Co-Agents or the Lenders under the Credit Agreement and
the Notes but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Borrower.
Anything herein or in any other document, instrument or agreement
executed and delivered in connection herewith to the contrary
notwithstanding, the maximum liability of the Guarantor hereunder as at
any date of determination thereof shall in no event exceed the Guarantor's
Maximum Guaranteed Amount as determined at the earliest of such date, the
date of the commencement of a case under Title 11 of the United States
Code in which the Guarantor is a debtor and the date enforcement hereunder
is sought. For the purpose of this paragraph, "Maximum Guaranteed Amount"
shall mean the sum of (i) the aggregate amount of the Advances or other
Extensions of Credit made pursuant to the Credit Agreement to the extent
the proceeds thereof are used to make a Valuable Transfer to the Guarantor
and (ii) ninety-five percent (95%) of the Adjusted Net Worth of the
Guarantor. For the purpose of this paragraph, "Valuable Transfer" shall
mean (i) all loans, advances or capital contributions made to the
Guarantor with proceeds of Extensions of Credit, (ii) all debt securities
or other obligations of the Guarantor acquired from the Guarantor or
retired by the Guarantor with proceeds of Extensions of Credit, (iii) the
fair market value of all property acquired with proceeds of Extensions of
Credit and transferred, absolutely and not as collateral, to the
Guarantor, (iv) all equity securities of the Guarantor acquired from the
Guarantor with proceeds of Extensions of Credit and (v) the value of any
quantifiable economic benefits not included in clauses (i) through (iv),
above, but includable in accordance with applicable Federal and state laws
governing determinations of the insolvency of debtors, accruing to the
Guarantor as a result of Extensions of Credit. For purposes of this
paragraph, "Adjusted Net Worth" shall mean the excess of (i) the amount of
the "present fair saleable value" of the assets of the Guarantor as of the
date of determination, over (ii) the amount of all "liabilities of such
Guarantor, contingent or otherwise," as of the date of determination, as
such quoted terms are determined in accordance with applicable Federal and
state laws governing determinations of the insolvency of debtors. In
determining the Adjusted Net Worth of the Guarantor for purposes of
calculating the Maximum Guaranteed Amount for the Guarantor, the
liabilities of the Guarantor to be used in such determination pursuant to
clause (ii) of the preceding sentence shall in any event include any
amounts guaranteed by the Guarantor pursuant to clause (i) of the
definition of Maximum Guaranteed Amount.
SECTION 3. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the
Credit Agreement and the Notes, regardless of any law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Co-Agents or the Lenders with respect thereto. The
obligations of the Guarantor under this Guaranty are independent of the
Obligations, and a separate action or actions may be brought and
prosecuted against the Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against the Borrower or whether the Borrower
is joined in any such action or actions. The liability of the Guarantor
under this Guaranty shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the
Credit Agreement, the Notes, any other Loan Document, or any other
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to
departure from the Credit Agreement, the Notes, or any other Loan
Document, including, without limitation, any increase in the
Obligations resulting from the extension of additional credit to
the Borrower or any of its Subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection
of any collateral, or any taking, release or amendment or waiver
of or consent to departure from any other guaranty, for all or any
of the Obligations;
(iv) the existence of any claim, set-off, defense or
other right which the Guarantor may have at any time against the
Documentation Agent, a Co-Agent, any Lender or any other Person,
whether in connection with this Guaranty, the transactions
contemplated in any of the other Loan Documents, or any unrelated
transaction;
(v) any manner of application of collateral, or
proceeds thereof, to all or any of the Obligations, or any manner
of sale or other disposition of any collateral for all or any of
the Obligations or any other assets of the Borrower or any of its
Subsidiaries;
(vi) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
Subsidiaries; or
(vii) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Borrower
or a guarantor.
This Guaranty shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Documentation Agent or any Lender
upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
SECTION 4. Waiver. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any
of the Obligations and this Guaranty and any requirement that the
Documentation Agent or any Lender protect, secure, perfect or insure any
security interest or lien or any property subject thereto or exhaust any
right or take any action against the Borrower or any other Person or any
collateral.
SECTION 5. Subrogation. Notwithstanding any payment or payments
made by the Guarantor hereunder, or any setoff or application of funds of
the Guarantor by any Agent or Lender, the Guarantor hereby irrevocably
waives any and all rights of subrogation to the rights of the Agents and
the Lenders against the Borrower and any and all rights of reimbursement,
assignment, indemnification or implied contract or any similar rights
against the Borrower or against any endorser or other guarantor of all or
any part of the Obligations. If, notwithstanding the foregoing, any
amount shall be paid to the Guarantor on account of such subrogation
rights at any time when all of the Obligations shall not have been paid in
full, such amount shall be held by the Guarantor in trust for the
Documentation Agent and the Lenders, segregated from other funds of the
Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned
over to the Documentation Agent in the exact form received by the
Guarantor (duly endorsed by the Guarantor to the Documentation Agent), to
be applied against the Obligations, whether matured or unmatured, in such
order as the Documentation Agent may determine.
SECTION 6. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) The Guarantor, each Restricted Subsidiary and Nomeco is a
corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and is duly qualified to do
business in, and is in good standing in, all other jurisdictions where the
nature of its business or the nature of property owned or used by it makes
such qualification necessary.
(b) The Guarantor has all requisite power and authority to
conduct its business, to own and lease (as lessee) its properties and to
execute and deliver, and to perform all of its obligations under, this
Guaranty.
(c) The execution and delivery by the Guarantor of this
Guaranty, and the performance by the Guarantor of its obligations
hereunder (i) are within the Guarantor's corporate powers, (ii) have been
duly authorized by all necessary corporate action and (iii) do not and
will not (A) require any consent or approval of the stockholders of the
Guarantor, (B) violate any provision of the charter or by-laws of the
Guarantor or of law, (C) violate any legal restriction binding on or
affecting the Guarantor, (D) result in a breach of, or constitute a
default under, any indenture or loan or credit agreement or any other
agreement, lease or instrument to which the Guarantor is a party or by
which it or its properties may be bound or affected, or (E) result in or
require the creation of any Lien upon or with respect to any of its
properties.
(d) This Guaranty constitutes the legal, valid and binding
obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms; subject to the qualification, however, that the
enforcement of the rights and remedies herein is subject to bankruptcy and
other similar laws of general application affecting rights and remedies of
creditors and the application of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
(e) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Guarantor
of this Guaranty.
(f) (i) The consolidated balance sheet of the Guarantor and
its Consolidated Subsidiaries as at December 31, 1993, and the related
consolidated statements of income and retained earnings of the Guarantor
and its Consolidated Subsidiaries for the fiscal year then ended, together
with the report thereon of Arthur Andersen & Co., and the unaudited
consolidated balance sheet of the Guarantor and its Consolidated
Subsidiaries as at March 31, 1994 and the related unaudited consolidated
statements of income and retained earnings for the three-month period then
ended, copies of each of which have been furnished to each Lender, fairly
present (subject, in the case of such balance sheets and statements of
income for the three months ended March 31, 1994, to year-end adjustments)
the financial condition of the Guarantor and its Consolidated Subsidiaries
as at such dates and the results of operations of the Guarantor and its
Consolidated Subsidiaries for the periods ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. (ii) Since March 31, 1994, except as disclosed in the Borrower's
Report on Form 10-Q for the period ended March 31, 1994, there has been no
material adverse change in the business, financial condition or results of
operations of the Guarantor and its Subsidiaries, considered as a whole,
or in the Guarantor's ability to perform its obligations under this
Guaranty. (iii) The Guarantor has no material liabilities or obligations
except as reflected in the foregoing financial statements and in Schedule
II to the Credit Agreement, as evidenced by this Guaranty and as may be
incurred, in accordance with the terms of this Agreement, in the ordinary
course of business (as presently conducted) following the date of this
Agreement.
(g) Except as disclosed in the Borrower's Report on Form 10-Q
for the period ended March 31, 1994, there are no pending or threatened
actions, suits or proceedings against or, to the knowledge of the
Guarantor, affecting the Guarantor or any of its Subsidiaries or the
properties of the Guarantor or any of its Subsidiaries before any court,
governmental agency or arbitrator, that would, if adversely determined,
reasonably be expected to materially adversely affect the financial
condition, properties or operations of the Guarantor and its Subsidiaries,
considered as a whole, or affect the legality, validity or enforceability
of this Guaranty.
(h) No Plan Termination Event has occurred nor is reasonably
expected to occur with respect to any Plan of the Guarantor or any ERISA
Affiliate of the Guarantor which would result in a material liability to
the Guarantor, except as disclosed to and consented by the Majority
Lenders in writing from time to time. Since the date of the most recent
Schedule B (Actuarial Information) to the annual report of the Guarantor
(Form 5500 Series), if any, there has been no material adverse change in
the funding status of the Plans referred therein and no "prohibited
transaction" has occurred with respect thereto which is reasonably
expected to result in a material liability to the Guarantor. Neither the
Guarantor nor any of its ERISA Affiliates has incurred nor reasonably
expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan, except as disclosed to and consented by the Majority
Lenders in writing from time to time.
(i) No fire, explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (except for any such circumstance, if
any, which is covered by insurance which coverage has been confirmed and
not disputed by the relevant insurer) affecting the properties, business
or operations of the Guarantor, any Restricted Subsidiary or Nomeco has
occurred that could reasonably be expect to have a material adverse effect
on the business, financial condition or results of operations of the
Guarantor and its Subsidiaries, considered as a whole.
(j) The Guarantor and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes
shown thereon to be due, including interest and penalties, or, to the
extent the Guarantor or any of its Subsidiaries is contesting in good
faith an assertion of liability based on such returns, has provided
adequate reserves for payment thereof in accordance with generally
accepted accounting principles.
(k) One hundred percent of the equity securities of the
Guarantor is owned directly or indirectly by the Borrower.
(l) There are no conditions precedent to the effectiveness of
this Guaranty that have not been satisfied or waived.
(m) The Guarantor has, independently and without reliance upon
the Agents or any Lender and based on such documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter
into this Guaranty.
(n) The Guarantor is, and upon the consummation of the
transactions contemplated under the Credit Agreement and this Guaranty
will be, solvent, and has, and upon the consummation of such transactions
will have, assets having a fair value in excess of the amount required to
pay its probable liabilities on its existing Debt as they become absolute
and matured, and does not have, and will not have, upon the consummation
of such transactions, an unreasonably small capital for the conduct of its
business as it is now being conducted.
Notwithstanding the foregoing, it is understood and agreed that, as to
Nomeco, the foregoing representations and warranties shall only be made
and apply to the extent that Nomeco is a Subsidiary of Enterprises.
SECTION 7. Affirmative Covenants. The Guarantor covenants and
agrees that, so long as any part of the Obligations shall remain unpaid or
any Lender shall have any Commitment, the Guarantor will, unless the
Majority Lenders shall otherwise consent in writing:
(a) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, all taxes, assessments and governmental charges, royalties or
levies imposed upon it or upon its property except, in the case of taxes,
to the extent the Guarantor or any Subsidiary, as the case may be, is
contesting the same in good faith and has set aside adequate reserves for
the payment thereof in accordance with generally accepted accounting
principles.
(b) Maintenance of Insurance. Maintain, and cause each
Restricted Subsidiary and Nomeco to maintain, insurance covering the
Guarantor, each Restricted Subsidiary, Nomeco and their respective
properties in effect at all times in such amounts and covering such risks
as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general geographical area in which
the Guarantor, each Restricted Subsidiary and Nomeco operates, either with
reputable insurance companies or, in whole or in part, by established
reserves of one or more insurance funds, either alone or with other
corporations or associations.
(c) Preservation of Existence, Etc. Except as otherwise
permitted by Sections 8(g) and 8(h), preserve and maintain, and cause each
Restricted Subsidiary and Nomeco to preserve and maintain, its corporate
existence, material rights (statutory and otherwise) and franchises, and
take such other action as may be necessary or advisable to preserve and
maintain its right to conduct its business in the states where it shall be
conducting its business.
(d) Compliance with Laws, Etc. Comply, and cause each
Restricted Subsidiary and Nomeco to comply, in all material respects with
the requirements of all applicable laws, rules, regulations and orders of
any governmental authority, including without limitation any such laws,
rules, regulations and orders relating to zoning, environmental
protection, use and disposal of Hazardous Substances, land use,
construction and building restrictions, and employee safety and health
matters relating to business operations.
(e) Inspection Rights. Subject to the requirements of laws or
regulations applicable to the Guarantor or its Subsidiaries, as the case
may be, and in effect at the time, at any time and from time to time upon
reasonable notice, permit (i) the Co-Agents and their respective agents
and representatives to examine and make copies of and abstracts from the
records and books of account of, and the properties of, the Guarantor or
any of its Subsidiaries and (ii) the Co-Agents, each of the Lenders, and
their respective agents and representatives to discuss the affairs,
finances and accounts of the Guarantor and its Subsidiaries with the
Guarantor and its Subsidiaries and their respective officers, directors
and accountants, in each case, to the extent any out-of-pocket expenses
are incurred in connection therewith at such time as no Event of Default
or Unmatured Default shall have occurred and be continuing, at the expense
of the Co-Agents, each of the Lenders, and their respective agents and
representatives, as the case may be.
(f) Keeping of Books. Keep, and cause each of its
Subsidiaries to keep, proper records and books of account, in which full
and correct entries shall be made of all financial transactions of the
Guarantor and its Subsidiaries and the assets and business of the
Guarantor and its Subsidiaries, in accordance with generally accepted
accounting principles consistently applied.
(g) Maintenance of Properties, Etc. (i) Maintain, and cause
each Restricted Subsidiary and Nomeco to maintain, in substantial
conformity with all laws and material contractual obligations, good and
marketable title to all of its properties which are used or useful in the
conduct of its business; provided, however, that the foregoing shall not
restrict the sale of any asset of the Guarantor to the extent not
prohibited by Section 8(h), and (ii) preserve, maintain, develop, and
operate, and cause each of its Subsidiaries to preserve, maintain, develop
and operate, in substantial conformity with all laws and material
contractual obligations, all of its properties which are used or useful in
the conduct of its business in good working order and condition, ordinary
wear and tear excepted.
(h) Maintenance of Net Worth. Maintain a Net Worth of not
less than $10 million.
(i) Reporting Requirements. Furnish to each Lender, the
following:
(i) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Guarantor, a consolidated balance sheet of the
Guarantor and its Subsidiaries as of the end of such quarter and
consolidated statements of income and retained earnings and of
cash flows of the Guarantor and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief
financial officer or chief accounting officer of the Guarantor as
having been prepared in accordance with generally accepted
accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section
6(f), together with a schedule (substantially in the form of
Exhibit A hereto appropriately completed) of the computations used
by the Guarantor in determining compliance with the covenant
contained in Section 7(h);
(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Guarantor and its
Subsidiaries, a consolidated balance sheet of the Guarantor and
its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of
cash flows of the Guarantor and its Subsidiaries for such fiscal
year, accompanied by a report thereon of Arthur Andersen & Co. or
another nationally-recognized independent public accounting firm,
together with a schedule in form satisfactory to the Majority
Lenders of the computations used by such accounting firm in
determining, as of the end such fiscal year, compliance with the
covenant contained in Section 7(h);
(iii) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Guarantor, a balance sheet of the Guarantor as
of the end of such quarter and statements of income and retained
earnings and of cash flows of the Guarantor for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief
financial officer or chief accounting officer of the Guarantor as
having been prepared in accordance with generally accepted
accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section
6(f);
(iv) as soon as available and in any event within 120
days after the end of each fiscal year of the Guarantor, a balance
sheet of the Guarantor as of the end of such fiscal year and
statements of income and retained earnings and of cash flows of
the Guarantor for such fiscal year, all in reasonable detail and
duly certified (subject to year-end audit adjustments) by the
chief financial officer or chief accounting officer of the
Guarantor as having been prepared in accordance with generally
accepted accounting principles consistent with those applied in
the preparation of the financial statements referred to in Section
6(f);
(v) as soon as possible and in any event (a) within
30 days after the Guarantor knows or has reason to know that any
Plan Termination Event described in clause (i) of the definition
of Plan Termination Event with respect to any Plan of the
Guarantor or any of its ERISA Affiliates has occurred and could
reasonably be expected to result in a material liability to the
Guarantor and (b) within 10 days after the Guarantor knows or has
reason to know that any other Plan Termination Event with respect
to any Plan of the Guarantor or any of its ERISA Affiliates has
occurred and could reasonably be expected to result in a material
liability to the Guarantor, a statement of the chief financial
officer or chief accounting officer of the Guarantor describing
such Plan Termination Event and the action, if any, which the
Guarantor proposes to take with respect thereto;
(vi) promptly after receipt thereof by the Guarantor
or any of its ERISA Affiliates from the PBGC copies of each notice
received by the Guarantor or any such ERISA Affiliate of the
PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(vii) promptly and in any event within 30 days after
the filing thereof with the Internal Revenue Service, copies of
each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) with respect to each Plan (if any) to which the
Guarantor is a contributing employer;
(viii) promptly after receipt thereof by the Guarantor
or any of its ERISA Affiliates from a Multiemployer Plan sponsor,
a copy of each notice received by the Guarantor or any of its
ERISA Affiliates concerning the imposition or amount of withdrawal
liability in an aggregate principal amount of at least $250,000
pursuant to Section 4202 of ERISA in respect of which the
Guarantor is reasonably expected to be liable;
(ix) promptly after the Guarantor becomes aware of the
occurrence thereof, notice of all actions, suits, proceedings or
other events of the type described in Section 6(g);
(x) promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports
which the Guarantor sends to its public security holders (if any),
copies of all regular, periodic and special reports which the
Guarantor files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with
any national securities exchange, pursuant to the Exchange Act,
and copies of all final prospectuses with respect to any
securities issued or to be issued by the Guarantor or any of its
Subsidiaries;
(xi) as soon as possible, and in any event within five
days after the occurrence of any material default under any
material agreement to which the Guarantor or any of its
Subsidiaries is a party, which default would materially adversely
affect the financial condition, business, results of operations or
property of the Guarantor and its Subsidiaries, considered as a
whole, any of which is continuing on the date of such certificate,
a certificate of the chief financial officer of the Guarantor
setting forth the details of such material default and the action
which the Guarantor or any such Subsidiary proposes to take with
respect thereto; and
(xii) promptly after requested, such other information
respecting the business, properties, condition or operations,
financial or otherwise, of the Guarantor and its Subsidiaries as
any Co-Agent or the Majority Lenders may from time to time
reasonably request in writing.
Notwithstanding the foregoing, it is understood and agreed that, as to
Nomeco, the covenants contained in this Section 7 shall only apply to the
extent that Nomeco is a Subsidiary of Enterprises.
SECTION 8. Negative Covenants. The Guarantor covenants and
agrees that, so long as any part of the Obligations shall remain unpaid or
any Lender shall have any Commitment, the Guarantor will not, without the
prior written consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume or suffer to exist any
lien, security interest, or other charge or encumbrance (including the
lien or retained security title of a conditional vendor) of any kind, or
any other type of arrangement intended or having the effect of conferring
upon a creditor a preferential interest upon or with respect to any of its
properties of any character (including, without limitation, capital stock
of any of its directly-owned Subsidiaries and accounts) (any of the
foregoing being referred to herein as a "Lien"), or sign or file under the
Uniform Commercial Code of any jurisdiction a financing statement which
names the Guarantor as debtor, sign any security agreement authorizing any
secured party thereunder to file such financing statement, or assign
accounts, excluding, however, from the operation of the foregoing
restrictions the Liens created under the Loan Documents and the following:
(i) Liens for taxes, assessments or governmental
charges or levies to the extent not past due;
(ii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other
similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which have been fully bonded
and are being contested in good faith;
(iii) pledges or deposits to secure obligations under
workmen's compensation laws or similar legislation or to secure
public or statutory obligations of the Guarantor; and
(iv) purchase money Liens or purchase money security
interests upon or in property acquired or held by the Guarantor in
the ordinary course of business to secure the purchase price of
such property or to secure indebtedness incurred solely for the
purpose of financing the acquisition of any such property to be
subject to such Liens or security interests, or Liens or security
interests existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided that no such
Lien or security interest shall extend to or cover any property
other than the property being acquired and no such extension,
renewal or replacement shall extend to or cover property not
theretofore subject to the Lien or security interest being
extended, renewed or replaced, and provided, further, that the
aggregate principal amount of Debt at any one time outstanding
secured by Liens permitted by this clause (iv) shall not exceed
$10,000,000.
(b) Debt. Create, incur, assume or suffer to exist any Debt
other than:
(i) Debt hereunder;
(ii) Guaranty Obligations (A) arising by reason of the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of the Guarantor's
business, and (B) in the form of indemnities in respect of unfiled
mechanics' liens and Liens permitted under Section 8(a)(ii); and
(iii) other Debt of the Guarantor set forth in Schedule
II to the Credit Agreement.
(c) Lease Obligations. Create, incur, assume or suffer to
exist any obligations as lessee for the rental or hire of real or personal
property of any kind under leases or agreements to lease (other than
leases which constitute Debt) having an original term of one year or more
which would cause the aggregate direct or contingent liabilities of the
Guarantor in respect of all such obligations payable in any period of 12
consecutive calendar months to exceed at any time $1,500,000.
(d) Restricted Payments. Upon the occurrence and during the
continuance of an Unmatured Default or an Event of Default, declare or pay
any dividend, payment or other distribution of assets, properties, cash,
rights, obligations or securities on account of any share of any class of
capital stock of the Guarantor (other than (1) stock splits and dividends
payable solely in nonconvertible equity securities of the Guarantor and
(2) except as otherwise provided below, distributions made to the
Borrower), or purchase, redeem, retire, or otherwise acquire for value any
shares of any class of capital stock of the Guarantor or any warrants,
rights, or options to acquire any such shares, now or hereafter
outstanding, or make any distribution of assets to any of its shareholders
(other than distributions to the Borrower); provided, however, that upon
the occurrence and during the continuance of an Unmatured Default that
results from the failure of the Borrower to comply with the ratio set
forth in Section 8.01(j) of the Credit Agreement, the Guarantor may
declare and pay to the Borrower any cash dividends if and to the extent
that the Borrower applies such cash dividends to cure such Unmatured
Default pursuant to the first proviso to said Section 8.01(j).
(e) Compliance with ERISA. (i) Permit to exist any
accumulated funding deficiency (as defined in Section 412(a) of the
Internal Revenue Code of 1986, as amended) (ii) terminate, or permit any
of its ERISA Affiliates to terminate, any Plan so as to result in any
material (in the opinion of the Majority Lenders) liability of the
Guarantor to the PBGC, or (iii) permit to exist any occurrence of any
Reportable Event (as defined in Title IV of ERISA), or any other event or
condition, which presents a material (in the opinion of the Majority
Lenders) risk of such a termination by the PBGC of any Plan and such a
material liability to the Guarantor.
(f) Transactions with Affiliates. Enter into, or permit any
of its Subsidiaries to enter into, any transaction with any of its
Affiliates unless such transaction is on terms no less favorable to the
Guarantor or such Subsidiary than if the transaction had been negotiated
in good faith on an arm's length basis with a non-Affiliate.
(g) Mergers, Etc. Merge with or into or consolidate with or
into any other Person, except as permitted under Section 8.02(h) of the
Credit Agreement.
(h) Sales, Etc., of Assets. Sell, lease, transfer or
otherwise dispose of all or any substantial part of its assets, except
(i) to give effect to a transaction permitted by subsection (g), above,
(ii) to another Restricted Subsidiary, and (iii) Enterprises may sell,
transfer or otherwise dispose of all or any portion of the common stock or
assets of Nomeco to any Person or Persons (provided that, in connection
with any such sale, transfer or other disposition, Enterprises shall have
received fair consideration, as determined by its Board of Directors), in
each case subject to compliance with Section 7(h) hereof and Section
8.02(b)(ii) of the Credit Agreement immediately after giving effect to
such transaction.
SECTION 9. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty, and no consent to any departure by the
Guarantor herefrom, shall in any event be effective unless the same shall
be in writing and signed by the Documentation Agent and the Majority
Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given, provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, (a) limit the liability of the Guarantor
hereunder, (b) postpone any date fixed for payment hereunder, or
(c) change the number of Lenders required to take any action hereunder.
SECTION 10. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, facsimile, telex or cable communication) and mailed,
telegraphed, telecopied, telexed, cabled or delivered, if to the
Guarantor, at its address at Fairlane Plaza South, 330 Town Center Drive,
Suite 1100, Dearborn, Michigan 48126, Attention: Denise M. Sturdy, Esq.,
Assistant General Counsel, with a copy to Doris F. Galvin, Vice President
and Treasurer, 212 West Michigan Avenue, Jackson, Michigan 49201, and if
to the Documentation Agent or any Lender, at its address specified in the
Credit Agreement, or, as to any party, at such other address as shall be
designated by such party in a written notice to each other party. All
such notices and other communications shall, when mailed, telegraphed,
telecopied, telexed or cabled, be effective five days after when deposited
in the mails, or when delivered to the telegraph company, telecopied,
confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 11. No Waiver; Remedies. No failure on the part of the
Documentation Agent or any Lender to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided
by law.
SECTION 12. Right of Set-off. Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request
or the granting of the consent specified by Section 9.02 of the Credit
Agreement to authorize the Co-Agents to declare the Notes due and payable
pursuant to the provisions of said Section 9.02, each Lender is hereby
authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Guarantor against any and all of the obligations of the
Guarantor now or hereafter existing under this Guaranty, whether or not
such Lender shall have made any demand under this Guaranty and although
such obligations may be contingent and unmatured. Each Lender agrees to
notify promptly the Guarantor after any such set-off and application made
by such Lender, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each
Lender under this Section 12 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which such Lender
may have.
SECTION 13. Continuing Guaranty; Assignments under Credit
Agreement. This Guaranty is a continuing guaranty and shall (i) remain in
full force and effect until the later of (x) the payment in full of the
Obligations and all other amounts payable under this Guaranty and (y) the
expiration or termination of the Commitments, (ii) be binding upon the
Guarantor, its successors and assigns, and (iii) inure to the benefit of,
and be enforceable by, the Documentation Agent, the Lenders and their
respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), any Lender may assign or
otherwise transfer all or any portion of its rights and obligations under
the Credit Agreement (including, without limitation, all or any portion of
its Commitment, the Advances owing to it and any Note held by it) to any
other Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to such Lender herein or
otherwise, subject, however, to the provisions of Article X (concerning
the Agents) and Section 11.07 of the Credit Agreement.
SECTION 14. Waiver of Jury Trial. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN
DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR
THEREUNDER.
SECTION 15. Governing Law. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of New York. The
Guarantor (i) irrevocably submits to the jurisdiction of any New York
State court or Federal court sitting in New York City in any action
arising out of this Guaranty or any Loan Document, (ii) agrees that all
claims in such action may be decided in such court, (iii) waives, to the
fullest extent it may effectively do so, the defense of an inconvenient
forum and (iv) consents to the service of process by mail. A final
judgment in any such action shall be conclusive and may be enforced in
other jurisdictions. Nothing herein shall affect the right of any party
to serve legal process in any manner permitted by law or affect its right
to bring any action in any other court.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
CMS ENTERPRISES COMPANY
By__________________________________
Title:<PAGE>
<PAGE>
EXHIBIT A
Form of Compliance Schedule
<PAGE>
<PAGE>
EXHIBIT 6.02C
FORM OF OPINION OF COUNSEL FOR THE LOAN PARTIES
[Date of Initial Extension of Credit]
To each of the Lenders parties
to the Credit Agreement referred
to below, and to Citibank, N.A.
and Union Bank, as Agents under
the Credit Agreement
CMS Energy Corporation
Ladies and Gentlemen:
This letter is furnished to you pursuant to Section
6.02(vii)(A) of the Credit Agreement, dated as of July 29, 1994 (the
"Credit Agreement"), among CMS Energy Corporation (the "Borrower"), the
Banks parties thereto and the other Lenders from time to time parties
thereto, Citibank, N.A. and Union Bank, as Co-Agents, Citibank, N.A., as
Documentation Agent, and Union Bank, as Operational Agent. Capitalized
terms not defined herein have the meanings ascribed thereto in the Credit
Agreement and the other Loan Documents (as defined in the Credit
Agreement). Certain other terms, as noted herein, are used as defined in
the Uniform Commercial Code as presently in effect in the State of New
York (the "UCC").
We have acted as counsel for the Borrower and the
Guarantor in connection with the preparation, execution and delivery of,
and the initial Extension of Credit made under, the Credit Agreement and
the other Loan Documents.
In that capacity, we have examined:
(a) The Credit Agreement;
(b) The Notes;
(c) The Guaranty;
(d) The Cash Collateral Agreement
(e) The Articles of Incorporation of the Borrower and
all amendments thereto (the "Borrower Charter");
(f) The by-laws of the Borrower and all amendments
thereto (the "Borrower By-laws");
(g) The Articles of Incorporation of Enterprises and
all amendments thereto (the "Enterprises
Charter"); and
(h) The by-laws of Enterprises and all amendments
thereto (the "Enterprises By-laws").
In addition, we have examined the originals, or copies
certified to our satisfaction, of such other corporate records of the
Borrower and of Enterprises, certificates of public officials and of
officers of the Borrower and of Enterprises, and agreements, instruments
and other documents, as we have deemed necessary as a basis for the
opinions expressed below. As to various questions of fact material to
such opinions, we have, when relevant facts were not independently
established by us, relied upon the representations of the Borrower and
Enterprises in the Loan Documents, and upon certificates of the Borrower
and Enterprises or their respective officers or of public officials.
We have assumed (i) the due execution and delivery,
pursuant to due authorization, of each document referred to in clauses (a)
through (f) above by all parties to such document (other than the Loan
Parties), (ii) the authenticity of all such documents submitted to us as
originals, (iii) the genuineness of all signatures (other than those of
the Loan Parties), and (iv) the conformity to the originals of all such
documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we
have deemed necessary, we are of the following opinion:
1. Each of the Borrower and Enterprises is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Michigan.
2. The execution, delivery and performance by the
Borrower of the Credit Agreement, the Notes and the other Loan
Documents to which it is, or is to be, a party are within the
corporate power and authority of the Borrower, have been duly
authorized by all necessary corporate action, and do not
contravene (a) the Borrower Charter or the Borrower By-laws,
(b) any provision of applicable law or (c) any legal or
contractual restriction of which we have knowledge, after due
inquiry, binding on the Borrower or its properties; and such
execution, delivery and performance do not result in or require
the creation or imposition of any mortgage, deed of trust, pledge,
or Lien upon or with respect to any of its properties (other than
under the Security Documents). The Credit Agreement, the Notes
and the Cash Collateral Agreement have been duly executed and
delivered on behalf of the Borrower.
3. The execution, delivery and performance by
Enterprises of the Guaranty are within the corporate power and
authority of Enterprises, have been duly authorized by all
necessary corporate action, and do not contravene (a) the
Enterprises Charter or the Enterprises By-laws, (b) any provision
of applicable law or (c) any legal or contractual restriction of
which we have knowledge, after due inquiry, binding on Enterprises
or its properties; and such execution, delivery and performance do
not result in or require the creation or imposition of any
mortgage, deed of trust, pledge, or Lien upon or with respect to
any of its properties. The Guaranty has been duly executed and
delivered on behalf of Enterprises.
4. No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or
regulatory body is required for (a) the valid execution, delivery
and performance by (i) the Borrower of the Credit Agreement and
the other Loan Documents to which it is, or is to be, a party, or
(ii) Enterprises of the Guaranty or (b) the creation of any Lien
purported to be granted or created pursuant to any Security
Document, except for such authorizations, approvals and filings as
have been duly obtained or made and which are in full force and
effect on the date hereof and not subject to appeal.
5. The Credit Agreement, the Notes and the Cash
Collateral Agreement constitute legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
6. The Guaranty constitutes the legal, valid and
binding obligation of Enterprises, enforceable against Enterprises
in accordance with its terms.
7. Except as disclosed in the Borrower's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, we are
not aware, after due inquiry, of any pending or threatened action
or proceeding against the Borrower or its properties before any
court, governmental agency or arbitrator, that could, if adversely
determined, reasonably be expected to materially adversely affect
the financial condition, properties, business or operations of the
Borrower, the legality, validity or enforceability of the Credit
Agreement or any other Loan Document to which the Borrower is, or
is to be, a party, or the validity, enforceability, perfection or
priority of any Lien purported to be granted by or under any
Security Document to which the Borrower is, or is to be, a party.
8. Except as disclosed in the Borrower's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, we are
not aware, after due inquiry, of any pending or threatened action
or proceeding against Enterprises or its properties before any
court, governmental agency or arbitrator, that could, if adversely
determined, reasonably be expected to materially adversely affect
the financial condition, properties, business or operations of
Enterprises, the legality, validity or enforceability of the
Guaranty.
9. The Cash Collateral Agreement, after delivery
thereof pursuant to Article VI of the Credit Agreement and upon
the deposit of cash with the Operational Agent pursuant thereto,
will create a valid security interest in the Collateral (as
defined therein, but excluding the Account (as defined therein)
and other types of deposit accounts that are not subject to
Article 9 of the UCC) securing payment of the Obligations (as
defined therein).
Due inquiry with respect to the foregoing opinions
consisted of interviewing certain officers of the Borrower and Enterprises
and reviewing such records and documents of the Borrower and Enterprises
as we deemed appropriate to render such opinions.
The opinions set forth in paragraphs 5, 6 and 9, above,
are subject to the following qualifications:
(a) In connection with the opinions expressed in
paragraphs 5, 6 and 9, the enforceability of the security
interests described therein, the enforceability of the Borrower's
obligations under the Credit Agreement, the Notes and the other
Loan Documents to which it is, or is to be, a party, and the
enforceability of Enterprises' obligations under the Guaranty are,
or, in the case of any Loan Document executed and delivered by the
Borrower after the date hereof, will be, subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally. We
further note that certain of the rights and remedies set forth in
the Security Documents are or may be unenforceable under the laws
of the State of New York, but the inclusion of such provisions
does not affect the validity of such Security Documents, and such
Security Documents contain adequate provisions, if properly
invoked, for the enforcement under New York law of the security
interests granted therein.
(b) In connection with the opinions expressed in
paragraphs 5, 6 and 9, the enforceability of the security
interests described therein, the enforceability of the Borrower's
obligations under the Credit Agreement, the Notes and the other
Loan Documents to which it is, or is to be, a party, and the
enforceability of Enterprises' obligations under the Guaranty, are
subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law). Such principles of equity are of general application and,
in applying such principles, a court, among other things, might
not allow a contracting party to exercise remedies in respect of a
default deemed immaterial, or might decline to order an obligor to
perform covenants. Such principles would include an expectation
that parties act with reasonableness and in good faith, and might
be applied, for example, to provisions which purport to grant a
party with the authority to exercise sole discretion or make
conclusive determinations.
(c) We note further that, in addition to the application
of equitable principles described above, courts have imposed an
obligation on contracting parties to act reasonably and in good
faith in the exercise of their contractual rights and remedies,
and may also apply public policy considerations in limiting the
right of parties seeking to obtain indemnification under
circumstances where the conduct of such parties in the
circumstances in question is determined to have constituted
negligence.
(d) In connection with the opinions expressed in
paragraph 9, above, and as to cash proceeds of "Collateral", we
point out that in the case of proceeds, continuation of the
perfection of the security interest therein of the Operational
Agent is limited to the extent set forth in Section 9-306 of the
UCC.
(e) With respect to the opinions set forth in
paragraph 9, above, we have assumed that the pledgor has not
granted or permitted, nor does there otherwise exist, any
execution or attachment on any of the Collateral or any other Lien
therein or thereon which does not require steps for perfection
under the UCC of any jurisdiction to be enforceable against third
parties.
(f) We express no opinion herein as to:
(i) any Loan Party's rights in or title to any
Collateral, or the authenticity or enforceability thereof;
(ii) the priority of the security interest
created or purported to be created by the Cash Collateral
Agreement in any of the Collateral as against any claim or
lien in favor of the United States of America or any
agency or instrumentality thereof, including, without
limitation, any Federal tax lien created under the
Internal Revenue Code of 1986 or lien created under Title
IV of ERISA;
(iii) the effect of the law of any jurisdiction
(other than the State of New York), wherein any Lender may
be located which limits rates of interest that may be
charged or collected by such Lender;
(iv) the priority of any security interests;
(v) the priority of security interests in any
Collateral relative to any claim (including for taxes) in
favor of any state or of its respective agencies,
authorities, municipalities or political subdivisions,
which claim (or any lien therefore) is given priority
under any law of any state; or
(vi) the priority of security interests in any
Collateral as against any lien creditor (as such term is
defined in Article 9 of the UCC), to the extent that the
security interests therein purport to secure any advances
or other extensions of credit other than Advances made
pursuant to existing Commitments under the Credit
Agreement.
Our opinions expressed herein are limited to the laws of
the States of New York and Michigan and the Federal laws of the United
States of America. As to matters of Michigan law involved in the opinions
expressed herein, we have consulted with Rodger A. Kershner, Esq.,
Assistant General Counsel to the Borrower and Vice President and General
Counsel to Enterprises, who is licensed to practice law in the State of
Michigan. Mr. Kershner has confirmed to us that, insofar as matters of
Michigan law are involved in the opinions expressed herein, such opinions
are, in his opinion, correct. We believe that you and we are justified in
relying on Mr. Kershner's opinion for such purposes.
Except as otherwise specified herein, this opinion is
being delivered solely for the benefit of the parties to whom it is
addressed. Accordingly, it may not be quoted, filed with any governmental
authority or otherwise circulated or utilized for any other purpose
without our prior written consent.
Very truly yours,
<PAGE>
<PAGE>
EXHIBIT 6.02D
FORM OF OPINION OF COUNSEL TO THE AGENTS
[Date of Initial Extension of Credit]
To the Banks listed on Schedule A
hereto, and to Citibank, N.A. and
Union Bank, as Agents
CMS Energy Corporation
Ladies and Gentlemen:
We have acted as special New York counsel to Citibank, N.A. and
Union Bank, individually and as Agents, in connection with the execution
and delivery of, and the making of the initial Extension of Credit on this
date under, the Credit Agreement, dated as of July 29, 1994 (the "Credit
Agreement"), among CMS Energy Corporation, the Banks parties thereto and
the other Lenders from time to time parties thereto, Citibank, N.A. and
Union Bank, as Co-Agents, Citibank, N.A., as Documentation Agent, and
Union Bank, as Operational Agent. Terms defined in the Credit Agreement
are used herein as therein defined.
In this connection, we have examined an executed counterpart of
the Credit Agreement, together with the other Loan Documents and other
documents listed on Schedule B hereto.
In our examination of the documents referred to above, we have
assumed the authenticity of all such documents submitted to us as
originals, the genuineness of all signatures, the due authority of the
parties executing such documents and the conformity to the originals of
all such documents submitted to us as copies. We have further assumed
that you have evaluated, and are satisfied with, the creditworthiness of
the Borrower and the Guarantor and the business and financial terms
evidenced by the Loan Documents. We have relied, as to factual matters,
on the documents we have examined.
Our opinions expressed below are limited to the law of the State
of New York and the Federal law of the United States, and we do not
express any opinions concerning any other law.
Based upon and subject to the foregoing and upon such
investigation as we have deemed necessary, and while we have not
independently considered the matters covered by the opinions listed on
Schedule B hereto to the extent necessary to enable us to express the
conclusions stated therein, we are of the opinion that (a) the Credit
Agreement, the Notes and the Guaranty are in substantially acceptable
legal form, and (b) the other Loan Documents and the opinions and other
documents listed on Schedule B hereto are substantially responsive to the
requirements of the corresponding subsections of Sections 6.01 and 6.02 of
the Credit Agreement pursuant to which the same have been delivered.
Very truly yours,
GT:MEO:sjg<PAGE>
<PAGE>
Schedule A
List of Banks
-------------
<PAGE>
<PAGE>
Schedule B
List of Documents Examined
--------------------------
<PAGE>
<PAGE>
EXHIBIT 6.02E
FORM OF OPINION OF SPECIAL MICHIGAN COUNSEL
FOR THE LOAN PARTIES
[Date of Initial Extension of Credit]
To each of the Lenders parties
to the Credit Agreement referred
to below, and to Citibank, N.A.
and Union Bank, as Agents under
the Credit Agreement
CMS Energy Corporation
Ladies and Gentlemen:
This letter is furnished to you pursuant to Section
6.02(vii)(C) of the Credit Agreement, dated as of July 29, 1994 (the
"Credit Agreement"), among CMS Energy Corporation (the "Borrower"), the
Banks parties thereto and the other Lenders from time to time parties
thereto, Citibank, N.A. and Union Bank, as Co-Agents, Citibank, N.A., as
Documentation Agent, and Union Bank, as Operational Agent. Capitalized
terms not defined herein have the meanings ascribed thereto in the Credit
Agreement and the Security Documents (as defined in the Credit Agreement).
We have acted as special Michigan counsel for the Loan
Parties in connection with the preparation, execution and delivery of, and
the initial Extension of Credit made under, the Credit Agreement and the
other Loan Documents.
In that capacity, we have examined:
(a) The Credit Agreement;
(b) The Notes;
(c) The Cash Collateral Agreement; and
(d) The Guaranty.
In addition, we have examined the originals, or copies
certified to our satisfaction, of such other corporate records of the
Borrower and Enterprises, certificates of public officials and of officers
of the Borrower and Enterprises, and agreements, instruments and other
documents as we have deemed necessary as a basis for the opinions
expressed below. As to various questions of fact material to such
opinions, we have, when relevant facts were not independently established
by us, relied upon the representations of the Borrower and Enterprises in
the Loan Documents, and upon certificates of the Borrower and Enterprises
or their respective officers or of public officials.
We have assumed (i) the due execution and delivery,
pursuant to due authorization, of each document referred to in clauses (a)
through (d) above by all parties to such document, (ii) the authenticity
of all such documents submitted to us as originals, (iii) the genuineness
of all signatures and (iv) the conformity to the originals of all such
documents submitted to us as copies. In addition, it is our understanding
that the Credit Agreement, the Notes and the other Loan Documents will be
delivered in the State of New York and payments pursuant to the Notes will
be made in a state other than the State of Michigan.
Our opinions expressed herein are limited to the laws of
the State of Michigan.
Based upon the foregoing and upon such investigation as we
have deemed necessary, we are of the following opinion:
1. In any action or proceeding arising out of or
relating to the Credit Agreement, the Notes or any other Loan
Document to which the Borrower or Enterprises is, or is to be, a
party in any Michigan state court or any Federal court sitting in
the State of Michigan, such court would recognize and give effect
to the provisions of the Credit Agreement, the Notes or such other
Loan Document, as the case may be, wherein the parties thereto
agree that the Credit Agreement, the Notes or such other Loan
Document, as the case may be, shall be governed by, and construed
in accordance with, the laws of the State of New York, except in
the case of those provisions set forth in the Credit Agreement,
the Notes and the other Loan Documents the enforcement of which
would contravene a fundamental policy of the State of Michigan.
In the course of our review of the Credit Agreement, the Notes and
the other Loan Documents, nothing has come to our attention to
indicate that any of such provisions would do so.
2. No authorization or approval or other action by,
and no notice to or filing with, any Michigan governmental
authority or regulatory body (including, without limitation, the
Michigan Public Service Commission) is required for (a) the valid
execution, delivery and performance by (i) the Borrower of the
Credit Agreement and the other Loan Documents to which it is, or
is to be, a party, or (ii) Enterprises of the Guaranty, or (b) the
creation of any Lien purported to be granted or created pursuant
to any Security Document.
Very truly yours,
<PAGE>
<PAGE>
EXHIBIT 8.03
COMPUTATIONS USED BY BORROWER
IN DETERMINING COMPLIANCE WITH COVENANTS
CONTAINED IN SECTIONS 8.01(i), 8.01(j) and 8.02(b)(ii)
TOTAL
($ millions)
I. SECTION 8.01(i)
(i) Consolidated Debt
Long-Term Debt (Includes current maturities) $______
Capital Lease Obligations $______
Notes Payable $______
_________
Total Consolidated Debt $______
=========
(ii) Consolidated Capital
Consolidated Debt $______
Common Stockholders' Equity $______
Preferred Stockholders' Equity $______
_________
Total Consolidated Capital $______
=========
(iii) Consolidated Leverage Ratio (i/ii) ______
=========
Maximum Ratio - Section 8.01(i) ______
=========
II. SECTION 8.01(j)
Dividends from subsidiaries (A) $______
Interest expense $______
Dividend/Interest - Actual ____
Dividend/Interest - Minimum ____
III. SECTION 8.02(b)(ii)
Maximum Unsecured Indebtedness:
Greater of 4.5 times Dividends from
subsidiaries (A) or $850 Million $______
Unsecured Indebtedness - Actual Credit Agreement:$______
GTN's: $______
DCN's: $______
_________
Total: $______
_________
Available Additional Indebtedness $______
=========
<PAGE>
<PAGE>
EXHIBIT 11.07
FORM OF LENDER ASSIGNMENT
Dated ________, 19__
Reference is made to the Credit Agreement, dated as of
July 29, 1994 (said Agreement, as it may hereafter be amended or otherwise
modified from time to time, being the "Credit Agreement", the terms
defined therein and not otherwise defined herein being used herein as
therein defined), among the Borrower, the Lenders, the Co-Agents, the
Documentation Agent and the Operational Agent. Pursuant to the Credit
Agreement, ________________ (the "Assignor") has committed to make
advances ("Advances") to the Borrower, which Advances are evidenced by a
promissory note (the "Note") issued by the Borrower to the Assignor.
The Assignor and _____________ (the "Assignee") agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee,
and the Assignee hereby purchases and assumes from the Assignor, that
interest in and to all of the Assignor's rights and obligations under the
Credit Agreement as of the date hereof which represents the percentage
interest specified on Schedule 1 of all outstanding rights and obligations
under the Credit Agreement (the "Assigned Interest"), including, without
limitation, such interest in the Assignor's Commitment, the Advances owing
to the Assignor and the Note held by the Assignor. After giving effect to
such sale and assignment, the Assignee's Commitment and the amount of the
Advances owing to the Assignee will be as set forth in Section 2 of
Schedule 1. The effective date of this sale and assignment shall be the
date specified on Schedule 1 hereto (the "Effective Date").
2. On _______________, 19__, the Assignee will pay to the
Assignor, in same day funds, at such address and account as the Assignor
shall advise the Assignee, $___________, and the sale and assignment
contemplated hereby shall thereupon become effective as of the Effective
Date. From and after the Effective Date, the Assignor agrees that the
Assignee shall be entitled to all rights, powers and privileges of the
Assignor under the Credit Agreement and the Note to the extent of the
Assigned Interest, including without limitation (i) the right to receive
all payments in respect of the Assigned Interest for the period from and
after the Effective Date, whether on account of principal, interest, fees,
indemnities in respect of claims arising after the Effective Date,
increased costs, additional amounts or otherwise, (ii) the right to vote
and to instruct the Agents under the Credit Agreement according to its
Percentage based on the Assigned Interest, (iii) the right to set-off and
to appropriate and apply deposits of the Borrower as set forth in the
Credit Agreement and (iv) the right to receive notices, requests, demands
and other communications. The Assignor agrees that it will promptly remit
to the Assignee any amount received by it in respect of the Assigned
Interest (whether from the Borrower, any Agent or otherwise) in the same
funds in which such amount is received by the Assignor.
3. The Assignor (i) represents and warrants that it is
the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse claim;
(ii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or
in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto;
and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or
the performance or observance by the Borrower of any of its obligations
under the Credit Agreement or any other instrument or document furnished
pursuant thereto. Except as specified in this Section 3, the assignment
of the Assigned Interest contemplated hereby shall be without recourse to
the Assignor.
4. The Assignee (i) confirms that it has received a copy
of the Credit Agreement, together with copies of the financial statements
referred to in Section 7.01(e)(i) thereof and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into this Assignment and purchase the Assigned
Interest, (ii) agrees that it will, independently and without reliance
upon the Assignor and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement, (iii) confirms
that it satisfies the requirements of an Eligible Assignee, (iv) appoints
and authorizes each Agent to take such action as agent on its behalf and
to exercise such powers under the Loan Documents as are delegated to each
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto and (v) agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Loan
Documents are required to be performed by it as a Lender.
5. This Assignment may be executed in any number of
counterparts and by different parties in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
6. This Assignment shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made
on Schedule 1 hereto.
<PAGE>
<PAGE>
Schedule 1
to
Assignment Agreement
Dated _____, 19__
Section 1.
Percentage Interest: ______%
Section 2.
Assignee's Commitment: $_______
Aggregate Outstanding
Principal Amount of
Advances owing to the Assignee: $_______
Section 3.
Effective Date: _________, 19___
[NAME OF ASSIGNOR]
By:_____________________________
Title:
[NAME OF ASSIGNEE]
By:_____________________________
Title:
Consented to:(*)
CMS ENERGY CORPORATION
By____________________________
Title:
_____________________
(*) Consent of the Borrower is required for all assignments except for
any assignment by a Lender to any of its Affiliates or to any
other Lender or any of its Affiliates.
<PAGE>
<PAGE>
SCHEDULE I
CMS ENERGY CORPORATION
Amended and Restated Credit Agreement, dated as of November 30, 1992,
as amended and restated as of October 15, 1993,
among CMS Energy Corporation, the Banks named therein,
Citibank, N.A. and Union Bank, as Co-Agents,
The Chase Manhattan Bank, N.A., as Co-Manager
Citibank, N.A., as Documentation Agent, and
Union Bank, as Operational Agent
Eurodollar
Lending
Name of Bank Domestic Lending Office Office
- ------------ ----------------------- ----------
BHF-Bank 55 East 59th Street - same -
New York, New York 10022
Attention: Paul Travers
Telephone: 212.756.5571
Telecopier: 212.7565911
Bank of America NT&SA 1850 Gateway Boulevard - same -
Concord, California 94520
Attention: Account Administrator 5693
Telephone: 510.675.7531
Telecopier: 510.675.7762
The Bank of New York 1 Wall Street - same -
New York, New York 10286
Attention: Annamaria Schron
Telephone: 212.635.7950
Telecopier: 212.635.7923
Bank of Scotland 565 Fifth Avenue, 5th Floor - same -
New York, New York 10017
Attention: John S. Dykes
Telephone: 212.450.0830
Telecopier: 212.682.5720/557.9460
Barclays Bank PLC 222 Broadway, 11th Floor - same -
New York, New York 10265
Attention: John P. Burke
Telephone: 212.412.7542
Telecopier: 212.412.7511
Canadian Imperial 2727 Paces Ferry Road - Same -
Bank of Commerce Suite 1200
Atlanta, Georgia 30339
Attention: Clare Coyne
Senior Associate
Telephone: 404.916.4839
Telecopier: 404.955.4950
The Chase Manhattan 1 Chase Manhattan Plaza, 3rd Floor - Same -
Bank, N.A. Global Power Group
New York, New York 10081
Attention: Richard Cortright, Jr.
Telephone: 212.552.7518
Telecopier: 212.552.1687
Citibank, N.A. 399 Park Avenue, 4th Floor - Same -
New York, New York 10043
Attention: David E. Mikula
Telephone: 212.559.4218
Telecopier: 212.793.6130
Continental Bank 231 South LaSalle Street, 10th Floor - same -
Chicago, Illinois 60697
Attention: Ronald E. McKaig
Telephone: 312.828.1498
Telecopier: 312.987.5614
The First National 100 Federal Street - same -
Bank of Boston Mail Stop 01-08-02
Boston, Massachusetts 02110
Attention: Frank T. Smith
Telephone: 617.434.6625
Telecopier: 617.434.3652
The First National One First National Plaza - Same -
Bank of Chicago Chicago, Illinois 60670
Telephone: 312.732.1945
Telecopier: 312.732.3055
Attention: Ms. Susan C. Verback
Michigan National Bank 124 West Allegan Street - Same -
Michigan National Tower
Commercial Loan Department 98-03
Lansing, Michigan 48933
Telephone: 517.377.3368
Telecopier: 517.377.3102
Attention: Mr. Mark S. Aben
Morgan Guaranty Trust 60 Wall Street - same -
Company of New York New York, New York 10260
Attention: Loan Department
Telephone: 212.648.7420
Telecopier: 212.648.7421
National Westminster 175 Water Street - Same -
Bank PLC New York, New York 10038
Telephone: 212.602.4149
Telecopier: 212.602.4118
Attention: Robert Passarello
The Toronto-Dominion Houston Agency - Same -
Bank Suite 1700
909 Fannin
Houston, Texas 77010
Telephone: 713.653.8245
Telecopier: 713.951.9921
Attention: Ms. Debbie A. Greene
Union Bank 445 South Figueroa Street - Same -
Los Angeles, California 90071
Telephone: 213.236.5809
Telecopier: 213.236.4096
Attention: John M. Edmonston
<PAGE>
<PAGE>
SCHEDULE II
INDEBTEDNESS OF CMS ENERGY
As of July 29, 1994
I. CMS GENERATION
A. CMS Energy Guaranty, dated August 31, 1990, to Comerica
in connection with letters of credit dated August 29,
1990 reimbursement obligation of CMS Generation Filer
City and Western Michigan Cogeneration Ltd Partnership
required to cover a Construction and Term Loan dated
July 1, 1988 (Series A) and July 1, 1990 (Series B).
Beneficiary - Prudential Ins Co, Trustee - Connecticut
Bank & Trust.
Outstanding
$3,836,543.00 - Series A
$ 713,857.00 - Series B
B. CMS Energy Guaranty to Chase Manhattan in connection
with letter of credit reimbursement obligation of CMS
Generation Grayling Company for title insurance and
project cost overrun funding dated as of August 23,
1991. Beneficiary - Barclays Bank
Outstanding
$1,500,000 - Title Insurance
$8,500,000 - Project Overrun
C. CMS Energy Guaranty to Chase Manhattan in connection
with letter of credit reimbursement by CMS Generation
Grayling Company for the 8 megawatt increase occurring
August 13, 1993. Beneficiary - Consumers Power Company
Outstanding
$835,527.00
D. CMS Energy Guaranty to Chase Manhattan in connection
with the letter of credit reimbursement obligation of
CMS Generation San Nicolas for equity and project
costs/fundings as required, dated as of April 16, 1993.
Outstanding
$2,400,000.00
E. CMS Energy Guaranty to Chase Manhattan in connection
with the letter of credit reimbursement obligation of
CMS Generation Co (El Chocon Project) for an original
amount of $68,431,964 dated as of July 14, 1993.
Outstanding
$501,030.00
CMS Energy Guaranty of the $56,100,000 guaranteed
indebtedness credit agreement dated as of December 15,
1993 between the Hidroelectra El Chocon SA and The
Chase Manhattan Bank, CMS Energy guarantees 25% of the
total.
Outstanding
$14,025,000.00
F. CMS Energy Guaranty dated as of August 25, 1993, of
Exeter Limited Partnership's ("Exeter") obligations
under an Electricity Purchase Agreement (the
"Agreement") with Connecticut Light and Power ("CL&P")
and as additional collateral for CL&P's financial
accommodations to Exeter under the Agreement.
Outstanding
$8,600,000.00
G. CMS Energy Guaranty to Comerica in connection with a
$21.5MM revolving credit and letter of credit
reimbursement agreement and guarantee entered into by
Genesee Power Station Limited Partnership to provide
taxable construction funds. The amount outstanding
represents CMS Energy's 50% interest.
Outstanding
$10,757,500.00
H. CMS Energy Guaranty to Chase Manhattan Bank in
connection with Letter of Credit Reimbursement
Obligation of CMS Operating, S.A. for the Lujan de Cuyo
project, dated June 1994. Beneficiary - Estado
Nacional Argentino (Minisperio De Economia Obras y
Servicos Publicos De La Nacion).
Outstanding
$11,147,000
I. CMS Energy Guaranty to Chase Manhattan Bank in
connection with Letter of Credit Reimbursement
Obligation of CMS Generation Co for Magellan Utilities
Development Corporation project, dated May 12, 1994.
Beneficiary - Manila Electric Company, Metro Manila,
Philippines.
Outstanding
$4,500,000
J. CMS Energy Guaranty to Chase Manhattan Bank in
connection with Letter of Credit Reimbursement
Obligation of CMS Generation Co for Luzon Power
Associates, Inc project, dated as of May 20, 1994.
Beneficiary - Manila Electric Company, Metro Manila,
Philippines.
Outstanding
$4,500,000
K. Indemnity Agreement in connection with Cali Colombia
bid for the benefit of Sumitomo.
Outstanding
$1,500,000
II. CMS ENTERPRISES COMPANY
A. CMS Energy Guaranty of gas purchases of CMS Gas
Marketing to PG&E Resources Company dated April 5, 1993
for an amount not to exceed $200,000.
B. CMS Energy Guaranty of CMS Gas Marketing Company
transportation obligations to Great Lakes Gas
Transmission Company dated October 31, 1990.
C. Credit Agreement for transportation service between ANR
and CMS Gas Marketing; guaranteed by CMS Energy, dated
as of June 2, 1988.
D. CMS Energy Guaranty to Comerica in connection with a
letter of credit entered into by CMS Saginaw Bay
Company required for cash distributions from the
partnership; dated as of February 6, 1992.
Beneficiary - Mellon Bank, NA.
Outstanding
$1,752,000.00
E. CMS Energy Guaranty to Union Oil Company for purchases
of natural gas of CMS Gas Marketing, dated July 16,
1992 for an estimated maximum exposure of $600,000.
F. Master Lease Agreement, dated as of November 1, 1988,
and Supplement No. 2 thereto, dated October 1, 1991,
between CMS Enterprises and Meridian Leasing
Corporation.
Cumulative Remaining Lease Payments
$343,222.54
G. Master Lease Agreement dated as of August 1, 1988
between CMS Enterprises and BLC Corp, as supplemental.
Cumulative Remaining Lease Payments
$799,711.95
III. CMS CAPITAL CORP
Master Lease Agreement, dated as of December 27, 1989, and
Supplement No. 1 thereto, dated as of January 19, 1990, as
amended, between CMS Capital and Meridian Leasing; sublease to
CMS Energy dated June 29, 1990; assignment by Meridian to
Fleet Credit Corporation dated as of June 26, 1990.
Outstanding
$2,063,313.00
IV. MCV-RELATED AGREEMENTS
A. Stipulated AGE Release Amount Payment Agreement between
CMS Energy, Consumers and Dow Chemical Company dated as
of June 1, 1990.
If Dow exercises its right to acquire the Alternate
Generating Equipment (AGE) under the Back-up SEPA
(Steam and Electric Purchase Agreement): (a) Consumers
will pay the amount, up to $85 million, by which Dow's
cost of obtaining the AGE exceeds the present value of
the Dow Note under the Back-up SEPA. (b) CMS Energy
will pay the amount by which Dow's cost to acquire the
AGE (excluding the cost of discharging nonconsensual
liens) exceeds the higher of $85 million or the Fair
Market Value of the AGE.
B. Environmental Agreement by CMS Energy to United States
Trust Company of New York, Meridian Trust Company and
the Bondholders dated as of June 1, 1990.
CMS Energy agrees to indemnify the
Debt for costs relating to certain
environmental matters.
C. Environmental Agreement by CMS Energy to The
Connecticut National Bank dated as of June 1, 1990.
CMS Energy agrees to indemnify the
Equity for costs relating to certain
environmental matters.
D. Indemnity Agreement by CMS Energy to MCV dated as of
June 1, 1990.
CMS Energy agrees to indemnify MCV
for costs relating to certain
environmental matters.
E. Stand-by Working Capital Facility dated as of June 14,
1990 (CMS Energy as Participating Partner Affiliate).
Under certain circumstances CMS
Energy agrees to provide MCV with,
in an aggregate amount not to exceed
$5,261,000, for a working capital
loan. ($5.2MM represents CMS'
interest of the total loan
commitment.)
V. CMS LAND COMPANY
CMS Energy Guaranty of the $2.3 million Bay Harbor note to
Holman, Inc. CMS Energy guarantees 50% of the total.
Outstanding
$1,150,000.00
<PAGE>
<PAGE>
EXHIBIT NO. (12)<PAGE>
<PAGE>
<TABLE>
CMS ENERGY EXHIBIT (12)
RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
<CAPTION>
Six Months
Ended Years Ended December 31
June 30, 1994 1993 1992 1991 1990 1989
------------- ------ ------ ------ ------ ------
(b) (c)(d) (e)
<S> <C> <C> <C> <C> <C> <C>
Earnings as Defined (a)
Net income $ 108 $ 155 $(297) $(262) $(494) $ 312
Income taxes 64 75 (146) (94) 25 170
Exclude equity basis subsidiaries (6) (6) 10 10 13 1
Fixed charges as defined, adjusted
to exclude capitalized interest
of $3, $5, $3, $5, $38 and $177
million for the three months ended
June 30, 1994 and for the years
ended December 31, 1993, 1992, 1991,
1990 and 1989, respectively 111 245 228 364 317 207
------ ------ ------ ------ ------ -----
Earnings as defined $ 277 $ 469 $(205) $ 18 $(139) $ 690
Fixed charges as defined(a)
Interest on long-term debt $ 93 $ 204 $ 169 $ 274 $ 293 $ 314
Estimated interest portion of
lease rentals 5 12 16 17 18 15
Other interest charges 6 23 35 68 33 33
Include equity basis subsidiaries - - - - - 3
Preferred and preference
stock dividend 15 17 16 15 17 28
------ ------ ------ ------ ------ -----
Fixed charges as defined $ 119 $ 256 $ 236 $ 374 $ 361 $ 393
====== ====== ====== ====== ====== =====
Ratio of earnings to fixed charges 2.33 1.83 - - - 1.76
====== ====== ====== ====== ====== =====
<FN>
NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.
(b) For the year ended December 31, 1992, fixed charges exceeded earnings by $441 million. Earnings as defined include
a $520 million pre-tax loss on the settlement of MCV Power Purchases, $(15) million for potential customer refunds and
other reserves related to 1992 but recorded in 1991, and $6 million relating to CMS Generation Company's reduction in
its investment in The Oxford Energy Company. The ratio of earnings to fixed charges would have been 1.30 excluding
these amounts.
(c) Excludes an extraordinary after-tax loss of $14 million.
(d) For the year ended December 31, 1991, fixed charges exceeded earnings by $356 million. Earnings as defined include
pre-tax losses of $398 million for write-downs and reserve amounts related to the abandonment of the Midland nuclear
plant, $76 million for potential customer refunds and other reserves, and $51 million relating to CMS Generation
Company's reduction in its investment in The Oxford Energy Company. The ratio of earnings to fixed charges would have
been 1.45 excluding these amounts.(e) For the year ended December 31, 1990, fixed charges exceeded earnings by $500
million. Earnings as defined include pre-tax losses of $847 million for write-downs and reserve amounts related to the
abandonment of the Midland nuclear plant. The ratio of earnings to fixed charges would have been 1.96 excluding these
amounts.
/TABLE
<PAGE>
<PAGE>
EXHIBIT (15)(a)
<PAGE>
<PAGE>
Exhibit (15)(a)
To CMS Energy Corporation:
We are aware that CMS Energy Corporation has incorporated by reference in
its Registration Statements No. 33-9732, No. 33-29681, No. 33-47629,
No. 33-64044 and No. 33-51877 its Form 10-Q for the quarter ended June 30,
1994, which includes our report dated August 8, 1994 covering the
unaudited interim financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered
a part of the registration statement prepared or certified by our firm or
a report prepared or certified by our firm within the meaning of Sections
7 and 11 of the Act.
Arthur Andersen & Co.
Detroit, Michigan,
August 8, 1994.
<PAGE>
<PAGE>
EXHIBIT (15)(b)<PAGE>
<PAGE>
Exhibit (15)(b)
To Consumers Power Company:
We are aware that Midland Cogeneration Venture Limited Partnership has
incorporated by reference in its Registration Statement No. 33-80284
Consumers Power Company's Form 10-Q for the quarter ended June 30, 1994,
which includes our report dated August 8, 1994 covering the unaudited
interim financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11
of the Act.
Arthur Andersen & Co.
Detroit, Michigan,
August 8, 1994.
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE
SHEET AND STATEMENT OF COMMON STOCKHOLDERS' EQUITY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000811156
<NAME> CMS ENERGY CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> JUN-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,165
<OTHER-PROPERTY-AND-INVEST> 967
<TOTAL-CURRENT-ASSETS> 642
<TOTAL-DEFERRED-CHARGES> 1,233
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,007
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 1,688
<RETAINED-EARNINGS> (630)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,058
0
356
<LONG-TERM-DEBT-NET> 2,005
<SHORT-TERM-NOTES> 129
<LONG-TERM-NOTES-PAYABLE> 402
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 226
0
<CAPITAL-LEASE-OBLIGATIONS> 124
<LEASES-CURRENT> 36
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,670
<TOT-CAPITALIZATION-AND-LIAB> 7,007
<GROSS-OPERATING-REVENUE> 1,938
<INCOME-TAX-EXPENSE> 64
<OTHER-OPERATING-EXPENSES> 1,655
<TOTAL-OPERATING-EXPENSES> 1,726
<OPERATING-INCOME-LOSS> 212
<OTHER-INCOME-NET> (5)
<INCOME-BEFORE-INTEREST-EXPEN> 214
<TOTAL-INTEREST-EXPENSE> 96
<NET-INCOME> 118
10
<EARNINGS-AVAILABLE-FOR-COMM> 108
<COMMON-STOCK-DIVIDENDS> 31
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 444
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<PAGE>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE
SHEET AND STATEMENT OF COMMON STOCKHOLDER'S EQUITY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000201533
<NAME> CONSUMERS POWER COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1994
<PERIOD-END> JUN-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,165
<OTHER-PROPERTY-AND-INVEST> 622
<TOTAL-CURRENT-ASSETS> 622
<TOTAL-DEFERRED-CHARGES> 1,182
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,591
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 491
<RETAINED-EARNINGS> 93
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,436
0
356
<LONG-TERM-DEBT-NET> 1,554
<SHORT-TERM-NOTES> 129
<LONG-TERM-NOTES-PAYABLE> 192
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 214
0
<CAPITAL-LEASE-OBLIGATIONS> 116
<LEASES-CURRENT> 35
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,570
<TOT-CAPITALIZATION-AND-LIAB> 6,591
<GROSS-OPERATING-REVENUE> 1,808
<INCOME-TAX-EXPENSE> 72
<OTHER-OPERATING-EXPENSES> 1,530
<TOTAL-OPERATING-EXPENSES> 1,609
<OPERATING-INCOME-LOSS> 199
<OTHER-INCOME-NET> (3)
<INCOME-BEFORE-INTEREST-EXPEN> 203
<TOTAL-INTEREST-EXPENSE> 72
<NET-INCOME> 131
10
<EARNINGS-AVAILABLE-FOR-COMM> 121
<COMMON-STOCK-DIVIDENDS> 82
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 370
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
<PAGE>
- -------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CMS ENERGY CORPORATION
AND
CONSUMERS POWER COMPANY
FORM 10-Q
EXHIBITS
FOR QUARTER ENDED JUNE 30, 1994
- -------------------------------------------------------------
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Numbers Description
- -------- -----------------------------------------------------------
(4) CMS Energy: Credit Agreement dated as of July 29, 1994
among CMS Energy Corporation, the Banks, the Co-Agents, the
Documentation Agent and the Operational Agent, all as
defined therein, and the Exhibits thereto
(12) CMS Energy: Statements regarding computation of Ratio of
Earnings to Fixed Charges
(15)(a) CMS Energy: Letter of independent public accountant
(15)(b) Consumers: Letter of independent public accountant
(27)(a) CMS Energy: Financial Data Schedule
(27)(b) Consumers: Financial Data Schedule
<PAGE>
