<PAGE> 1
PROSPECTUS
- ---------------------
Filed Pursuant to Rule 424B1
Registration No. 333-32847
333-32847-01
4,800,000 PREFERRED SECURITIES
CONSUMERS ENERGY COMPANY FINANCING II
8.20% TRUST ORIGINATED PREFERRED SECURITIES(SM) ("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
CONSUMERS ENERGY COMPANY
------------------------
The 8.20% Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby evidence preferred undivided beneficial interests in the assets
of Consumers Energy Company Financing II, a statutory business trust created
under the laws of the State of Delaware (the "Trust"). Consumers Energy Company,
a Michigan corporation ("Consumers" or the "Company"), will own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing common undivided beneficial interests in
the assets of the Trust. The Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in an equivalent principal
amount of 8.20% Subordinated Deferrable Interest Notes due 2027 (the
"Subordinated Notes") of Consumers. The Subordinated Notes will be unsecured
obligations of Consumers and will be subordinate and junior in right of payment
to certain other indebtedness of Consumers, as described herein. Upon an event
of default under the Declaration (as defined herein), the holders of the
Preferred Securities will have a preference over the holders of the Common
Securities with respect to payments in respect of distributions and payments
upon liquidation, redemption and otherwise.
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 7 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
------------------------
An application has been filed to list the Preferred Securities on the New
York Stock Exchange, Inc. (the "New York Stock Exchange"). If such application
is approved, trading of the Preferred Securities on the New York Stock Exchange
is expected to commence within a 30-day period after the date of this
Prospectus. See "Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================================
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Per Preferred Security........................... $25.00 (3) $25.00
- ----------------------------------------------------------------------------------------------------------------------
Total............................................ $120,000,000 (3) $120,000,000
======================================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from September 11, 1997.
(2) Consumers and the Trust have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Subordinated Notes, Consumers has agreed to
pay to the Underwriters as compensation for their arranging the investment
therein of such proceeds, $.7875 per Preferred Security (or $3,780,000 in
the aggregate); provided, that such compensation for sales of 10,000 or more
Preferred Securities to a single purchaser will be $.50 per Preferred
Security. Therefore, to the extent of such sales, the actual amount of
Underwriters' compensation will be less than the aggregate amount specified
in the preceding sentence. See "Underwriting."
(4) Expenses of the offering which are payable by Consumers are estimated to be
$432,664.
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company on or about September 11,
1997.
------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
FIRST OF MICHIGAN CORPORATION
MORGAN STANLEY DEAN WITTER
RONEY & CO.
------------------------
The date of this Prospectus is September 4, 1997.
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE> 2
(continued from previous page)
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 8.20% of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year commencing September 30, 1997 ("distributions"). The payment of
distributions out of moneys held by the Trust, and payments on liquidation of
the Trust or the redemption of Preferred Securities, as set forth below, are
guaranteed by Consumers (the "Preferred Securities Guarantee") to the extent the
Trust has funds available therefor as described under "Description of the
Preferred Securities Guarantee." The obligations of Consumers under the
Preferred Securities Guarantee are subordinate and junior in right of payment to
all other liabilities of Consumers and will rank pari passu with the most senior
preferred stock issued by Consumers. The obligations of Consumers under the
Subordinated Notes are subordinate and junior in right of payment to all present
and future Senior Indebtedness (as defined herein) of Consumers. The Senior
Indebtedness of Consumers aggregated approximately $2,363 million at June 30,
1997.
The distribution rate and the distribution and other payment dates for the
Preferred Securities will correspond to the interest rate and interest and other
payment dates on the Subordinated Notes, which will be the sole assets of the
Trust. As a result, if principal or interest is not paid on the Subordinated
Notes, no amounts will be paid on the Preferred Securities. If Consumers does
not make principal or interest payments on the Subordinated Notes, the Trust
will not have sufficient funds to make distributions on the Preferred
Securities, in which event the Preferred Securities Guarantee will not apply to
such distributions until the Trust has sufficient funds available therefor.
Consumers has the right to defer payments of interest on the Subordinated
Notes by extending the interest payment period on the Subordinated Notes, at any
time, for up to 20 consecutive quarters (each, an "Extension Period"). If
interest payments are so deferred, distributions on the Trust Securities will
also be deferred. Despite such deferral, distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at an annual
rate of 8.20% per annum, compounded quarterly, and during any Extension Period,
holders of Preferred Securities will be required to include deferred interest
income in their gross income for United States federal income tax purposes in
advance of receipt of the cash interest payments attributable to such deferred
income. There could be multiple Extension Periods of varying lengths throughout
the term of the Subordinated Notes. See "Description of the Subordinated Notes
Option to Extend Interest Payment Period," "Risk Factors -- Option to Extend
Interest Payment Period" and "Certain United States Federal Income Tax
Consequences -- Original Issue Discount, Premium and Market Discount." In the
event of any such deferral, the holders of the Preferred Securities will not
have the right to appoint a special representative or trustee or otherwise act
to protect their interests.
The Subordinated Notes are redeemable by Consumers (in whole or in part)
from time to time, on or after September 30, 2002 or at any time in certain
circumstances upon the occurrence of a Special Event (as defined herein). If
Consumers redeems Subordinated Notes, the Trust must redeem on a pro rata basis
Trust Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Subordinated Notes so redeemed at $25 per Trust Security
plus accrued and unpaid distributions thereon (the "Redemption Price") to the
date fixed for redemption. See "Description of the Preferred Securities --
Mandatory Redemption." The Preferred Securities will be redeemed upon maturity
of the Subordinated Notes. The Subordinated Notes mature on September 1, 2027.
In addition, upon the occurrence of a Special Event arising from a change in law
or a change in legal interpretation, unless the Subordinated Notes are redeemed
in the limited circumstances described herein, the Trust shall be terminated
with the result that the Subordinated Notes will be distributed to the holders
of the Preferred Securities, on a pro rata basis, in lieu of any cash
distribution. If the Subordinated Notes are distributed to the holders of the
Preferred Securities, Consumers will use its best efforts to have the
Subordinated Notes listed on the New York Stock Exchange or on such other
exchange as the Preferred Securities are then listed. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution" and
"Description of the Subordinated Notes."
2
<PAGE> 3
In the event of the voluntary or involuntary dissolution, winding-up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive, for each Preferred Security, a liquidation amount of $25
plus accrued and unpaid distributions thereon (including interest thereon) to
the date of payment, unless in connection with such dissolution, winding-up or
termination the Subordinated Notes are distributed to the holders of the
Preferred Securities. See "Description of the Preferred Securities --
Liquidation Distribution upon Termination."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF PREFERRED
SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE> 4
AVAILABLE INFORMATION
Consumers and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a combined registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Subordinated Notes, the Preferred
Securities and the Preferred Securities Guarantee offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement. Statements or extracts presented in this
Prospectus from financial statements, contracts, agreements or other documents
included as exhibits to the Registration Statement are not necessarily complete.
With respect to each such financial statement, contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is hereby
made to the exhibit for a more complete description of the matter involved.
Consumers is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, information statements and other information with the
Commission. Such reports, information statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site (http://www.sec.gov) that contains reports, proxy statements and other
information regarding Consumers. Such reports, information statements and other
information concerning Consumers may also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005, the securities
exchange on which certain of Consumers' securities are listed.
No separate financial statements of the Trust are included herein.
Consumers and the Trust do not consider that such financial statements would be
material to holders of the Preferred Securities because the Trust is a newly
created special purpose entity, has no operating history and no independent
operations and is not engaged in, and does not propose to engage in, any
activity other than as set forth below. See "Consumers Energy Company Financing
II."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Consumers with the Commission (File No.
1-5611) are incorporated in this Prospectus by reference and made a part hereof:
(i) Consumers' Annual Report on Form 10-K for the year ended December
31, 1996;
(ii) Consumers' Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1997 and June 30, 1997; and
(iii) Consumers' Current Reports on Form 8-K dated March 7, 1997, June
5, 1997, June 11, 1997 and August 21, 1997.
All documents subsequently filed by Consumers pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act shall be deemed to be incorporated into
this Prospectus by reference and to be a part hereof from the respective dates
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference in this Prospectus shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus or in any other subsequently filed
document which also is or is deemed to be incorporated by reference in this
Prospectus modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
4
<PAGE> 5
Consumers will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents that have been or
may be incorporated in this Prospectus by reference, other than certain exhibits
to such documents. Such requests should be directed to Consumers Energy Company
at its principal executive offices located at 212 West Michigan Avenue, Jackson,
Michigan 49201 Attention: Senior Vice President and Chief Financial Officer;
telephone: (517) 788-0550.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus.
Preferred Securities Offered. 4,800,000 8.20% Trust Originated Preferred
Securities evidencing preferred undivided beneficial interests in the assets of
the Trust are offered hereby. Holders of the Preferred Securities are entitled
to receive cumulative cash distributions at an annual rate of 8.20% of the
liquidation amount of $25 per Preferred Security, accruing from the date of
original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year commencing on September 30, 1997. The
distribution rate and the distribution and other payment dates for the Preferred
Securities will correspond to the interest rate and interest and other payment
dates on the Subordinated Notes, which will be the sole assets of the Trust. As
a result, if principal or interest is not paid on the Subordinated Notes, no
amounts will be paid on the Preferred Securities. See "Description of the
Preferred Securities."
Subordinated Notes. The Trust will invest the proceeds from the issuance of
the Preferred Securities and Common Securities in an equivalent amount of 8.20%
Subordinated Deferrable Interest Notes due 2027 of Consumers. The Subordinated
Notes will be subordinate and junior in right of payment to all Senior
Indebtedness of Consumers. See "Description of the Subordinated Notes --
Subordination."
Preferred Securities Guarantee. Payment of distributions out of moneys held
by the Trust, and payments on liquidation of the Trust or the redemption of
Preferred Securities are guaranteed by Consumers to the extent the Trust has
funds available therefor. If Consumers does not make principal or interest
payments on the Subordinated Notes, the Trust will not have sufficient funds to
make distributions on the Preferred Securities, in which event the Preferred
Securities Guarantee will not apply to such distributions until the Trust has
sufficient funds available therefor. See "Description of the Preferred
Securities Guarantee" and "Effect of Obligations under the Subordinated Notes
and the Preferred Securities Guarantee" herein. The obligations of Consumers
under the Preferred Securities Guarantee are subordinate and junior in right of
payment to all other liabilities of Consumers and will rank pari passu with the
most senior preferred stock issued by Consumers. See "Risk Factors -- Ranking of
Preferred Securities Guarantee and Subordinated Notes" and "Description of the
Preferred Securities Guarantee."
Interest Deferral. Consumers has the right to defer payments of interest on
the Subordinated Notes by extending the interest payment period on the
Subordinated Notes, at any time, for up to 20 consecutive quarters. If interest
payments on the Subordinated Notes are so deferred, distributions on the
Preferred Securities will also be deferred. During any deferral, distributions
will continue to accrue with interest thereon (to the extent permitted by law)
as described herein. There could be multiple Extension Periods of varying
lengths throughout the term of the Subordinated Notes. During an Extension
Period, holders of Preferred Securities will be required to include deferred
interest income in their gross income in advance of receipt of the cash interest
payments attributable thereto. See "Description of the Subordinated Notes --
Option to Extend Interest Payment Period" and "Certain United States Federal
Income Tax Consequences -- Original Issue Discount."
Redemption. The Subordinated Notes are redeemable by Consumers (in whole or
in part) from time to time, on or after September 30, 2002, or at any time in
certain circumstances upon the occurrence of a Special Event. If the
Subordinated Notes are redeemed, the Trust must redeem Trust Securities having
an aggregate liquidation amount equal to the aggregate principal amount of
Subordinated Notes so redeemed. The Preferred Securities will be redeemed upon
maturity of the Subordinated Notes. See "Description of the Preferred Securities
- -- Mandatory Redemption."
6
<PAGE> 7
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained or incorporated by reference elsewhere in this Prospectus
and should particularly consider the following matters:
RANKING OF PREFERRED SECURITIES GUARANTEE AND SUBORDINATED NOTES
Consumers' obligations under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all liabilities of Consumers and
pari passu with the most senior preferred stock now or hereafter issued by
Consumers and with any guarantee now or hereafter entered into by Consumers in
respect of any preferred stock of any affiliate of Consumers. The obligations of
Consumers under the Subordinated Notes are subordinate and junior in right of
payment to all present and future Senior Indebtedness (as defined herein) of
Consumers. No payment of principal of (including redemption payments, if any),
premium, if any, or interest on, the Subordinated Notes may be made if (a) any
Senior Indebtedness of Consumers is not paid when due, or (b) the maturity of
any Senior Indebtedness has been accelerated because of a default. At June 30,
1997, Senior Indebtedness of Consumers aggregated approximately $2,363 million.
There are no terms in the Preferred Securities, the Subordinated Notes or the
Preferred Securities Guarantee that limit Consumers' ability to incur additional
indebtedness, including indebtedness that ranks senior to the Subordinated Notes
or the Preferred Securities Guarantee. See "Description of the Preferred
Securities Guarantee" and "Description of the Subordinated Notes --
Subordination."
RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and unpaid distributions
which are required to be paid on the Preferred Securities, to the extent the
Trust has funds available therefor, (ii) the Redemption Price, including all
accrued and unpaid distributions, to the date of the redemption, to the extent
the Trust has funds available therefor, with respect to any Preferred Securities
called for redemption by the Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Subordinated Notes to the holders of Preferred
Securities) the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of
payment therefor and (b) the amount of assets of the Trust remaining available
for distribution to holders of Preferred Securities in liquidation of the Trust.
The holders of a majority in liquidation amount of the Preferred Securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Preferred Guarantee Trustee (as defined herein) or
to direct the exercise of any trust or power conferred upon the Preferred
Guarantee Trustee under the Preferred Securities Guarantee. In addition, any
holder of Preferred Securities may institute a legal proceeding directly against
Consumers to enforce its rights under the Preferred Securities Guarantee,
without first instituting a legal proceeding against the Trust, the Preferred
Guarantee Trustee or any other person or entity. If Consumers were to default in
its obligation to pay amounts payable on the Subordinated Notes, the Trust would
lack available funds for the payment of distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and in such event holders
of the Preferred Securities would not be able to rely upon the Preferred
Securities Guarantee for payment of such amounts. Instead, holders of the
Preferred Securities would either (i) rely on the enforcement by the Property
Trustee (as defined herein) of its rights as registered holder of the
Subordinated Notes against Consumers, pursuant to the terms of the Subordinated
Notes or (ii) enforce the Property Trustee's rights directly against Consumers.
See "Description of the Preferred Securities -- Voting Rights," "Description of
the Preferred Securities Guarantee -- Status of the Preferred Securities
Guarantee" and "Description of the Subordinated Notes -- Indenture Events of
Default." The Declaration (as defined herein) provides that each holder of
Preferred Securities by acceptance thereof agrees to the provisions of the
Preferred Securities Guarantee and the Indenture (as defined herein).
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
7
<PAGE> 8
Subordinated Notes against Consumers. In addition, the holders of a majority in
aggregate liquidation amount of the Preferred Securities will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee to exercise the remedies available to it as
a holder of the Subordinated Notes. A holder of Preferred Securities may also
directly institute a proceeding for enforcement of payment to such holder
directly of the principal of or interest on Subordinated Notes having a
principal amount equal to the aggregate liquidation preference amount of the
Preferred Securities of such holder on or after the respective due dates
specified in the Subordinated Notes. With respect to the Property Trustee's
rights other than its rights to receive payment on the Subordinated Notes, if
the Property Trustee fails to enforce its other rights under the Declaration, to
the fullest extent permitted by law, a holder of Preferred Securities may
institute a legal proceeding directly against Consumers to enforce the Property
Trustee's rights under the Declaration, without first instituting any legal
proceeding against the Property Trustee or any other person or entity, including
the Trust. See "Description of the Preferred Securities -- Voting Rights" and
"Description of the Subordinated Notes -- Indenture Events of Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Consumers has the right under the Indenture to defer payments of interest
on the Subordinated Notes by extending the interest payment period at any time,
and from time to time, on the Subordinated Notes. As a consequence of such an
extension, quarterly distributions on the Preferred Securities would be deferred
(but despite such deferral would continue to accrue with interest thereon
compounded quarterly) by the Trust during any such extended interest payment
period. Such right to extend the interest payment period for the Subordinated
Notes is limited to a period not exceeding 20 consecutive quarters for any such
extension. In the event that Consumers exercises this right to defer payments of
interest, then (a) Consumers shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to, any of its capital stock, (b) Consumers shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities (including guarantees) issued by Consumers which rank
pari passu with or junior to the Subordinated Notes and (c) Consumers shall not
make any guarantee payments with respect to the foregoing (other than pursuant
to the Preferred Securities Guarantee), provided, however, Consumers may declare
and pay a stock dividend where the dividend stock is the same stock as that on
which the dividend is being paid. Prior to the termination of any such Extension
Period, Consumers may further defer payments of interest by further extending
the interest payment period, provided that such Extension Period, together with
all such previous and further extensions thereof, may not exceed 20 consecutive
quarters or extend beyond the maturity of the Subordinated Notes. Upon the
termination of any Extension Period and the payment of all amounts then due,
Consumers may select a new Extension Period, as if no Extension Period had
previously been declared, subject to the above requirements. See "Description of
the Preferred Securities -- Distributions" and "Description of the Subordinated
Notes -- Option to Extend Interest Payment Period."
Despite Consumers' general right to defer the payment of interest on the
Subordinated Notes at any time for up to 20 consecutive quarters, under income
tax regulations that recently became effective, Consumers believes that the
Subordinated Notes will not be treated as issued with original issue discount
("OID"). It should be noted that these regulations have not yet been addressed
in any rulings or other interpretations by the Internal Revenue Service ("IRS").
Accordingly, it is possible that the IRS could take a position contrary to the
interpretation described herein. However, should Consumers exercise its rights
to defer payments of interest, the Subordinated Notes would be treated as issued
with OID and all the stated interest payments on the Subordinated Notes would
thereafter be treated as OID for so long as they remained outstanding. As a
result, all Holders (as defined herein) would, in effect, be required to accrue
interest income even if such Holders use a cash method of accounting.
Consequently, in the event that the payment of interest is deferred, a Holder
could be required to include OID in income on an economic accrual basis,
notwithstanding that Consumers will not make any interest payments during such
Extension Period of the Subordinated Notes.
8
<PAGE> 9
Consumers has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Notes. However, should Consumers determine to exercise such right
in the future, the market price of the Preferred Securities is likely to be
affected. A holder that disposes of its Preferred Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Preferred Securities. In addition, as a result
of the existence of Consumers' right to defer interest payments, the market
price of the Preferred Securities (which represent an undivided beneficial
interest in the Subordinated Notes) may be more volatile than other securities
that are not subject to such rights. In addition, if the issue price of the
Subordinated Notes at the time of the issuance of the Preferred Securities is
less than their stated principal amount, the difference will be OID, a pro rata
share of which will be includible in the gross income of the holders of the
Preferred Securities over the term of the Preferred Securities. See "Certain
United States Federal Income Tax Consequences -- Original Issue Discount."
SPECIAL EVENT DISTRIBUTION
In the case of a Special Event, in certain circumstances Consumers shall
have the right to redeem the Subordinated Notes, in whole or in part, in which
event the Trust will redeem the Trust Securities on a pro rata basis to the same
extent as the Subordinated Notes are redeemed. Otherwise, upon the occurrence of
a Special Event, the Trust will be terminated, with the result that the
Subordinated Notes would be distributed to the holders of the Trust Securities
in connection with the liquidation of the Trust. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution" and "Certain
United States Federal Income Tax Consequences."
There can be no assurance as to the market prices at such time for the
Preferred Securities or the Subordinated Notes that may be distributed in
exchange for Preferred Securities if a termination or liquidation of the Trust
were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Subordinated Notes that the investor may receive on termination
and liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby. Because
holders of Preferred Securities may receive Subordinated Notes upon the
occurrence of a Special Event, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Subordinated Notes and
should carefully review all the information regarding the Subordinated Notes
contained herein. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution" and "Description of the Subordinated Notes."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, Consumers Trustees (as defined herein), which voting
rights are vested exclusively in Consumers as the holder of the Common
Securities. See "Description of the Preferred Securities -- Voting Rights."
TRADING PRICE OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Notes. A holder who disposes of his Preferred Securities between
record dates for payments of distributions thereon may be required to include
accrued but unpaid interest on the Subordinated Notes through the date of
disposition in income as ordinary income (i.e., OID), and to add such amount to
its adjusted tax basis in its pro rata share of the underlying Subordinated
Notes deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which may include, in the form of OID, all accrued
but unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain United States
Federal Income Tax Consequences -- Original Issue Discount" and "-- Sale of
Preferred Securities."
9
<PAGE> 10
CONSUMERS ENERGY COMPANY
Consumers is a public utility serving almost six million of Michigan's nine
and a half million residents in 68 counties in Michigan's Lower Peninsula.
Consumers conducts its principal operations through two business segments:
electric utility operations and gas utility operations. The electric operations
include the generation, purchase, transmission and distribution of electricity
in 61 of the 68 counties in the Lower Peninsula of Michigan. The gas operations
include the purchase, transportation, storage and distribution of gas serving 54
of the 68 counties in the Lower Peninsula of Michigan. Consumers' principal
executive offices are located at 212 West Michigan Avenue, Jackson, Michigan
49201, telephone (517) 788-0550.
CONSUMERS ENERGY COMPANY FINANCING II
The Trust is a statutory business trust created under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
July 30, 1997. The Trust's business is defined in a Declaration of Trust,
executed by Consumers, as sponsor (the "Sponsor"), and the Consumers Trustees.
The Declaration of Trust will be amended and restated in its entirety (as so
amended and restated, the "Declaration") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities.
Consumers will acquire all of the Common Securities in an aggregate liquidation
amount equal to not less than 3% of the total capital of the Trust. The Trust
exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Subordinated Notes
and (iii) engaging in only those other activities necessary, appropriate,
convenient or incidental thereto. The Trust has a term of approximately 35
years, but may terminate earlier as provided in the Declaration.
The Trust's business and affairs will be conducted by the trustees (the
"Consumers Trustees") appointed by Consumers, as holder of the Common
Securities. The duties and obligations of the Consumers Trustees shall be
governed by the Declaration. Pursuant to the Declaration, the number of
Consumers Trustees will initially be five. Three of the Consumers Trustees (the
"Regular Trustees") will be persons who are employees or officers of, or
affiliated with, Consumers. The fourth trustee will be a financial institution
unaffiliated with Consumers which maintains a principal place of business in the
State of Delaware (the "Delaware Trustee"). The Bank of New York (Delaware) will
act as the Delaware Trustee until removed or replaced by the holder of the
Common Securities. The fifth trustee will serve as property trustee under the
Declaration and as indenture trustee for purposes of the Trust Indenture Act
(the "Property Trustee"). The Bank of New York will act as the Property Trustee
until removed or replaced by the holder of the Common Securities. The Bank of
New York will also act as indenture trustee under the Preferred Securities
Guarantee (the "Preferred Guarantee Trustee"). See "Description of the Preferred
Securities Guarantee."
The Property Trustee will hold title to the Subordinated Notes for the
benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Indenture (as defined
herein) as the holder of the Subordinated Notes. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Subordinated Notes for the benefit of the holders of the Trust Securities.
The Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Preferred Guarantee Trustee will hold
the Preferred Securities Guarantee for the benefit of the holders of the
Preferred Securities. Consumers, as the holder of all the Common Securities,
will have the right to appoint, remove or replace any Consumers Trustee and to
increase the number of Consumers Trustees, provided that the number of Consumers
Trustees shall be at least five, a majority of which shall be Regular Trustees.
Consumers will pay all fees and expenses related to the Trust, the offering of
the Trust Securities and the issuance of the Subordinated Notes. See
"Description of the Subordinated Notes -- Miscellaneous."
10
<PAGE> 11
The rights of the holders of the Preferred Securities, including rights to
information and voting rights, are as set forth in the Declaration, the Delaware
Business Trust Act, as amended (the "Trust Act"), and the Trust Indenture Act.
See "Description of the Preferred Securities."
The principal place of business of the Trust shall be c/o Consumers Energy
Company, 212 West Michigan Avenue, Jackson, Michigan 49201 (telephone number
(517) 788-0550).
11
<PAGE> 12
SELECTED FINANCIAL INFORMATION OF CONSUMERS ENERGY COMPANY
The following information is qualified in its entirety by the information
appearing elsewhere in this Prospectus and by the information and financial
statements incorporated in this Prospectus by reference.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue (in millions)........ $3,784 $3,770 $3,511 $3,356 $3,243 $2,978
Net Income (Loss) (in millions)........ $ 294 $ 296 $ 255 $ 226 $ 198 $ (244)
Net Income (Loss) after Preferred
Dividends and Distributions (in
millions)............................ $ 258 $ 260 $ 227 $ 202 $ 187 $ (255)
Ratios of Earnings to:
Fixed Charges........................ 3.19 3.27 2.82 2.81 2.46 (a)
Fixed Charges & Preferred
Dividends......................... 2.48 2.54 2.30 2.32 2.26 (b)
</TABLE>
- -------------------------
(a) For the year ended December 31, 1992, fixed charges exceeded earnings by
$360 million. Earnings as defined include a $520 million pre-tax loss on the
settlement of cost recovery issues relating to power purchases from the MCV
Partnership partially offset by $(15) million for potential customer refunds
and other reserves related to 1992 but recorded in 1991. The ratio of
earnings to fixed charges would have been 1.78 excluding these amounts.
(b) For the year ended December 31, 1992, fixed charges and preferred dividends
exceeded earnings by $377 million. Earnings as defined include a $520
million pre-tax loss on the settlement of cost recovery issues relating to
power purchases from the MCV Partnership partially offset by $(15) million
for potential customer refunds and other reserves related to 1992 but
recorded in 1991. The ratio of earnings to fixed charges and preferred
dividends would have been 1.63 excluding these amounts.
12
<PAGE> 13
CAPITALIZATION OF CONSUMERS ENERGY COMPANY
The following table sets forth the unaudited consolidated capitalization of
Consumers at June 30, 1997, and as adjusted to reflect the sale of the Preferred
Securities offered hereby and the application of the estimated net proceeds from
such sale. See "Use of Proceeds." The table should be read in conjunction with
Consumers' consolidated financial statements and notes thereto included in the
documents incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
AT JUNE 30, 1997
---------------------
ACTUAL AS ADJUSTED
------ -----------
IN MILLIONS
(UNAUDITED)
<S> <C> <C>
Short-term debt (includes notes payable and current portion
of long-term debt and capital leases).................... $ 631 $ 631
====== ======
Non-current portion of capital leases...................... $ 88 $ 88
Long-term debt (excluding current maturities).............. 1,612 1,612
Company-obligated mandatorily redeemable preferred
securities of:
Consumers Power Company Financing I...................... 100 100
Consumers Energy Company Financing II.................... -- 120
Preferred Stock with no mandatory redemption............... 356 236
Common stockholders' equity................................ 1,754 1,754
------ ------
Total stockholders' equity............................... 2,110 1,990
------ ------
Total Capitalization $3,910 $3,910
====== ======
</TABLE>
- -------------------------
(1) As described in this Prospectus, the sole assets of the Trust will be the
8.20% Subordinated Deferrable Interest Notes due 2027 of Consumers with a
principal amount of $123,711,350, and upon redemption of such debt, the
Preferred Securities will be mandatorily redeemable.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Consumers'
financial statements, with the Preferred Securities shown on Consumers'
consolidated financial statements as Company-obligated mandatorily redeemable
preferred securities. Note disclosures will discuss, among other things, the
Consumers' guarantee of the Preferred Securities and that the Subordinated Notes
will be the sole asset of Consumers Energy Company Financing II.
USE OF PROCEEDS
The proceeds of the sale of the Preferred Securities will be invested by
the Trust in the Subordinated Notes of Consumers. Consumers will use the net
proceeds from the sale of such Subordinated Notes to redeem all outstanding
shares of its $7.45, $7.68, $7.72 and $7.76 Preferred Stock.
13
<PAGE> 14
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the principal terms and provisions of the Preferred Securities does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Declaration, a copy of which is filed as an exhibit to the
Registration Statement, of which this Prospectus is a part, the Trust Act and
the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees, on behalf of the Trust, to
issue the Preferred Securities, which represent preferred undivided beneficial
interests in the assets of the Trust, and the Common Securities, which represent
common undivided beneficial interests in the assets of the Trust. All of the
Common Securities will be owned by Consumers. The Common Securities rank pari
passu, and payments will be made thereon on a pro rata basis, with the Preferred
Securities, except that upon the occurrence and during the continuation of a
Declaration Event of Default, the rights of the holders of the Common Securities
to receive payment of periodic distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights to payment of the
holders of the Preferred Securities. The Declaration does not permit the
incurrence of any indebtedness by the Trust or the issuance by the Trust of any
securities other than the Trust Securities. Pursuant to the Declaration, the
Property Trustee will hold legal title to the Subordinated Notes for the Trust
and for the benefit of the holders of the Trust Securities. The payment of
distributions out of money held by the Trust, and payments upon redemption of
the Preferred Securities or liquidation of the Trust, are guaranteed by
Consumers to the extent described under "Description of the Preferred Securities
Guarantee." The Preferred Guarantee Trustee will hold the Preferred Securities
Guarantee for the benefit of the holders of the Preferred Securities. The
Preferred Securities Guarantee does not cover payment of distributions on the
Preferred Securities when the Trust does not have sufficient available funds in
the Property Account to make such distributions.
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of 8.20% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears will bear interest at such rate per annum (to the
extent permitted by applicable law). The term "distributions" as used herein
includes any such interest payable unless otherwise stated.
Distributions on the Preferred Securities will be cumulative, will accrue
from September 11, 1997 and will be payable quarterly in arrears on March 31,
June 30, September 30, and December 31 of each year to the holders of record on
the applicable record date, commencing September 30, 1997, as and if available
for payment by the Property Trustee, except as otherwise described below. The
amount of distributions payable for any full quarterly period will be computed
on the basis of a 360-day year of twelve 30-day months, and for any period
shorter than a full quarter, on the basis of the actual number of days elapsed
in such a 90-day quarter.
Consumers has the right under the Indenture to defer payments of interest
on the Subordinated Notes by extending the interest payment period from time to
time on the Subordinated Notes which, if exercised, would defer quarterly
distributions on the Preferred Securities (though such distributions would
continue to accrue interest since interest would continue to accrue on the
Subordinated Notes) during any such extended interest payment period. In the
event that Consumers exercises this right, then (a) Consumers shall not declare
or pay any dividend on, make any distributions with respect to, or redeem,
purchase or make a liquidation payment with respect to, any of its capital
stock, (b) Consumers shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by Consumers which rank pari passu with or junior
to the Subordinated Notes, and (c) Consumers shall not make any guarantee
payments with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantee), provided, however, Consumers may declare and pay a stock
dividend where the dividend stock is
14
<PAGE> 15
the same stock as that on which the dividend is being paid. Prior to the
termination of any such Extension Period, Consumers may further extend the
interest payment period, provided that such Extension Period, together with all
such previous and further extensions thereof, may not exceed 20 consecutive
quarters or extend beyond the maturity of the Subordinated Notes. Upon the
termination of any Extension Period and the payment of all amounts then due,
Consumers may select a new Extension Period as if no Extension Period had
previously been declared, subject to the above requirements. See "-- Option to
Extend Interest Payment Period" and "Description of the Subordinated Notes --
Interest." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to holders of record of the Preferred Securities,
if funds are available therefor, as they appear on the books and records of the
Trust on the record date next following the termination of such Extension
Period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Subordinated Notes. See "Description of the
Subordinated Notes." The payment of distributions out of moneys held by the
Trust is guaranteed by Consumers to the extent set forth under "Description of
the Preferred Securities Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
only form, will be one Business Day (as defined herein) prior to the relevant
payment dates, which payment dates correspond to the interest payment dates on
the Subordinated Notes. Such distributions will be paid through the Property
Trustee, who will hold amounts received in respect of the Subordinated Notes in
the Property Account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "-- Book-Entry
Only Issuance -- The Depository Trust Company" below. In the event the Preferred
Securities shall not continue to remain in book-entry only form, the Regular
Trustees shall have the right to select relevant record dates which shall be at
least one Business Day, but less than 60 Business Days, prior to the relevant
payment dates. In the event that any date on which distributions are to be made
on the Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a day on which banking institutions in
Delaware or New York, New York are authorized or required by law to close.
MANDATORY REDEMPTION
The Subordinated Notes will mature on September 1, 2027 and may be
redeemed, in whole or in part, at any time on or after September 30, 2002, or at
any time in certain circumstances upon the occurrence of a Special Event. Upon
the repayment of the Subordinated Notes, whether at maturity or upon
acceleration, redemption or otherwise, the proceeds from such repayment or
payment shall simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Subordinated Notes so repaid or redeemed at the Redemption Price; provided that,
except in the case of payments upon maturity, holders of Trust Securities shall
be given not less than 30 nor more than 60 days' notice of such redemption. See
"Description of the Subordinated Notes." In the event that fewer than all of the
outstanding Preferred Securities are to be redeemed, the Preferred Securities
will be redeemed pro rata as described under "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have received an opinion
from independent tax counsel experienced in such matters to the effect that as a
result of (a) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein or (b) any
amendment to, or change
15
<PAGE> 16
in, an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority, which
amendment or change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced or which action is taken,
in each case on or after the date of this Prospectus, there is more than an
insubstantial risk that (i) the Trust would be subject to United States federal
income tax with respect to interest accrued or received on the Subordinated
Notes, (ii) interest payable to the Trust on the Subordinated Notes would not be
deductible in whole or in part by Consumers for United States federal income tax
purposes or (iii) the Trust would be subject to more than a de minimis amount of
other taxes, duties or other governmental charges, which change or amendment
becomes effective on or after the date of this Prospectus.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act") to the effect that,
as a result of the occurrence of a change in law or regulation or a written
change in interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the 1940 Act.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Trust
shall, except in the circumstances described below, be terminated with the
result that, after satisfaction of liabilities to creditors, Subordinated Notes
with an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Trust Securities would be distributed to the holders of the Trust Securities, in
liquidation of such holders' interests in the Trust on a pro rata basis, within
90 days following the occurrence of such Special Event; provided, however, that
in the case of the occurrence of a Tax Event, as a condition of such termination
and distribution, the Regular Trustees shall have received a No Recognition
Opinion (as defined below); and, provided, further, that, if at the time there
is available to the Trust the opportunity to eliminate, within such 90-day
period, the Special Event by taking some ministerial action which has no adverse
effect on the Trust, Consumers or the holders of the Trust Securities, the Trust
will pursue such measure in lieu of dissolution.
Furthermore, (i) if a Tax Event has occurred and, (a) Consumers has
received a Redemption Tax Opinion (as defined below) or (b) the Regular Trustees
shall have been informed by independent tax counsel that a No Recognition
Opinion cannot be delivered, or (ii) if an Investment Company Event has
occurred, then Consumers shall have the right, upon not less than 30 nor more
than 60 days' notice, to redeem the Subordinated Notes in whole or in part for
cash within 90 days following the occurrence of such Tax Event or Investment
Company Event, as the case may be, and, following such redemption, Trust
Securities with an aggregate liquidation amount equal to the aggregate principal
amount of the Subordinated Notes so redeemed shall be redeemed by the Trust at
the Redemption Price on a pro rata basis; provided, however, that, if at the
time there is available to Consumers or the Trust the opportunity to eliminate,
within such 90-day period, such Tax Event or Investment Company Event by taking
some ministerial action which has no adverse effect on the Trust, Consumers or
the holders of the Trust Securities, Consumers or the Trust will pursue such
measure in lieu of redemption.
"No Recognition Opinion" means an opinion from independent tax counsel
experienced in such matters to the effect that the holders of the Trust
Securities will not recognize any gain or loss for United States federal income
tax purposes as a result of a dissolution of the Trust and the distribution of
the Subordinated Notes. "Redemption Tax Opinion" means an opinion from
independent tax counsel experienced in such matters to the effect that, as a
result of a Tax Event, there is more than an insubstantial risk that Consumers
would be precluded from deducting the interest on the Subordinated Notes for
United States income tax purposes even after the Subordinated Notes were
distributed to the holders of the Trust Securities.
If Subordinated Notes are distributed to the holders of the Preferred
Securities, Consumers will use its best efforts to have the Subordinated Notes
listed on the New York Stock Exchange or on such other exchange, on which the
Preferred Securities are then listed.
16
<PAGE> 17
After the date for any distribution of Subordinated Notes upon termination
of the Trust, (i) the Preferred Securities and Preferred Securities Guarantee
will no longer be deemed to be outstanding, (ii) the depositary or its nominee,
as the record holder of the Preferred Securities, will receive a registered
global certificate or certificates representing the Subordinated Notes to be
delivered upon such distribution and (iii) any certificates representing
Preferred Securities and Preferred Securities Guarantee not held by the
depositary or its nominee will be deemed to represent Subordinated Notes having
an aggregate principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, such Preferred
Securities, until such certificates are presented to Consumers or its agent for
transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Notes that may be distributed in exchange for the
Preferred Securities if a termination and liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase, or
the Subordinated Notes that the investor may receive on termination and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Trust Securities for all quarterly distribution periods terminating on or prior
to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that Consumers has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Notes, the Trust will irrevocably
deposit with the depositary funds sufficient to pay the applicable Redemption
Price and will give the depositary irrevocable instructions and authority to pay
the Redemption Price to the holders of the Preferred Securities. See "--
Book-Entry Only Issuance -- The Depository Trust Company." If notice of
redemption shall have been given and funds deposited as required, then
immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of such Preferred
Securities so called for redemption will cease, except the right of the holders
of such Preferred Securities to receive the Redemption Price, but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price in respect of Preferred
Securities is improperly withheld or refused and not paid either by the Trust or
by Consumers pursuant to the Preferred Securities Guarantee, distributions on
such Preferred Securities will continue to accrue, from the original redemption
date to the actual date of payment, in which case the actual payment date will
be considered the date fixed for redemption for purposes of calculating the
Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed pro rata as
described under "-- Book-Entry Only Issuance -- The Depository Trust Company"
below.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), Consumers or its affiliates
may, at any time and from time to time, purchase outstanding Preferred
Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON TERMINATION
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Trust, the holders of the Preferred Securities at that time
will be entitled to receive out of the assets of the Trust, after satisfaction
of liabilities to creditors, distributions in an amount equal to the aggregate
of the stated liquidation amount of $25 per Preferred Security plus accrued and
unpaid distributions thereon to the date of payment
17
<PAGE> 18
(the "Liquidation Distribution"), unless, in connection with such dissolution,
winding-up or termination, after satisfaction of liabilities to creditors,
Subordinated Notes in an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Preferred Securities have been distributed on a pro
rata basis to the holders of Preferred Securities in exchange for such Preferred
Securities.
If, upon any such dissolution, winding-up or termination, the Liquidation
Distribution can be paid only in part because the Trust has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Preferred Securities shall be paid
on a pro rata basis. The holders of the Common Securities will be entitled to
receive distributions upon any such dissolution, winding-up or termination pro
rata with the holders of the Preferred Securities, except that if a Declaration
Event of Default has occurred and is continuing, the Preferred Securities shall
have a preference over the Common Securities.
Pursuant to the Declaration, the Trust shall terminate (i) on July 30,
2032, the expiration of the term of the Trust, (ii) upon the bankruptcy of
Consumers, (iii) upon the filing of a certificate of dissolution or its
equivalent with respect to Consumers, or the revocation of the charter of
Consumers and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iv) upon the distribution of the Subordinated Notes
following the occurrence of a Special Event, (v) upon the entry of a decree of a
judicial dissolution of Consumers or the Trust or (vi) upon the redemption of
all of the Trust Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
(see "Description of the Subordinated Notes -- Indenture Events of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities or its
consequences until all Declaration Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee will be deemed to
be acting solely on behalf of the holders of the Preferred Securities and only
the holders of the Preferred Securities will have the right to direct the
Property Trustee with respect to certain matters under the Declaration, and
therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, as the sole holder of the Subordinated Notes, will have the right under
the Indenture to declare the principal of, and interest on, the Subordinated
Notes to be immediately due and payable. In addition, holders of Preferred
Securities will have certain rights to institute proceedings directly against
Consumers for payment defaults under the Indenture. See "-- Voting Rights."
VOTING RIGHTS
Except as provided below, under the Trust Act, the Trust Indenture Act and
under "Description of the Preferred Securities Guarantee -- Amendments and
Assignment" and as otherwise required by law, the holders of the Preferred
Securities will have no voting rights. In the event Consumers elects to defer
payments of interest on the Subordinated Notes as described above under "--
Distributions," the holders of the Preferred Securities do not have the right to
appoint a special representative or trustee or otherwise act to protect their
interests.
The holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Subordinated Notes, to (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debt Trustee (as
hereinafter defined) under the Indenture with respect to the Subordinated Notes,
(ii) waive any past Indenture Event of Default which is waivable under the Base
Indenture (as defined herein), or
18
<PAGE> 19
(iii) exercise any right to rescind or annul a declaration that the principal of
all the Subordinated Notes shall be due and payable. In addition, a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder directly of the principal of or interest on Subordinated
Notes having a principal amount equal to the aggregate liquidation preference
amount of the Preferred Securities of such holder on or after the respective due
dates specified in the Subordinated Notes. With respect to the Property
Trustee's rights other than its rights to receive payment on the Subordinated
Notes, if the Property Trustee fails to enforce its other rights under the
Declaration, to the fullest extent permitted by law, a holder of Preferred
Securities may institute a legal proceeding directly against Consumers to
enforce the Property Trustee's rights under the Declaration, without first
instituting any legal proceeding against the Property Trustee or any other
person or entity, including the Trust. The Property Trustee shall notify all
holders of the Preferred Securities of any notice of default received from the
Debt Trustee with respect to the Subordinated Notes; provided that, except for a
default in the payment of principal of (or premium, if any) or interest on any
of the Subordinated Notes, the Property Trustee shall be protected in
withholding such notice if the Property Trustee in good faith determines that
the withholding of such notice is in the interests of the holders of the
Preferred Securities. Such notice shall state that such Indenture Event of
Default also constitutes a Declaration Event of Default. The Property Trustee
shall not take any action described in clauses (i), (ii) or (iii) above unless
the Property Trustee has obtained an opinion of independent tax counsel to the
effect that, as a result of such action, the Trust will not be classified as
other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Notes, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination. The Property Trustee shall vote
with respect to such amendment, modification or termination as directed by a
majority in liquidation amount of the Preferred Securities and, if no
Declaration Event of Default has occurred and is continuing, a majority in
liquidation amount of the Common Securities, voting together as a single class,
provided that where a consent under the Indenture would require the consent of
more than a majority of the holders in principal amount of Subordinated Notes
affected thereby (a "Super-Majority"), the Property Trustee may only give such
consent at the direction of the holders of at least the proportion in
liquidation amount of the Preferred Securities and Common Securities,
respectively, which the relevant Super-Majority represents of the aggregate
principal amount of the Subordinated Notes outstanding. The Property Trustee
shall not take any such action in accordance with the directions of the holders
of the Trust Securities unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that, as a result of such action, the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities or distribute Subordinated Notes in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by Consumers or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, Consumers shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
19
<PAGE> 20
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Holders of the Preferred Securities will have no rights to appoint or
remove the Consumers Trustees, who may be appointed, removed or replaced solely
by Consumers, as the direct or indirect holder of all the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees (and in certain circumstances the Property
Trustee or the Delaware Trustee), provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the Trust
Securities will be entitled to vote as a single class on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities
affected thereby, provided that a reduction of the principal amount or the
distribution rate, or a change in the payment dates or maturity of the Preferred
Securities, shall not be permitted without the consent of each holder of
Preferred Securities. In the event any amendment or proposal referred to in
clause (i) above would adversely affect only the Preferred Securities or the
Common Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Property Trustee or (iii) cause the Trust to be deemed to be an "investment
company" which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any business trust or other business entity (as
defined in the Trust Act), except as described below. The Trust may, with the
consent of a majority of the Regular Trustees and without the consent of the
holders of the Trust Securities, consolidate, amalgamate, merge with or into, or
be replaced by, a trust organized as such under the laws of any State; provided,
that (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust with respect to the Trust Securities or (y) substitutes
for the Trust Securities other securities having substantially the same terms as
the Trust Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Trust Securities rank in priority with respect
to distributions and payments upon liquidation, redemption, maturity and
otherwise, (ii) Consumers expressly acknowledges a trustee of such successor
entity which possesses the same powers and duties as the Property Trustee as the
holder of the Subordinated Notes, (iii) the Preferred Securities or any
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, (iv) such
merger, consolidation, amalgamation or replacement does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
material rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(vi) such successor entity has a purpose substantially identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
Consumers has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (A) such merger, consolidation,
amalgamation or replacement does not adversely affect the material rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect
20
<PAGE> 21
(other than with respect to any dilution of the holders' interest in the new
entity), (B) following such merger, consolidation, amalgamation or replacement,
neither the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (C) following such merger,
consolidation, amalgamation or replacement, the Trust (or the successor entity)
will continue to be classified as a grantor trust for United States federal
income tax purposes, and (viii) Consumers guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Preferred Securities Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in liquidation amount of
the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified for United States federal income tax purposes as other
than a grantor trust.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's partnership
nominee). One or more fully registered Preferred Securities certificates will be
issued, representing in the aggregate the total number of Preferred Securities,
and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global Preferred
Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Preferred Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial
21
<PAGE> 22
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in the Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will consent or
vote with respect to Preferred Securities. Under its usual procedures, DTC would
mail an Omnibus Proxy to the Trust as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Preferred Securities are credited on
the record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participant and not of DTC, the Trust,
any trustee, the Underwriters or Consumers, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Trust, disbursement of such
payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided below, a Beneficial Owner in a Preferred Security will
not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
Consumers) may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depository) with respect to the Preferred
Securities. In that event, certificates for the Preferred Securities will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources, including DTC, that Consumers and the Trust
believe to be reliable, but Consumers and the Trust take no responsibility for
the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities and after the curing of all such defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Property Trustee, upon the
occurrence of a Declaration Event of Default, from exercising the rights and
powers vested in it by the Declaration. The Property Trustee also serves as
trustee under the Preferred Securities Guarantee.
22
<PAGE> 23
REGISTRAR AND TRANSFER AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time. Registration of transfers of
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Regular
Trustees may require) in respect of any tax or other government charges which
may be imposed in relation to it. The Trust will not be required to register or
cause to be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or characterized for United States
federal income tax purposes as other than a grantor trust. Consumers is
authorized and directed to conduct its affairs so that the Subordinated Notes
will be treated as indebtedness of Consumers for United States federal income
tax purposes. In this connection, the Regular Trustees and Consumers are
authorized to take any action, not inconsistent with applicable law and the
restated articles of incorporation of Consumers, that each of the Regular
Trustees and Consumers determines in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially and
adversely affect the interests of the holders of the Preferred Securities.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Preferred
Securities Guarantee that will be executed and delivered by Consumers for the
benefit of the holders from time to time of the Preferred Securities. The
Preferred Securities Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Bank of New York will act as the Preferred Guarantee Trustee.
The terms of the Preferred Securities Guarantee will be those set forth therein
and those made part thereof by the Trust Indenture Act. The following summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the Preferred Securities
Guarantee, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, and the Trust Indenture Act. The Preferred
Securities will be held by the Preferred Guarantee Trustee for the benefit of
the holders of the Preferred Securities.
GENERAL
Pursuant to the Preferred Securities Guarantee, Consumers will irrevocably
and unconditionally agree, to the extent set forth therein, to pay in full to
the holders of the Preferred Securities the Guarantee Payments (as defined
herein) (without duplication of amounts theretofore paid by the Trust), to the
extent not paid by the Trust, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The following payments or
distributions with respect to the Preferred Securities to the extent not paid or
made by the Trust (the "Guarantee Payments") will be subject to the Preferred
Securities Guarantee (without duplication): (i) any accrued and unpaid
distributions that are required to be paid on the Preferred Securities, to the
extent the Trust has funds available therefor, (ii) the Redemption Price,
including all accrued and unpaid distributions to the date of the redemption, to
the extent the Trust has funds available therefor, with respect to any Preferred
Securities called for redemption by the Trust and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Subordinated Notes to the holders of
Preferred Securities in exchange for Preferred Securities), the lesser of (a)
the aggregate of the liquidation amount and all accrued and unpaid distributions
on the Preferred
23
<PAGE> 24
Securities to the date of payment and (b) the amount of assets of the Trust
remaining available for distribution to holders of Preferred Securities in
liquidation of the Trust. Consumers' obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by Consumers to the
holders of Preferred Securities or by causing the Trust to pay such amounts to
such holders.
The Preferred Securities Guarantee will be a guarantee of the Guarantee
Payments with respect to the Preferred Securities from the time of issuance of
the Preferred Securities, but will not apply to the payment of distributions and
other payments on the Preferred Securities when the Property Trustee does not
have sufficient funds in the Property Account to make such distributions or
other payments. If Consumers does not make interest payments on the Subordinated
Notes held by the Property Trustee, the Trust will not make distributions on the
Preferred Securities issued by the Trust and will not have funds available
therefor. See "Description of the Subordinated Notes -- Certain Covenants."
Consumers will also agree separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Preferred
Securities Guarantee, except that upon the occurrence and during the
continuation of an Indenture Event of Default, holders of Preferred Securities
shall have priority over holders of Common Securities with respect to
distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF CONSUMERS
In the Preferred Securities Guarantee, Consumers will covenant that, so
long as the Preferred Securities remain outstanding, if there shall have
occurred and is continuing any event that would constitute an event of default
under the Preferred Securities Guarantee or the Declaration, then (a) Consumers
shall not declare or pay any dividend on, or make any distribution with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock, (b) Consumers shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by Consumers which rank pari passu with
or junior to the Subordinated Notes and (c) Consumers shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Preferred Securities Guarantee); provided, however, Consumers may declare and
pay a stock dividend where the dividend stock is the same stock as that on which
the dividend is being paid.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required), the
Preferred Securities Guarantee may be amended only with the prior approval of
the holders of not less than a majority in liquidation amount of the outstanding
Preferred Securities. The manner of obtaining any such approval of holders of
the Preferred Securities is set forth under "Description of the Preferred
Securities -- Voting Rights." All guarantees and agreements contained in the
Preferred Securities Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of Consumers and shall inure to the benefit of the
Preferred Guarantee Trustee and the holders of the Preferred Securities then
outstanding.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will terminate and be of no further
force and effect as to the Preferred Securities upon full payment of the
Redemption Price of all Preferred Securities, or upon distribution of the
Subordinated Notes to the holders of the Preferred Securities, and will
terminate completely upon full payment of the amounts payable upon liquidation
of the Trust. See "Description of the Subordinated Notes -- Indenture Events of
Default" for a description of the events of default and enforcement rights of
the holders of Subordinated Notes. The Preferred Securities Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of Preferred Securities must repay to the Trust or Consumers, or
their successors, any sums paid to them under such Preferred Securities or the
Preferred Securities Guarantee.
24
<PAGE> 25
EVENTS OF DEFAULT
An event of default under the Preferred Securities Guarantee will occur
upon the failure of Consumers to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Preferred Guarantee Trustee in respect of the
Preferred Securities Guarantee or to direct the exercise of any trust or power
conferred upon the Preferred Guarantee Trustee under the Preferred Securities
Guarantee. In addition, any holder of Preferred Securities may institute a legal
proceeding directly against Consumers to enforce its rights under the Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other person or entity.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
Consumers' obligations under the Preferred Securities Guarantee to make the
Guarantee Payments will constitute an unsecured obligation of Consumers and will
rank (i) subordinate and junior in right of payment to all other liabilities of
Consumers, including the Subordinated Notes, except those liabilities of
Consumers made pari passu or subordinate by their terms, (ii) pari passu with
the most senior preferred stock now or hereafter issued by Consumers and with
any guarantee now or hereafter entered into by Consumers in respect of any
preferred stock of any affiliate of Consumers, and (iii) senior to Consumers'
common stock. The terms of the Preferred Securities provide that each holder of
Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Preferred Securities Guarantee.
The Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity). The Preferred Securities Guarantee will be deposited with the Preferred
Guarantee Trustee to be held for the benefit of the holders of the Preferred
Securities. Except as otherwise noted herein, the Preferred Guarantee Trustee
has the right to enforce the Preferred Securities Guarantee on behalf of the
holders of the Preferred Securities. The Preferred Securities Guarantee will not
be discharged except by payment of the Guarantee Payments in full (without
duplication of amounts theretofore paid by the Trust).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to the Preferred Securities Guarantee and after the curing of all such
defaults that may have occurred, undertakes to perform only such duties as are
specifically set forth in the Preferred Securities Guarantee and, after default,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Preferred
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Preferred Securities Guarantee at the request of any holder of
Preferred Securities, unless offered reasonable indemnity against the costs,
expenses and liabilities which might be incurred thereby; but the foregoing
shall not relieve the Preferred Guarantee Trustee, upon the occurrence of an
event of default under the Preferred Securities Guarantee, from exercising the
rights and powers vested in it by the Preferred Securities Guarantee. The
Preferred Guarantee Trustee also serves as Property Trustee.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by, and construed in
accordance with, the internal laws of the State of Michigan.
25
<PAGE> 26
DESCRIPTION OF THE SUBORDINATED NOTES
Set forth below is a description of the terms of the Subordinated Notes.
The following description does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Indenture (the "Base
Indenture"), dated as of January 1, 1996, between Consumers and Bank of New York
as Trustee (the "Debt Trustee"), as supplemented from time to time by one or
more supplemental indentures thereto, including by a Second Supplemental
Indenture relating to the Subordinated Notes, dated as of September 4, 1997 (the
Base Indenture, as so supplemented, is hereinafter referred to as the
"Indenture"), the forms of which are filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The terms of the Subordinated
Notes will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act. Certain capitalized terms
used herein are defined in the Indenture.
Under certain circumstances involving the termination of the Trust
following the occurrence of a Special Event, Subordinated Notes may be
distributed to the holders of Trust Securities in liquidation of the Trust. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
If the Subordinated Notes are distributed to the holders of the Trust
Securities, Consumers will use its best efforts to have the Subordinated Notes
listed on the New York Stock Exchange or on such other exchange on which the
Preferred Securities are then listed.
GENERAL
The Subordinated Notes will be issued as a series of unsecured subordinated
debt securities under the Indenture. The Subordinated Notes will be limited in
aggregate principal amount to $123,711,350, such amount being the sum of the
aggregate stated liquidation amount of the Preferred Securities and the capital
contributed by Consumers in exchange for the Common Securities (the "Payment").
The Subordinated Notes are not entitled to the benefit of any sinking fund.
Unless redeemed earlier, the entire principal amount of the Subordinated Notes
will mature and become due and payable, together with any accrued and unpaid
interest thereon, including Additional Interest (as defined herein), if any, on
September 1, 2027.
If Subordinated Notes are distributed to holders of the Preferred
Securities in liquidation of such holders' interests in the Trust, it is
anticipated that such distribution would occur in book-entry form and that DTC,
or any successor depository for the Preferred Securities, would act as
depository for the Subordinated Notes and that the depository arrangements for
the Subordinated Notes would be substantially identical to those in effect for
the Preferred Securities. For a description of DTC and the terms of the
depository arrangements relating to payments, transfers, voting rights,
redemption and other notices and other matters, see "Description of the
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company."
Except under certain limited circumstances as described under "Description
of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company" for delivery of certificates evidencing beneficial ownership in
Preferred Securities, the Subordinated Notes would not be issuable as, or
exchangeable for, Subordinated Notes in definitive certificated form. In the
event Subordinated Notes are issued in certificated form, such Subordinated
Notes will be in denominations of $25 and integral multiples thereof, and
principal and interest will be payable, the transfer of the Subordinated Notes
will be registrable and Subordinated Notes will be exchangeable for Subordinated
Notes of authorized denominations of a like aggregate principal amount as
described under "-- Exchange and Transfer" and "-- Payment" below.
SUBORDINATION
The Indenture provides (and each holder of Subordinated Notes by acceptance
thereof agrees) that the Subordinated Notes will be subordinated and junior in
right of payment to the prior payment in full of all Senior Indebtedness of
Consumers. No payment on account of principal of, premium, if any, or interest
on the Subordinated Notes and no acquisition of, or payment on account of any
sinking fund for, the Subordinated Notes may be made unless full payment of
amounts then due for principal, premium, if any, and interest then due on all
Senior Indebtedness by reason of the maturity thereof (by lapse of time,
acceleration or otherwise)
26
<PAGE> 27
has been made or duly provided for in cash in a manner satisfactory to the
holders of such Senior Indebtedness. In addition, the Indenture provides that
upon the happening and during the continuation of any default in payment of the
principal of, premium, if any, or interest on any Senior Indebtedness when the
same becomes due and payable or in the event any judicial proceeding shall be
pending with respect to any such default, then unless and until such default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by Consumers with respect to the principal of, premium, if any, or
interest on Subordinated Notes or to acquire any Subordinated Notes or on
account of any sinking fund provision applicable to Subordinated Notes.
Consumers shall give prompt written notice to the Debt Trustee of any default
under any Senior Indebtedness or under any agreement pursuant to which Senior
Indebtedness may have been issued. The Indenture provisions described in this
paragraph, however, do not prevent Consumers from making a sinking fund payment
with Subordinated Notes acquired prior to the maturity of Senior Indebtedness.
Upon any distribution of its assets in connection with any dissolution,
winding-up, liquidation or reorganization of Consumers, whether voluntary, or
involuntary, in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise, all Senior Indebtedness
must be paid in full before the holders of the Subordinated Notes are entitled
to any payments whatsoever. Any payment or distribution, whether in cash,
securities or other property, which would otherwise (but for the subordination
provisions) be payable or deliverable in respect of the Subordinated Notes shall
be paid or delivered directly to the holders of such Senior Indebtedness (or
their representative or trustee) in accordance with the priorities then existing
among such holders until all Senior Indebtedness shall have been paid in full
before any payment or distribution is made to the holders of Subordinated Notes.
In the event that notwithstanding such subordination provisions any payment or
distribution of assets of any kind or character is made on the Subordinated
Notes before all Senior Indebtedness is paid in full, the Debt Trustee or the
holders of Subordinated Notes receiving such payment will be required to pay
over such payment or distribution to the holders of such Senior Indebtedness.
The rights of the holders of the Subordinated Notes will be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Subordinated Notes are paid in full. As a result of these subordination
provisions, in the event of Consumers' insolvency, holders of the Subordinated
Notes may recover ratably less than senior creditors of Consumers.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date of execution of the
Indenture or thereafter incurred, created or assumed: (i) indebtedness of
Consumers for money borrowed by Consumers (including purchase money obligations)
or evidenced by debentures (other than the Subordinated Notes), notes, bankers'
acceptances or other corporate debt securities or similar instruments issued by
Consumers; (ii) all capital lease obligations of Consumers; (iii) all
obligations of Consumers issued or assumed as the deferred purchase price of
property, all conditional sale obligations of Consumers and all obligations of
Consumers under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) obligations with
respect to letters of credit; (v) all indebtedness of others of the type
referred to in the preceding clauses (i) through (iv) assumed by or guaranteed
in any manner by Consumers or in effect guaranteed by Consumers; or; (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of Consumers (whether or
not such obligation is assumed by Consumers), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Notes, as the case may be, including all other debt securities and
guarantees in respect of those debt securities, issued to any other trusts,
partnerships or other entities affiliated with Consumers which act as a
financing vehicle of Consumers in connection with the issuance of preferred
securities by such entity or other securities which rank pari passu with, or
junior to, the Preferred Securities, and (2) any indebtedness between or among
Consumers and its affiliates and (vii) renewals, extensions or refunding of any
of the indebtedness referred to in the preceding clauses unless, in the case of
any particular indebtedness, renewal, extension or refunding, under the express
provisions of the instrument creating or evidencing the same or the assumption
or guarantee of the same, or pursuant to which the same is outstanding, such
indebtedness or such renewal, extension or refunding thereof is not superior in
right of payment to the Subordinated Notes.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued. As of June 30, 1997, Senior Indebtedness of Consumers
aggregated approximately $2,363 million.
27
<PAGE> 28
CERTAIN COVENANTS
If (i) there shall have occurred any event that would constitute an
Indenture Event of Default or (ii) Consumers shall be in default with respect to
its payment of any obligations under the Preferred Securities Guarantee or the
Common Securities Guarantee, then (a) Consumers shall not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase or make
a liquidation payment with respect to, any of its capital stock, (b) Consumers
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees) issued by
Consumers which rank pari passu with or junior to the Subordinated Notes and (c)
Consumers shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Preferred Securities Guarantee).
If Consumers shall have given notice of its election of an Extension Period
as provided in the Indenture and such period, or any extension thereof, shall be
continuing, then (a) Consumers shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase or make a liquidation
payment with respect to, any of its capital stock, (b) Consumers shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities (including guarantees) issued by Consumers which
rank pari passu with or junior to the Subordinated Notes and (c) Consumers shall
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Preferred Securities Guarantee) provided, however, Consumers may
declare and pay a stock dividend where the dividend stock is the same stock as
that on which the dividend is being paid. Any Extension Period with respect to
payment of interest on the Subordinated Notes will also apply to distributions
with respect to the Preferred Securities.
For so long as the Trust Securities remain outstanding, Consumers will
covenant (i) to maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of
Consumers under the Indenture may succeed to Consumers' ownership of such Common
Securities, (ii) not to cause, as sponsor of the Trust, or to permit, as holder
of the Common Securities, the dissolution, winding-up or termination of the
Trust, except in connection with a distribution of the Subordinated Notes as
provided in the Declaration and in connection with certain permitted mergers,
consolidations or amalgamations and (iii) to use its reasonable efforts to cause
the Trust (a) to remain a statutory business trust, except in connection with
the distribution of Subordinated Notes to the holders of Trust Securities in
liquidation of the Trust, the redemption of all of the Trust Securities of the
Trust, or certain mergers, consolidations or amalgamations, each as permitted by
the Declaration, and (b) to otherwise continue to be classified as a grantor
trust for United States federal income tax purposes.
OPTIONAL REDEMPTION
Consumers shall have the right to redeem the Subordinated Notes, in whole
or in part, from time to time, on or after September 30, 2002, or at any time in
certain circumstances upon the occurrence of a Special Event as described under
"Description of the Preferred Securities -- Special Event Redemption or
Distribution," upon not less than 30 nor more than 60 days' notice, at a
Redemption Price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest, including Additional Interest, if any, to the
redemption date. If a partial redemption of the Preferred Securities resulting
from a partial redemption of the Subordinated Notes would result in the
delisting of the Preferred Securities, Consumers may only redeem the
Subordinated Notes in whole.
INTEREST
Each Subordinated Note shall bear interest at the rate of 8.20% per annum
from the original issue date, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing September 30, 1997, to the person in whose name such Subordinated
Note is registered, subject to certain exceptions, at the close of business on
the Business Day next preceding such Interest Payment Date. In the event the
Subordinated Notes shall not continue to remain in book-entry only form the
relevant record date shall be the fifteenth day of the month in which the
applicable Interest Payment Date occurs.
28
<PAGE> 29
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period will be computed on the basis of
the actual number of days elapsed in such 90-day quarter. In the event that any
date on which interest is payable on the Subordinated Notes is not a Business
Day, then payment of the interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Consumers shall have the right at any time, and from time to time, during
the term of the Subordinated Notes to defer payments of interest by extending
the interest payment period for a period not exceeding 20 consecutive quarters,
at the end of which Extension Period, Consumers shall pay all interest then
accrued and unpaid (including any Additional Interest, together with interest
thereon at the rate specified for the Subordinated Notes to the extent permitted
by applicable law); provided, that, during any such Extension Period, (a)
Consumers shall not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase or make a liquidation payment with respect to,
any of its capital stock, (b) Consumers shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by Consumers which rank pari passu with
or junior to the Subordinated Notes and (c) Consumers shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Preferred Securities Guarantee), provided, however, Consumers may declare and
pay a stock dividend where the dividend stock is the same stock as that on which
the dividend is being paid. Prior to the termination of any such Extension
Period, Consumers may further defer payments of interest by extending the
interest payment period, provided that such Extension Period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarters or extend beyond the maturity of the Subordinated Notes. Upon the
termination of any Extension Period and the payment of all amounts then due,
Consumers may select a new Extension Period, as if no Extension Period had
previously been declared, subject to the above requirements. No interest during
an Extension Period shall be due and payable, except at the end thereof.
Consumers has no present intention of exercising its rights to defer payments of
interest by extending the interest payment period on the Subordinated Notes. If
the Property Trustee shall be the sole registered holder of the Subordinated
Notes, Consumers shall give the Regular Trustees and the Property Trustee notice
of its election of such Extension Period one Business Day prior to the earlier
of (i) the next succeeding date on which distributions on the Preferred
Securities are payable or (ii) the date the Trust is required to give notice to
the New York Stock Exchange or other applicable self-regulatory organization or
to holders of the Preferred Securities of the record date or the date such
distribution is payable, but in any event not less than one Business Day prior
to such record date. The Regular Trustees shall give notice of Consumers'
selection of such Extension Period to the holders of the Preferred Securities.
If the Property Trustee shall not be the sole holder of the Subordinated Notes,
Consumers shall give the holders of the Subordinated Notes notice of its
selection of such Extension Period ten Business Days prior to the earlier of (i)
the Interest Payment Date or (ii) the date Consumers is required to give notice
to the New York Stock Exchange or other applicable self-regulatory organization
or to holders of the Subordinated Notes of the record or payment date of such
related interest payment, but in any event at least two Business Days before
such record date.
ADDITIONAL INTEREST
If at any time the Trust or the Property Trustee shall be required to pay
any taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, Consumers will pay as additional interest
("Additional Interest") such additional amounts as shall be required so that the
net amounts received and retained by the Trust and the Property Trustee after
paying any such taxes, duties, assessments or other governmental charges will be
equal to the amounts the Trust and the Property Trustee would have received had
no such taxes, duties, assessments or other governmental charges been imposed.
29
<PAGE> 30
INDENTURE EVENTS OF DEFAULT
The occurrence of any of the following events will constitute an "Indenture
Event of Default" with respect to the Subordinated Notes: (a) default for 30
days in the payment of any interest on any of the Subordinated Notes (including
any Additional Interest) provided, however, that a valid extension of the
interest payment period as described above shall not constitute a default in the
payment of interest for this purpose; (b) default in the payment when due of any
of the principal of or the premium, if any, on any of the Subordinated Notes,
whether at maturity, upon redemption, acceleration or otherwise; (c) default in
the deposit or payment of any sinking fund or analogous payment in respect of
any Subordinated Notes; (d) default for 60 days by Consumers in the observance
or performance of any other covenant or agreement contained in the Subordinated
Notes or the Indenture after written notice thereof as provided in the
Indenture; (e) certain events of bankruptcy, insolvency or reorganization
relating to Consumers; (f) the voluntary or involuntary dissolution, winding-up
or termination of the Trust, except in connection with the distribution of
Subordinated Notes to the holders of Preferred Securities in liquidation of the
Trust, the redemption of all outstanding Trust Securities of the Trust and
certain mergers, consolidations or amalgamations permitted by the Declaration.
If an Indenture Event of Default on Subordinated Notes shall have occurred
and be continuing, either the Debt Trustee or the holders of not less than 25%
in aggregate principal amount of the Subordinated Notes then outstanding may
declare the principal of all Subordinated Notes and the interest, if any,
accrued thereon to be due and payable immediately. Accordingly, the Property
Trustee, as the holder of the Subordinated Notes, will have the right to declare
the principal of and the interest on the Subordinated Notes (including any
Additional Interest, if any) and any other amounts payable under the Indenture
to be forthwith due and payable and to enforce its other rights as a creditor
with respect to the Subordinated Notes.
Upon certain conditions, any such declarations may be rescinded and
annulled if all Indenture Events of Default, other than the nonpayment of
accelerated principal, with respect to the Subordinated Notes of all such and
Securities of other affected series then outstanding under the Indenture shall
have been cured or waived as provided in the Indenture by the holders of a
majority in aggregate principal amount of the Subordinated Notes and Securities
of other affected series then outstanding under the Indenture.
The Indenture provides that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of the holders of the Subordinated Notes, unless such holders shall
have offered to the Debt Trustee reasonable indemnity. Subject to such
provisions for indemnity and certain other limitations contained in the
Indenture, the holders of a majority in aggregate principal amount of the
Subordinated Notes of each affected series then outstanding (voting as one
class) will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Debt Trustee, or exercising any
trust or power conferred on the Debt Trustee, with respect to the Subordinated
Notes of such affected series.
The Indenture provides that no holder of Subordinated Notes may institute
any action against Consumers under the Indenture (except actions for payment of
overdue principal, premium or interest) unless such holder previously shall have
given to the Debt Trustee written notice of default and continuance thereof and
unless the holders of not less than 25% in aggregate principal amount of the
Subordinated Notes and Securities of other affected series then outstanding
under the Indenture (voting as one class) shall have requested the Debt Trustee
to institute such action and shall have offered the Debt Trustee reasonable
indemnity, the Debt Trustee shall not have instituted such action within 60 days
of such request and the Debt Trustee shall not have received direction
inconsistent with such request by the holders of a majority in aggregate
principal amount of the Subordinated Notes and Securities of other affected
series then outstanding under the Indenture (voting as one class).
The Indenture requires Consumers to furnish to the Debt Trustee annually a
statement as to Consumers' compliance with all conditions and covenants under
the Indenture. The Indenture provides that the Debt Trustee may withhold notice
to the holders of the Subordinated Notes of any series of any default affecting
such series (except defaults as to payment of principal, premium or interest on
the Subordinated Notes of
30
<PAGE> 31
such series) if it considers such withholding to be in the interests of the
holders of the Subordinated Notes of such series.
EXCHANGE AND TRANSFER
If the book-entry only system is not in effect, Subordinated Notes may be
presented for exchange and registered Subordinated Notes may be presented for
registration of transfer at the office or agency of the Debt Trustee subject to
the restrictions set forth therein, without service charge, but upon payment of
any taxes or other governmental charges due in connection therewith, subject to
any applicable limitations contained in the Indenture.
PAYMENT
If the book-entry only system is not in effect, payment of the principal of
and the premium and interest, if any, on all Subordinated Notes will be made at
the office or agency of the Debt Trustee in the Borough of Manhattan, the City
of New York except that, at the option of Consumers, payment of any interest may
be made (i) by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register or (ii) by wire transfer to
an account maintained by the Person entitled thereto as specified in the
Security Register. Payment of any interest due on Subordinated Notes in
registered form will be made to the Persons in whose name such Subordinated
Notes are registered at the close of business on the record date for such
interest payments.
MODIFICATION OF THE INDENTURE
The Indenture permits Consumers and the Debt Trustee to enter into
supplemental indentures thereto without the consent of the holders of the
Subordinated Notes to: (a) secure the Subordinated Notes, (b) evidence the
assumption by a successor corporation of the obligations of Consumers under the
Indenture and the Subordinated Notes then outstanding, (c) add covenants for the
protection of the holders of the Subordinated Notes, (d) cure any ambiguity or
correct any inconsistency in the Indenture, (e) establish the form and terms of
any series of securities under the Indenture and (f) evidence the acceptance of
appointment by a successor Debt Trustee.
The Indenture also permits Consumers and the Debt Trustee, with the consent
of the holders of not less than a majority in aggregate principal amount of the
Subordinated Notes and other Indenture securities of all series then outstanding
and affected (voting as one class), to add any provisions to, or change in any
manner or eliminate any of the provisions of, the Indenture or modify in any
manner the rights of the holders of the Subordinated Notes and other Indenture
securities; provided, however, that Consumers and the Debt Trustee may not,
without the consent of the holder of each such security then outstanding and
affected thereby: (a) change the time of payment of the principal (or any
installment) of any such security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or impair the
right to institute suit for the enforcement of any payment on any Subordinated
Note when due or (b) reduce the percentage in principal amount of the Indenture
securities, the consent of whose holders is required for any such modification
or for any waiver provided for in the Indenture.
Prior to the acceleration of the maturity of any Subordinated Note or other
securities outstanding under the Indenture, the holders of a majority in
aggregate principal amount of Subordinated Notes and other securities
outstanding under the Indenture with respect to which a default or an Event of
Default shall have occurred and be continuing (voting as one class) may on
behalf of the holders of all such affected securities (including the
Subordinated Notes) waive any past default or Event of Default and its
consequences, except a default or an Event of Default in respect of a covenant
or provision of the Indenture or of any Subordinated Note or other Indenture
security which cannot be modified or amended without the consent of the holder
of each Subordinated Note or other Indenture security affected.
31
<PAGE> 32
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Indenture provides that Consumers may consolidate with or merge into,
or sell, lease or convey its property as an entirety or substantially as an
entirety to, any other corporation if such corporation assumes the obligations
of Consumers under the Subordinated Notes and the Indenture and is organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia.
DEFEASANCE AND DISCHARGE
The Indenture provides that Consumers will be discharged from any and all
obligations in respect of the Subordinated Notes (except for certain obligations
to register the transfer of or exchange the Subordinated Notes of such series,
to replace stolen, lost or mutilated Subordinated Notes, to maintain paying
agencies and to maintain the trust described below), if Consumers irrevocably
deposits in trust with the Debt Trustee money, and/or securities backed by the
full faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any, and interest on the Subordinated Notes of such series on the stated
maturity of such Subordinated Notes (which may include one or more redemption
dates designated by Consumers) in accordance with the terms thereof. If such
deposit occurs more than one year prior to the stated maturity or redemption
date of such Subordinated Notes, Consumers is required, among other things, to
deliver to the Debt Trustee an opinion of independent counsel to the effect that
the exercise of such option would not cause the holders of the Subordinated
Notes to recognize income, gain or loss for United States federal income tax
purposes as a result of such defeasance, and such holders will be subject to
United States federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not occurred.
Consumers may also obtain a discharge of the Indenture with respect to all
securities then outstanding under the Indenture including Subordinated Notes
(except for certain obligations to register the transfer of or exchange such
Subordinated Notes, to replace stolen, lost or mutilated Subordinated Notes, to
maintain paying agencies and to maintain the trust described below) by
irrevocably depositing in trust with the Debt Trustee money, and/or securities
backed by the full faith and credit of the United States which, through the
payment of the principal thereof and the interest thereon in accordance with
their terms, will provide money in an amount sufficient to pay all the principal
of and premium, if any, and interest on the Subordinated Notes on the stated
maturities thereof (including one or more redemption dates), provided that such
Subordinated Notes are by their terms due and payable, or are to be called for
redemption, within one year.
For United States federal income tax purposes, any deposits with respect to
the Subordinated Notes prior to maturity contemplated in the preceding
paragraphs would be treated as an exchange of the Subordinated Notes outstanding
for other property. Accordingly, holders of Subordinated Notes outstanding may
be required to recognize a gain or loss for United States federal income tax
purposes upon such exchange. In addition, such holders thereafter may be
required to recognize income from such property which could be different from
the amount that would be includable in the absence of such deposit. Prospective
investors are urged to consult their own tax advisors as to the specific
consequences to them of such deposit.
GOVERNING LAW
The Indenture and Subordinated Notes will be governed by, and construed in
accordance with, the laws of the State of Michigan; provided, however, that the
rights, duties and obligations of the Trustee are governed and constructed in
accordance with the laws of the State of New York.
MISCELLANEOUS
The Indenture will provide that Consumers will pay all fees and expenses
related to (i) the offering of the Trust Securities and the Subordinated Notes,
(ii) the organization, maintenance and dissolution of the Trust, (iii) the
retention of the Consumers Trustees and (iv) the enforcement by the Property
Trustee of the rights of holders of Preferred Securities.
32
<PAGE> 33
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED NOTES
AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the sole purposes of the Trust are to (i)
issue Trust Securities, (ii) invest the proceeds thereof in the Subordinated
Notes and (iii) engage in only those other activities necessary or incidental
thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Notes, such payments will be sufficient to cover distributions and
payments due on the Trust Securities primarily because (i) the aggregate
principal amount of Subordinated Notes will be equal to the sum of the aggregate
stated liquidation amount of the Trust Securities; (ii) the interest rate and
interest and other payment dates on the Subordinated Notes will match the
distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) Consumers shall pay for all costs and expenses of the Trust;
and (iv) the Declaration provides that the Consumers Trustees shall not cause or
permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by Consumers as and to the extent set forth under
"Description of the Preferred Securities Guarantee." If Consumers does not make
interest payments on the Subordinated Notes purchased by the Trust, it is
expected that the Trust will not have sufficient funds to pay distributions on
the Preferred Securities. The Preferred Securities Guarantee does not apply to
any payment of distributions unless and until the Trust has sufficient funds for
the payment of such distributions.
If Consumers fails to make interest or other payments on the Subordinated
Notes when due (taking into account any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights," may direct the Property Trustee to enforce its rights under the
Subordinated Notes. In addition, a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder directly of the
principal of or interest on Subordinated Notes having a principal amount equal
to the aggregate liquidation preference amount of the Preferred Securities of
such holder on or after the respective due dates specified in the Subordinated
Notes. If the Property Trustee fails to enforce its other rights under the
Subordinated Notes, to the fullest extent permitted by law, a holder of
Preferred Securities may institute a legal proceeding directly against Consumers
to enforce the Property Trustee's rights under the Subordinated Notes without
first instituting any legal proceeding against the Property Trustee or any other
person or entity, including the Trust.
If Consumers fails to make payments under the Preferred Securities
Guarantee, the Preferred Securities Guarantee provides a mechanism whereby the
holders of the Preferred Securities may direct the Preferred Guarantee Trustee
to enforce its rights thereunder. In addition, any holder of Preferred
Securities may institute a legal proceeding directly against Consumers to
enforce its rights under the Preferred Securities Guarantee, without first
instituting a legal proceeding against the Trust, the Preferred Guarantee
Trustee or any other person or entity.
The obligations of Consumers with respect to the Preferred Securities under
the Subordinated Notes, the Indenture, the Preferred Securities Guarantee and
the Declaration (including its obligation to pay the expenses of the Trust),
taken together, constitute a full and unconditional guarantee by Consumers of
payments due on the Preferred Securities. See "Description of the Preferred
Securities Guarantees -- General."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities to a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized under
the laws of the United States or any state thereof or the District of Columbia,
an estate or trust the income of which is subject to United States federal
income taxation regardless of its source, or a trust the administration of which
is subject
33
<PAGE> 34
to the primary supervision of a court within the United States and for which one
or more United States individuals have the authority to control all substantial
decisions (a "Holder"), represents the opinion of Reid & Priest LLP, special tax
counsel to Consumers and the Trust. Investors should be aware that the opinion
of Reid & Priest LLP does not address any other issue and is not binding on the
Internal Revenue Service or the courts. This summary does not address the United
States federal income tax consequences to persons other than Holders.
This summary is based on the United States federal income tax laws,
regulations and rulings and decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a Holder. In
addition, this summary does not address the tax consequences to persons who
purchase Preferred Securities other than pursuant to their initial issuance and
distribution. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to a Holder.
CLASSIFICATION OF THE SUBORDINATED NOTES
In connection with the issuance of the Subordinated Notes, Reid & Priest
LLP, special tax counsel to Consumers and the Trust, will render its opinion
generally to the effect that, although not entirely free from doubt, under then
current law and assuming full compliance with the terms of the Indenture (and
certain other documents), and based on certain facts and assumptions contained
in such opinion, the Subordinated Notes held by the Trust will be classified for
United States federal income tax purposes as indebtedness of Consumers.
There can be no assurance, however, that legislation will not be enacted
into law or that other developments will not occur after the date hereof that
would adversely affect the tax treatment of the Subordinated Notes or otherwise
give rise to a Special Event that could result in the exchange of the
Subordinated Notes for Preferred Securities or, in certain limited
circumstances, the redemption of the Subordinated Notes by Consumers and the
distribution of the resulting cash in redemption of the Preferred Securities.
See "Description of the Preferred Securities -- Special Event Redemption or
Distribution."
CLASSIFICATION OF CONSUMERS ENERGY COMPANY FINANCING II
Reid & Priest LLP, special tax counsel to Consumers and to the Trust, is of
the opinion that, under current law and assuming full compliance with the terms
of the Indenture and the Declaration (and certain other documents), the Trust
will be classified as a "grantor trust" for federal income tax purposes and will
not be classified as an association taxable as a corporation. Each Holder will
be treated as owning an undivided beneficial interest in the Subordinated Notes.
PAYMENTS OF INTEREST
Except as set forth below, stated interest on the Subordinated Notes will
be taxable to Holders of Preferred Securities as ordinary income at the time it
is paid or accrued in accordance with the Holder's method of accounting for tax
purposes.
ORIGINAL ISSUE DISCOUNT
Under income tax regulations that recently became effective, Consumers
believes that the Subordinated Notes will not be treated as issued with OID.
This conclusion is based upon certain assumptions, including the assumption that
the issue price of the Preferred Securities is not less than the stated
principal amount of the Subordinated Notes. It should be noted that these
regulations have not yet been addressed in many rulings or
34
<PAGE> 35
other interpretations by the IRS. Accordingly, it is possible that the IRS could
take a position contrary to the interpretation described herein.
Consumers generally has the right to defer the payment of interest on the
Subordinated Notes at any time for up to 20 consecutive quarters. Should
Consumers exercise its rights to defer payments of interest, the Subordinated
Notes would be treated as issued with OID and all the stated interest payments
on the Subordinated Notes would thereafter be treated as OID for so long as they
remained outstanding. As a result, all Holders would, in effect, be required to
accrue interest income even if such Holders are on a cash method of accounting.
Consequently, in the event that the payment of interest is deferred, a Holder
could be required to include OID in income on an economic accrual basis,
notwithstanding that Consumers will not make any interest payments during such
Extension Period of the Subordinated Notes.
RECEIPT OF SUBORDINATED NOTES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution,"
Subordinated Notes may be distributed to Holders in exchange for the Preferred
Securities and in liquidation of the Trust. Such a distribution would be treated
as a non-taxable event to each Holder and each Holder would receive an aggregate
tax basis in the Subordinated Notes equal to such Holder's aggregate tax basis
in the Preferred Securities. A Holder's holding period in the Subordinated Notes
so received in liquidation of the Trust would include the period for which the
Preferred Securities were held by such Holder.
RECEIPT OF CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution," the
Subordinated Notes may be redeemed for cash and the proceeds of such redemption
distributed to Holders in redemption of the Preferred Securities. Under current
law, such a redemption would, for United States federal income tax purposes,
constitute a taxable disposition of the Preferred Securities, and a Holder would
recognize gain or loss as if such Holder had sold such redeemed Preferred
Securities. See "--Sale of Preferred Securities," below.
SALE OF PREFERRED SECURITIES
A Holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis and the amount realized on the
sale with respect to Preferred Securities. Any such gain or loss generally will
be capital gain or loss and will be long-term capital gain or loss if at the
time of sale the Preferred Securities have been held for the required holding
period.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Notes. During an Extension Period, a Holder disposing of its
Preferred Securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest through the date of
disposition in income as ordinary income (i.e. OID), and to add such amount to
its adjusted tax basis in its Preferred Securities. To the extent the selling
price is less than the Holder's adjusted tax basis (which will include, in the
form of OID, all accrued but unpaid interest), a Holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to Holders on Form 1099, which forms should be
mailed to Holders of Preferred Securities by January 31 following each calendar
year.
35
<PAGE> 36
The Trust will be obligated to report annually to Cede & Co., as Holder of
record of the Preferred Securities, the OID with respect to the Preferred
Securities that accrued during that year. The Trust currently intends to report
such information on Form 1099 prior to January 31 following each calendar year
even though the Trust is not legally required to report to record Holders until
April 15 following each calendar year. The Underwriters have indicated to the
Trust that, to the extent that they hold Preferred Securities as nominees for
beneficial Holders, they currently expect to report the OID that accrued during
the calendar year on such Preferred Securities to such beneficial Holders on
Forms 1099 by January 31 following each calendar year. Under current law,
Holders of Preferred Securities who hold as nominees for beneficial Holders will
not have any obligation to report information regarding the beneficial Holders
to the Trust. The Trust, moreover, will not have any obligation to report to
beneficial Holders who are not also record holders. Thus, beneficial Holders of
Preferred Securities who hold their Preferred Securities through the
Underwriters will receive Forms 1099 reflecting the income on their Preferred
Securities from such nominee Holders rather than the Trust.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the Holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the Holder's federal income tax, provided that required
information is provided to the IRS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
36
<PAGE> 37
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as
representative (the "Representative"), has severally agreed to purchase the
number of Preferred Securities set forth opposite its name below. The
Underwriters are committed to take and pay for all of the Preferred Securities
if any such Preferred Securities are taken, provided that, under certain
circumstances relating to a default of one or more Underwriters, less than all
of such Preferred Securities may be purchased. Default by one or more
Underwriters would not relieve the non-defaulting Underwriters from their
several obligations, and in the event of such default, Consumers would have the
right to require the non-defaulting Underwriters to purchase the respective
number of Preferred Securities which agreed to purchase and, in addition, to
purchase Preferred Securities which the defaulting Underwriter or Underwriters
shall have so failed to purchase up to a number thereof equal to one-ninth of
the respective numbers of Preferred Securities which such non-defaulting
Underwriters have otherwise agreed to purchase.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 960,000
A.G. Edwards & Sons, Inc. .................................. 960,000
First of Michigan Corporation............................... 960,000
Morgan Stanley & Co. Incorporated........................... 960,000
Roney & Co. ................................................ 960,000
---------
Total.......................................... 4,800,000
=========
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such price
less a concession of $.50 per Preferred Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $.45 per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representative.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Notes of Consumers, the
Underwriting Agreement provides that Consumers will agree to pay as compensation
("Underwriters' Compensation") to the Underwriters for the Underwriters'
arranging the investment therein of such proceeds, an amount in immediately
available funds of $.7875 per Preferred Security (or $3,780,000 in the
aggregate) for the accounts of the several Underwriters, provided that such
compensation for sales of 10,000 or more Preferred Securities to any single
purchaser will be $.50 per Preferred Security. Therefore, to the extent of such
sales, the actual amount of Underwriters' Compensation will be less than the
aggregate amount specified in the preceding sentence.
During a period of 60 days from the date of the pricing of the Preferred
Securities, neither the Trust nor Consumers will, without the prior written
consent of the Representative, directly or indirectly, sell, offer to sell,
contract to sell, grant any option for the sale of, or otherwise dispose of, any
Preferred Securities, any security convertible into or exchangeable into or
exercisable for Preferred Securities or the Subordinated Notes or any debt
securities substantially similar to the Subordinated Notes or any equity
securities substantially similar to the Preferred Securities (except for the
Subordinated Notes and the Preferred Securities).
An application has been filed with the New York Stock Exchange for the
listing of the Preferred Securities, subject to official notice of issuance. If
approved for listing, trading of the Preferred Securities on the New York Stock
Exchange is expected to commence within a 30 day period after the date of this
Prospectus. The Representative has advised the Trust that the Underwriters
intend to make a market in the Preferred Securities prior to the commencement of
trading on the New York Stock Exchange. The Underwriters will have no obligation
to make a market in the Preferred Securities, however, and may cease market
making activities, if commenced, at any time.
Until the distribution of the Preferred Securities is completed, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Preferred Securities. As an exception
to these rules, the Representative is permitted to engage in certain
transactions that stabilize
37
<PAGE> 38
the price of the Preferred Securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Preferred Securities.
If the Underwriters create a short position in the Preferred Securities in
connection with the offering, i.e., if they sell more Preferred Securities than
are set forth on the cover page of this Prospectus, the Representative may
reduce that short position by purchasing Preferred Securities in the open
market.
The Representative may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representative purchases
Preferred Securities in the open market to reduce the Underwriters' short
position or to stabilize the price of the Preferred Securities, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
None of Consumers, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Preferred
Securities. In addition, none of Consumers, the Trust nor any of the
Underwriters makes any representation that the Representative will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell to a minimum of 400 beneficial holders.
Consumers and the Trust have agreed to indemnify the Underwriters against,
or to contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, Consumers in the ordinary course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of Consumers and the Trust by Richards,
Layton & Finger, P.A., special Delaware counsel to Consumers and the Trust. The
validity of the Subordinated Notes, the Preferred Securities Guarantee and
certain matters relating thereto will be passed upon on behalf of Consumers by
Michael D. VanHemert, Esq, Assistant General Counsel for CMS Energy Corporation,
Consumers' parent. Certain legal matters will be passed upon on behalf of the
Underwriters by Reid & Priest LLP. Certain United States federal income taxation
matters will be passed upon for Consumers and the Trust by Reid & Priest LLP.
Reid & Priest LLP currently provides legal services to an affiliate of Consumers
and has, from time to time, provided legal services to CMS Energy Corporation.
EXPERTS
The consolidated financial statements and schedule of Consumers as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 included or incorporated by reference in this Prospectus have
been audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.),
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31 and June 30, 1997 and 1996, Arthur Andersen LLP
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report thereon states that
they did not audit and they did not express an opinion on that interim
consolidated financial information. Accordingly, the degree of reliance on their
report on that information should be restricted in light of the limited nature
of the review procedures applied. In addition, the accountants are not subject
to the liability provisions of Section 11 of the Securities Act for their report
on the unaudited interim consolidated financial information because that report
is not a "report" or "part" of the registration statement prepared or certified
by the accountants within the meanings of Sections 7 and 11 of the Securities
Act.
38
<PAGE> 39
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CONSUMERS ENERGY COMPANY,
CONSUMERS ENERGY COMPANY FINANCING II OR THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CONSUMERS
ENERGY COMPANY OR CONSUMERS ENERGY COMPANY FINANCING II SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents by
Reference........................... 4
Prospectus Summary.................... 6
Risk Factors.......................... 7
Consumers Energy Company.............. 10
Consumers Energy Company Financing
II.................................. 10
Selected Financial Information of
Consumers Energy Company............ 12
Capitalization of Consumers Energy
Company............................. 13
Accounting Treatment.................. 13
Use of Proceeds....................... 13
Description of the Preferred
Securities.......................... 14
Description of the Preferred
Securities Guarantee................ 23
Description of the Subordinated
Notes............................... 26
Effect of Obligations Under the
Subordinated Notes and the Preferred
Securities Guarantee................ 33
Certain United States Federal Income
Tax Consequences.................... 33
Underwriting.......................... 37
Legal Matters......................... 38
Experts............................... 38
</TABLE>
======================================================
======================================================
4,800,000
PREFERRED SECURITIES
CONSUMERS ENERGY COMPANY
FINANCING II
8.20% TRUST ORIGINATED
PREFERRED SECURITIES(SM)
("TOPRS(SM)")
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
CONSUMERS ENERGY COMPANY
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
FIRST OF MICHIGAN CORPORATION
MORGAN STANLEY DEAN WITTER
RONEY & CO.
SEPTEMBER 4, 1997
======================================================
