<PAGE> 1
Pursuant to Rule 424(b)5
Registration No. 333-89363
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED OCTOBER 25, 1999)
[CONSUMERS ENERGY LOGO]
$125,000,000 FLOATING RATE SENIOR NOTES DUE NOVEMBER 15, 2001
$100,000,000 FLOATING RATE SENIOR NOTES DUE NOVEMBER 15, 2002
------------------------
THE COMPANY:
- Consumers is a public utility that provides natural gas and electricity to
almost six million of the 9.5 million residents in Michigan's lower peninsula.
- Consumers Energy Company
212 West Michigan Avenue
Jackson, Michigan 49201
(517) 788-0550
THE OFFERING:
- USE OF PROCEEDS: We intend to use the proceeds from the offering of the Notes
to repay indebtedness outstanding under a short-term line of credit with Bank
One, N.A., indebtedness under a revolving credit facility with Bank One, N.A.
and others and other various lines of credit.
- DELIVERY: We expect that the Notes will be ready for delivery in book-entry
form only through The Depository Trust Company and Euroclear on or about
November 20, 2000.
THE NOTES:
- MATURITIES:
For the 2001 Notes, November 15, 2001
For the 2002 Notes, November 15, 2002
- INTEREST PAYMENTS:
The 2001 Notes bear interest at a floating rate reset quarter based upon LIBOR
plus .60%.
The 2002 Notes bear interest at a floating rate reset quarter based upon LIBOR
plus .98%.
- INTEREST PAYMENT FOR EACH SERIES OF NOTES: Quarterly on February 15, May 15,
August 15 and November 15 of each year, beginning February 15, 2001.
- REDEMPTION: The 2001 Notes have no redemption provisions. We can redeem the
2002 Notes on or after November 15, 2001.
- RANKING: We will issue Senior Note First Mortgage Bonds to secure the Notes.
On the date that we have retired all first mortgage bonds, the Notes will
become unsecured and rank equally with all of our other unsecured senior
indebtedness.
PROPOSED TRADING FORMAT:
- The Notes will not be listed on any securities exchange.
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- -----
<S> <C> <C>
Price Per 2001 Note......................................... 100.00% $125,000,000
Price Per 2002 Note......................................... 100.00% $100,000,000
Underwriting Discount Per 2001 Note......................... .15% $ 187,500
Underwriting Discount Per 2002 Note......................... .25% $ 250,000
Proceeds to Consumers (before expenses)..................... 99.8056% $224,562,500
</TABLE>
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-6
OF THIS PROSPECTUS SUPPLEMENT.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
BANC ONE CAPITAL MARKETS, INC.
FIRST OF MICHIGAN
DIVISION OF
FAHNESTOCK & CO.
INC.
J.J.B. HILLIARD, W.L. LYONS, INC.
PRUDENTIAL SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus Supplement is November 15, 2000.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
PAGE
----
Summary..................................................... S-3
Risk Factors................................................ S-6
Forward-Looking Information................................. S-8
Use of Proceeds............................................. S-9
Ratio of Earnings to Fixed Charges.......................... S-9
Capitalization.............................................. S-10
Description of the Notes.................................... S-11
Description of First Mortgage Bonds......................... S-20
Ratings..................................................... S-22
Certain United States Federal Tax Consequences for
Non-United States Holders................................. S-22
Underwriting................................................ S-25
Legal Opinions.............................................. S-26
Experts..................................................... S-26
PROSPECTUS
Where You Can Find More Information......................... 2
Consumers Energy Company.................................... 3
Consumers Energy Company Trusts............................. 4
Use of Proceeds............................................. 6
Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Fixed Charges and Preferred Stock Dividends............... 6
Description of Securities................................... 7
Plan of Distribution........................................ 26
Legal Opinions.............................................. 27
Experts..................................................... 27
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM THAT CONTAINED IN THIS DOCUMENT. WE ARE
OFFERING TO SELL, AND SEEKING OFFERS TO BUY, THE NOTES ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS DOCUMENT
IS ACCURATE ONLY AS OF THE DATE HEREOF, REGARDLESS OF THE TIME OF DELIVERY OF
THIS DOCUMENT OR OF ANY SALE OF THE NOTES.
FORWARD-LOOKING STATEMENTS
The prospectus supplement and the accompanying prospectus contain or
incorporate by reference forward-looking statements. The factors identified
under "Risk Factors" on page S-6 and "Forward-Looking Information" on page S-8
are important factors, but not necessarily all of the important factors, that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, us or our subsidiaries.
Where any forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, we caution that, while such
assumptions or bases are believed to be reasonable and are made in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, we,
our subsidiaries, or our management, express an expectation or belief as to
future results, this expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "project," and "anticipate" or
similar expressions identify forward-looking statements.
S-2
<PAGE> 3
SUMMARY
This summary may not contain all the information that may be important to
you. You should read this prospectus supplement, the accompanying prospectus and
the documents incorporated by reference in this document in their entirety
before making an investment decision. The terms "Consumers," "Consumers Energy,"
"Company," "Our" and "We" as used in this prospectus supplement and the
accompanying prospectus refer to "Consumers Energy Company" and its subsidiaries
and predecessors as a combined entity, except where it is made clear that such
term means only the parent company.
In this document, "Bcf" means billion cubic feet, "GWh" means
gigawatt-hour, "KWh" means kilowatt-hour, "MBbls" means thousand barrels, "Mcf"
means thousand cubic feet, "MMBoe" means million barrels of oil equivalent,
"MMBbls" means million barrels, "MMcf" means million cubic feet, "MW" means
megawatts, and "Tbtu" means trillion british thermal units.
CONSUMERS ENERGY COMPANY
Consumers is a public utility that provides natural gas and electricity to
almost six million of the approximately 9.5 million residents in Michigan's
lower peninsula. Consumers' electric operations include the generation,
purchase, transmission and distribution of electricity. It provides electric
services in 61 of the 68 counties of Michigan's lower peninsula. In 1999,
Consumers' electric utility owned and operated 31 electric generating plants
with an aggregate of 6,252 MW of capacity and served 1.7 million customers in
Michigan's lower peninsula. Consumers' gas utility operation purchases,
transports, stores and distributes natural gas. It renders gas sales and
delivery service in 54 of the 68 counties in Michigan's lower peninsula.
Consumers' gas utility owned and operated over 25,000 miles of transmission and
distribution lines throughout the lower peninsula of Michigan, providing natural
gas to 1.6 million customers. Consumers' consolidated operating revenue in 1999
was $3.9 billion. Of Consumers' operating revenue, 69% was generated from its
electric utility business, 30% from its gas utility business, and 1% from its
non-utility business.
S-3
<PAGE> 4
THE OFFERING
Issuer........................ Consumers Energy Company.
Securities Offered............ $125,000,000 Floating Rate Senior Notes due
November 15, 2001 and $100,000,000 Floating
Rate Senior Notes due November 15, 2002
(collectively "the Notes").
Maturities.................... For the 2001 Notes, November 15, 2001.
For the 2002 Notes, November 15, 2002.
Interest Rate................. The 2001 Notes will bear interest at a floating
rate reset quarterly based upon LIBOR plus .60%
per annum.
The 2002 Notes will bear interest at a floating
rate reset quarterly based upon LIBOR plus .98%
per annum.
Interest Rate Adjustment...... The interest rate on the Notes will become
subject to an upward adjustment if either of
the ratings on Consumers' senior secured
long-term debt becomes non-investment grade.
Interest Payment Dates........ For each series of Notes, Quarterly in arrears
on February 15, May 15, August 15 and November
15 of each year, beginning February 15, 2001.
Record Date for Interest
Payments...................... The 1st calendar day of the month in which an
Interest Payment Date occurs.
Use of Proceeds............... We estimate that the net proceeds of the
offering will be approximately $225 million
before deducting expenses. We intend to use
these proceeds from the offering of the Notes
to repay certain indebtedness outstanding under
a short-term line of credit with Bank One,
N.A., indebtedness under a revolving credit
agreement with Bank One, N.A. and others and
other various lines of credit.
Ratings....................... BBB+ by Standard & Poor's Ratings Services and
Baa3 by Moody's Investors Services, Inc.
Ranking....................... The Notes will be secured by Senior Note First
Mortgage Bonds. On the date that we have
retired all first mortgage bonds, the Notes
will become unsecured and rank equally with all
of our other unsecured senior indebtedness.
Optional Redemption........... The 2001 Notes have no redemption provisions.
We will have the option to redeem the 2002
Notes (in whole or in part), from time to time
on or after November 15, 2001. If we redeem the
Notes, we will pay 100% of the principal amount
plus the accrued interest through the
redemption date.
Form of Note.................. One global security for each series of Notes,
held in the name of DTC, in minimum
denomination of $1,000 and any integral
multiple thereof.
Settlement and Payment........ Same-day immediately available funds.
Trustee, Paying Agent, and
Calculation Agent............. The Chase Manhattan Bank.
S-4
<PAGE> 5
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical data has been derived from our
consolidated financial statements. Please refer to our Form 10-K for the fiscal
year ended December 31, 1999 and on Form 10-Q for the nine-months ended
September 30, 2000, each of which is incorporated by reference. The financial
information set forth below should be read in conjunction with our consolidated
financial statements, related notes and other financial information incorporated
by reference in the accompanying prospectus. See "Where You Can Find More
Information" in the accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenue.................. $2,808 $3,874 $3,709 $3,769 $3,770 $3,511
Net income......................... 199 340 349(b) 321 296 255
Net income available to common
stockholder...................... 172 313 312(b) 284 260 227
Total assets....................... 7,132 7,170 7,163 6,949 7,025 6,954
Long-term debt, excluding current
maturities....................... 2,009 2,006 2,007 1,369 1,900 1,922
Non-current portion of capital
leases........................... 81 85 100 74 100 104
Total preferred stock.............. 44 44 238 238 356 356
Total trust preferred securities... 395 395 220 220 100 --
Ratio of earnings to fixed
charges(a)....................... 2.77(d) 3.46 3.16(c) 3.31 3.27 2.82
</TABLE>
-------------------------
(a) For purposes of computing the ratio, earnings represent net income before
income taxes, net interest charges and the estimated interest portions of
lease rentals, plus distributed income of equity investees less earnings
from minority interest of equity investees.
(b) Includes a pre-tax $66 million increase due to a one-time change in method
of accounting for property taxes.
(c) Excludes a cumulative effect of change-in-accounting, after-tax gain of $43
million; if included, ratio would be 3.52.
(d) For twelve months ended September 30, 2000.
S-5
<PAGE> 6
RISK FACTORS
In considering whether to purchase our Notes, you should carefully consider
all the information we have included or incorporated by reference in this
prospectus supplement and the accompanying prospectus. In particular, you should
carefully consider the risk factors described below. In addition, please read
"Forward-Looking Information" on page S-8 of this prospectus supplement, where
we describe additional uncertainties associated with our business and the
forward-looking statements in this prospectus supplement and the accompanying
prospectus.
WE FACE INCREASED COMPETITION, WHICH COULD REDUCE OUR MARKET SHARES AND PROFIT
MARGINS
Increased competition and direct access in the gas industry. Regulatory
changes have been significant in our gas utility business. These changes have
resulted in increased competition from other sellers of natural gas for sale of
the gas commodity to our customers. As a result of the regulatory changes that
separated (unbundled) the transportation and storage of natural gas from the
sale of natural gas by interstate pipelines and Michigan gas distributors,
Consumers offers unbundled services (transportation and some storage) to its
larger end-use customers who choose to acquire gas supplies from alternative
sources. Additionally, to prepare for the unbundled market, Consumers is
conducting an expanded gas customer choice pilot program which, through March
2001, will allow 300,000 residential, commercial and industrial retail gas sales
customers to choose an alternative gas supplier in direct competition with
Consumers as a supplier of the gas commodity. On October 13, 2000 and October
24, 2000 the MPSC issued orders that adopted the terms and conditions for
providing permanent gas customer choice for Michigan customers through which all
of Consumers' gas customers will be able to select an alternate gas supplier
beginning April 1, 2003. See "Recent Developments -- Regulatory Matters -- Gas
Customer Choice Order" for additional information on these orders. At this time,
we do not know the full impact of competition.
Increased competition and direct access in the electric industry. Consumers
has in the last several years experienced and expects to continue to experience
a significant increase in competition for generation services with the
introduction of retail direct access in the State of Michigan. Under the new
electric restructuring legislation enacted in June 2000, all electric customers
will have the choice of electric generation suppliers by January 1, 2002.
NEW ELECTRIC RESTRUCTURING AND PROPOSED GAS RESTRUCTURING LEGISLATION COULD
ADVERSELY AFFECT OUR BUSINESS
Federal and state regulation of electric and natural gas utilities has
changed dramatically in the last two decades and could continue to change over
the next several years. These changes could adversely affect our business,
financial condition and profitability.
New electric restructuring legislation. In June 2000, the Michigan
Legislature enacted electric industry restructuring and securitization laws that
became effective June 5, 2000. The new legislation first reduces residential
rates by 5% then freezes them as of the effective date of the new legislation
through December 31, 2003. All other electric rates are frozen through December
31, 2003 without first being reduced. After that date, electric rates are
subject to a rate cap. The length of the rate cap varies depending upon whether
the customer is a residential, commercial or industrial customer, among other
determinations. Ultimately, the rate cap could extend until December 31, 2013
depending upon whether Consumers and two other utilities jointly complete
expansion of available transmission capability in the State of Michigan of at
least 2,000 MW and do not exceed the market control test established by the
legislation (a requirement Consumers is currently in compliance with). Under
circumstances specified in the statute, certain costs can be deferred for future
recovery after the expiration of the rate cap period. However, the rate cap
could result in Consumers being unable
S-6
<PAGE> 7
to collect customer rates sufficient to recover fully its cost of doing
business. It is not certain that Consumers' profit margins in its electric
utility business will be maintained over the long run.
This new legislation and existing MPSC restructuring orders provide for
recovery of the stranded costs associated with customers purchasing power from
other sources. The new legislation also permits the MPSC annually to review
Consumers' stranded cost recovery charges implemented for the preceding 12
months, and adjust the stranded costs recovery charge (a true-up adjustment), by
way of supplemental surcharges or credits, to allow the netting of stranded
costs. In an order issued October 24, 2000, the MPSC initiated a proceeding to
implement the provisions of the Customer Choice Act regarding the calculation of
stranded costs. Consumers is uncertain how the MPSC will ultimately calculate
the amount of stranded costs and the true-up adjustments, and the manner in
which the annual stranded cost true-up operates.
The new legislation also allows for securitization of stranded costs, which
fit the definition under the legislation of qualified costs for securitization
purposes. In accordance with the securitization law, Consumers filed an
application with the MPSC, and a supplement thereto, in July 2000, to begin the
securitization process. The MPSC issued a financing order on October 24, 2000
authorizing securitization of approximately $470 million in qualified costs plus
the expenses of securitization. As with other significant MPSC orders, the
financing order is subject to appeal by any party to the MPSC proceeding. During
the appeal, the amortization of the approved regulatory assets being securitized
as qualified costs would be suspended, and effectively offset the loss in
revenue resulting from the 5% residential rate reduction, and the amortization
would be reestablished later after the bond sale based on a schedule that is the
same as the recovery of the principal amounts of the securitized qualified
costs. Ultimately, sale of securitization bonds will be required for the full
rate reduction offset to continue over the term of the bonds. See "Recent
Developments -- Regulatory Matters -- Securitization" for additional information
on this financing order.
WE COULD INCUR SIGNIFICANT CAPITAL EXPENDITURES TO COMPLY WITH ENVIRONMENTAL
STANDARDS
We are subject to costly and increasingly stringent environmental
regulations. We expect that the cost of future environmental compliance,
especially compliance with clean air laws, will be significant.
The Environmental Protection Agency in 1997 introduced new regulations
regarding nitrogen oxide and particulate-related emissions which are the subject
of litigation. The nitrogen oxide litigation has been appealed to the U.S.
Supreme Court. These regulations, if upheld, will require us to make significant
capital expenditures. The State of Michigan has introduced alternative less
stringent clean air regulations. The preliminary estimates of capital
expenditures to reduce nitrogen oxide-related emissions to the level proposed by
the State of Michigan for Consumers' fossil-fueled generating units range from
$150 million to $290 million, calculated in year 2000 dollars. If Consumers had
to meet the EPA's proposed requirements, the estimated cost to Consumers would
be between $290 million and $500 million, calculated in year 2000 dollars.
Consumers anticipates that it will incur these capital expenditures between 2000
and 2004, or between 2000 and 2003 if the EPA ultimately imposes its limits. In
addition, Consumers expects to incur cost of removal related to this effort, but
is unable to predict the amount at this time.
Consumers may need an equivalent amount of capital expenditures to comply
with the new small particulate standards sometime after 2004 if those standards
become effective.
These and other required environmental expenditures may have a material
adverse effect upon our financial condition and results of operations.
S-7
<PAGE> 8
FORWARD-LOOKING INFORMATION
From time to time, we may make statements regarding our assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "Forward-Looking Statements" under the Private
Securities Litigation Reform Act of 1995. We caution that these statements may
and often do vary from actual results and the differences between these
statements and actual results can be material. Accordingly, we cannot assure you
that actual results will not differ materially from those expressed or implied
by the forward-looking statements. Some of the factors that could cause actual
achievements and events to differ materially from those expressed or implied in
any forward-looking statements are:
-- the ability to achieve operating synergies and revenue enhancements;
-- factors affecting utility operations such as unusual weather conditions,
catastrophic weather-related damage, unscheduled generation outages,
maintenance or repairs, unanticipated changes to fossil fuel, nuclear
fuel or gas supply costs or availability due to higher demand,
shortages, transportation problems or other developments;
-- environmental incidents;
-- electric transmission or gas pipeline system constraints;
-- national, regional and local economic, competitive and regulatory
conditions and developments;
-- adverse regulatory or legal decisions, including environmental laws and
regulations;
-- pace of implementation and provisions for deregulation of the natural
gas industry, whether by legislative or regulatory action;
-- implementation of the Michigan electric industry restructuring
legislation, including the sale of the securitization bonds;
-- federal regulation of electric sales and transmission of electricity
that grants independent power producers, electricity marketers and other
utilities "direct access" to the interstate electric transmission
systems owned by electric utilities, creating opportunities for
competitors to market electricity to our wholesale customers;
-- energy markets, including the timing and extent of unanticipated changes
in commodity prices for oil, coal, natural gas, natural gas liquids,
electricity and certain related products due to higher demand,
shortages, transportation problems or other developments;
-- the timing and success of business development efforts;
-- nuclear power performance, decommissioning, policies, procedures,
incidents and regulation, including spent nuclear fuel storage
availability;
-- technological developments in energy production, delivery and usage;
-- financial or regulatory accounting principles or policies;
-- cost and other effects of legal and administrative proceedings,
settlements, investigations and claims; and
-- other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
These and other factors are discussed more completely in our public filings
with the SEC, including our annual report on Form 10-K for the year ended
December 31, 1999 and our report on Form 10-Q for the nine-months ended
September 30, 2000.
S-8
<PAGE> 9
USE OF PROCEEDS
The net proceeds to us from this offering, after deducting underwriting
discounts and commissions, will be approximately $224,562,500 million. We will
apply the net proceeds of this offering (i) to repay the balance outstanding on
various lines of credit with a total facility amount of $170 million, maturing
from November 30, 2000 to October 15, 2001, with an average interest rate of
7.28% as of October 31, 2000 and (ii) to repay the entire outstanding balance of
a short-term line of credit with Bank One, N.A. maturing on December 18, 2000,
with a weighted average interest rate of 7.33% as of October 31, 2000. Consumers
will apply the remaining amount to a revolving credit facility with Bank One,
N.A. and others, maturing on July 14, 2002 with a weighted average interest rate
of 7.34% as of October 31, 2000.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the twelve months ended
September 30, 2000 and for each of the years ended December 31, 1995 through
1999 are as follows:
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------
2000 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges....................... 2.77 3.46 3.16 3.31 3.27 2.82
</TABLE>
-------------------------
(a) For purposes of computing the ratio, earnings represent net income before
income taxes, net interest charges and the estimated interest portions of
lease rentals, plus distributed income of equity investees less earnings
from minority interest of equity investees.
S-9
<PAGE> 10
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000
(1) on an actual basis and (2) as adjusted to reflect the sale of $225 million
of Notes in this offering and the application of the net proceeds as described
under "Use of Proceeds." This table should be read in conjunction with our
consolidated financial statements and related notes included in the incorporated
documents as described under "Where You Can Find More Information" in the
accompanying prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
2000
---------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Common stockholder's equity............................ $2,044 $2,044
Preferred stock........................................ 44 44
Consumers-obligated mandatorily redeemable Trust
Preferred Securities of:
Consumers Power Company Financing I(a)............... 100 100
Consumers Energy Company Financing II(a)............. 120 120
Consumers Energy Company Financing III(a)............ 175 175
Long-term debt:
Floating Rate Senior Notes due 2002.................. -- 100
Other long-term debt (excluding current
maturities)....................................... 2,009 2,009
------ ------
Total long-term debt(b)........................... 2,009 2,109
Non-current portion of capital leases.................. 81 81
------ ------
Total capitalization................................... 4,573 4,673
Current portion of long-term debt and capital leases... 80 80
Notes payable:
Floating Rate Senior Notes due 2001.................. -- 125
Other notes payable.................................. 430 205
------ ------
Total notes payable(b)............................ 430 330
Total capitalization and current portion of long-term
debt, capital leases and notes payable............... $5,083 $5,083
====== ======
</TABLE>
-------------------------
(a) The primary asset of Consumers Power Company Financing I is $103 million
principal amount of 8.36% subordinated deferrable interest notes due 2015
from Consumers. The primary asset of Consumers Energy Company Financing II
is $124 million principal amount of 8.20% subordinated deferrable interest
notes due 2027 from Consumers. The primary asset of Consumers Energy Company
Financing III is $180 million principal amount of 9.25% subordinated
deferrable interest notes due 2029 from Consumers.
(b) Adjusted amount reflects issuance of: (i) $125,000,000 Floating Rate Senior
Notes due November 15, 2001 and (ii) $100,000,000 Floating Rate Senior Notes
due on November 15, 2002. The proceeds will be used to repay lines of credit
and a revolving credit facility as described in "Use of Proceeds."
S-10
<PAGE> 11
DESCRIPTION OF THE NOTES
GENERAL
The following information concerning the Notes supplements, and should be
read in conjunction with, the statements under "Description of
Securities -- Debt Securities" "-- Senior Notes", and "-- Description of First
Mortgage Bonds" in the accompanying prospectus. Capitalized terms not defined
herein are used as defined in the accompanying prospectus.
The Notes will be issued under an Indenture, dated February 1, 1998,
between Consumers and The Chase Manhattan Bank, as the Trustee. As of November
1, 2000, five series of senior notes, in an aggregate principal amount of $1,075
million, were outstanding under the Indenture. The following summaries of
certain provisions of the Indenture are not complete and are subject to, and
qualified in their entirety by, all of the provisions of the Indenture, which is
incorporated by reference into this prospectus supplement and accompanying
prospectus, and which is available upon request to the Trustee. Capitalized
terms used in this section and not otherwise defined in this prospectus
supplement or in the accompanying prospectus have the meaning given to them in
the Indenture.
ON THE RELEASE DATE (AS DEFINED AND DESCRIBED IN THE ACCOMPANYING
PROSPECTUS UNDER "DESCRIPTION OF SECURITIES -- SENIOR NOTES"), THE NOTES WILL
CEASE TO BE SECURED BY FIRST MORTGAGE BONDS, WILL BECOME UNSECURED GENERAL
OBLIGATIONS OF CONSUMERS AND WILL RANK ON A PARITY WITH OTHER UNSECURED
INDEBTEDNESS OF CONSUMERS.
INTEREST
Each Note shall bear interest at a floating interest rate from the date of
original issuance, payable quarterly in arrears on February 15, May 15, August
15 and November 15 of each year and on the date of maturity. Interest will be
paid to the person in whose name the Notes are registered at the close of
business on the first calendar day of the month in which the interest payment
date occurs. The initial interest payment date is February 15, 2001. Interest
payable on any interest payment date or on the date of maturity will be the
amount of interest accrued from and including the date of original issuance or
from and including the most recent interest payment date on which interest has
been paid or duly made available for payment to but excluding such interest
payment date or the date of maturity, as the case may be. So long as the Notes
are in book-entry form, principal of and interest on the Notes will be payable,
and the Notes may be transferred, only through the facilities of DTC.
The interest rate for the initial interest period for the 2001 Notes is
7.35875%. The interest rate on the 2001 Notes for each subsequent interest
period will be reset quarterly on February 15, May 15, August 15 and November 15
of each year, and the Notes will bear interest at a per annum rate (computed on
the basis of the actual number of days elapsed over a 360-day year) equal to the
three-month London interbank offer rate (LIBOR) determined in the manner set
forth below, plus 60 basis points.
The interest rate for the initial interest period for the 2002 Notes is
7.73875%. The interest rate on the 2002 Notes for each subsequent interest
period will be reset quarterly on February 15, May 15, August 15 and November 15
of each year, and the Notes will bear interest at a per annum rate (computed on
the basis of the actual number of days elapsed over a 360-day year) equal to the
three-month London interbank offer rate (LIBOR) determined in the manner set
forth below, plus 98 basis points.
The interest rate in effect on each day will be (i) if such date is an
interest reset date, the interest rate determined as of the determination date
(as defined below) immediately preceding such interest reset date or (ii) if
such day is not an interest reset date, the interest rate determined as of the
determination date immediately preceding the most recent interest reset date.
The determination
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<PAGE> 12
date will be the second London Business Day immediately preceding the applicable
interest reset date.
LIBOR will be determined by the calculation agent as of the applicable
determination date in accordance with the following provisions:
(i) LIBOR will be determined on the basis of the offered rates for
deposits in U.S. dollars of not less than U.S. $1,000,000 having a
three-month maturity, commencing on the second London Business Day
immediately following such determination date, which appears on Telerate
Page 3750 (as defined below) as of approximately 11:00 a.m., London time,
on such determination date. "Telerate Page 3750" means the display
designated on page "3750" on Bridge Telerate, Inc. (or such other page as
may replace the 3750 page on that service, any successor service or such
other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates
for U.S. dollar deposits). If no rate appears on Telerate Page 3750, LIBOR
for such determination date will be determined in accordance with the
provisions of paragraph (ii) below.
(ii) With respect to a determination date on which no rate appears on
Telerate Page 3750 as of approximately 11:00 a.m., London time, on such
determination date, the calculation agent shall request the principal
London office of each of four major reference banks (which may include an
affiliate of Banc One) in the London interbank market selected by the
calculation agent (after consultation with Consumers) to provide the
calculation agent with a quotation of the rate at which deposits of U.S.
dollars having a three-month maturity, commencing on the second London
Business Day immediately following such determination date, are offered by
it to prime banks in the London interbank market as of approximately 11:00
a.m., London time, on such determination date in a principal amount equal
to an amount of not less than U.S. $1,000,000 that is representative for a
single transaction in such market at such time. If at least two such
quotations are provided, LIBOR for such determination date will be the
arithmetic mean of such quotations as calculated by the calculation agent.
If fewer than two quotations are provided, LIBOR for such determination
date will be the arithmetic mean of the rates quoted as of approximately
11:00 a.m., New York City time, on such determination date by three major
banks (which may include an affiliate of Banc One) selected by the
calculation agent (after consultation with Consumers) for loans in U.S.
dollars to leading European banks having a three-month maturity commencing
on the second London Business Day immediately following such determination
date and in a principal amount equal to an amount of not less than U.S.
$1,000,000 that is representative for a single transaction in such market
at such time; provided, however, that if the banks selected as aforesaid by
the calculation agent are not quoting such rates as mentioned in this
sentence, LIBOR for such determination date will be LIBOR determined with
respect to the immediately preceding determination date, or in the case of
the first determination date, LIBOR for the initial interest period.
If the date of maturity of the Notes falls on a day that is not a LIBOR
Business Day, the related payment of principal and interest will be made on the
next succeeding LIBOR Business Day as if it were made on the date such payment
was due, and no interest will accrue on the amounts so payable for the period
from and after such date to the next succeeding LIBOR Business Day. If any
interest reset date or interest payment date (other than at the date of
maturity) would otherwise be a day that is not a LIBOR Business Day, that
interest reset date and interest payment date will be postponed to the next
succeeding date that is a LIBOR Business Day, except that if such LIBOR Business
Day is in the next succeeding calendar month, such interest reset date and
interest payment date (other than at the date of maturity) shall be the
immediately preceding LIBOR Business Day.
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"LIBOR Business Day" means any day other than Saturday or Sunday or a day
on which banking institutions or trust companies in the City of New York are
required or authorized to close and that is also a London Business Day.
"London Business Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
Interest Rate Adjustment. The interest rate on the Notes will be subject to
adjustment if either of the ratings on Consumers' senior secured long-term debt
becomes non-investment grade. Consumers' current senior secured long-term debt
rating by Moody's Investors Service, Inc. is Baa3, and its current rating by
Standard & Poor's Rating Service is BBB+. If the rating falls below Baa3 by
Moody's or BBB- by S&P, the calculation agent will adjust the interest rate on
the Notes in accordance with the table below for each respective rating agency.
In such case, the adjusted interest rate per annum for the 2001 Notes would be
the sum of LIBOR, .60% per annum and the sum of the Moody's and S&P adjustment
amounts set forth below effective on the next interest payment date. The
adjusted rate per annum for the 2002 Notes would be the sum of LIBOR, .98% per
annum and the sum of the Moody's and S&P adjustment amounts set forth below
effective on the next interest payment date. An adjustment would be made only to
the extent that the Moody's or S&P rating assigned to Consumers' senior secured
long-term debt was downgraded below the applicable investment grade category. If
on any date subsequent to a step-up in the interest rate, a new ratings change
by Moody's or S&P causes the rating assigned by that rating agency to Consumers'
senior secured long-term debt to rise to Baa3 or BBB-, as the case may be, the
interest payable on the Notes will be decreased by the applicable adjustment
amount set forth below effective on the next interest payment date. There is no
limit on the number of times the interest rate payable on the Notes can be
adjusted up or down based on ratings changes by Moody's and S&P during the life
of the Notes.
<TABLE>
<CAPTION>
MOODY'S ADJUSTMENT S&P ADJUSTMENT
MOODY'S RATING AMOUNT S&P RATING AMOUNT
-------------- ------------------ ------------ --------------
<S> <C> <C> <C>
Ba1 or lower 0.50% BB+ or lower 0.50%
</TABLE>
Rounding. All percentages resulting from any calculation on floating rate
notes will be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five-one millionths of a percentage point rounded upwards
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)). All
amounts used in or resulting from that calculation will be rounded to the
nearest cent (with one-half cent being rounded upwards).
The amount of interest for each day that a Note is outstanding will be
calculated by dividing the interest in effect for such day by 360 and
multiplying the result by the principal amount of the Note. The amount of
interest to be paid on the Notes for any interest period will be calculated by
adding the daily interest amounts for each day in such interest period. The
interest rate on the Notes will never be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application.
Trustee, Paying Agent and Calculation Agent. The Chase Manhattan Bank is
the trustee, paying agent and the calculation agent. The calculation agent will
provide the current, and, when known, the next, interest rate effective for that
period.
OPTIONAL REDEMPTION
The 2001 Notes have no redemption provisions. The Company will have the
right to redeem the 2002 Notes, in whole or in part, at par without premium,
from time to time, on or after November 15, 2001 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 to the redemption
date.
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If notice of redemption is given, the Notes to be redeemed will, on the
redemption date, become due and payable at 100% of the principal amount plus
accrued and unpaid interest on the Notes, and from and after the redemption date
(unless the Company defaults in the payment of the redemption price and accrued
interest) the Notes will no longer pay interest. If any Note called for
redemption is not paid when it is surrendered for redemption, the principal
will, until paid, bear interest from the redemption date at the floating
interest rate.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), the Company or its
affiliates may, at any time and from time to time, purchase outstanding Notes by
tender, in the open market or by private agreement.
REGISTRATION, TRANSFER AND EXCHANGE
The Notes will initially be issued in the form of one or more global notes,
in registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof as described under "Book-Entry Only Issuance -- The Depository
Trust Company and Euroclear." The global notes will be registered in the name of
a nominee of DTC. Except as described under "Book-Entry Only Issuance -- The
Depository Trust Company and Euroclear," owners of beneficial interests in a
global note will not be entitled to have Notes registered in their names, will
not receive or be entitled to receive physical delivery of any such Note and
will not be considered the registered holder thereof under the Indenture.
The Notes may be presented for exchange or registration of transfer (duly
endorsed or accompanied by a duly executed written instrument of transfer), at
the office of the trustee maintained in the Borough of Manhattan, the City of
New York, without service charge but upon payment of any taxes and other
governmental charges as described in the Indenture. The transfer or exchange
will be effected upon Consumers and the trustee being satisfied with the
documents of title and indemnity of the person making the request.
CONCERNING THE TRUSTEE
Consumers and its affiliates maintain depository and other normal banking
relationships with The Chase Manhattan Bank. The Chase Manhattan Bank is also a
lender to Consumers and its affiliates.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY AND EUROCLEAR
DTC will act as the initial securities depositary for the Notes. The Notes
will be issued only as fully registered securities registered in the name of
Cede & Co., DTC's nominee or such other name as may be requested by an
authorized representative of DTC. For each series of Notes, one fully registered
global note certificate will be issued, representing in the aggregate the total
principal amount of Notes, and will be deposited with, or on behalf of, DTC
(collectively, the "Global Notes").
Clearance and Settlement Procedures -- Euroclear. Investors may elect to
hold interests in the Global Notes through DTC or Morgan Guaranty Trust Company
of New York, Brussels Office, as operator of the Euroclear System ("Euroclear")
if they are participants of such system, or indirectly through organizations
which are participants in such system. Euroclear will hold interests on behalf
of its participants through customers' securities accounts in Euroclear's name
on the books of its depositary, which in turn will hold such interests in
customers' securities accounts in the depositary's name on the books of DTC. The
Chase Manhattan Bank will act as depositary for Euroclear (in such capacity, the
"U.S. Depositary"). Investors electing to hold their Notes through Euroclear
accounts will follow the settlement procedures applicable to conventional
Eurobonds in registered form.
S-14
<PAGE> 15
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 Securities Exchange
Act of 1934. DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participant's 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. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, LLC, 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 Direct and Indirect Participants are on file with the
SEC.
Purchases of Notes within the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of Notes (such purchaser, or the
person to whom such purchaser conveys his or her ownership interest, a
"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 Notes. Transfers of ownership interests in
the Notes are to be accomplished by entries made on the books of Direct and
Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in the
Notes, except in the event that use of the book-entry system for the Notes is
discontinued, the Company determines that Beneficial Owners may exchange their
ownership interests for such certificates or there shall have occurred an Event
of Default.
To facilitate subsequent transfers, all Notes deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of the Notes with DTC and their registration
in the name of Cede & Co. or such other nominee do not affect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Notes. DTC's records reflect only the identity of the Direct Participants to
whose accounts such Notes are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect 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 DTC. If less than all of the Notes are
being redeemed, DTC's practice is to determine by lot the amount of the interest
of each Direct Participant in such issue to be redeemed.
Although voting with respect to the Notes is limited, in those cases where
a vote is required, neither DTC nor Cede & Co. (nor such other DTC nominee) will
itself consent or vote with respect to the Notes. Under its usual procedures,
DTC mails an Omnibus Proxy to the Company as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights
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<PAGE> 16
to those Direct Participants to whose accounts the Notes are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Payments on the Notes will be made to Cede & Co. or such other nominee as
may be requested by an authorized representative of DTC. DTC's practice is to
credit Direct Participants' accounts upon DTC's receipt of funds and
corresponding detail information from the Company on the interest payment date
in accordance with their respective holdings shown on DTC's records. 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 registered in "street name," and will be the responsibility of such
Participant and not of DTC or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment to Cede &
Co. (or such other nominee as may be requested by an authorized representative
of DTC) is the responsibility of the Company, 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 herein, a Beneficial Owner of an interest in a Global
Note will not be entitled to receive physical delivery of Notes. Accordingly,
each Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Notes. 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 Note.
DTC may discontinue providing its services as securities depositary with
respect to the Notes at any time by giving reasonable notice to the Company.
Under such circumstances, in the event that a successor securities depository is
not obtained, Notes certificates will be printed and delivered to the holders of
record. Additionally, the Company may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depository) with respect to the
Notes. In that event, certificates for the Notes will be printed and delivered
to the holders of record.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear provides various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"), under contract with Euroclear
Clearance Systems, S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriters. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms
S-16
<PAGE> 17
and Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held beneficially through Euroclear
will be credited to the cash accounts of Euroclear Participants in accordance
with the Terms and Conditions, to the extent received by the U.S. Depositary for
Euroclear.
Euroclear further advises that investors that acquire, hold and transfer
interests in the Notes by book-entry through accounts with the Euroclear
Operator or any other securities intermediary are subject to the laws and
contractual provisions governing their relationship with their intermediary, as
well as the laws and contractual provisions governing the relationship between
such an intermediary and each other intermediary, if any, standing between
themselves and the Global Notes.
The Euroclear Operator advises as follows: Under Belgian law, investors
that are credited with securities on the records of the Euroclear Operator have
a co-property right in the fungible pool of interests in securities on deposit
with the Euroclear Operator in an amount equal to the amount of interests in
securities credited to their accounts. In the event of the insolvency of the
Euroclear Operator, Euroclear Participants would have a right under Belgian law
to the return of the amount and type of interests in securities credited to
their accounts with the Euroclear Operator. If the Euroclear Operator did not
have a sufficient amount of interests in securities on deposit of a particular
type to cover the claims of all Participants credited with such interests in
securities on the Euroclear Operator's records, all Participants having an
amount of interests in securities of such type credited to their accounts with
the Euroclear Operator would have the right under Belgian law to the return of
their pro rata share of the amount of interests in securities actually on
deposit.
Under Belgian law, the Euroclear Operator is required to pass on the
benefits of ownership in any interests in securities on deposit with it (such as
dividends, voting rights and other entitlements) to any person credited with
such interests in securities on its records.
Title to book-entry interests in the Notes will pass by book-entry
registration of the transfer within the records of Euroclear or DTC, as the case
may be, in accordance with their respective procedures. Book-entry interests in
the Notes may be transferred within Euroclear in accordance with procedures
established for these purposes by Euroclear. Book-entry interests in the Notes
may be transferred within DTC in accordance with procedures established for this
purpose by DTC. Transfers of book entry interests in the Notes among Euroclear
and DTC may be effected in accordance with procedures established for this
purpose by Euroclear and DTC.
Global Clearance and Settlement Procedures. Initial settlement for the
Notes will be made in immediately available funds. Notes will be credited to the
securities custody accounts of DTC Participants against payment in same-day
funds on the settlement date. Notes will be credited to the securities custody
accounts of Euroclear Participants on the business day following the settlement
date against payment for value on the settlement date. Secondary market trading
between DTC Participants will occur in the ordinary way in accordance with DTC's
rules and will be settled in immediately available funds using DTC's Same-Day
Funds Settlement System. Secondary market trading between Euroclear Participants
will occur in the ordinary way in accordance with the applicable rules and
operating procedures of Euroclear and will be settled using the procedures
applicable to conventional Eurobonds in immediately available funds.
Trading between DTC seller and Euroclear purchaser. When Notes represented
by a DTC Global Note are to be transferred from the account of a Direct
Participant to the account of a
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<PAGE> 18
Euroclear Participant, the purchaser must send instructions to Euroclear through
a participant at least one business day prior to settlement. Euroclear will
instruct the U.S. Depositary to receive the Notes against payment or free of
payment as the case may be. After settlement has been completed, the Notes will
be credited to the clearing system and by the clearing system in accordance with
its usual procedures, to the account of the relevant Euroclear participant.
Credit for the Notes will appear on the next day (European time) and cash debit
will be back-valued to, and the interest on the Notes will accrue from the value
date (which would be the preceding day when settlement occurs in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Euroclear cash debit will be valued instead as of the actual settlement
date.
Euroclear Participants will need to make available to the clearing system
the funds necessary to process same-day funds settlement. The most direct means
of doing so is to pre-position funds for settlement, either from cash on hand or
existing lines of credit, as they would for any settlement occurring within
Euroclear. Under this approach, participants may take on credit exposure to
Euroclear until the Notes are credited to their accounts one day later.
As an alternative, if Euroclear has extended a line of credit to them,
participants can elect not to pre-position funds and allow that credit line to
be drawn upon to finance settlement. Under this procedure, Euroclear
Participants purchasing Notes would incur overdraft charges for one day assuming
they cleared the overdraft when the Notes were credited to their accounts.
However, interest on the Notes would accrue from the value date. Therefore, in
many cases, the investment income on Notes earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each participant's particular cost of funds.
Because the settlement will take place during New York business hours,
Direct Participants can employ their usual procedures for delivering Notes to
the Depositary for benefit of Euroclear Participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the Direct
Participants, a cross-market transaction will settle no differently than a trade
between two Direct Participants.
Trading between a Euroclear seller and a DTC purchaser. Due to time zone
differences in their favor, Euroclear Participants may employ their customary
procedures for transactions in which Notes represented by a DTC Global Note are
to be transferred by the clearing system through DTC to a Direct Participant.
The seller must send instructions to Euroclear through a participant at least
one business day prior to settlement. In these cases, Euroclear will instruct
DTC to credit the Notes to the Direct Participant's account against payment. The
payment will then be reflected in the account of the Euroclear participant the
following day, and receipt of the cash proceeds in the Euroclear participant's
account will be back valued to the value date (which would be the preceding day
when settlement occurs in New York). If the Euroclear Participant has a line of
credit with its clearing system and elects to draw on such line of credit in
anticipation of receipt of the sale proceeds in its account, the back valuation
may substantially reduce or offset any overdraft charges incurred over the one
day period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Euroclear Participant's
account would instead be valued as of the actual settlement date.
As is the case with sales of Notes represented by a DTC Global Note by a
Direct Participant to a Euroclear Participant, participants in Euroclear will
have their accounts credited the day after their settlement date.
Although DTC and Euroclear have agreed to the foregoing procedures in order
to facilitate transfers of interests in the Notes among participants of DTC and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be changed or discontinued at any time.
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The information in this section concerning DTC and Euroclear and each of
DTC's and Euroclear's book-entry system has been obtained from sources that the
Company believes to be reliable, but the Company takes no responsibility for the
accuracy thereof. The Company has no responsibility for the performance by DTC
or Euroclear or their respective Direct or Indirect Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
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DESCRIPTION OF FIRST MORTGAGE BONDS
GENERAL
The following information concerning the Senior Note First Mortgage Bonds
supplements, and should be read in conjunction with, the statements under
"Description of Securities -- Debt Securities" and "-- Description of First
Mortgage Bonds" in the accompanying prospectus. Capitalized terms not defined
herein are used as defined in the accompanying prospectus.
The Senior Note First Mortgage Bonds are to be issued under an Indenture
dated as of September 1, 1945, between Consumers and The Chase Manhattan Bank,
as the mortgage trustee, as amended and supplemented by various supplemental
indentures and as supplemented by the 78th Supplemental Indenture dated as of
November 15, 2000 providing for the series of Senior Note First Mortgage Bonds
relating to the Notes (the "Mortgage"). In connection with the change of the
state of incorporation from Maine to Michigan in 1968, Consumers succeeded to,
and was substituted for, the Maine corporation under the Mortgage. At October
31, 2000, two series of first mortgage bonds in an aggregate principal amount of
approximately $563 million were outstanding under the Mortgage, excluding five
series of first mortgage bonds in an aggregate principal amount of $1,075
million to secure outstanding senior notes and three series of first mortgage
bonds in an aggregate principal amount of $125,600,000 to secure outstanding
pollution control revenue bonds.
The statements herein concerning the Senior Note First Mortgage Bonds and
the Mortgage are an outline and do not purport to be complete and are subject
to, and qualified in their entirety by, all of the provisions of the Mortgage,
which is incorporated herein by this reference. They make use of defined terms
and are qualified in their entirety by express reference to the cited sections
and articles of the Mortgage a copy of which will be available upon request to
the mortgage trustee.
The Senior Note First Mortgage Bonds will be immediately delivered to and
registered in the name of the trustee. The Senior Note First Mortgage Bonds will
be issued as security for the Notes and will secure the Notes until the release
date.
REDEMPTION PROVISIONS
The Senior Note First Mortgage Bonds, issued as security for the 2002
Notes, will be redeemed on the respective dates and in the respective principal
amounts which correspond to the redemption dates for, and the principal amounts
to be redeemed of, the 2002 Notes. The Senior Note First Mortgage Bonds issued
as security for the 2001 Notes are not redeemable. The Senior Note First
Mortgage Bonds are not redeemable by operation of the maintenance or replacement
provisions of the Mortgage, or with the proceeds of released property.
In the event of an event of default under the Indenture and acceleration of
the Notes, the Senior Note First Mortgage Bonds will be immediately redeemable
in whole, upon demand of the trustee, at a redemption price of 100% of the
principal amount thereof, together with accrued interest to the redemption date.
See "Description of Securities -- Senior Notes -- Events of Default" in the
accompanying prospectus.
SINKING FUND REQUIREMENT
The Senior Note First Mortgage Bonds will not have the benefit of any
sinking fund.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Additional bonds may be issued under the Mortgage up to 60% of unfunded net
property additions or against the deposit of an equal amount of cash, if, for
any period of twelve consecutive months within the fifteen preceding calendar
months the net earnings of Consumers (before income or excess profit taxes)
shall have been at least twice the interest requirement for one year on all
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<PAGE> 21
bonds outstanding and to be issued and on indebtedness of prior or equal rank.
Additional bonds may also be issued to refund bonds outstanding under the
Mortgage. Deposited cash may be applied to the retirement of bonds or be
withdrawn in an amount equal to the principal amount of bonds which may be
issued on the basis of unfunded net property additions. As of September 30,
2000, unfunded net property additions were $3.7 billion. Consumers could issue
$2.2 billion of additional bonds on the basis of such property additions. In
addition, Consumers could issue $596 million of additional bonds on the basis of
bonds previously retired.
The Senior Note First Mortgage Bonds are to be issued upon the basis of
retired bonds.
LIMITATIONS ON DIVIDENDS
The 78th Supplemental Indenture does not restrict Consumers' ability to pay
dividends on its common stock.
CONCERNING THE MORTGAGE TRUSTEE
Consumers and its affiliates maintain depository and other normal banking
relationships with The Chase Manhattan Bank. The Chase Manhattan Bank is also a
lender to Consumers and its affiliates.
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<PAGE> 22
RATINGS
S&P has assigned the Notes a rating of BBB+ and Moody's has assigned the
Notes a rating of Baa3. Such ratings reflect only the views of such ratings
agencies, and do not constitute a recommendation to buy, sell or hold
securities. In general, ratings address credit risk. Each rating should be
evaluated independently of any other rating. An explanation of the significance
of such ratings may be obtained only from such rating agencies at the following
addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New York
10007; and Standard & Poor's, 25 Broadway, New York, New York 10004. The
security rating may be subject to revision or withdrawal at any time by the
assigning rating organization, and, accordingly, there can be no assurance that
such ratings will remain in effect for any period of time or that they will not
be revised downward or withdrawn entirely by the rating agencies if, in their
judgment, circumstances warrant. Neither the Company nor the underwriters have
undertaken any responsibility to oppose any proposed downward revision or
withdrawal of a rating on the Notes. Any such downward revision or withdrawal of
such ratings may have an adverse effect on the market price of the Notes.
At present, each of such rating agencies maintains four categories of
investment grade ratings. They are for S&P -- AAA, AA, A and BBB and for
Moody's -- Aaa, Aa, A and Baa. S&P defines "AAA" as the highest rating assigned
to a debt obligation. Moody's defines "Aaa" as representing the best quality
debt obligation carrying the smallest degree of investment risk.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by an initial beneficial owner of Notes that, for United States federal
tax purposes, is not a "United States person" (a "Non-United States Holder").
This discussion is based upon the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect on the date hereof, which are
subject to change, possibly retroactively. For purposes of this discussion, a
"United States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in the United
States or under the law of the United States or of any state thereof or the
District of Columbia (unless, in the case of a partnership, Treasury regulations
provide otherwise), an estate whose income is subject to United States federal
income taxation regardless of its source, or a trust if a U.S. court is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. Notwithstanding the previous sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons will also be United States
persons. This discussion applies only to those Non-United States Holders who
purchase Notes from the Initial Purchasers at the price set forth on the cover
page of this Offering Circular and hold the Notes as a capital asset. The tax
treatment of the holders of the Notes may vary depending upon their particular
situations. United States persons acquiring the Notes are subject to different
rules than those discussed below. In addition, certain other holders (including
insurance companies, tax exempt organizations, financial institutions and
broker-dealers) may be subject to special rules not discussed below. Prospective
investors are urged to consult their tax advisors regarding the United States
federal tax consequences of acquiring, holding and disposing of Notes, as well
as any tax consequences that may arise under the laws of any relevant foreign,
state, local or other taxing jurisdiction.
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<PAGE> 23
INTEREST
Interest that we pay to a Non-United States Holder will not be subject to
United States federal income or withholding tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-United States Holder and, among other things, such Non-United
States Holder (i) does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock; (ii) is not a
controlled foreign corporation with respect to the United States and to which we
are a related person and (iii) certifies to us, our paying agent or the person
who would otherwise be required to withhold United States tax, on Form W-8 or
W-9 or substantially similar form signed under penalties of perjury, that such
holder is not a United States person and provides such holder's name and address
(the "Certification Requirement"). In the case of interest on a Note that is not
"effectively connected with the conduct of a trade or business within the United
States" and does not satisfy the three requirements of the preceding sentence,
the Non-United States Holder's interest on a Note would generally be subject to
United States withholding tax at a flat rate of 30% (or a lower applicable
treaty rate). If a Non-United States Holder's interest on a Note is "effectively
connected with the conduct of a trade or business within the United States,"
then the Non-United States Holder will generally be subject to full United
States federal income tax on such interest income and, in the case of a
Non-United States Holder that is a foreign corporation, may also be subject to
the branch profits tax at a 30% rate (or, if applicable, at a lower tax rate
specified by a treaty).
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain recognized on a sale, redemption or
other disposition of a Note unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Note as a capital asset, such holder
is present in the United States for 183 or more days in the taxable year and
certain other requirements are met.
FEDERAL ESTATE TAXES
If interest on a Note is exempt from withholding of United States federal
income tax under the rules described above, the Note held by an individual who
at the time of death is a Non-United States Holder generally will not be subject
to United States federal estate tax as a result of such individual's death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, when required, report to the holders of the Notes and the Internal
Revenue Service ("IRS") the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-United States Holders, the
general 31% backup withholding tax and certain information reporting will not
apply to such payments with respect to which either the Certification
Requirement has been satisfied or an exemption has otherwise been established,
provided that neither we nor our payment agent has actual knowledge that the
holder is a United States person or that the conditions of any other exemption
are not in fact satisfied. Information reporting and backup withholding
requirements will apply to the gross proceeds paid to a Non-United States Holder
on the disposition of the Notes by or through a United States office of a United
States or foreign broker, unless the holder certifies to the broker under
penalties of perjury as to its name, address and status as a foreign person or
the holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to a payment of the
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<PAGE> 24
proceeds of a disposition of the Notes by or through a foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the Notes is not a United States person and such broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS.
FINAL TREASURY REGULATIONS
The Treasury Department has promulgated Final Treasury regulations (the
"Final Regulations") regarding certain withholding and information reporting
rules discussed above that are generally effective for payments of interest made
on or after January 1, 2001. In general, the Final Regulations do not
significantly alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms, and clarify
reliance standards. The Final Regulations combine several existing forms,
including Form W-8 and Form 4224, into an expanded Form W-8. The new Forms W-8
include Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding) that replaces the existing Form W-8; Form W-8ECI
(Certificate of Foreign Person's Claim for Exemption From Withholding on Income
Effectively Connected With the Conduct of a Trade or Business in the United
States) that replaces existing Form 4224; and Form W-8IMY (Certificate of
Foreign Intermediary, Foreign Partnership or Certain U.S. Branches for United
States Tax Withholding). Special rules apply that permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners.
Certifications satisfying the requirements of the Final Regulations will be
deemed to satisfy the requirements of the Treasury regulations now in effect.
You must, however, provide certifications that comply with the provisions of the
Final Regulations, where required, with respect to payments made on or after
January 1, 2001 if you remain as a holder of a Note on that date unless you
receive payments on a Note through a qualified intermediary, as defined in the
Final Regulations, that has provided proper certification on your behalf,
although you may have to provide such certifications to the qualified
intermediary.
For payments made after December 31, 2000, for purposes of applying the
above rules for non-United States holders to an entity that is treated as
fiscally transparent, e.g., a partnership or trust, the beneficial owner means
each of the ultimate beneficial owners of the entity.
Prospective investors should consult their own tax advisors as to the
specific methods for satisfying the certification requirements imposed under the
Final Regulations.
THE UNITED STATES 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. NON-U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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<PAGE> 25
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus supplement, the underwriters named
below have severally agreed to purchase, and Consumers has agreed to sell to
them, severally, the principal amount of Notes indicated below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF 2001 NOTES OF 2002 NOTES
------------ ---------------- ----------------
<S> <C> <C>
Banc One Capital Markets, Inc. ............ $ 77,500,000 $ 62,000,000
Fahnestock & Co. Inc. ..................... 11,875,000 9,500,000
J.J.B. Hilliard, W.L. Lyons, Inc. ......... 11,875,000 9,500,000
Prudential Securities Incorporated......... 11,875,000 9,500,000
Raymond James & Associates, Inc. .......... 11,875,000 9,500,000
------------ ------------
Total...................................... $125,000,000 $100,000,000
============ ============
</TABLE>
The underwriters are offering the Notes subject to their acceptance of the
Notes. In the underwriting agreement, the several underwriters have agreed,
subject to the terms and conditions set forth in that agreement, to purchase all
of the Notes offered by this prospectus supplement. In the event of default by
an underwriter, the underwriting agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting underwriters may
be increased or the underwriting agreement may be terminated.
The underwriters initially propose to offer part of the 2001 Notes directly
to the public at the initial public offering price listed on the cover page of
this prospectus supplement and part to certain dealers at a price that
represents a concession not in excess of 1.00% of the principal amount of the
Notes. The underwriters initially propose to offer part of the 2002 Notes
directly to the public at the initial public offering price listed on the cover
page of this prospectus supplement and part to certain dealers at a price that
represents a concession not in excess of 1.50% of the principal amount of the
Notes. The underwriters may allow, and such dealers may reallow, a concession to
certain other dealers not to exceed .50% of the principal amount of the 2001
Notes. The underwriters may allow, and such dealers may reallow, a concession to
certain other dealers not to exceed .75% of the principal amount of the 2002
Notes. After the initial offering of the Notes, the offering price and other
selling terms may from time to time be varied by the underwriters.
The Notes are a new issue of securities with no established trading market.
Consumers does not intend to apply for listing the Notes on any securities
exchange or for quotation through any inter-dealer quotation system. Consumers
has been advised by the underwriters that they presently intend to make a market
in the Notes as permitted by applicable laws and regulations. The underwriters
are not obligated, however, to make a market in any of the Notes and any such
market making may be discontinued at any time without notice at the discretion
of the underwriters. No assurances can be given as to the liquidity of, or the
trading market for, the Notes.
In order to facilitate the offering of the Notes, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the underwriters may over-allot in connection with the
offering, creating a short position in the Notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the Notes, the
underwriters may bid for, and purchase, Notes in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the Notes in the offering, if the syndicate
repurchases previously distributed Notes in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Notes above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
S-25
<PAGE> 26
Banc One Capital Markets, Inc. and certain of its affiliates have provided,
and may continue to provide, investment banking and commercial lending services
to Consumers. Because affiliates of Banc One Capital Markets, Inc. are receiving
more than 10% of the net proceeds from this offering, it is being conducted in
accordance with Rule 2710(c)(8) of the National Association of Securities
Dealers.
Mr. William T. McCormick, Jr. is a director of BANK ONE CORPORATION, of
which Banc One Capital Markets, Inc. is a direct wholly-owned subsidiary. He is
also a director of both CMS Energy Corporation, the parent of Consumers, and
Consumers.
Consumers has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL OPINIONS
Opinions as to the legality of the Notes will be rendered for Consumers by
Michael D. Van Hemert, Assistant General Counsel for CMS Energy Corporation, the
parent company of Consumers. Certain legal matters with respect to the Notes
will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. As of September 30, 2000, an attorney currently employed by Skadden, Arps,
Slate, Meagher & Flom LLP and formerly employed by CMS Energy, owned
approximately 51,734 shares of CMS Energy common stock, 10 shares of Consumers
$4.50 Series preferred stock, $100 par value, and $50,000 aggregate principal
amount of certain debt securities issued by CMS Energy. As of September 30,
2000, Mr. Van Hemert beneficially owned approximately 4,500 shares of CMS Energy
common stock.
EXPERTS
The consolidated financial statements and schedule of Consumers as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, incorporated by reference in this prospectus supplement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31, June 30 and September 30, 2000 and 1999 Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports
thereon state that they did not audit and they did not express an opinion on
that interim consolidated financial information. Accordingly, the degree of
reliance on their report on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act, for their reports on the unaudited interim consolidated
financial information because those reports are not a "report" or "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
Future consolidated financial statements of Consumers and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
prospectus supplement in reliance upon the authority of that firm as experts in
giving those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
S-26
<PAGE> 27
CONSUMERS ENERGY COMPANY
SENIOR NOTES
SUBORDINATED DEBENTURES
GUARANTEES
AND
CONSUMERS ENERGY COMPANY FINANCING III
CONSUMERS ENERGY COMPANY FINANCING IV
TRUST PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
CONSUMERS ENERGY COMPANY
OFFERING PRICE: $525,000,000
------------------------
Consumers may offer, on one or more occasions:
- secured senior debt, unsecured senior debt or unsecured subordinated debt
securities consisting of debentures, convertible debentures, notes and
other unsecured evidence of indebtedness; and
- guarantees of Consumers Energy Company with respect to trust preferred
securities of Consumers Energy Company Financing III and Consumers Energy
Company Financing IV.
For each type of securities listed above, the amount, price and terms will
be determined at or prior to the time of sale.
Consumers Energy Company Financing III and Consumers Energy Company
Financing IV, which are Delaware business trusts, may offer trust preferred
securities. The trust preferred securities represent preferred undivided
beneficial interests in the assets of Consumers Energy Company Financing III and
Consumers Energy Company Financing IV in amounts, at prices and on terms to be
determined at or prior to the time of sale.
We will provide the specific terms of these securities in an accompanying
prospectus supplement or supplements. You should read this prospectus and the
accompanying prospectus supplement or supplements carefully before you invest.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
We intend to sell these securities through underwriters, dealers, agents or
directly to a limited number of purchasers. The names of, and any securities to
be purchased by or through, these parties, the compensation of these parties and
other special terms in connection with the offering and sale of these securities
will be provided in the related prospectus supplement or supplements.
This prospectus may not be used to consummate sales of any of these
securities unless accompanied by a prospectus supplement.
The date of this prospectus is October 25, 1999
<PAGE> 28
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate as
of the date on the front cover of this prospectus. Consumers' business,
financial condition, results of operations and prospects may have changed since
such dates.
WHERE YOU CAN FIND MORE INFORMATION
Consumers files reports, proxy statements and other information with the
Securities and Exchange Commission. Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document it files at the SEC's public reference room at 450 Fifth Street
N.W., Room 1024, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges. You
may also inspect our SEC reports and other information at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
Consumers is "incorporating by reference" information into this prospectus.
This means that Consumers is disclosing important information by referring to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus, except for any information
superceded by information in this prospectus. This prospectus incorporates by
reference the documents set forth that Consumers has previously filed with the
SEC. These documents contain important information about Consumers and its
finances.
<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 1-5611) PERIOD/DATE
------------------------------------------------ -----------
<S> <C>
- Annual Report on Form 10-K.................... Year ended December 31, 1998.
- Quarterly Reports of Form 10-Q................ Quarter ended March 31, 1999.
Quarter ended June 30, 1999.
- Current Reports on Form 8-K................... Filed July 1, September 9, September 24, October
18, and November 26, 1999.
</TABLE>
The documents filed by Consumers with the SEC pursuant to Sections 13(a),
13(c), 14 and 15 of the Exchange Act after the date of this prospectus are also
incorporated by reference into this prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning Consumers at the following address:
Consumers Energy Company
212 West Michigan Avenue
Jackson, Michigan 49201
Tel: (517) 788-0550
Attention: Office of the Secretary
You should rely only on the information contained or incorporated by
reference in this prospectus and accompanying prospectus supplement. Consumers
has not authorized anyone to provide you with information that is different from
this information.
Separate financial statements of the trusts have not been included in this
prospectus. Consumers and the trusts do not consider such financial statements
to be helpful because:
- Consumers beneficially owns directly or indirectly all of the undivided
beneficial interests in the assets of the trusts (other than the
beneficial interests represented by the trust preferred securities). See
"Consumers Energy Company Trusts," "Description of Securities -- Trust
Preferred Securities" and "Description of Securities -- The Guarantees."
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<PAGE> 29
- Consumers will guarantee the trust preferred securities such that the
holders of the trust preferred securities, with respect to the payment of
distributions and amounts upon liquidation, dissolution and winding-up,
are at least in the same position with regard to the assets of Consumers
as a preferred stockholder of Consumers.
- in future filings under the Securities Exchange Act of 1934, an audited
footnote to Consumers' annual financial statements will state that the
trusts are wholly-owned by Consumers, that the sole assets of the trusts
are the senior notes or the subordinated debentures of Consumers having a
specified total principal amount, and, considered together, the back-up
undertakings, including the guarantees, constitute a full and
unconditional guarantee by Consumers of the trusts' obligations under the
trust preferred securities issued by the trusts.
- each trust is a newly created special purpose entity, has no operating
history, no independent operations and is not engaged in, and does not
propose to engage in, any activity other than as described under
"Consumers Energy Company Trusts."
CONSUMERS ENERGY COMPANY
Consumers, formed in Michigan in 1968, is the successor to a corporation
organized in Maine in 1910 that did business in Michigan from 1915 to 1968.
Consumers was named Consumers Power Company from 1910 to the first quarter of
1997, when Consumers changed its name to Consumers Energy Company. Consumers is
the principal subsidiary of CMS Energy Corporation, a Michigan corporation.
Consumers is a public utility that provides natural gas and electricity to
almost six million of the nine and one-half million residents in Michigan's
Lower Peninsula. Consumers' electric operations include the generation,
purchase, transmission and distribution of electricity. It provides electric
services in 61 of the 68 counties of Michigan's Lower Peninsula. Consumers' gas
utility operation purchases, transports, stores and distributes natural gas. It
renders gas sales and delivery service in 54 of the 68 counties in Michigan's
Lower Peninsula. At year end 1998, Consumers provided service to 1.6 million
electric customers and 1.5 million gas customers.
Consumers' consolidated operating revenue in 1998 was $3.7 billion. Of
Consumers' operating revenue, 70% was generated from its electric utility
business, 29% from its gas utility business, and 1% from its non-utility
business.
Consumers' electric generating system consists of five fossil-fueled plant
sites, one nuclear plant, one pumped storage hydroelectric facility, seven gas
combustion turbine plants and 13 hydroelectric plants. Consumers' owned and
operated a total of 6,190 megawatts ("MW") of electric generating capacity in
1998. In 1998, Consumers purchased 2,545 MW of net capacity, which amounted to
34% of Consumers' total system requirements, from other power producers, the
largest being a natural gas-fueled cogeneration facility ("MCV Facility")
operated by the Midland Cogeneration Venture Limited Partnership ("MCV
Partnership"). Consumers, through wholly-owned subsidiaries, owns a 49%
ownership interest in the MCV Partnership and lessor interest in the MCV
Facility. Total electric sales in 1998 were 40 billion kilowatt hours ("kWh"), a
6% increase over 1997 levels. Consumers' electric operating revenue in 1998 was
$2.6 billion, an increase of 3.6% from 1997.
In 1998, Consumers' gas distribution and transmission system consisted of
23,392 miles of distribution mains and 1,165 miles of transmission lines
throughout the Lower Peninsula of Michigan. At December 31, 1998, Consumers
owned and operated six compressor stations with a total of 115,400 installed
horsepower. Consumers' gas operation is seasonal to the extent that peak demand
occurs in winter due to colder temperatures. Total deliveries of natural gas
sold by Consumers and from other sellers over Consumers' pipeline and
distribution network to ultimate customers, including the MCV Partnership,
totaled 360 billion cubic feet in 1998. Consumers' gas operating revenue in 1998
was $1.1 billion, a decrease of 12.7% from 1997.
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<PAGE> 30
Consumers is subject to regulation by various federal, state, local and
foreign governmental agencies. Consumers is subject to the jurisdiction of the
Michigan Public Service Commission ("MPSC"), which regulates public utilities in
Michigan with respect to retail utility rates, accounting, services, certain
facilities and various other matters. The Federal Energy Regulatory Commission
("FERC") also has jurisdiction under the Natural Gas Act over Michigan Gas
Storage Company, a subsidiary of Consumers, relating, among other things, to the
construction of facilities and to service provided and rates charged by Michigan
Gas Storage. Some of Consumers' gas business is also subject to regulation of
FERC, including a blanket transportation tariff pursuant to which Consumers can
transport gas in interstate commerce. Certain of Consumers' electric operations
are also subject to regulation by FERC, including compliance with FERC's
accounting rules and other regulations applicable to "public utilities" and
"licensees", the transmission of electric energy in interstate commerce and the
rates and charges for the sale of electric energy at wholesale and transmission
of electric energy in interstate commerce, the consummation of certain mergers,
the sale of certain facilities, the construction, operation and maintenance of
hydroelectric projects and the issuance of securities, as provided by the
Federal Power Act. Consumers is subject to the jurisdiction of the Nuclear
Regulatory Commission with respect to the design, construction and operation of
its Palisades nuclear power plant and the decommissioning of its closed Big Rock
power plant. Consumers is also subject to NRC jurisdiction with respect to
certain other uses of nuclear material.
The foregoing information concerning Consumers does not purport to be
comprehensive. For additional information concerning Consumers' business and
affairs, including their capital requirements and external financing plans,
pending legal and regulatory proceedings and descriptions of certain laws and
regulations to which those companies are subject, prospective purchasers should
refer to the Incorporated Documents. See "Where You Can Find More Information"
above.
The address of the principal executive offices of Consumers Energy Company
is 212 West Michigan Avenue, Jackson, Michigan 49201. Its telephone number is
(517) 788-0550.
CONSUMERS ENERGY COMPANY TRUSTS
Consumers Energy Company Financing III and Consumers Energy Company
Financing IV are statutory business trusts created under the Delaware Business
Trust Act by way of:
- trust agreements executed by Consumers, as sponsor, and the trustees of
the trusts and
- the filing of certificates of trust with the Secretary of State of the
State of Delaware.
At the time of public issuance of the trust preferred securities, each
trust agreement will be amended and restated in its entirety and will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended.
Consumers will directly or indirectly acquire common securities of each trust in
a total liquidation amount equal to approximately 3% of the total capital of the
trust. Each trust exists for the exclusive purposes of:
- issuing the trust preferred securities and common securities representing
undivided beneficial interests in the assets of the trust;
- investing the gross proceeds of the common securities and the trust
preferred securities in the senior notes or subordinated debentures; and
- engaging in only those other activities necessary or incidental thereto.
Each trust has a term of approximately 55 years, but may terminate earlier
as provided in the amended and restated trust agreement.
The proceeds from the offering of the trust preferred securities and the
sale of the common securities may be used by each trust to purchase from
Consumers senior notes or subordinated debentures in a total principal amount
equal to the total liquidation preference of the common securities and the trust
preferred securities. The Consumers notes or debentures would bear interest at
an annual rate equal to the annual distribution rate of the common securities
and the trust preferred securities and would have certain
4
<PAGE> 31
redemption terms which correspond to the redemption terms for the common
securities and the trust preferred securities. The senior notes will rank on an
equal basis with all other unsecured debt of Consumers except subordinated debt.
The subordinated debentures will rank subordinate in right of payment to all of
Consumers' senior indebtedness (as defined in this prospectus). Distributions on
the common securities and the trust preferred securities may not be made unless
each trust receives corresponding interest payments on the senior notes or the
subordinated debentures from Consumers. Consumers will irrevocably guarantee, on
a senior or subordinated basis, as applicable, and to the extent set forth in
the guarantee, with respect to each of the common securities and the trust
preferred securities, the payment of distributions, the redemption price,
including all accrued or deferred and unpaid distributions, and payment on
liquidation, but only to the extent of funds on hand. Each guarantee will be
unsecured and will be either equal to or subordinate to, as applicable, all
senior indebtedness, of Consumers. Upon the occurrence of certain events
(subject to the conditions to be described in an accompanying prospectus
supplement) each trust may be liquidated and the holders of the common
securities and the trust preferred securities could receive senior notes or
subordinated debentures in lieu of any liquidating cash distribution.
Pursuant to the amended and restated trust agreements, the number of
trustees of each trust will initially be four. Two of the trustees will be
persons who are employees or officers of or who are affiliated with Consumers
and will be referred to as the regular trustees. The third trustee will be a
financial institution that is unaffiliated with Consumers, which trustee will
serve as property trustee under the applicable amended and restated trust
agreement and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act of 1939. Initially, The Bank of New York,
a New York banking corporation, will be the property trustee until removed or
replaced by the holder of the common securities. For the purpose of compliance
with the provisions of the Trust Indenture Act of 1939, The Bank of New York
will also act as guarantee trustee. The fourth trustee, The Bank of New York
(Delaware), will act as the Delaware trustee for the purposes of the Delaware
Business Trust Act, until removed or replaced by the holder of the common
securities. See "Description of Securities -- The Guarantees."
The property trustee will hold title to the applicable senior notes or
subordinated debenture for the benefit of the holders of the common securities
and the trust preferred securities and the property trustee will have the power
to exercise all rights, powers and privileges under the applicable indentures as
the holder of the senior notes or subordinated debenture. In addition, the
property trustee will maintain exclusive control of a segregated non-interest
bearing bank account to hold all payments made in respect of the senior notes or
subordinated debentures for the benefit of the holders of the common securities
and the trust preferred securities. The property trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the common securities and the trust preferred securities out of funds
from the segregated non-interest bearing bank account. The guarantee trustee
will hold the guarantees for the benefit of the holders of the common securities
and the trust preferred securities. Consumers, as the direct or indirect holder
of all the common securities, will have the right to appoint, remove or replace
any of the trustees. Consumers will also have the right to increase or decrease
the number of trustees, as long as the number of trustees shall be at least
three, a majority of which shall be regular trustees. Consumers will pay all
fees and expenses related to the trusts and the offering of the common
securities and the trust preferred securities.
The rights of the holders of the trust preferred securities, including
economic rights, rights to information and voting rights, are set forth in the
applicable amended and restated trust agreement, the Delaware Business Trust Act
and the Trust Indenture Act of 1939.
The trustee for each trust in the State of Delaware is The Bank of New York
(Delaware), White Clay Center, Route 273, Newark, Delaware 19711.
The principal place of business of each trust will be c/o Consumers Energy
Company, 212 West Michigan Avenue, Jackson, Michigan 49201.
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USE OF PROCEEDS
The proceeds received by each of the trusts from the sale of its trust
preferred securities or the common securities will be invested in the senior
notes or the subordinated debentures. As will be more specifically set forth in
the applicable prospectus supplement, Consumers will use those borrowed amounts
and the net proceeds from the sale of senior notes or subordinated debentures
offered hereby for its general corporate purposes, including capital
expenditures, investment in subsidiaries, working capital and repayment of debt.
Any specific allocation of the proceeds to a particular purpose that has been
made at the date of any prospectus supplement will be described in the
appropriate prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratios of earnings to fixed charges and the ratios of earnings to fixed
charges and preferred stock dividends for each of the years ended December 31,
1994 through 1998 and for the twelve months ended June 30, 1999, are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, --------------------------------------
1999 1998 1997 1996 1995 1994
------------- ------ ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to:
Fixed Charges (a).............................. 3.72 3.16(b) 3.31 3.27 2.82 2.81
Fixed Charges & Preferred Stock Dividends...... 3.06 2.52(c) 2.61 2.54 2.30 2.32
</TABLE>
---------------
(a) For purposes of computing the ratio, earnings represent net income before
income taxes, net interest charges and the estimated interest portions of
lease rentals, plus distributed income of equity investees less earnings
from minority interests of equity investees. Earnings for the ratio of
earnings to fixed charges and preferred stock dividends also includes the
amount required to pay distributions on preferred securities and the amount
of pretax earnings required to pay the dividends on outstanding preferred
stock.
(b) Excludes a cumulative effect of change in accounting after-tax gain of $43
million; if included, ratio would be 3.52.
(c) Excludes a cumulative effect of change in accounting after-tax gain of $43
million: if included, ratio would be 2.81.
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<PAGE> 33
DESCRIPTION OF SECURITIES
INTRODUCTION
Specific terms of the debt securities consisting of the senior notes and
subordinated debentures, or the trust preferred securities, or any combination
of these securities, the irrevocable guarantees of Consumers, with respect to
each of the common securities and the preferred securities of the trust, for
which this prospectus is being delivered, will be set forth in an accompanying
prospectus supplement or supplements. The prospectus supplement will set forth
with regard to the particular offered securities, without limitation, the
following:
- in the case of debt securities, the designation, total principal amount,
denomination, maturity, premium, if any, any exchange, conversion,
redemption or sinking fund provisions, interest rate (which may be fixed
or variable), the time or method of calculating interest payments, the
right of Consumers, if any, to defer payment or interest on the debt
securities and the maximum length of such deferral, put options, if any,
public offering price, ranking, any listing on a securities exchange and
other specific terms of the offering; and
- in the case of trust preferred securities, the designation, number of
shares, liquidation preference per security, initial public offering
price, any listing on a securities exchange, dividend rate (or method of
calculation thereof), dates on which dividends shall be payable and dates
from which dividends shall accrue, any voting rights, any redemption,
exchange, conversion or sinking fund provisions and any other rights,
preferences, privileges, limitations or restrictions relating to a
specific series of the trust preferred securities including a description
of the Consumers guarantee, as the case may be.
DEBT SECURITIES
Senior notes will be issued under a senior debt indenture. The subordinated
debentures will be issued under a subordinated debt indenture. The senior debt
indenture and the subordinated debt indenture are sometimes referred to in this
prospectus individually as an "indenture" and collectively as the "indentures".
The following briefly summarizes the material provisions of the indentures
and the debt securities. You should read the more detailed provisions of the
applicable indenture, including the defined terms, for provisions that may be
important to you. You should also read the particular terms of a series of debt
securities, which will be described in more detail in the applicable prospectus
supplement. Copies of the indentures may be obtained from Consumers or the
applicable trustee.
Unless otherwise provided in the applicable prospectus supplement, the
trustee under the senior debt indenture will be Chase Manhattan Bank and the
trustee under the subordinated debt indenture will be The Bank of New York.
General
The indentures provide that debt securities of Consumers may be issued in
one or more series, with different terms, in each case as authorized on one or
more occasions by Consumers.
Federal income tax consequences and other special considerations applicable
to any debt securities issued by Consumers at a discount will be described in
the applicable prospectus supplement.
The applicable prospectus supplement relating to any series of debt
securities will describe the following terms, where applicable:
- the title of the debt securities;
- whether the debt securities will be senior or subordinated debt;
- the total principal amount of the debt securities;
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<PAGE> 34
- the percentage of the principal amount at which the debt securities will
be sold and, if applicable, the method of determining the price;
- the maturity date or dates;
- the interest rate or the method of computing the interest rate;
- the date or dates from which any interest will accrue, or how such date
or dates will be determined, and the interest payment date or dates and
any related record dates;
- the location where payments on the debt securities will be made;
- the terms and conditions on which the debt securities may be redeemed at
the option of Consumers;
- any obligation of Consumers to redeem, purchase or repay the debt
securities at the option of a holder upon the happening of any event and
the terms and conditions of redemption, purchase or repayment;
- any provisions for the discharge of Consumers' obligations relating to
the debt securities by deposit of funds or United States government
obligations;
- whether the debt securities are to trade in book-entry form and the terms
and any conditions for exchanging the global security in whole or in part
for paper certificates;
- any material provisions of the applicable indenture described in this
prospectus that do not apply to the debt securities;
- any additional amounts with respect to the debt securities that Consumers
will pay to a non-United States person because of any tax, assessment or
governmental charge withheld or deducted and, if so, any option of
Consumers to redeem the debt securities rather than paying these
additional amounts;
- any additional events of default; and
- any other specific terms of the debt securities.
Concerning the Trustees
Each of Chase Manhattan Bank, the trustee under the senior debt indenture
for the senior notes, and The Bank of New York, the trustee under the
subordinated debt indenture for the subordinated debentures, is one of a number
of banks with which Consumers and its subsidiaries maintain ordinary banking
relationships, including credit facilities.
Exchange and Transfer
Debt securities may be presented for exchange. Registered debt securities
may be presented for registration of transfer at the offices and, subject to the
restrictions set forth in the debt security and in the applicable prospectus
supplement, without service charge, but upon payment of any taxes or other
governmental charges due in connection with the transfer, subject to any
limitations contained in the applicable indenture. Debt securities in bearer
form and any related coupons, will be transferable by delivery.
Payment
Distributions on the debt securities in registered form will be made at the
office or agency of the applicable trustee in the Borough of Manhattan, the City
of New York or its other designated office. However, at the option of Consumers,
payment of any interest may be made by check or by wire transfer. Payment of any
interest due on debt securities in registered form will be made to the persons
in whose
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<PAGE> 35
name the debt securities are registered at the close of business on the record
date for such interest payments. Payments made in any other manner will be
specified in the prospectus supplement.
Governing Law
Each indenture and the debt securities will be governed by, and construed
in accordance with, the laws of the State of Michigan unless the laws of another
jurisdiction shall mandatorily apply. The rights, duties and obligations of the
subordinated note trustee are governed by and construed in accordance with the
laws of the State of New York.
SENIOR NOTES
General
The following summaries of some important provisions of the senior note
indenture (including its supplements by such reference) do not purport to be
complete and are subject to, and qualified in their entirety by, all of the
provisions of the senior note indenture. The senior note indenture is
incorporated by reference in this prospectus and is available upon request to
the senior note trustee. In addition, capitalized terms used in this section and
not otherwise defined in this prospectus shall have the meaning given to them in
the senior note indenture.
Security; Release Date
Until the release date (as described in the next paragraph), the senior
notes will be secured by one or more series of Consumers' first mortgage bonds
issued and delivered by Consumers to the senior note trustee. See "Description
of First Mortgage Bonds". Upon the issuance of a series of senior notes prior to
the release date, Consumers will simultaneously issue and deliver to the senior
note trustee, as security for all senior notes, a series of first mortgage bonds
that will have the same stated maturity date and corresponding redemption
provisions, and will be in the same total principal amount as the series of the
senior notes being issued. Any series of first mortgage bonds securing senior
notes may, but need not, bear interest. Any payment by Consumers to the senior
note trustee of principal of, interest and/or premium, if any, on a series of
first mortgage bonds will be applied by the senior note trustee to satisfy
Consumers' obligations with respect to principal of, interest and/or premium, if
any, on the corresponding senior notes.
The "release date" will be the date that all first mortgage bonds of
Consumers issued and outstanding under a mortgage indenture with the Chase
Manhattan Bank as mortgage trustee, other than first mortgage bonds securing
senior notes, have been retired (at, before or after their maturity) through
payment, redemption or otherwise. On the release date, the senior note trustee
will deliver to Consumers, for cancellation, all first mortgage bonds securing
senior notes. Not later than 30 days thereafter, the senior note trustee will
provide notice to all holders of senior notes of the occurrence of the release
date. As a result, on the release date, the first mortgage bonds securing senior
notes will cease to secure the senior notes. The senior notes will then become
unsecured general obligations of Consumers and will rank equally with other
unsecured indebtedness of Consumers. Each series of first mortgage bonds that
secures senior notes will be secured by a lien on certain property owned by
Consumers. See "Description of First Mortgage Bonds -- Priority and Security."
Upon the payment or cancellation of any outstanding senior notes, the senior
note trustee will surrender to Consumers for cancellation an equal principal
amount of the related series of first mortgage bonds. Consumers will not permit,
at any time prior to the release date, the total principal amount of first
mortgage bonds securing senior notes held by the senior note trustee to be less
than the total principal amount of senior notes outstanding. Following the
release date, Consumers will cause the mortgage to be discharged and will not
issue any additional first mortgage bonds under the mortgage. While Consumers
will be precluded after the release date from issuing additional first mortgage
bonds, it will not be precluded under the senior note indenture or senior notes
from issuing or assuming other secured debt, or incurring liens on its property,
except to the extent indicated below under "-- Certain Covenants of
Consumers -- Limitation on Liens."
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<PAGE> 36
Events Of Default
The following constitute events of default under senior notes of any
series:
(1) failure to pay principal of and premium, if any, on any senior
note of such series when due;
(2) failure to pay interest on any senior note of such series when due
for 60 days;
(3) failure to perform any other covenant or agreement of Consumers in
the senior notes of such series for 90 days after written notice to
Consumers by the senior note trustee or the holders of at least 33% in
total principal amount of the outstanding senior notes;
(4) prior to the release date, a default under the mortgage; provided,
however, that the waiver or cure of such default and the rescission and
annulment of the consequences under the mortgage will be a waiver of the
corresponding event of default under the senior note indenture and a
rescission and annulment of the consequences under the senior note
indenture; and
(5) certain events of bankruptcy, insolvency, reorganization,
assignment or receivership of Consumers.
If an event of default occurs and is continuing, either the senior note
trustee or the holders of a majority in total principal amount of the
outstanding senior notes may declare the principal amount of all senior notes to
be due and payable immediately.
The senior note trustee generally will be under no obligation to exercise
any of its rights or powers under the senior note indenture at the request or
direction of any of the holders of senior notes of such series unless those
holders have offered to the senior note trustee reasonable security or
indemnity. Subject to the provisions for indemnity and certain other limitations
contained in the senior note indenture, the holders of a majority in principal
amount of the outstanding senior notes of such series generally will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the senior note trustee, or of exercising any trust or power
conferred on the senior note trustee. The holders of a majority in principal
amount of the outstanding senior notes of such series generally will have the
right to waive any past default or event of default (other than a payment
default) on behalf of all holders of senior notes of such series.
No holder of senior notes of a series may institute any action against
Consumers under the senior note indenture unless:
(1) that holder gives to the senior note trustee advance written
notice of default and its continuance;
(2) the holders of not less than a majority in total principal amount
of senior notes of such series then outstanding affected by that event of
default request the senior note trustee to institute such action;
(3) that holder has offered the senior note trustee reasonable
indemnity; and
(4) the senior note trustee shall not have instituted such action
within 60 days of such request.
Furthermore, no holder of senior notes will be entitled to institute any
such action if and to the extent that that action would disturb or prejudice the
rights of other holders of senior notes of such series.
Within 90 days after the occurrence of a default with respect to the senior
notes of a series, the senior note trustee must give the holders of the senior
notes of such series notice of any such default known to the senior note
trustee, unless cured or waived. The senior note trustee may withhold such
notice if it determines in good faith that it is in the interest of such holders
to do so except in the case of default in the payment of principal of, and
interest and/or premium, if any, on any senior notes of such series. Consumers
is required to deliver to the senior note trustee each year a certificate as to
whether or not, to the knowledge of the officers signing such certificate,
Consumers is in compliance with the conditions and covenants under the senior
note indenture.
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Modification
Consumers and the senior note trustee cannot modify and amend the senior
note indenture without the consent of the holders of a majority in principal
amount of the outstanding affected senior notes. Consumers and the senior note
trustee cannot modify and amend the senior note indenture without the consent of
the holder of each outstanding senior note of such series to:
(1) change the maturity date of any senior note of such series;
(2) reduce the rate (or change the method of calculation thereof) or
extend the time of payment of interest on any senior note of such series;
(3) reduce the principal amount of, or premium payable on, any senior
note of such series;
(4) change the coin or currency of any payment of principal of, and
interest and/or premium on any senior note of such series;
(5) change the date on which any senior note of such series may be
redeemed or repaid at the option of its holder or adversely affect the
rights of a holder to institute suit for the enforcement of any payment on
or with respect to any senior note of such series;
(6) impair the interest of the senior note trustee in the first
mortgage bonds securing the senior notes of such series held by it or,
prior to the release date, reduce the principal amount of any series of
first mortgage bond securing the senior notes of such series to an amount
less than the principal amount of the related series of senior notes or
alter the payment provisions of such senior note mortgage bonds in a manner
adverse to the holders of the senior notes; or
(7) modify the senior notes of such series necessary to modify or
amend the senior note indenture or to waive any past default to less than a
majority.
Consumers and the senior note trustee can modify and amend the senior note
indenture without the consent of the holders in certain cases, including:
(1) to add to the covenants of Consumers for the benefit of the
holders or to surrender a right conferred on Consumers in the senior note
indenture;
(2) to add further security for the senior notes of such series;
(3) to add provisions enabling Consumers to be released with respect
to one or more series of outstanding senior notes from its obligations
under the covenants upon satisfaction of conditions with respect to such
series of senior notes;
(4) to supply omissions, cure ambiguities or correct defects which
actions, in each case, are not prejudicial to the interests of the holders
in any material respect; or
(5) to make any other change that is not prejudicial to the holders of
senior notes of such series in any material respect.
A supplemental indenture which changes or eliminates any covenant or other
provision of the senior note indenture (or any supplemental indenture) which has
expressly been included solely for the benefit of one or more series of senior
notes, or which modifies the rights of the holders of senior notes of such
series with respect to such covenant or provision, will be deemed not to affect
the rights under the senior note indenture of the holders of senior notes of any
other series.
Defeasance and Discharge
The senior note indenture provides that Consumers will be discharged from
any and all obligations in respect to the senior notes of such series and the
senior note indenture (except for certain obligations such as obligations to
register the transfer or exchange of senior notes, replace stolen, lost or
mutilated senior notes and maintain paying agencies) if, among other things,
Consumers irrevocably deposits with the senior note trustee, in trust for the
benefit of holders of senior notes of such series, money or certain
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<PAGE> 38
United States government obligations, or any combination of money or government
obligations. Through the payment of interest and principal on the deposits in
accordance with their terms must provide money in an amount sufficient, without
reinvestment, to make all payments of principal of, and any premium and interest
on, the senior notes on the dates such payments are due in accordance with the
terms of the senior note indenture and the senior notes of such series. But, if
all of the senior notes of such series are to be due within 90 days of such
deposit by redemption or otherwise, Consumers must also deliver to the senior
note trustee an opinion of counsel to the effect that the holders of the senior
notes of such series will not recognize income, gain or loss for federal income
tax purposes as a result of that defeasance or discharge of the senior note
indenture. Thereafter, the holders of senior notes must look only to the deposit
for payment of the principal of, and interest and any premium on, the senior
notes.
Consolidation, Merger and Sale or Disposition of Assets
Consumers may consolidate with or merge into, or sell or otherwise dispose
of its properties as or substantially as an entirety if:
(1) the new corporation is a corporation organized and existing under
the laws of the United States of America, any state thereof, or the
District of Columbia,
(2) the new corporation assumes the due and punctual payment of the
principal of and premium and interest on all the senior notes and the
performance of every covenant of the senior note indenture to be performed
or observed by Consumers and
(3) if prior to the release date, the new corporation assumes
Consumers' obligations under the mortgage indenture with respect to first
mortgage bonds securing senior notes.
The conveyance or other transfer by Consumers of:
(1) all or any portion of its facilities for the generation of
electric energy,
(2) all of its facilities for the transmission of electric energy, or
(3) all of its facilities for the distribution of natural gas, in each
case considered alone or in any combination with properties described in
(1), (2) or (3) of this sentence, will not be considered a conveyance or
other transfer of all the properties of Consumers, as or substantially as
an entirety.
Certain Covenants Of Consumers
Limitation on Liens
So long as any senior notes are outstanding, Consumers may not issue,
assume, guarantee or permit to exist after the release date any debt that is
secured by any mortgage, security interest, pledge or lien (each a "lien") of or
upon any operating property of Consumers, whether owned at the date of the
senior note indenture or thereafter acquired, without in any such case
effectively securing the senior notes (together with, if Consumers shall so
determine, any other indebtedness of Consumers ranking equally with the senior
notes) equally and ratably with such debt (but only so long as such debt is so
secured). The foregoing restriction will not apply to:
(1) liens on any operating property existing at the time of its
acquisition (which liens may also extend to subsequent repairs, alterations
and improvements to such operating property);
(2) liens on operating property of a corporation existing at the time
such corporation is merged into or consolidated with, or such corporation
disposes of its properties (or those of a division) as or substantially as
an entirety to, Consumers;
(3) liens on operating property to secure the cost of acquisition,
construction, development or substantial repair, alteration or improvement
of property or to secure indebtedness incurred to provide funds for any
such purpose or for reimbursement of funds previously expended for any such
purpose, provided such liens are created or assumed contemporaneously with,
or within 18 months after, such
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<PAGE> 39
acquisition or the completion of substantial repair or alteration,
construction, development or substantial improvement;
(4) liens in favor of any state or any department, agency or
instrumentality or political subdivision of any state, or for the benefit
of holders of securities issued by any such entity (or providers of credit
enhancement with respect to such securities), to secure any debt
(including, without limitation, obligations of Consumers with respect to
industrial development, pollution control or similar revenue bonds)
incurred for the purpose of financing all or any part of the purchase price
or the cost of substantially repairing or altering, constructing,
developing or substantially improving operating property of Consumers; or
(5) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any lien referred to in
clauses (1) through (4), provided, however, that the principal amount of
debt secured thereby and not otherwise authorized by said clauses (1) to
(4), inclusive, shall not exceed the principal amount of debt, plus any
premium or fee payable in connection with any such extension, renewal or
replacement, so secured at the time of such extension, renewal or
replacement.
These restrictions will not apply to the issuance, assumption or guarantee
by Consumers of debt secured by a lien which would otherwise be subject to the
foregoing restrictions up to a total amount which, together with all other
secured debt of Consumers (not including secured debt permitted under any of the
foregoing exceptions) and the value of sale and lease-back transactions existing
at such time (other than sale and lease-back transactions the proceeds of which
have been applied to the retirement of certain indebtedness, sale and lease-back
transactions in which the property involved would have been permitted to be
subjected to a lien under any of the foregoing exceptions in clauses (1) to (5)
and sale and lease-back transactions that are permitted by the first sentence of
"Limitation on Sale and Lease-Back Transactions" below), does not exceed the
greater of 15% of Net Tangible Assets or 15% of Capitalization.
Limitation on Sale and Lease-Back Transactions
So long as senior notes are outstanding, Consumers may not enter into or
permit to exist after the release date any sale and lease-back transaction with
respect to any operating property (except for transactions involving leases for
a term, including renewals, of not more than 48 months), if the purchaser's
commitment is obtained more than 18 months after the later of the completion of
the acquisition, construction or development of such operating property or the
placing in operation of such operating property or of such operating property as
constructed or developed or substantially repaired, altered or improved. This
restriction will not apply if:
(1) Consumers would be entitled under any of the provisions described
in clauses (1) to (5) of the first sentence of the second paragraph under
"Limitation on Liens" above to issue, assume, guarantee or permit to exist
debt secured by a lien on such operating property without equally and
ratably securing the senior notes,
(2) after giving effect to such sale and lease-back transaction,
Consumers could incur pursuant to the provisions described in the second
sentence of the second paragraph under "Limitation on Liens," at least
$1.00 of additional debt secured by liens (other than liens permitted by
clause (1)), or
(3) Consumers applies within 180 days an amount equal to, in the case
of a sale or transfer for cash, the net proceeds (not exceeding the net
book value), and, otherwise, an amount equal to the fair value (as
determined by its Board of Directors) of the operating property so leased
to the retirement of senior notes or other debt of Consumers ranking
equally with, the senior notes, subject to reduction for senior notes and
such debt retired during such 180-day period otherwise than pursuant to
mandatory sinking fund or prepayment provisions and payments at stated
maturity.
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Voting Of Senior Note Mortgage Bonds Held By Senior Note Trustee
The senior note trustee, as the holder of first mortgage bonds securing
senior notes, will attend any meeting of bondholders under the mortgage
indenture, or, at its option, will deliver its proxy in connection therewith as
it relates to matters with respect to which it is entitled to vote or consent.
So long as no event of default under the senior note indenture has occurred and
is continuing, the senior note trustee will vote or consent:
(1) in favor of amendments or modifications of the mortgage indenture
of substantially the same tenor and effect as follows:
- to eliminate the maintenance and replacement fund and to recover
amounts of net property additions previously applied in
satisfaction thereof so that the same would become available as a
basis for the issuance of first mortgage bonds;
- to eliminate sinking funds or improvement funds and to recover
amounts of net property additions previously applied in
satisfaction thereof so that the same would become available as a
basis for the issuance of first mortgage bonds;
- to eliminate the restriction on the payment of dividends on common
stock and to eliminate the requirements in connection with the
periodic examination of the mortgaged and pledged property by an
independent engineer;
- to permit first mortgage bonds to be issued under the mortgage
indenture in a principal amount equal to 70% of unfunded net
property additions instead of 60%, to permit sinking funds
improvement funds requirements (to the extent not otherwise
eliminated) under the Mortgage to be satisfied by the application
of net property additions in an amount equal to 70% of such
additions instead of 60%, and to permit the acquisition of property
subject to certain liens prior to the lien of the Mortgage if the
principal amount of indebtedness secured by such liens does not
exceed 70% of the cost of such property instead of 60%;
- to eliminate requirements that Consumers deliver a net earnings
certificate for any purpose under the mortgage indenture;
- to raise the minimum dollar amount of insurance proceeds on account
of loss or damage that must be payable to the senior note trustee
from $50,000 to an amount equal to the greater of (A) $5,000,000
and (B) three per centum (3%) of the total principal amount of
first mortgage bonds outstanding;
- to increase the amount of the fair value of property which may be
sold or disposed of free from the lien of the mortgage indenture,
without any release or consent by the senior note trustee, from not
more than $25,000 in any calendar year to not more than an amount
equal to the greater of (A) $5,000,000 and (B) three per centum
(3%) of the total principal amount of first mortgage bonds then
outstanding;
- to permit certain mortgaged and pledged property to be released
from the lien of the mortgage indenture if, in addition to certain
other conditions, the senior note trustee receives purchase money
obligations of not more than 70% of the fair value of such property
instead of 60% and to eliminate the further requirement for the
release of such property that the total principal amount of
purchase money obligations held by the senior note trustee not
exceed 20% of the principal amount of first mortgage bonds
outstanding;
- to eliminate the restriction prohibiting the mortgage trustee from
applying cash held by it pursuant to the mortgage indenture to the
purchase of bonds not otherwise redeemable at a price exceeding
110% of the principal of such bonds, plus accrued interest; and
(2) with respect to any other amendments or modifications of the
mortgage indenture, as follows: the senior note trustee shall vote all
first mortgage bonds securing senior notes then held by it, or consent with
respect thereto, proportionately with the vote or consent of the holders of
all other
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<PAGE> 41
first mortgage bonds outstanding under the mortgage indenture, the holders
of which are eligible to vote or consent. However, the senior note trustee
will not vote in favor of, or consent to, any amendment or modification of
the mortgage which, if it were an amendment or modification of the senior
note indenture, would require the consent of senior notes holders (as
described under "Modification,") without the prior consent of holders of
senior notes which would be required for such an amendment or modification
of the senior note indenture.
Concerning The Senior Note Trustee
The Chase Manhattan Bank is both the senior note trustee under the senior
note indenture and the mortgage trustee under the mortgage indenture. Consumers
and its affiliates maintain depositary and other normal banking relationships
with The Chase Manhattan Bank. The Chase Manhattan Bank is also a lender to
Consumers and its affiliates. The senior note indenture provides that Consumers'
obligations to compensate the senior note trustee and reimburse the senior note
trustee for expenses, disbursements and advances will constitute indebtedness
which will be secured by a lien generally prior to that of the senior notes upon
all property and funds held or collected by the senior note trustee as such.
DESCRIPTION OF FIRST MORTGAGE BONDS
General
The first mortgage bonds securing senior notes are to be issued under a
mortgage indenture as amended and supplemented by various supplemental
indentures with The Chase Manhattan Bank, as the mortgage trustee. The
statements herein concerning the mortgage indenture are an outline and do not
purport to be complete and are subject to, and qualified in their entirety by,
all of the provisions of the mortgage indenture, which is incorporated by
reference herein. They make use of defined terms and are qualified in their
entirety by express reference to the cited sections and articles of the mortgage
indenture a copy of which will be available upon request to the senior note
trustee.
First mortgage bonds securing senior notes will be issued as security for
Consumers' obligations under the senior note indenture and will be immediately
delivered to and registered in the name of the senior note trustee. The first
mortgage bonds securing senior notes will be issued as security for senior notes
of a series and will secure the senior notes of that series until the release
date. The senior note indenture provides that the senior note trustee shall not
transfer any first mortgage bonds securing senior notes except to a successor
trustee, to Consumers (as provided in the senior note indenture) or in
compliance with a court order in connection with a bankruptcy or reorganization
proceeding of Consumers. The senior note trustee shall generally vote the first
mortgage bonds securing senior notes proportionately with what it believes to be
the vote of all other first mortgage bonds then outstanding except in connection
with certain amendments or modifications of the mortgage indenture, as described
under "Description of Senior Notes Voting of Senior Note Mortgage Bonds Held by
Senior Note Trustee."
First mortgage bonds securing senior notes will correspond to the senior
notes of its related series in respect of principal amount, interest rate,
maturity date and redemption provisions. Upon payment of the principal or
premium, if any, or interest on senior notes of a series, the related first
mortgage bonds in a principal amount equal to the principal amount of such
senior notes will, to the extent of such payment of principal, premium or
interest, be deemed fully paid and the obligation of Consumers to make such
payment shall be discharged.
Priority And Security
The first mortgage bonds securing senior notes of any series will rank
equally as to security with bonds of other series now outstanding or issued
later under the mortgage indenture. This security is a direct first lien on
substantially all of Consumers' property and franchises (other than certain
property expressly excluded from the lien (such as cash, bonds, stock and
certain other securities, contracts, accounts and bills receivables, judgments
and other evidences of indebtedness, stock in trade, materials or supplies
manufactured or acquired for the purpose of sale and/or resale in the usual
course of business or
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consumable in the operation of any of the properties of Consumers, natural gas,
oil and minerals, motor vehicles and certain real property listed in Schedule A
to the mortgage indenture)). This lien is subject to excepted encumbrances (and
certain other limitations) as defined and described in the mortgage indenture.
It is also subject to certain provisions of Michigan law which provides that
under certain circumstances, the State of Michigan's lien against property on
which it has incurred costs related to any response activity that is subordinate
to prior recorded liens can become superior to such prior liens pursuant to
court order. The mortgage indenture permits, with certain limitations, the
acquisition of property subject to prior liens and, under certain conditions,
permits the issuance of additional indebtedness under such prior liens to the
extent of 60% of net property additions made by Consumers to the property
subject to such prior liens.
Release And Substitution Of Property
The mortgage indenture provides that, subject to various limitations,
property may be released from the lien thereof when sold or exchanged, or
contracted to be sold or exchanged, upon the basis of:
- cash deposited with the mortgage trustee;
- bonds or purchase money obligations delivered to the mortgage trustee;
- prior lien bonds delivered to the mortgage trustee or reduced or assumed
by the purchaser;
- property additions acquired in exchange for the property released; or
- upon a showing that unfunded net property additions exist. The mortgage
indenture also permits the withdrawal of cash upon a showing that
unfunded net property additions exist or against the deposit of bonds or
the application thereof to the retirement of bonds.
Modification Of Mortgage
The mortgage indenture, the rights and obligations of Consumers and the
rights of the bondholders may be modified by Consumers with the consent of the
holders of 75% in principal amount of the bonds and of not less than 60% of the
principal amount of each series affected. In general, however, no modification
of the terms of payment of principal or interest and no modification affecting
the lien or reducing the percentage required for modification is effective
against any bondholder without the bondholder's consent. Consumers has reserved
the right without any consent or other action by the holders of bonds of any
series created after September 15, 1993 or by the holder of any senior note or
exchange note, to amend the mortgage in order to substitute a majority in
principal amount of bonds outstanding under the mortgage for the 75% requirement
set forth above (and then only in respect of such series of outstanding bonds as
shall be affected by the proposed action) and to eliminate the requirement for a
series-by-series consent requirement.
Concerning The Mortgage Trustee
The Chase Manhattan Bank is both the mortgage trustee under the mortgage
indenture and the senior note trustee under the senior note indenture. Consumers
and its affiliates maintain depositary and other normal banking relationships
with The Chase Manhattan Bank. The Chase Manhattan Bank is also a lender to
Consumers and its affiliates. The mortgage indenture provides that Consumers'
obligations to compensate the mortgage trustee and reimburse the trustee for
expenses, disbursements and advances will constitute indebtedness which will be
secured by a lien generally prior to that of the first mortgage bonds securing
senior notes upon all property and funds held or collected by the mortgage
trustee as such.
The mortgage trustee or the holders of 20% in total principal amount of the
bonds may declare the principal due on default, but the holders of a majority in
total principal amount may annul such declaration and waive the default if the
default has been cured. Subject to certain limitations, the holders of a
majority in total principal amount may generally direct the time, method and
place of conducting any proceeding for the enforcement of the mortgage
indenture. No bondholder has the right to institute any
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proceedings for the enforcement of the mortgage indenture unless that holder has
given the mortgage trustee written notice of a default, the holders of 20% of
outstanding bonds shall have tendered to the mortgage trustee reasonable
security or indemnity against costs, expenses and liabilities and requested the
mortgage trustee to take action, the mortgage trustee shall have declined to
take action or failed to do so within sixty days and no inconsistent directions
shall have been given by the holders of a majority in total principal amount of
the bonds.
Defaults
The mortgage defines the following as "defaults":
- failure to pay principal when due;
- failure to pay interest for sixty days;
- failure to pay any installment of any sinking or other purchase fund for
ninety days;
- certain events in bankruptcy, insolvency or reorganization; and
- failure to perform any other covenant for ninety days following written
demand by the mortgage trustee for Consumers to cure such failure.
Consumers has covenanted to pay interest on any overdue principal and (to
the extent permitted by law) on overdue installments of interest, if any, on the
bonds under the mortgage indenture at the rate of 6% per year. The mortgage
indenture does not contain a provision requiring any periodic evidence to be
furnished as to the absence of default or as to compliance with the terms
thereof. However, Consumers is required by law to furnish annually to the
trustee a certificate as to compliance with all conditions and covenants under
the mortgage indenture.
SUBORDINATED DEBENTURES
The subordinated debentures will be issued under the subordinated debt
indenture and will rank subordinated and junior in right of payment, to the
extent set forth in the subordinated debt indenture, to all "senior
indebtedness" (as defined below) of Consumers.
If Consumers defaults in the payment of any distributions on any senior
indebtedness when it becomes due and payable after any applicable grace period,
then, unless and until the default is cured or waived or ceases to exist,
Consumers cannot make a payment on account of or redeem or otherwise acquire the
subordinated debentures. The subordinated debt indenture provisions described in
this paragraph, however, do not prevent Consumers from making sinking fund
payments in subordinated debentures acquired prior to the maturity of senior
indebtedness or, in the case of default, prior to such default and notice
thereof. If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to Consumers, its creditors or its property, then all senior
indebtedness must be paid in full before any payment may be made to any holders
of subordinated debentures. Holders of subordinated debentures must return and
deliver any payments received by them, other than in a plan of reorganization or
through a defeasance trust as described above, directly to the holders of senior
indebtedness until all senior indebtedness is paid in full.
"Senior indebtedness" means distributions on the following, whether
outstanding on the date of execution of the subordinated debt indenture or
thereafter incurred, created or assumed:
- indebtedness of Consumers for money borrowed by Consumers or evidenced by
debentures (other than the subordinated debentures), notes, bankers'
acceptances or other corporate debt securities or similar instruments
issued by Consumers;
- capital lease obligations of Consumers;
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- obligations of Consumers incurred for deferring the purchase price of
property, with respect to conditional sales, and under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business);
- obligations of Consumers with respect to letters of credit;
- all indebtedness of others of the type referred to in the four preceding
clauses assumed by or guaranteed in any manner by Consumers or in effect
guaranteed by Consumers; or
- renewals, extensions or refundings of any of the indebtedness referred to
in the preceding three clauses unless, in the case of any particular
indebtedness, renewal, extension or refunding, under the express
provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the subordinated debt
securities.
The subordinated debt indenture does not limit the total amount of senior
indebtedness that may be issued. As of June 30, 1999, senior indebtedness of
Consumers totaled approximately $2,728 million.
Certain Covenants
If debt securities are issued to a trust or a trustee of such trust in
connection with the issuance of trust preferred securities of that trust,
Consumers will covenant that it will not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of Consumers' capital stock or (2) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities (including guarantees of indebtedness for money borrowed) of
Consumers that rank equal (in the case of subordinated debentures) with or
junior (in the case of senior and subordinated debentures) to that debt security
(other than (a) any dividend, redemption, liquidation, interest, principal or
guarantee payment by Consumers where the payment is made by way of securities
(including capital stock) that rank equal with or junior to the securities on
which such dividend, redemption, interest, principal or guarantee payment is
being made, (b) payments under the Consumers' guarantees of trust securities),
if at such time (1) there shall have occurred any event of which Consumers has
actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute an event of default under the indentures and (b) in
respect of which Consumers shall not have taken reasonable steps to cure, (2)
Consumers shall be in default with respect to its payment of any obligations
under the guarantees or (3) Consumers will have given notice of its selection of
an extension period as provided in the indentures with respect to the Debt
Securities and will not have rescinded such notice, or such extension period, or
any extension thereof, shall be continuing.
Consumers will also covenant:
(1) to maintain directly or indirectly 100% ownership of the common
securities, provided that certain successors which are permitted pursuant
to the indentures may succeed to Consumers' ownership of the common
securities,
(2) not to voluntarily dissolve, wind-up or liquidate the trust,
except:
(a) in connection with a distribution of the debt securities to the
holders of the trust preferred securities in liquidation of such trust
or
(b) in connection with certain mergers, consolidations or
amalgamations permitted by the amended and restated trust agreement, and
(3) to use its reasonable efforts, consistent with the terms and
provisions of the amended and restated trust agreement, to cause such trust
to remain classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes.
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Events of Default
The subordinated debt indenture provides that events of default regarding
any series of subordinated debentures will be:
- failure to pay required interest on any subordinated debentures of such
series for 30 days;
- failure to pay principal other than a scheduled installment payment or
premium, if any, on any subordinated note of such series when due;
- failure to make any required scheduled installment payment on
subordinates notes of such series;
- failure to perform for 60 days after notice any other covenant in the
relevant indenture other than a covenant included in the relevant
indenture solely for the benefit of a series of subordinated debentures
other than such series;
- certain events of bankruptcy or insolvency, whether voluntary or not; and
- if subordinated debentures are issued, such trust is voluntarily or
involuntarily dissolved, wound-up or terminated, except in connection
with the distribution of subordinated debentures to the holders of the
common securities and the trust preferred securities in liquidation of
the trust, the redemption of all outstanding trust securities of the
trust and certain mergers, consolidation or amalgamations permitted by
the declaration of that trust.
If an event of default regarding subordinated debentures of any series
issued should occur and be continuing, either the subordinated note trustee or
the holders of 25% in the principal amount of outstanding subordinated
debentures of such series may declare each subordinated note of that series due
and payable.
Holders of a majority in principal amount of the outstanding subordinated
debentures of any series will be entitled to control certain actions of the
subordinated note trustee and to waive past defaults regarding such series. The
trustee generally will not be requested, ordered or directed by any of the
holders of subordinated debentures, unless one or more of such holders shall
have offered to the trustee reasonable security or indemnity.
Before any holder of any series of subordinated debentures may institute
action for any remedy, except payment on such holder's subordinated debentures
when due, the holders of not less than 25% in principal amount of the
subordinated debentures of that series outstanding must request the subordinated
note trustee to take action. Holders must also offer and give the satisfactory
security and indemnity against liabilities incurred by the trustee for taking
such action.
Consumers is required to annually furnish the subordinated note trustee a
statement as to Consumers' compliance with all conditions and covenants under
the subordinated debt indenture. The subordinated debt indenture provides that
the subordinated note trustee may withhold notice to the holders of the
subordinated debentures of any series of any default affecting such series,
except payment on holders' subordinated debentures when due, if it considers
withholding notice to be in the interests of the holders of the subordinated
debentures of such series.
Consolidation, Merger or Sale of Assets
The subordinated debt 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 the new corporation
assumes the obligations of Consumers under the subordinated debentures and the
subordinated debt indenture and is organized and existing under the laws of the
United States of America, any U.S. state or the District of Columbia.
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Modification of the Indenture
The subordinated debt indenture permits Consumers and the subordinated note
trustee to enter into supplemental indentures without the consent of the holders
of the subordinated debentures to establish the form and terms of any series of
securities under the the subordinated debt indentures.
The subordinated debt indenture also permits Consumers and the subordinated
note trustee, with the consent of the holders of at least a majority in total
principal amount of the subordinated debentures of all series then outstanding
and affected (voting as one class), to change in any manner the provisions of
the subordinated debt indenture or modify in any manner the rights of the
holders of the subordinated debentures of each such affected series. Consumers
and the relevant trustee may not, without the consent of the holder of each
subordinated debenture affected, enter into any supplemental indenture to:
- change the time of payment of the principal;
- reduce the principal amount of such subordinated debentures;
- reduce the rate or change the time of payment of interest on such
subordinated debentures;
- impair the right to institute suit for the enforcement of any payment on
any subordinated debentures when due.
In addition, no such modification may reduce the percentage in principal
amount of the subordinated debentures of the affected series, the consent of
whose holders is required for any such modification or for any waiver provided
for in the subordinated debt indenture.
Prior to the acceleration of the maturity of any subordinated debentures,
the holders, voting as one class, of a majority in total principal amount of the
subordinated debentures with respect to which a default or event of default has
occurred and is continuing, may, on behalf of the holders of all such affected
subordinated debentures, waive any past default or event of default and its
consequences, except a default or an event of default in respect of a covenant
or provision of the applicable indenture or of any subordinated debenture which
cannot be modified or amended without the consent of the holder of each
subordinated debentures affected.
Defeasance, Covenant Defeasance and Discharge
The subordinated debt indenture provides that, at the option of Consumers,
Consumers will be discharged from all obligations in respect of the subordinated
debentures of a particular series then outstanding (except for certain
obligations to register the transfer of or exchange the subordinated debentures
of such series, to replace stolen, lost or mutilated subordinated debentures of
such series, to maintain paying agencies and to maintain the trust described
below).
If Consumers in each case irrevocably deposits in trust with the relevant
trustee money, and/or securities backed by the full faith and credit of the
United States which, through the payment of the principal thereof and the
interest thereon in accordance with their terms, will provide money in an amount
sufficient to pay all the principal and interest on the subordinated debentures
of such series on the stated maturities of such subordinated debentures in
accordance with the terms thereof.
To exercise this option, Consumers is required to deliver to the relevant
trustee an opinion of independent counsel to the effect that the exercise of
such option would not cause the holders of the subordinated debentures of such
series to recognize income, gain or loss for United States federal income tax
purposes as a result of such defeasance, and such holders will be subject to
United States federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not occurred.
TRUST PREFERRED SECURITIES
Each trust may issue, on one or more occasion, trust preferred securities
having terms described in the prospectus supplement relating thereto. The
amended and restated trust agreement of each trust will
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authorize the establishment of no more than one series of trust preferred
securities, having such terms, including distributions, redemption, voting,
liquidation rights and such other preferred, deferred or other special rights or
such rights or restrictions as shall be set forth therein or otherwise
established by the trustees pursuant thereto. Reference is made to the
prospectus supplement relating to the trust preferred securities for specific
terms, including:
- the distinctive designation and the number of trust preferred securities
to be offered which will represent undivided beneficial interests in the
assets of the trust;
- the annual distribution rate and the dates or date upon which such
distributions will be paid, provided, however distributions on the trust
preferred securities will be paid quarterly in arrears to holders of
trust preferred securities as of a record date on which the trust
preferred securities are outstanding;
- whether distributions on trust preferred securities would be deferred
during any deferral of interest payments on the debt securities,
provided, however that no such deferral, including extensions, if any,
may exceed 20 consecutive quarters nor extend beyond the stated maturity
date of the debt securities, and at the end of any such deferrals,
Consumers will make all interest payments then accrued or deferred and
unpaid (including any compounded interest);
- the amount of any liquidation preference;
- the obligation, if any, of the trust to redeem trust preferred securities
through the exercise of Consumers of an option on the corresponding debt
securities and the price or prices at which, the period or periods within
which and the terms and conditions upon which trust preferred securities
will be purchased or redeemed, in whole or in part, under to such
obligation;
- the period or periods within which and the terms and conditions, if any,
including the price or prices or the rate or rates of conversion or
exchange and the terms and conditions of any adjustments, upon which the
trust preferred securities shall be convertible or exchangeable at the
option of the holder of the trust preferred securities of other property
or cash;
- the voting rights, if any, of the trust preferred securities in addition
to those required by law and in the amended and restated trust agreement,
or set forth under a Consumers' guarantee (as defined below);
- the additional payments, if any, which the trust will pay as a
distribution as necessary so that the net amounts reserved by the trust
and distributable to the holders of the trust preferred securities, after
all taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) have been paid will not be less than the
amount that would have been reserved and distributed by the trust, and
the amount the holders of the trust preferred securities would have
reserved, had no such taxes, duties, assessments or governmental charges
been imposed;
- the terms and conditions, if any, upon which the debt securities may be
distributed to holders of trust preferred securities; and
- any other relative rights, powers, preferences, privileges, limitations
or restrictions of the trust preferred securities not inconsistent with
the amended and restated trust agreement or applicable law.
All trust preferred securities offered hereby will be irrevocably
guaranteed by Consumers, on a senior or subordinated basis, as applicable, and
to the extent set forth below under "The Guarantees." Any applicable federal
income tax considerations applicable to any offering of the trust preferred
securities will be described in the prospectus supplement relating thereto. The
total number of trust preferred securities which the trust shall have authority
to issue will be pursuant to the terms of the amended and restated trust
agreement.
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EFFECT OF OBLIGATIONS UNDER THE DEBT SECURITIES AND THE GUARANTEES
As set forth in the amended and restated trust agreements, the sole purpose
of the trusts are to issue the common securities and the trust preferred
securities evidencing undivided beneficial interests in the assets of each of
the trusts, and to invest the proceeds from such issuance and sale to acquire
directly the debt securities from Consumers.
As long as payments of interest and other payments are made when due on the
debt securities, such payments will be sufficient to cover distributions and
payments due on the common securities and the trust preferred securities because
of the following factors:
- the total principal amount of debt securities will be equal to the sums
of the total stated liquidation amount of the common securities and the
trust preferred securities;
- the interest rate and the interest and other payment dates on the debt
securities will match the distribution rate and distribution and other
payment dates for the common securities and the trust preferred
securities;
- Consumers will pay all, and each trust shall not be obligated to pay,
directly or indirectly, all its costs, expenses, debt and obligations
(other than with respect to the common securities and the trust preferred
securities); and
- the amended and restated trust agreement further provides that Consumers
trustees will not take or cause or permit the trust to, among other
things, engage in any activity that is not consistent with the purposes
of the trust.
Payments of distributions (to the extent funds for distributions are
available) and other payments due on the trust preferred securities (to the
extent funds for other payments are available) are guaranteed by Consumers as
and to the extent discussed under "The Guarantees" below. If Consumers does not
make interest payments on the debt securities purchased by the trust, it is
expected that the trusts will not have sufficient funds to pay distributions on
the trust preferred securities. The Consumers guarantees do not apply to any
payment of distributions unless and until the trusts have sufficient funds for
the payment of distributions and other payments on the trust preferred
securities only if and to the extent that Consumers has made a payment of
interest or principal on the debt securities held by the trusts as their sole
asset. The Consumers guarantees, when taken together with Consumers' obligations
under the debt securities and the related indenture and its obligations under
the applicable amended and restated trust agreement, including its obligations
to pay costs, expenses, debts and liabilities of the trust (other than with
respect to the common securities and the trust preferred securities), provide a
full and unconditional guarantee of amounts on the trust preferred securities.
If Consumers fails to make interest or other payments on the debt
securities when due (taking account of any extension period), the applicable
amended and restated trust agreements provide a mechanism whereby the holders of
the trust preferred securities may direct a property trustee to enforce its
rights under the debt securities. If a property trustee fails to enforce its
rights under the debt securities, a holder of trust preferred securities may, to
the fullest extent permitted by applicable law, institute a legal proceeding
against Consumers to enforce a property trustee's rights under the debt
securities without first instituting any legal proceeding against a property
trustee or any other person or entity. Notwithstanding the foregoing, if an
event of default has occurred and is continuing under the applicable amended and
restated trust agreement, and such event is attributable to the failure of
Consumers to pay interest or principal on the debt securities on the date such
interest or principal is otherwise payable (or in the case of redemption on the
redemption date), then a holder of trust preferred securities may institute
legal proceedings directly against Consumers to obtain payment. If Consumers
fails to make payments under the guarantees, the guarantees provide a mechanism
whereby the holders of the trust preferred securities may direct a guarantee
trustee to enforce its rights thereunder. Any holder of trust preferred
securities may institute a legal proceeding directly against Consumers to
enforce a guarantee trustee's rights under a guarantee without first instituting
a legal proceeding against the trust, the guarantee trustee, or any other person
or entity.
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THE GUARANTEES
Set forth below is a summary of information concerning the guarantees which
will be executed and delivered by Consumers for the benefit of the holders, from
time to time, of the trust preferred securities. Each guarantee will be
qualified as an indenture under the Trust Indenture Act of 1939. The Bank of New
York will act as indenture trustee under the guarantees for the purpose of
compliance with the provisions of the Trust Indenture Act of 1939. This summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the guarantees, which is
filed as an exhibit to the Registration Statement of which this prospectus forms
a part.
General
Consumers will irrevocably agree to pay in full, on a senior or
subordinated basis, as applicable, to the extent set forth herein, the guarantee
payments (as described below) to the holders of the trust preferred securities,
as and when due, regardless of any defense, right of set-off or counterclaim
that the trust may have or assert other than the defense of payment. The
following payments with respect to the trust preferred securities, to the extent
not paid by or on behalf of the trust, will be subject to a guarantee by
Consumers of:
(1) any accumulated and unpaid distributions required to be paid on
the trust preferred securities, to the extent that the trust has funds on
hand available therefor at such time;
(2) the redemption price with respect to any trust preferred
securities called for redemption to the extent that the trust has funds on
hand available therefor at such time; or
(3) upon a voluntary or involuntary dissolution, winding up or
liquidation of the trust (unless the debt securities are distributed to
holders of the trust preferred securities), the lesser of (a) the
liquidation distribution, to the extent that the trust has funds on hand
available the distribution at such time, and (b) the amount of assets of
the trust remaining available for distribution to holders of trust
preferred securities.
Consumers' obligation to make a guarantee payment may be satisfied by
direct payment of the required amounts of Consumers to the holders of the trust
preferred securities or by causing the trust to pay such amount to such holders.
The Consumers guarantees will be irrevocable guarantees, on a senior or
subordinated basis, as applicable, of the trust's obligations under the trust
preferred securities, but will apply only to the extent that the trust has funds
sufficient to make such payments, and are not guarantees of collection. If
Consumers does not make interest payments on the debt securities held by the
trust, the trust will not be able to pay distributions on the trust preferred
securities and will not have funds legally available therefor.
Consumers has, through the guarantees, the applicable amended and restated
trust agreements, the senior notes, the subordinated debentures, and the
indentures, taken together, fully, irrevocably and unconditionally guaranteed
all of the trust's obligations under the trust preferred securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the trust's obligations under the trust preferred
securities.
Consumers has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the trust with respect to the common securities to
the same extent as the guarantees of the preferred securities, except that upon
the occurrence and during the continuation of a amended and restated trust
agreement Event of Default, holders of trust preferred securities shall have
priority over holders of common securities with respect to distributions and
payments on liquidation, redemption or otherwise.
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Certain Covenants of Consumers
Consumers will also covenant that it will not
(1) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of
Consumers' capital stock or
(2) make any payment of principal, interest or premium, if any, on or
repay or repurchase or redeem any debt securities (including guarantees of
indebtedness for money borrowed) of Consumers that rank equal (in the case
of subordinated debentures with or junior in the case of the senior and
subordinated debentures) to the debt securities (other than (a) any
dividend, redemption, liquidation, interest, principal or guarantee payment
by Consumers where the payment is made by way of securities (including
capital stock) that rank equal with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is
being made, (b) payments under the Consumers guarantees of the trust
securities, (c) as a result of a reclassification of Consumers' capital
stock or the exchange or conversion of one series or class of Consumers'
capital stock for another series or class of Consumers' capital stock and
(d) the purchase of fractional interests in shares of Consumers' capital
stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged) if at such time (1)
there shall have occurred any event of which Consumers has actual knowledge
that (a) with the giving of notice or the lapse of time, or both, would
constitute a event of default and (b) in respect of which Consumers shall
not have taken reasonable steps to cure, (2) Consumers shall be in default
with respect to its payment of any obligations under the guarantee or
(3) Consumers shall have given notice of its selection of an extension
period as provided in the indentures with respect to the debt securities
and shall not have rescinded such notice, or such extension period, or any
extension thereof, shall be continuing.
Consumers also will covenant to:
(1) maintain directly or indirectly 100% ownership of the common
securities, provided that certain successors which are permitted pursuant
to the indentures may succeed to Consumers' ownership of the common
securities,
(2) not voluntarily dissolve, wind-up or liquidate the trust, except:
- in connection with a distribution of the debt securities to the
holders of the trust preferred securities in liquidation of the
trust, or
- in connection with certain mergers, consolidations or amalgamations
permitted by the amended and restated trust agreement, and
(3) use its reasonable efforts, consistent with the terms and
provisions of the applicable amended and restated trust agreement, to cause
the trust to remain classified as a grantor trust and not as an association
taxable as a corporation for United States federal income tax purposes.
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the rights of holders of the trust preferred securities (in which case no vote
will be required), the Consumers guarantees of the trust preferred securities
may not be amended without the prior approval of the holders of not less than a
majority in total liquidation amount of such outstanding trust preferred
securities. All guarantees and agreements contained in the guarantees shall bind
the successors, assigns, receivers, trustees and representatives of Consumers
and shall inure to the benefit of the holders of the trust preferred securities
then outstanding.
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Termination of the Guarantees
The Consumers guarantees of the trust preferred securities will terminate
and be of no further force and effect upon full payment of the redemption price
of the trust preferred securities, upon full payment of the amounts payable upon
liquidation of the trust or upon distribution of the debt securities to the
holders of the trust preferred securities in exchange for all of the trust
preferred securities. The guarantees will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of trust preferred
securities must restore payment of any sums paid under such trust preferred
securities or the guarantees.
Events of Default
An event of default under a Consumers guarantee of the trust preferred
securities will occur upon the failure of Consumers to perform any of its
payment or other obligations thereunder. The holders of a majority in total
liquidation amount of the trust preferred securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to a guarantee trustee in respect of a guarantee or to direct the exercise of
any trust or power conferred upon a guarantee trustee under the guarantees.
If a guarantee trustee fails to enforce a Consumers guarantee of the trust
preferred securities, any holder of the trust preferred securities may institute
a legal proceeding directly against Consumers to enforce its rights under such
guarantee without first instituting a legal proceeding against the trust, the
guarantee trustee or any other person or entity. In addition, any record holder
of trust preferred securities shall have the right, which is absolute and
unconditional, to proceed directly against Consumers to obtain guarantee
payments, without first waiting to determine if the guarantee trustee has
enforced a guarantee or instituting a legal proceeding against the trust, the
guarantee trustee or any other person or entity. Consumers has waived any right
or remedy to require that any action be brought just against the trust, or any
other person or entity before proceeding directly against Consumers.
Status of the Guarantees
The Consumers guarantee of the trust preferred securities will constitute
unsecured obligations of Consumers and will rank:
(1) equal to or subordinate and junior in right of payment to all
other liabilities of Consumers, as applicable,
(2) equal 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 or preference stock of any affiliate
of Consumers, and
(3) senior to Consumers' common stock.
The Consumers guarantee of the trust preferred securities will constitute a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the guarantor to enforce its
rights under the guarantee without first instituting a legal proceeding against
any other person or entity). The guarantees will be held for the benefit of the
holders of the trust preferred securities. The guarantees will not be discharged
except by payment of the guarantee payments in full to the extent not paid by
the trust or upon distribution of the debt securities to the holders of the
trust preferred securities. The guarantees do not place a limitation on the
amount of additional indebtedness that may be incurred by Consumers.
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PLAN OF DISTRIBUTION
Consumers and/or the trusts may sell the offered securities:
(1) through the solicitation of proposals of underwriters or dealers
to purchase the offered securities;
(2) through underwriters or dealers on a negotiated basis;
(3) directly to a limited number of purchasers or to a single
purchaser; or
(4) through agents.
The prospectus supplement with respect to any offered securities will set
forth the terms of such offering, including the name or names of any
underwriters, dealers or agents; the purchase price of the offered securities
and the proceeds to Consumers and/or the trust from such sale; any underwriting
discounts and commissions and other items constituting underwriters'
compensation; any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchange on which
such offered securities may be listed. Any initial public offering price,
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account and may be resold on one or
more occasions in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of
sale. The offered securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering offered
securities will be named in the prospectus supplement relating to such offering
and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such prospectus supplement.
Unless otherwise set forth in the prospectus supplement relating thereto, the
obligations of the underwriters to purchase the offered securities will be
subject to certain conditions precedent, and the underwriters will be obligated
to purchase all the offered securities if any are purchased.
If dealers are utilized in the sale of offered securities, Consumers and/or
the trusts will sell such offered securities to the dealers as principals. The
dealers may then resell such offered securities to the public at varying prices
to be determined by such dealers at the time of resale. The names of the dealers
and the terms of the transaction will be set forth in the prospectus supplement
relating thereto.
The offered securities may be sold directly by Consumers and/or the trusts
or through agents designated by Consumers and/or the trusts from time to time.
Any agent involved in the offer or sale of the offered securities in respect to
which this prospectus is delivered will be named, and any commissions payable by
Consumers and/or the trusts to such agent will be set forth, in the prospectus
supplement relating thereto. Unless otherwise indicated in the prospectus
supplement, any such agent will be acting on a best efforts basis for the period
of its appointment.
The offered securities may be sold directly by Consumers and/or the trusts
to institutional investors or others, who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale thereof. The
terms of any such sales will be described in the prospectus supplement relating
thereto.
Agents, dealers and underwriters may be entitled under agreements with
Consumers and/or the trusts to indemnification by Consumers and/or the trust
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for Consumers and/or the trust in the ordinary course of business.
The offered securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as
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principals for their own accounts or as agents for Consumers and/or the trusts.
Any remarketing firm will be identified and the terms of its agreement, if any,
with its compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the offered securities remarketed
thereby. Remarketing firms may be entitled under agreements which may be entered
into with Consumers and/or the trusts to indemnification or contribution by
Consumers and/or the trusts against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions or perform services for Consumers and its subsidiaries in the
ordinary course of business.
The offered securities may or may not be listed on a national securities
exchange. Reference is made to the prospectus supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
offered securities.
LEGAL OPINIONS
Opinions as to the legality of certain of the offered securities will be
rendered for Consumers by Michael D. Van Hemert, Esq., Assistant General Counsel
for CMS Energy. Certain matters of Delaware law relating to the validity of the
trust preferred securities will be passed upon on behalf of the trusts by
Richards, Layton & Finger, P.A., special Delaware counsel to the trusts. Certain
United States federal income taxation matters may be passed upon for Consumers
and the trust by either Theodore J. Vogel, tax counsel for Consumers, or by
special tax counsel to Consumers and of the trust, who will be named in the
prospectus supplement. Certain legal matters with respect to offered securities
will be passed upon by counsel for any underwriters, dealers or agents, each of
whom will be named in the related prospectus supplement.
EXPERTS
The consolidated financial statements and schedule of Consumers as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998 incorporated by reference in this prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31 and June 30, 1999 and 1998, Arthur Andersen LLP
has applied limited procedures in accordance with professional standards for a
review of that information. However, their separate reports thereon state 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 reports on that information
should be restricted in light of the limited nature of the review procedures
applied. In addition, the accountants are not subject to the liability
provisions of Section 11 of the Securities Act, for their reports on the
unaudited interim consolidated financial information because these reports are
not "reports" or a part of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.
Future consolidated financial statements of Consumers and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
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[CONSUMERS ENERGY LOGO]
