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Filed Pursuant to Rule 424b5
Registration Statement No. 33-57719
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 28, 1995)
2,100,000 Shares
CMS Energy Corporation
COMMON STOCK
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ALL OF THE SHARES OF CMS ENERGY'S COMMON STOCK ($.01 PAR VALUE) BEING OFFERED
HEREBY (THE "SHARES") ARE BEING SOLD BY CMS ENERGY. CMS ENERGY'S COMMON STOCK
IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "CMS." ON OCTOBER
31, 1996, THE LAST REPORTED SALE PRICE OF CMS ENERGY'S COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE WAS $31 5/8 PER SHARE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The Shares will be purchased from CMS Energy by Morgan Stanley & Co.
Incorporated (the "Underwriter") at a price of $30 1/2 per share (resulting in
$64,050,000 aggregate net proceeds (before expenses) to CMS Energy). CMS Energy
will pay certain expenses of the offering estimated at approximately $30,000.
The Shares may be offered by the Underwriter from time to time in one or
more transactions (which may involve block transactions) on the New York Stock
Exchange or on other national securities exchanges on which CMS Energy's Common
Stock is traded, in the over-the-counter market, through negotiated transactions
or otherwise at market prices prevailing at the time of the sale or at prices
otherwise negotiated, subject to prior sale, when, as and if delivered to and
accepted by the Underwriter. See "Underwriter."
CMS Energy has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
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The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriter, and subject to approval of certain legal matters by Reid &
Priest LLP, counsel to the Underwriter. It is expected that delivery of the
Shares will be made on or about November 6, 1996 at the office of Morgan Stanley
& Co. Incorporated, New York, N.Y., against payment therefor in immediately
available funds.
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MORGAN STANLEY & CO.
Incorporated
November 1, 1996.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY CMS ENERGY OR BY THE UNDERWRITER. THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OR A
SOLICITATION BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
AN OFFER OR SOLICITATION.
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT PAGE
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Prospectus Supplement Summary........ S-3
Use of Proceeds...................... S-5
Issuance of Class G Common Stock..... S-5
Recent Developments.................. S-6
Transfer Agent....................... S-7
Incorporated Documents............... S-7
Underwriter.......................... S-7
Legal Opinions....................... S-8
Experts.............................. S-8
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PROSPECTUS PAGE
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Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
CMS Energy........................... 3
CMS Energy Michigan Limited
Partnership........................ 3
Use of Proceeds...................... 4
Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed
Charges and Preferred Stock
Dividends.......................... 5
Description of Securities............ 6
Legal Opinions....................... 27
Experts.............................. 27
Plan of Distribution................. 27
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, ANY OTHER STOCK
EXCHANGE ON WHICH THE COMMON STOCK HAS BEEN ADMITTED TO TRADING PRIVILEGES, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated by reference herein or therein. The documents so incorporated by
reference are available from CMS Energy upon request.
THE COMPANY
CMS Energy, incorporated in 1987, is the parent holding company of
Consumers Power Company ("Consumers") and CMS Enterprises Company
("Enterprises"). Consumers, a combination electric and gas utility company
serving all of Michigan's Lower Peninsula, is the largest subsidiary of CMS
Energy. Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non-utility energy related
businesses including: (i) oil and gas exploration and production, (ii)
development and operation of independent power production facilities, (iii)
marketing gas to utility, commercial and industrial customers and (iv)
transmission, storage and processing of natural gas.
CMS Energy conducts its principal operations through the following five
business segments: (i) electric utility operations; (ii) gas utility operations;
(iii) oil and gas exploration and production operations; (iv) independent power
production; and (v) gas marketing, transmission, storage and processing.
Consumers or Consumers' subsidiaries are engaged in two segments; electric
operations and gas operations. Consumers' electric and gas businesses are
principally regulated utility operations. CMS Energy and its subsidiaries
routinely evaluate, invest in and acquire energy-related assets and/or companies
both domestically and internationally. Consideration for such transactions may
involve the delivery of CMS Energy's Common Stock, cash or other securities.
CMS Energy's 1995 consolidated operating revenue was $3,890 million. This
consolidated operating revenue was derived from its electric utility operations
(approximately 59% or $2,277 million), its gas utility operations (approximately
31% or $1,195 million), gas transmission, storage and marketing (approximately
5% or $196 million), oil and gas exploration and production activities
(approximately 3% or $108 million) and independent power production activities
(approximately 2% or $96 million). Consumers' consolidated operations in the
electric and gas utility businesses account for the major share of CMS Energy's
total assets, revenue and income. The unconsolidated share of non-utility
electric generation and gas transmission and storage revenue for 1995 was $523
million.
Consumers is a public utility serving gas or electricity to almost six
million of Michigan's nine million residents in all of the 68 counties in
Michigan's Lower Peninsula. Industries in Consumers' service area include
automotive, metal, chemical, food and wood products and a diversified group of
other industries. Consumers' rates and certain other aspects of its business are
subject to the jurisdiction of the Michigan Public Service Commission ("MPSC")
and the Federal Energy Regulatory Commission.
The foregoing information concerning CMS Energy and its subsidiaries does
not purport to be comprehensive. For additional information concerning CMS
Energy and its subsidiaries' 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 (as defined in the accompanying Prospectus).
THE OFFERING
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Shares offered.......................................... 2,100,000 shares of Common Stock,
$.01 par value
Common Stock outstanding as of October 31, 1996......... 92,529,498 shares
Use of Proceeds......................................... The net proceeds will be used for
general corporate purposes.
Common Stock Prices:
Reported Ranges -- 1995 (Second Quarter)........... $22 1/2 - $25 3/8
(Third Quarter)............ $23 3/8 - $26 3/8
(Fourth Quarter)........... $26 - $30
1996 (First Quarter)............ $27 13/16 - $31 7/8
(Second Quarter)........... $28 - $31 1/4
(Third Quarter)............ $29 - $31 5/8
(Fourth Quarter to
October 31)................ $30 1/8 - $32
Reported last sale on NYSE-- October 31, 1996.......... $31 5/8
Current indicated annual dividend rate per share........ $1.08
NYSE symbol............................................. CMS
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SUMMARY FINANCIAL DATA OF CMS ENERGY
The following is a summary of certain financial information of CMS Energy
and its consolidated subsidiaries and is qualified in its entirety by, and
should be read in conjunction with, the detailed information and consolidated
financial statements, including notes thereto, which are incorporated in the
accompanying Prospectus by reference. See "Incorporation of Certain Documents By
Reference" in the accompanying Prospectus and "Incorporated Documents" herein.
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SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
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1996 1995 1995 1994 1993
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(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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INCOME STATEMENT DATA:
Operating Revenue............................ $2,217 $1,952 $3,890 $3,614 $3,476
Pretax operating income...................... $ 370 $ 330 $ 603 $ 503 $ 439
Net income................................... $ 138 $ 119 $ 204 $ 179 $ 155
Earnings per average common share -- CMS
Energy Common Stock....................... $ 1.37 $ 1.36 $ 2.27 $ 2.09 $ 1.90
Earnings per average common share -- Class G
Common Stock.............................. $ 1.66 -- $ .38 -- --
Average shares of CMS Energy Common Stock
outstanding (in thousands)................ 91,828 87,454 88,810 85,888 81,251
Average shares of Class G Common Stock
outstanding (in thousands)................ 7,662 -- 7,511 -- --
Cash dividends declared per share of CMS
Energy Common Stock....................... $ .48 $ .42 $ .90 $ .78 $ .60
Cash dividends declared per share of Class G
Common Stock.............................. $ .56 -- $ .56 -- --
BALANCE SHEET DATA:
Net plant and property....................... $5,094 $4,864 $5,074 $4,814 $4,583
Total assets................................. $8,149 $7,483 $8,143 $7,378 $6,958
Long-term debt, excluding current
maturities................................ $3,116 $2,748 $2,906 $2,709 $2,405
Notes payable................................ $ 108 $ 309 $ 341 $ 339 $ 259
Other liabilities............................ $2,894 $2,841 $3,071 $2,867 $3,165
Company-obligated mandatorily redeemable
preferred securities of Consumers Power
Company Financing I....................... $ 100 -- -- -- --
Preferred stock of subsidiary................ $ 356 $ 356 $ 356 $ 356 $ 163
Common stockholders' equity.................. $1,575 $1,229 $1,469 $1,107 $ 966
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USE OF PROCEEDS
CMS Energy will apply the net proceeds from the sale of the Shares for its
general corporate purposes. Initially such proceeds may be used to repay a
portion of CMS Energy's indebtedness under the Credit Facility under which
short-term borrowings are incurred for working capital purposes and which at
September 30, 1996 had $122 million principal amount outstanding with weighted
average interest rate of 6.8%.
ISSUANCE OF CLASS G COMMON STOCK
An initial public offering of CMS Energy Class G Common Stock as
contemplated in the accompanying Prospectus was completed in July 1995 whereby
7,520,000 shares of Class G Common Stock were sold. As of October 31, 1996 there
are 92,529,498 shares of CMS Energy Common Stock and 7,809,380 shares of Class G
Common Stock issued and outstanding. Reference is made to "Description of
Securities -- Capital Stock -- CMS Energy Common Stock" and "-- Comparison of
Rights and Limitations of CMS Energy Common Stock and Class G Common Stock" in
the accompanying Prospectus for a description of the effect of the issuance of
the Class G Common Stock on the CMS Energy Common Stock, including the Shares.
Although CMS Energy is aware of no precedent concerning the manner in which
Michigan law would be applied to a board of directors' duties in the context of
multiple classes of common stock with divergent interests, CMS Energy believes
that a Michigan court would hold that a board of directors owes an equal duty to
all shareholders regardless of class and does not have separate or additional
fiduciary duties to the holders of separate classes of stock. That duty requires
each director to act in good faith with the care an ordinarily prudent person in
a like position would exercise under similar circumstances, and in a manner such
director reasonably believes to be in the best interests of CMS Energy. CMS
Energy believes that, under Michigan law, a good faith determination by a
disinterested and adequately informed board, or a committee thereof, which
discharges such duty, and which the directors honestly believe is in the best
interest of CMS Energy, would be a defense to any challenge by or on behalf of
the holders of either class of Common Stock to the Board of Directors'
determination that could have a disparate effect on each class of Common Stock.
Disproportionate ownership interests of members of the Board of Directors
in one or both classes of Common Stock of CMS Energy or disparate values of the
classes of Common Stock of CMS Energy could create or appear to create potential
conflicts of interest when directors are faced with decisions that could have
different implications for different classes. Nevertheless, CMS Energy believes
that a director would be able to discharge his or her fiduciary duties even if
his or her interests in shares of the classes of Common Stock were
disproportionate and/or had disparate values. CMS Energy's Performance Incentive
Stock Plan permits the issuance of options for, or other incentive awards
consisting of, any class of Common Stock of CMS Energy.
The existence of separate classes of Common Stock could give rise to
occasions when the interests of the holders of Class G Common Stock and holders
of CMS Energy Common Stock may diverge or appear to diverge and determinations
of the Board of Directors could have disparate effects on each class of Common
Stock. Examples include determinations by the Board of Directors to (i) pay or
omit the payment of dividends on either class of Common Stock, (ii) attribute
the proceeds of issuances of securities of CMS Energy either to CMS Energy or to
the equity of the Consumers Gas Group, (iii) attribute consideration to be
received by common stockholders in connection with a merger or consolidation
including CMS Energy to either or both classes of Common Stock, (iv) exchange
CMS Energy Common Stock for all outstanding Class G Common Stock at a premium,
(v) approve dispositions of assets of CMS Energy attributable to the Consumers
Gas Group and (vi) make operational and financial decisions with respect to
either CMS Energy or the Consumers Gas Group that could be considered to be
detrimental to the other. Any determinations made in compliance with applicable
law by the Board of Directors under any of the provisions in the Articles of
Incorporation, as defined in the accompanying Prospectus, would be final and
binding on all shareholders of CMS Energy.
The Board of Directors has adopted certain management and accounting
policies with respect to dividends and the allocation of corporate expenses,
assets and liabilities (including contingent liabilities)
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including, without limitation, its intention to attribute assets, liabilities
and expenses between the Consumers Gas Group and CMS Energy only on an
arm's-length basis, any and all of which could be modified or rescinded in the
sole discretion of the Board of Directors without approval of the shareholders.
The Board of Directors may also adopt additional policies depending upon the
circumstances, including policies that would have disparate impacts upon holders
of Class G Common Stock and holders of CMS Energy Common Stock.
The majority of the accounting allocation policies of CMS Energy have a
long standing basis whereby the financial statements for CMS Energy and the
Consumers Gas Group are prepared based upon consistent methods that management
believes are reasonable and appropriate to reflect their respective financial
positions, results of operations and cash flows. Where appropriate, the
financial statements of the Consumers Gas Group reflect the assets, liabilities,
revenues and expenses directly related to it. However, in instances where common
accounts (containing both electric and gas activities) are not readily
attributable to a single business segment, management allocates to CMS Energy
and the Consumers Gas Group financial statements based on certain measures of
business activities, such as gas revenues, salaries, other operations and
maintenance expenditures, number of gas customers in relationship to total
utility customers and/or functional use surveys. Management believes such
allocations are reasonable.
The high and low sales prices of CMS Energy Common Stock and Class G Common
Stock as reported in the Wall Street Journal under "New York Stock Exchange
Composite Transactions" for the third quarter 1995 through October 31, 1996 were
$32 and $23 3/8 for CMS Energy Common Stock and $20 and $16 1/8 for Class G
Common Stock. The quarterly cash dividends declared per share in each of the
third and fourth quarters of 1995 and the first and second quarters 1996 were
$.24 per share for CMS Energy Common Stock and $.28 per share for Class G Common
Stock, and in the third and fourth quarters 1996 were $.27 per share for CMS
Energy Common Stock and $.295 per share for Class G Common Stock.
RECENT DEVELOPMENTS
RESTRICTIONS ON PAYMENT OF DIVIDENDS BY CMS ENERGY
On November 21, 1995, CMS Energy entered into a $450 million Credit
Agreement (the "Credit Agreement") among CMS Energy, Citibank N.A. and Union
Bank as co-agents and certain banks named therein and a $125 million Term Loan
Agreement ("Term Loan") among CMS Energy, Citibank N.A. and Union Bank as
co-agents, and certain banks named therein. The Credit Agreement replaces in its
entirety the Credit Facility described in the accompanying Prospectus. The
Credit Agreement and Term Loan each provide that CMS Energy will not, and will
not permit certain of its subsidiaries, directly or indirectly, to (i) declare
or pay any cash dividend or distribution on the capital stock of CMS Energy or
such subsidiaries, or (ii) purchase, redeem, retire or otherwise acquire for
value any such capital stock (a "Restricted Payment"), unless: (1) no event of
default under the Credit Agreement or the Term Loan, as the case may be, or
event that with the lapse of time or giving of notice would constitute such an
event of default, has occurred and is continuing, and (2) after giving effect to
any such Restricted Payment, the aggregate amount of all such Restricted
Payments since September 30, 1993 shall not have exceeded the sum of: (a)
$120,000,000, (b) 100% of CMS Energy's consolidated net income (as defined in
the Indenture dated as of September 15, 1992, as amended and supplemented (the
"Senior Debt Indenture")) since September 30, 1993 to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such Restricted
Payment (or, in case such sum shall be a deficit, minus 100% of the deficit),
and (c) any net proceeds (as defined in the Senior Debt Indenture) received by
CMS Energy for the issuance or sale of its capital stock subsequent to September
30, 1993. At June 30, 1996, CMS Energy could pay cash dividends of $861 million
pursuant to this restriction.
The foregoing provisions relating to Restricted Payments do not prohibit:
(i) dividends or other distributions paid by CMS Energy in respect of the
capital stock issued in connection with the acquisition of any business or
assets by CMS Energy where such payments are payable solely from the net
earnings of such business or assets; (ii) any purchase or redemption of capital
stock made by exchange for, or out of the proceeds of the substantially
concurrent sale of, capital stock; (iii) dividends paid within 60 days after the
date
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of declaration thereof if at such date of declaration such dividends would have
complied with the aforementioned limitations; or (iv) payments pursuant to the
tax sharing agreement among CMS Energy and its subsidiaries.
In the first quarter of 1996, CMS Energy filed a registration statement
with the Securities and Exchange Commission for the issuance and sale of up to
$125 million of General Term Notes, Series B ("Series B GTNs") under CMS
Energy's Indenture dated as of January 15, 1994 (the "GTN Indenture"). At June
30, 1996 there were $51 million Series B GTNs outstanding. So long as Series B
GTNs are outstanding and are rated below BBB- by Standard & Poor's or Duff &
Phelps, CMS Energy is subject to the same limitation on making Restricted
Payments as provided for the GTNs and as described in the accompanying
Prospectus. As of this same date, under the restrictions set out in the Senior
Debt Indenture and the GTN Indenture, CMS Energy could pay cash dividends of
$867 million and $861 million respectively.
Under the provisions of the Michigan Business Corporation Act, CMS Energy's
net assets available for payment of dividends at June 30, 1996 were $1,572
million and Consumers' net assets available for payment of dividends at such
date were $1,666 million. Under the most restrictive of the conditions on
dividend payments to which Consumers is subject, and Consumers' dividend
policies, in each case as described in the accompanying Prospectus, at June 30,
1996, $40 million of Consumers' retained earnings were available to pay cash
dividends on its common stock.
THIRD QUARTER 1996 EARNINGS
CMS Energy reported third quarter net income of $58.1 million, or $.65 per
share, up 24% from $46.8 million, or $.54 per share, in the corresponding 1995
period. Third quarter operating revenue grew 7%, to $929 million, up from $869
million in the third quarter of 1995.
During the first nine months of 1996, net income totaled $196.3 million, or
$2.02 per share, compared to $165.7 million, or $1.90 per share, for the
corresponding 1995 period. Year-to-date operating revenue was $3.150 billion, up
12%, compared to $2.821 billion in the first nine months of 1995.
The third quarter earnings were positively affected by continued growth in
CMS Energy's international energy businesses, while utility earnings decreased
slightly due to cooler summer weather compared to the comparable period in 1995.
TRANSFER AGENT
CMS Energy Common Stock is transferable at the offices of Consumers Power
Company, 212 W. Michigan Avenue, Jackson, MI 49201. The transfer agent and
registrar for CMS Energy Common Stock is CMS Energy.
INCORPORATED DOCUMENTS
In addition to the documents described under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus, the description of CMS
Energy's Class G Common Stock set out in CMS Energy's Registration Statement on
Form 8-A, File No. 001-09513, dated June 6, 1995 is also incorporated by
reference herein.
UNDERWRITER
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriter
has agreed to purchase, and CMS Energy has agreed to sell, the Shares. Subject
to the terms of the Underwriting Agreement, the Underwriter is committed to take
and pay for all of the Shares if any such Shares are taken.
It is expected that all or a substantial portion of the Shares may be sold
by the Underwriter to purchasers in one or more transactions (which may involve
block transactions) on the New York Stock Exchange or on
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other national securities exchanges on which CMS Energy's Common Stock is traded
or otherwise. The distribution of the Shares may also be effected from time to
time in special offerings, exchange distributions and/or secondary distributions
pursuant to and in accordance with the rules of the New York Stock Exchange or
such other exchanges, in the over-the-counter market, in negotiated transactions
through the writing of options on the Shares (whether such options are listed on
an options exchange or otherwise), or in a combination of such methods at
prevailing market prices or at negotiated prices. The Underwriter may effect
such transactions by selling Shares to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the Underwriter and/or the purchasers of such Shares for whom they may act as
agents or to whom they may sell as principal.
In connection with the sale of the Shares, the Underwriter will receive
compensation in the form of commissions or discounts and may receive
compensation from purchasers of the Shares for whom they may act as agent or to
whom they may sell as principal in the form of commissions or discounts, in each
case in amounts which will not exceed those customary in the types of
transactions involved. Underwriters and dealers that participate in the
distribution of the Shares may be deemed to be underwriters, and any discounts
received by them from CMS Energy and any compensation received by them on the
resale of the Shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
CMS Energy has agreed in the Underwriting Agreement not to offer, sell,
contract to sell or otherwise dispose of any shares of its Common Stock or any
securities convertible into or exercisable or exchangeable for its Common Stock,
other than the Shares, for a period of 90 days after the date of this Prospectus
Supplement, without the prior written consent of Morgan Stanley & Co.
Incorporated, provided that the Company may during such period, in a manner
generally consistent with past practices regarding the number of shares issued
by CMS Energy from time to time thereunder, issue shares of its Common Stock
under its Stock Purchase Plan, Performance Incentive Stock Plan, Employee Stock
Ownership Plan and Employee Savings and Incentive Plan.
CMS Energy has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. From time to time
the Underwriter has been retained to provide, and continues to provide,
investment banking services to the Company.
LEGAL OPINIONS
Opinions as to the legality of the Shares will be rendered for CMS Energy
by Michael D. VanHemert, Assistant General Counsel for CMS Energy. Certain legal
matters with respect to the Shares will be passed upon by Reid & Priest LLP, New
York, N.Y., counsel for the Underwriter. Reid & Priest LLP provides legal
services to an affiliate of CMS Energy and has, from time to time, provided
legal services to CMS Energy.
EXPERTS
The consolidated financial statements and schedule of CMS Energy as of
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995 incorporated by reference in this Prospectus Supplement and
the accompanying Prospectus have been audited by Arthur Andersen LLP (formerly
Arthur Andersen & Co.), independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
With respect to the unaudited interim consolidated financial information
for the periods ended June 30, 1996 and 1995. Arthur Andersen LLP has applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report thereon states that they did
not audit and they did not express an opinion on that interim consolidated
financial information. Accordingly, the degree of reliance on their report on
that information should be restricted in light of the limited nature of the
review procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited interim consolidated financial information because that
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report is 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 CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus in reliance upon the
authority of that firm as experts in giving those reports to the extent that
said firm has audited said consolidated financial statements and consented to
the use of their reports thereon.
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PROSPECTUS
$200,000,000
CMS ENERGY CORPORATION
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
AND
CMS ENERGY MICHIGAN PREFERRED SECURITIES
-------------------------
CMS Energy Corporation, a Michigan corporation ("CMS Energy"), may offer,
from time to time, its (i) unsecured senior debt securities (the "Senior Debt
Securities") consisting of debentures, notes or other unsecured evidence of
indebtedness, (ii) unsecured subordinated debt securities (the "Subordinated
Debt Securities," and together with Senior Debt Securities, the "Debt
Securities") consisting of debentures, notes and other unsecured evidence of
indebtedness, (iii) shares of Common Stock, par value $.01 per share (the "CMS
Energy Common Stock"), (iv) Preferred Stock, par value $.01 per share ("CMS
Energy Preferred Stock"), or any combination of the foregoing, in each case in
amounts, at prices and on terms to be determined at or prior to the time of
sale. See "Description of Securities."
As of May 31, 1995, CMS Energy had outstanding approximately $654,000,000
aggregate principal amount of indebtedness, none of which was secured. None of
such indebtedness would be senior to any Senior Debt Securities which may be
issued. All of such indebtedness would be senior to any Subordinated Debt
Securities which may be issued. The indenture, as supplemented, pursuant to
which the Senior Debt Securities may be issued, contains certain limitations on
the issuance of additional debt by CMS Energy, but indebtedness issued within
such limitations could be secured and therefore senior to unsecured Senior Debt
Securities. The indenture pursuant to which the Subordinated Debt Securities may
be issued contains no limitation on the issuance of indebtedness ranking senior
to the Subordinated Debt Securities.
CMS Energy Michigan Limited Partnership ("CMS Energy Michigan"), a Michigan
special purpose limited partnership in which CMS Energy is the general partner,
may also offer, from time to time, its preferred securities ("CMS Energy
Michigan Preferred Securities"), representing limited partner interests in one
or more series, in amounts, at prices and on terms to be determined at or prior
to the time of sale. CMS Energy Michigan exists for the sole purpose of issuing
its partnership interests and lending the proceeds thereof to CMS Energy. CMS
Energy Michigan will lend the proceeds of the sale of the CMS Energy Michigan
Preferred Securities to CMS Energy in return for Subordinated Debt Securities in
aggregate principal amount equal to the aggregate liquidation preference of such
Preferred Securities, bearing interest at an annual rate equal to the annual
dividend rate of such Preferred Securities and having certain redemption terms
which correspond to the redemption terms for such Preferred Securities. CMS
Energy may have the right to extend the interest payment period for such
Subordinated Debt Securities for a period not expected to exceed 60 months. The
Subordinated Debt Securities will rank subordinate in right of payment to all
Senior Indebtedness (as defined herein) of CMS Energy. The payment of periodic
cash distributions ("dividends") and payments on liquidation or redemption with
respect to the CMS Energy Michigan Preferred Securities, to the extent of funds
held by CMS Energy Michigan and legally available therefor, are guaranteed under
a Payment and Guarantee Agreement (the "Guarantee") of CMS Energy. CMS Energy's
obligations under the Guarantee are subordinate and junior in right of payment
to all other liabilities of CMS Energy and pari passu with the most senior
preferred stock issued by CMS Energy. The Subordinated Debt Securities
subsequently may be distributed pro rata to holders of CMS Energy Michigan
Preferred Securities in connection with the dissolution of CMS Energy Michigan
upon the occurrence of certain events as may be described in an accompanying
Prospectus Supplement (a "Prospectus Supplement").
Specific terms of the particular Debt Securities, Common Stock, CMS Energy
Preferred Stock and CMS Energy Michigan Preferred Securities in respect of which
this Prospectus is being delivered (the "Offered Securities") will be set forth
in an accompanying Prospectus Supplement or Supplements, together with the terms
of the offering of the Offered Securities, the initial price thereof and the net
proceeds from the sale thereof. The Prospectus Supplement will set forth with
regard to the particular Offered Securities, without limitation, the following:
(i) in the case of Debt Securities, the designation, aggregate principal amount,
denomination, maturity, any exchange, conversion, redemption or sinking fund
provisions, provisions for redemption at the option of the holder, interest rate
(which may be fixed or variable), the time and method of calculating interest
payments, the right of CMS Energy, if any, to defer payment of interest on the
Debt Securities and the maximum length of such deferral period, any listing on a
securities exchange and other specific terms of the offering; (ii) in the case
of CMS Energy Common Stock, the number of shares, public offering price and
other specific terms of the offering; and (iii) in the case of CMS Energy
Preferred Stock and CMS Energy Michigan 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 the CMS Energy Preferred
Stock or the CMS Energy Michigan Preferred Securities, as the case may be, of a
specific series and, in the case of CMS Energy Michigan Preferred Securities,
the terms upon which the proceeds of the sale of the CMS Energy Michigan
Preferred Securities will be loaned to CMS Energy. The offering price to the
public of the Offered Securities will be limited to $200,000,000 in the
aggregate.
The outstanding CMS Energy Common Stock is traded on the New York Stock
Exchange, Inc. ("NYSE"). See "Description of Securities -- Capital Stock --
Dividend and Price Range of CMS Energy Common Stock." The CMS Energy Common
Stock sold pursuant to a Prospectus Supplement accompanying this Prospectus will
also be listed for trading on the NYSE, subject to official notice of issuance.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
CMS Energy intends to sell the Offered Securities through underwriters,
dealers, agents or directly to a limited number of purchasers. The names of, and
the Offered Securities to be purchased by or through underwriters, dealers or
agents, if any, the compensation of such persons and other special terms in
connection with the offering and sale of such Offered Securities will be set
forth in the related Prospectus Supplement. See "Plan of Distribution" herein.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
-------------------------
The date of this Prospectus is June 28, 1995.
<PAGE> 11
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND ANY INFORMATION
OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CMS ENERGY OR ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH THEY RELATE OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
CMS Energy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Information, as of particular dates, concerning
CMS Energy's directors and officers, their remuneration, the principal holders
of CMS Energy's securities and any material interest of such persons in
transactions with CMS Energy is disclosed in proxy statements distributed to
shareholders of CMS Energy and filed with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 500 West Madison Street, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The outstanding
shares of Common Stock of CMS Energy are listed on the NYSE and reports, proxy
statements and other information concerning CMS Energy may also be inspected and
copied at the offices of such exchange at 20 Broad Street, New York, New York
10005.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by CMS Energy with the Commission (File No.
1-9513) pursuant to the Exchange Act are hereby incorporated by reference in
this Prospectus and shall be deemed to be a part hereof: (i) CMS Energy's Annual
Report on Form 10-K for the year ended December 31, 1994; (ii) CMS Energy's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995; and
(iii) CMS Energy's Current Reports on Form 8-K dated January 10 and February 2,
1995.
All documents subsequently filed by CMS Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act and prior to the termination of the
offering made by this Prospectus (the "Offering") shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof from
the date of filing of such documents (such documents, and the documents
enumerated above, being hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
CMS Energy undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents referred to above which
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to CMS Energy Corporation at its principal executive offices located at Fairlane
Plaza South, Suite 1100, 330 Town Center Drive, Dearborn, Michigan 48126,
Attention: Office of the Secretary, telephone: (313) 436-9200.
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<PAGE> 12
Certain information contained in this Prospectus summarizes, is based upon,
or refers to information and financial statements contained in one or more
Incorporated Documents; accordingly, such information contained herein is
qualified in its entirety by reference to such documents and should be read in
conjunction therewith.
------------------------
CMS ENERGY
CMS Energy, incorporated in 1987, is the parent holding company of
Consumers Power Company ("Consumers") and CMS Enterprises Company
("Enterprises"). Consumers, a combination electric and gas utility company
serving most of Michigan's Lower Peninsula, is CMS Energy's largest subsidiary.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several non-utility energy-related
businesses including: (i) oil and gas exploration and production, (ii)
development and operation of independent power production facilities, (iii) gas
marketing services to utility, commercial and industrial customers and (iv)
transmission and storage of natural gas.
CMS Energy conducts its principal operations through the following five
business segments: (i) electric utility operations; (ii) natural gas utility
operations; (iii) gas transmission and marketing; (iv) oil and gas exploration
and production operations; and (v) independent power production. Consumers or
Consumers' subsidiaries are engaged in two segments: electric operations and gas
operations. Consumers' electric and gas businesses are principally regulated
utility operations.
CMS Energy's 1994 consolidated operating revenue was $3,619 million. This
consolidated operating revenue was derived from Consumers' sales of electric
energy (approximately 61% or $2,189 million), Consumers' gas operations
(approximately 32% or $1,151 million), gas transmission and marketing
(approximately 4% or $145 million), oil and gas exploration and production
activities (approximately 2% or $85 million) and independent power production
activities (approximately 1% or $45 million). Consumers' consolidated operations
in the electric and gas utility businesses account for the major share of CMS
Energy's total assets, revenue and income. CMS Energy's share of 1994
unconsolidated non-utility independent power production revenue was $385
million.
Consumers is a public utility serving almost six million of Michigan's nine
million residents in all of the 68 counties in Michigan's Lower Peninsula.
Industries in Consumers' service area include automotive, metal, chemical, food
and wood products and a diversified group of other industries. Consumers' 1994
consolidated operating revenue of $3,356 million was derived approximately 65%
($2,189 million) from its electric utility business and approximately 35%
($1,151 million) from its gas utility business. Consumers' rates and certain
other aspects of its business are subject to the jurisdiction of the Michigan
Public Service Commission (the "MPSC") and the Federal Energy Regulatory
Commission.
CMS ENERGY MICHIGAN LIMITED PARTNERSHIP
CMS Energy Michigan is a limited partnership formed under the laws of the
State of Michigan. CMS Energy Michigan exists for the sole purpose of issuing
its limited partnership interests and investing the net proceeds thereof in the
Subordinated Debt Securities. CMS Energy is the sole general partner in CMS
Energy Michigan (the "General Partner"). CMS Energy Finance Corporation, a
Michigan corporation and wholly-owned subsidiary of CMS Energy ("CMS Finance"),
is, as of the date hereof, the sole limited partner in CMS Energy Michigan. Upon
the issuance of CMS Energy Michigan Preferred Securities, which securities
represent limited partner interests in CMS Energy Michigan, holders of the CMS
Energy Michigan Preferred Securities will be limited partners in CMS Energy
Michigan and CMS Finance will withdraw as a limited partner. CMS Energy will
make capital contributions from time to time to the extent required so that the
total contributions made by the General Partner, as general partner, shall at
all times be at least equal to 1% of the total contributions made by all
partners. CMS Energy Michigan is managed by the General Partner and exists for
the sole purpose of issuing its partnership interests and lending the proceeds
thereof to CMS Energy, such
3
<PAGE> 13
loans to be evidenced by Subordinated Debt Securities of CMS Energy. The rights
and obligations of CMS Energy, as General Partner, and the limited partners of
CMS Energy Michigan will be governed by the Michigan Revised Uniform Limited
Partnership Act and by an Amended and Restated Limited Partnership Agreement of
CMS Energy Michigan (the "Limited Partnership Agreement") substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
is a part. CMS Energy Michigan has a term of approximately 99 years, unless
earlier dissolved. CMS Energy Michigan's registered office in the State of
Michigan is Fairlane Plaza South, Suite 1100, 330 Town Center Drive, Dearborn,
Michigan 48126, telephone number: (313) 436-9200. All of CMS Energy Michigan's
business and affairs will be conducted by CMS Energy, as the sole general
partner. The principal place of business of CMS Energy Michigan is c/o CMS
Energy Corporation, Fairlane Plaza South, Suite 1100, 330 Town Center Drive,
Dearborn, Michigan 48126, telephone number: (313) 436-9200.
USE OF PROCEEDS
CMS Energy Michigan will loan to CMS Energy all proceeds received by CMS
Energy Michigan from the sale of its CMS Energy Michigan Preferred Securities.
As will be more specifically set forth in the applicable Prospectus Supplement,
CMS Energy will use such borrowed amounts and the net proceeds from the sale of
the Debt Securities, CMS Energy Common Stock and the CMS Energy Preferred Stock
offered hereby to invest in the businesses of CMS Energy and for its general
corporate purposes. Initially, the net proceeds may be used to repay a portion
of CMS Energy's indebtedness outstanding under a Credit Agreement dated as of
July 29, 1994 (the "Credit Facility") among CMS Energy, Citibank, N.A. and Union
Bank, as co-agents, and certain banks named therein, under which short-term
borrowings are incurred for working capital purposes, and which at May 31, 1995
had $192 million principal amount outstanding, with an annual interest rate of
7.6%.
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<PAGE> 14
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 the three months ended March 31, 1995
and for each of the years ended December 31, 1990 through 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
THREE MONTHS
ENDED
MARCH 31, 1995 1994 1993 1992 1991 1990
-------------- ---- ---- ---- ---- ----
(1) (2)(3) (4)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..... 3.00 2.12 1.92 -- -- --
Ratio of earnings to fixed charges and
preferred stock dividends............ 2.67 1.91 1.83 -- -- --
</TABLE>
- -------------------------
(1) For the year ended December 31, 1992, fixed charges exceeded earnings by
$441 million. Earnings as defined include a $520 million pretax loss on the
settlement of MCV power purchases, $(15) million for potential customer
refunds and other reserves related to 1992 but recorded in 1991, and $6
million relating to CMS Generation Company's reduction in its investment in
The Oxford Energy Company. The ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred stock dividends would have
been 1.34 and 1.30, respectively, excluding these amounts.
(2) Excludes an extraordinary after-tax loss of $14 million.
(3) For the year ended December 31, 1991, fixed charges exceeded earnings by
$356 million. Earnings as defined include pretax losses of $398 million for
write-downs and reserve amounts related to Consumers' abandonment of the
construction of a nuclear generating station in Midland, Michigan ("Midland
Construction"), $76 million for potential customer refunds and other
reserves, and $51 million relating to CMS Generation Company's reduction in
its investment in The Oxford Energy Company. The ratio of earnings to fixed
charges and the ratio of earnings to fixed charges and preferred stock
dividends would have been 1.48 and 1.45, respectively, excluding these
amounts.
(4) For the year ended December 31, 1990, fixed charges exceeded earnings by
$500 million. Earnings as defined include pretax losses of $847 million for
write-downs and reserve amounts related to the abandonment of the Midland
Construction. The ratio of earnings to fixed charges and the ratio of
earnings to fixed charges and preferred stock dividends would have been 2.01
and 1.96, respectively, excluding these amounts.
For the purpose of computing such ratios, earnings represent net income
before income taxes, net interest charges and the estimated interest portion of
lease rentals.
5
<PAGE> 15
DESCRIPTION OF SECURITIES
DEBT SECURITIES
The Senior Debt Securities will be issued under an Indenture dated as of
September 15, 1992, as amended and supplemented (the "Senior Debt Indenture"),
between CMS Energy and NBD Bank, N.A., as Trustee (the "Senior Debt Trustee"),
and the Subordinated Debt Securities will be issued under an Indenture (the
"Subordinated Debt Indenture"), between CMS Energy and The Chase Manhattan Bank,
N.A., as Trustee (the "Subordinated Debt Trustee"). The descriptions of the
provisions of the Debt Securities, the Senior Debt Indenture and the
Subordinated Debt Indenture contained herein are brief summaries of such
provisions and do not purport to be complete. The forms of the Senior Debt
Indenture and the Subordinated Debt Indenture are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and reference is made
thereto for the respective definitive provisions of such Indentures. The
descriptions herein are qualified in their entirety by such reference. Certain
capitalized terms used herein shall have the meanings respectively set forth in
the respective Indentures.
GENERAL
CMS Energy will offer under this Prospectus unsecured Debt Securities, any
of which may be issued as: (a) Senior Debt Securities or (b) Subordinated Debt
Securities. The terms of any Debt Securities may or may not restrict the
issuance by CMS Energy or its subsidiaries of additional indebtedness which is
secured, unsecured, senior, pari passu or subordinated to such Debt Securities.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. The Debt Securities will be obligations
exclusively of CMS Energy. CMS Energy's ability to service its indebtedness,
including the Debt Securities, is dependent primarily upon the earnings of its
subsidiaries and the distribution or other payment of such earnings to CMS
Energy in the form of dividends, loans or advances, and repayment of loans and
advances from CMS Energy. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Debt Securities or to make any funds available therefor, whether
by dividends, loans or other payments. See "Primary Source of Funds of CMS
Energy; Restrictions on Sources of Dividends" below.
A substantial portion of the consolidated liabilities of CMS Energy have
been incurred by its subsidiaries. Therefore, CMS Energy's rights and the rights
of its creditors, including holders of Debt Securities, to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary (in which case the claims
of CMS Energy would still be subject to the prior claims of any secured creditor
of such subsidiary and of any holder of indebtedness of such subsidiary that is
senior to that held by CMS Energy). As of March 31, 1995, CMS Energy's
subsidiaries had total indebtedness for borrowed money (excluding intercompany
indebtedness) of approximately $2.2 billion.
The applicable Prospectus Supplement will set forth the following terms
relating to the Debt Securities offered thereby (the "Offered Debt Securities"):
(1) the specific designation of the Offered Debt Securities and whether such
Offered Debt Securities are Senior Debt Securities or Subordinated Debt
Securities; (2) any limit on the aggregate principal amount of the Offered Debt
Securities; (3) the date or dates, if any (and whether fixed or extendible), on
which the Offered Debt Securities will mature; (4) the rate or rates per annum
(which may be fixed or variable) at which the Offered Debt Securities will bear
interest, if any, the date or dates on which any such interest will be payable
and the regular record dates for any interest payable on the Offered Debt
Securities; (5) the place or places where the principal of and any interest on
the Offered Debt Securities shall be payable and where such Offered Debt
Securities may be surrendered for registration of transfer or exchange; (6) any
provisions relating to the issuance of the Offered Debt Securities at an
original issue discount; (7) the option, if any, of CMS Energy to redeem the
Offered Debt Securities and the periods within which or the dates on which, the
prices at which and the terms and conditions upon which, such Offered Debt
Securities may be redeemed, in whole or in part, upon the exercise of such
option; (8) the obligation, if any, of CMS Energy to redeem such Offered Debt
Securities pursuant to any sinking fund or
6
<PAGE> 16
other mandatory redemption provisions or at the option of the holder and the
periods within which or the dates on which, the prices at which and the terms
and conditions upon which such Offered Debt Securities will be redeemed, in
whole or in part, pursuant to such obligation; (9) the obligation, if any, of
CMS Energy to permit the conversion of the Offered Debt Securities into CMS
Energy Common Stock, and the terms and conditions upon which such conversion
shall be effected; (10) the denominations in which such Offered Debt Securities
will be issued and whether the Offered Debt Securities will be issuable in
registered form or bearer form or both, and, if issuable in bearer form, the
restrictions as to the offer, sale and delivery of the Offered Debt Securities
in bearer form and as to exchanges between registered and bearer form; (11)
whether the Offered Debt Securities will be issuable in the form of one or more
temporary or permanent global securities and, if so, the identity of the
depository for such global securities; (12) whether and under what circumstances
CMS Energy will pay additional amounts with respect to the Offered Debt
Securities to a non-United States Person (as defined in such Prospectus
Supplement) on account of any tax, assessment or governmental charge withheld or
deducted and, if so, whether CMS Energy will have the option to redeem such
Offered Debt Securities rather than pay such additional amounts; (13) any
provisions which could afford holders of the Offered Debt Securities protection
in the event of a highly leveraged transaction involving CMS Energy; and (14)
any other terms of the Offered Debt Securities not inconsistent with the related
Indenture, including covenants and events of default relating solely to the
Offered Debt Securities. Debt Securities may be issued at a substantial discount
from the stated principal amount thereof ("Original Issue Discount Securities").
United States federal income tax consequences and other special considerations
applicable thereto or to other Offered Debt Securities offered and sold at par
which are treated as having been issued at a discount for United States federal
income tax purposes will be described in the Prospectus Supplement relating
thereto.
CONCERNING THE TRUSTEES
Each of NBD Bank, N.A., the Trustee under the Senior Debt Indenture, and
The Chase Manhattan Bank, N.A., the Trustee under the Subordinated Debt
Indenture, is one of a number of banks with which CMS Energy and its
subsidiaries maintain ordinary banking relationships, including credit
facilities. The Chase Manhattan Bank, N.A., is the trustee under the GTN
Indenture (as defined herein).
SENIOR DEBT SECURITIES
General. The Senior Debt Securities will be issuable under the Senior Debt
Indenture. The Senior Debt Indenture does not limit the aggregate principal
amount of Senior Debt Securities which may be issued thereunder. Senior Debt
Securities may be issued under the Senior Debt Indenture from time to time in
one or more series. Each series of Senior Debt Securities shall mature on a date
not less than 9 months nor more than 40 years after the date of issuance.
Capitalized terms used in this section "Senior Debt Securities" and not
otherwise specifically defined in this Prospectus shall have the meanings
respectively set forth in the Senior Debt Indenture.
Exchange and Transfer. Senior Debt Securities may be presented for exchange
and registered Senior Debt Securities may be presented for registration of
transfer at the offices and subject to the restrictions set forth therein and in
the applicable Prospectus Supplement without service charge, but upon payment of
any taxes or other governmental charges due in connection therewith, subject to
any applicable limitations contained in the Senior Debt Indenture. Senior Debt
Securities in bearer form and the coupons appertaining thereto, if any, will be
transferable by delivery.
Payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of the principal of and the premium and interest, if any, on
all Senior Debt Securities in registered form will be made at the office or
agency of the Senior Debt Trustee in the Borough of Manhattan, the City of New
York, except that, at the option of CMS Energy, payment of any interest may be
made (i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer to an
account maintained by the Person entitled thereto as specified in the Security
Register. Unless otherwise indicated in the applicable Prospectus Supplement,
payment of any interest due on Senior Debt Securities in registered form will be
made to the Persons in whose name such Senior Debt Securities are registered at
the close of business on the Record Date for such interest payments.
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<PAGE> 17
Events of Default. The occurrence of any of the following events with
respect to the Senior Debt Securities of any series will constitute an "Event of
Default" with respect to the Senior Debt Securities of such series: (a) default
for 30 days in the payment of any interest on any of the Senior Debt Securities
of such series; (b) default in the payment when due of any of the principal of
or the premium, if any, on any of the Senior Debt Securities of such series,
whether at maturity, upon redemption, acceleration or otherwise; (c) default in
the deposit or payment of any sinking fund or analogous payment in respect of
any Senior Debt Securities of such series; (d) default for 60 days by CMS Energy
in the observance or performance of any other covenant or agreement contained in
the Senior Debt Indenture relating to the Senior Debt Securities of such series
after written notice thereof as provided in the Senior Debt Indenture; (e)
certain events of bankruptcy, insolvency or reorganization relating to CMS
Energy; (f) entry of final judgments against CMS Energy or Consumers aggregating
in excess of $25,000,000 which remain undischarged or unbonded for 60 days; or
(g) a default resulting in the acceleration of indebtedness in excess of
$25,000,000, which acceleration has not been rescinded or annulled within 10
days after notice of such default. Additional Events of Default may be
prescribed for the benefit of the Holders of a particular series of Senior Debt
Securities and will be described in the Prospectus Supplement relating to such
Senior Debt Securities.
If an Event of Default on any series of Senior Debt Securities shall have
occurred and be continuing, either the Senior Debt Trustee or the Holders of not
less than 25% in aggregate principal amount of the Senior Debt Securities of
such series then Outstanding may declare the principal of all Senior Debt
Securities of such series and the interest, if any, accrued thereon to be due
and payable immediately.
Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Senior Debt Securities of all such affected
series then Outstanding shall have been cured or waived as provided in the
Senior Debt Indenture by the Holders of a majority in aggregate principal amount
of the Senior Debt Securities of the affected series then Outstanding.
Reference is made to the Prospectus Supplement relating to any series of
Original Issue Discount Securities for the particular provisions relating to the
acceleration of a portion of the principal amount thereof upon the occurrence
and continuance of an Event of Default with respect thereto.
The Senior Debt Indenture provides that, subject to the duty of the Senior
Debt Trustee to act with the requisite standard of care in case a default with
respect to a series of Senior Debt Securities shall have occurred and be
continuing, the Senior Debt Trustee will be under no obligation to exercise any
of its rights or powers under the Senior Debt Indenture at the request, order or
direction of the Holders of the Senior Debt Securities, unless such Holders
shall have offered to the Senior Debt Trustee reasonable indemnity. Subject to
such provisions for indemnity and certain other limitations contained in the
Senior Debt Indenture, the Holders of a majority in aggregate principal amount
of the Senior Debt Securities of each affected series then Outstanding (voting
as one class) will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Senior Debt Trustee,
or exercising any trust or power conferred on the Senior Debt Trustee, with
respect to the Senior Debt Securities of such affected series.
The Senior Debt Indenture provides that no Holder of Senior Debt Securities
may institute any action against CMS Energy under the Senior Debt Indenture
(except actions for payment of overdue principal, premium or interest) unless
such Holder previously shall have given to the Senior Debt Trustee written
notice of default and continuance thereof and unless the Holders of not less
than 25% in aggregate principal amount of the Senior Debt Securities of the
affected series then Outstanding (voting as one class) shall have requested the
Senior Debt Trustee to institute such action and shall have offered the Senior
Debt Trustee reasonable indemnity, the Senior Debt Trustee shall not have
instituted such action within 60 days of such request and the Senior Debt
Trustee shall not have received direction inconsistent with such request by the
Holders of a majority in aggregate principal amount of the Senior Debt
Securities of the affected series then Outstanding (voting as one class).
The Senior Debt Indenture requires CMS Energy to furnish to the Senior Debt
Trustee annually a statement as to CMS Energy's compliance with all conditions
and covenants under the Senior Debt Indenture. The Senior Debt Indenture
provides that the Senior Debt Trustee may withhold notice to the Holders of the
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<PAGE> 18
Senior Debt Securities of any series of any default affecting such series
(except defaults as to payment of principal, premium or interest on the Senior
Debt Securities of such series) if it considers such withholding to be in the
interests of the Holders of the Senior Debt Securities of such series.
Consolidation, Merger or Sale of Assets. The Senior Debt Indenture provides
that CMS Energy may consolidate with or merge into, or sell, lease or convey its
property as an entirety or substantially as an entirety to, any other
corporation if such corporation assumes the obligations of CMS Energy under the
Senior Debt Securities and the Senior Debt Indenture and is organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia.
Modification of the Senior Debt Indenture. The Senior Debt Indenture
permits CMS Energy and the Senior Debt Trustee to enter into supplemental
indentures thereto without the consent of the Holders of the Senior Debt
Securities to: (a) secure the Senior Debt Securities of one or more series, (b)
evidence the assumption by a successor corporation of the obligations of CMS
Energy under the Senior Debt Indenture and the Senior Debt Securities then
Outstanding, (c) add covenants for the protection of the Holders of the Senior
Debt Securities, (d) cure any ambiguity or correct any inconsistency in the
Senior Debt Indenture, (e) establish the form and terms of any series of
securities under the Senior Debt Indenture and (f) evidence the acceptance of
appointment by a successor Senior Debt Trustee.
The Senior Debt Indenture also permits CMS Energy and the Senior Debt
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Senior Debt Securities of all series then
Outstanding and affected (voting as one class), to add any provisions to, or
change in any manner or eliminate any of the provisions of, the Senior Debt
Indenture or modify in any manner the rights of the Holders of the Senior Debt
Securities of each such affected series; provided, however, that CMS Energy and
the Senior Debt Trustee may not, without the consent of the Holder of each
Senior Debt Security then outstanding and affected thereby: (a) change the time
of payment of the principal (or any installment) of any Senior Debt Security, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce the amount payable on any Original Issue
Discount Securities upon acceleration or provable in bankruptcy, or impair the
right to institute suit for the enforcement of any payment on any Senior Debt
Security when due; or (b) reduce the percentage in principal amount of the
Senior Debt Securities of the affected series, the consent of whose Holders is
required for any such modification or for any waiver provided for in the Senior
Debt Indenture.
Prior to the acceleration of the maturity of any Senior Debt Security, the
Holders of a majority in aggregate principal amount of the Senior Debt
Securities of all series at the time Outstanding with respect to which a default
or an Event of Default shall have occurred and be continuing (voting as one
class) may on behalf of the Holders of all such affected Senior Debt Securities
waive any past default or Event of Default and its consequences, except a
default or an Event of Default in respect of a covenant or provision of the
Senior Debt Indenture or of any Senior Debt Security which cannot be modified or
amended without the consent of the Holder of each Senior Debt Security affected.
Defeasance and Discharge. The Senior Debt Indenture provides that, at the
option of CMS Energy: (a) CMS Energy will be discharged from any and all
obligations in respect of the Senior Debt Securities of a particular series then
Outstanding (except for certain obligations to register the transfer of or
exchange the Senior Debt Securities of such series, to replace stolen, lost or
mutilated Senior Debt Securities of such series, to maintain paying agencies and
to maintain the trust described below), or (b) CMS Energy need not comply with
certain restrictive covenants of the Senior Debt Indenture (including those
described under "Consolidation, Merger or Sale of Assets"), in each case if CMS
Energy irrevocably deposits in trust with the Senior Debt Trustee money, and/or
securities backed by the full faith and credit of the United States which,
through the payment of the principal thereof and the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of and premium, if any, and interest on the Senior Debt
Securities of such series on the stated maturity of such Senior Debt Securities
(which may include one or more redemption dates designated by CMS Energy) in
accordance with the terms thereof. To exercise such option, CMS Energy is
required, among other things, to deliver to the Senior Debt Trustee an opinion
of independent counsel to the effect that the exercise of such option would not
cause the Holders of the Senior
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Debt Securities of such series to recognize income, gain or loss for United
States Federal income tax purposes as a result of such defeasance, and such
Holders will be subject to United States Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred, and, in the case of a discharge as described in
clause (a) of the preceding sentence, such opinion is to be accompanied by a
private letter ruling to the same effect received from the Internal Revenue
Service, a revenue ruling to such effect pertaining to a comparable form of
transaction published by the Internal Revenue Service or appropriate evidence
that since the date of the Senior Debt Indenture there has been a change in the
applicable Federal income tax law.
In the event CMS Energy exercises its option to terminate its obligations
with respect to the Senior Debt Securities of any series as described in the
preceding paragraph and the Senior Debt Securities of such series are thereafter
declared due and payable because of the occurrence of any Event of Default other
than an Event of Default caused by failing to comply with the covenants which
are defeased, and the amount of money and securities on deposit with the Senior
Debt Trustee would be insufficient to pay amounts due on the Senior Debt
Securities of such series at the time of their accelerated maturity, CMS Energy
would remain liable for such amounts.
CMS Energy may also obtain a discharge of the Senior Debt Indenture with
respect to all Senior Debt Securities then Outstanding (except for certain
obligations to register the transfer of or exchange such Senior Debt Securities,
to replace stolen, lost or mutilated Senior Debt Securities, to maintain paying
agencies and to maintain the trust described below) by irrevocably depositing in
trust with the Senior Debt Trustee money, and/or securities backed by the full
faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any, and interest on the Senior Debt Securities on the stated maturities
thereof (including one or more redemption dates), provided that such Senior Debt
Securities are by their terms due and payable, or are to be called for
redemption, within one year.
It is possible that for federal income tax purposes any deposit
contemplated in the preceding paragraph could be treated as a taxable exchange
of the related Senior Debt Securities for an issue of obligations of the trust
or a direct interest in the cash and securities held in the trust. In that case,
Holders of such Senior Debt Securities would recognize gain or loss as if the
trust obligations or the cash or securities deposited, as the case may be, had
actually been received by them in exchange for their Senior Debt Securities.
Such gain or loss may be capital in nature to Holders for whom the Senior Debt
Securities are held as capital assets subject to the possible application of the
market discount rules and other limitations. After such a taxable exchange,
Holders would be required to include in income a share of the income, gain or
loss of the trust or the income from the securities held in trust, as the case
may be. The amount so required to be included in income could be different from
the amount that would be includible in the absence of such deposit. Prospective
investors are urged to consult their own tax advisors as to the specific
consequences to them of such deposit.
SUBORDINATED DEBT SECURITIES
General. The Subordinated Debt Securities will be issuable under the
Subordinated Debt Indenture. The Subordinated Debt Indenture does not limit the
aggregate principal amount of Subordinated Debt Securities which may be issued
thereunder. Subordinated Debt Securities may be issued under the Subordinated
Debt Indenture from time to time in one or more series. Capitalized terms used
in this section "Subordinated Debt Securities" and not otherwise specifically
defined in this Prospectus shall have the meanings respectively set forth in the
Subordinated Debt Indenture.
Exchange and Transfer. Subordinated Debt Securities may be presented for
exchange and registered Subordinated Debt Securities may be presented for
registration of transfer at the offices and subject to the restrictions set
forth therein and in the applicable Prospectus Supplement without service
charge, but upon payment of any taxes or other governmental charges due in
connection therewith, subject to any applicable limitations contained in the
Subordinated Debt Indenture. Subordinated Debt Securities in bearer form and the
coupons appertaining thereto, if any, will be transferable by delivery.
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Payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of the principal of and the premium and interest, if any, on
all Subordinated Debt Securities (other than a Registered Global Security) in
registered form will be made at the office or agency of the Subordinated Debt
Trustee in the Borough of Manhattan, the City of New York, except that, at the
option of CMS Energy, payment of any interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of any interest due
on Subordinated Debt Securities in registered form will be made to the Persons
in whose name such Subordinated Debt Securities are registered at the close of
business on the Record Date for such interest payments.
Events of Default. The occurrence of any of the following events with
respect to the Subordinated Debt Securities of any series will constitute an
"Event of Default" with respect to the Subordinated Debt Securities of such
series: (a) default for 30 days in the payment of any interest on any of the
Subordinated Debt Securities of such series; however, if CMS Energy is permitted
by the terms of the Subordinated Debt Securities of the applicable series to
defer the payment in question, the date on which such payment is due and payable
shall be the date on which CMS Energy is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Subordinated Debt Securities; (b) default in the payment when due of any of the
principal of or the premium, if any, on any of the Subordinated Debt Securities
of such series, whether at maturity, upon redemption, acceleration or otherwise;
however, if CMS Energy is permitted by the terms of the Subordinated Debt
Securities of the applicable series to defer the payment in question, the date
on which such payment is due and payable shall be the date on which CMS Energy
is required to make payment following such deferral, if such deferral has been
elected pursuant to the terms of the Subordinated Debt Securities; (c) default
in the deposit or payment of any sinking fund or analogous payment in respect of
any Subordinated Debt Securities of such series; (d) default for 60 days by CMS
Energy in the observance or performance of any other covenant or agreement
contained in the Subordinated Debt Indenture relating to the Subordinated Debt
Securities of such series after written notice thereof as provided in the
Subordinated Debt Indenture; (e) certain events of bankruptcy, insolvency or
reorganization relating to CMS Energy; (f) entry of final judgments against CMS
Energy or Consumers aggregating in excess of $25,000,000 which remain
undischarged or unbonded for 60 days; or (g) a default resulting in the
acceleration of indebtedness in excess of $25,000,000, which acceleration has
not been rescinded or annulled within 10 days after notice of such default.
Additional Events of Default may be prescribed for the benefit of the Holders of
a particular series of Subordinated Debt Securities and will be described in the
Prospectus Supplement relating to such Subordinated Debt Securities.
If an Event of Default on any series of Subordinated Debt Securities shall
have occurred and be continuing, either the Subordinated Debt Trustee or the
Holders of not less than 25% in aggregate principal amount of the Subordinated
Debt Securities of such series then Outstanding may declare the principal of all
Subordinated Debt Securities of such series and the interest, if any, accrued
thereon to be due and payable immediately.
Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Subordinated Debt Securities of all such affected
series then Outstanding shall have been cured or waived as provided in the
Subordinated Debt Indenture by the Holders of a majority in aggregate principal
amount of the Subordinated Debt Securities of the affected series then
Outstanding.
Reference is made to the Prospectus Supplement relating to any series of
Original Issue Discount Securities for the particular provisions relating to the
acceleration of a portion of the principal amount thereof upon the occurrence
and continuance of an Event of Default with respect thereto.
The Subordinated Debt Indenture provides that, subject to the duty of the
Subordinated Debt Trustee to act with the requisite standard of care in case a
default with respect to a series of Subordinated Debt Securities shall have
occurred and be continuing, the Subordinated Debt Trustee will be under no
obligation to exercise any of its rights or powers under the Subordinated Debt
Indenture at the request, order or direction of the
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Holders of the Subordinated Debt Securities, unless such Holders shall have
offered to the Subordinated Debt Trustee reasonable indemnity. Subject to such
provisions for indemnity and certain other limitations contained in the
Subordinated Debt Indenture, the Holders of a majority in aggregate principal
amount of the Subordinated Debt Securities of each affected series then
Outstanding (voting as one class) will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Subordinated Debt Trustee, or exercising any trust or power conferred on the
Subordinated Debt Trustee, with respect to the Subordinated Debt Securities of
such affected series.
The Subordinated Debt Indenture provides that no Holder of Subordinated
Debt Securities may institute any action against CMS Energy under the
Subordinated Debt Indenture (except actions for payment of overdue principal,
premium or interest) unless such Holder previously shall have given to the
Subordinated Debt Trustee written notice of default and continuance thereof and
unless the Holders of not less than 25% in aggregate principal amount of the
Subordinated Debt Securities of the affected series then Outstanding (voting as
one class) shall have requested the Subordinated Debt Trustee to institute such
action and shall have offered the Subordinated Debt Trustee reasonable
indemnity, the Subordinated Debt Trustee shall not have instituted such action
within 60 days of such request and the Subordinated Debt Trustee shall not have
received direction inconsistent with such request by the Holders of a majority
in aggregate principal amount of the Subordinated Debt Securities of the
affected series then Outstanding (voting as one class).
The Subordinated Debt Indenture requires CMS Energy to furnish to the
Subordinated Debt Trustee annually a statement as to CMS Energy's compliance
with all conditions and covenants under the Subordinated Debt Indenture. The
Subordinated Debt Indenture provides that the Subordinated Debt Trustee may
withhold notice to the Holders of the Subordinated Debt Securities of any series
of any default affecting such series (except defaults as to payment of
principal, premium or interest on the Subordinated Debt Securities of such
series) if it considers such withholding to be in the interests of the Holders
of the Subordinated Debt Securities of such series.
Subordination. The Subordinated Debt Indenture provides (and each Holder of
Subordinated Debt Securities by acceptance thereof agrees) that the Subordinated
Debt Securities will be subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of CMS Energy. No payment on account of
principal of, premium, if any, or interest on the Subordinated Debt Securities
and no acquisition of, or payment on account of any sinking fund for, the
Subordinated Debt Securities may be made unless full payment of amounts then due
for principal, premium, if any, and interest then due on all Senior Indebtedness
by reason of the maturity thereof (by lapse of time, acceleration or otherwise)
has been made or duly provided for in cash or in a manner satisfactory to the
Holders of such Senior Indebtedness. In addition, the Subordinated Debt
Indenture provides that upon the happening and during the continuation of any
default in payment of the principal of, premium, if any, or interest on any
Senior Indebtedness when the same becomes due and payable or in the event any
judicial proceeding shall be pending with respect to any such default, then,
unless and until such default shall have been cured or waived or shall have
ceased to exist, no payment shall be made by CMS Energy with respect to the
principal of, premium, if any, or interest on Subordinated Debt Securities or to
acquire any Subordinated Debt Securities or on account of any sinking fund
provisions applicable to Subordinated Debt Securities. CMS Energy shall give
prompt written notice to the Subordinated Debt Trustee of any default under any
Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness
may have been issued. The Subordinated Debt Indenture provisions described in
this paragraph, however, do not prevent CMS Energy from making a sinking fund
payment with Subordinated Debt Securities acquired prior to the maturity of
Senior Indebtedness or, in the case of default, prior to such default and notice
thereof. Upon any distribution of its assets in connection with any dissolution,
winding up, liquidation or reorganization of CMS Energy, whether voluntary or
involuntary, in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise, all Senior Indebtedness
must be paid in full before the Holders of the Subordinated Debt Securities are
entitled to any payments whatsoever. Any payment or distribution, whether in
cash, securities or other property, which would otherwise (but for the
subordination provisions) be payable or deliverable in respect of the
Subordinated Debt Securities shall be paid or delivered directly to the Holders
of such Senior Indebtedness (or their representative or trustee) in accordance
with the priorities then existing among such Holders until all Senior
Indebtedness shall have been paid in full before any payment or distribution is
made to the Holders of Subordinated Debt Securities. In the
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event that notwithstanding such subordination provisions, any payment or
distribution of assets of any kind or character is made on the Subordinated Debt
Securities before all Senior Indebtedness is paid in full, the Subordinated Debt
Trustee or the Holders of Subordinated Debt Securities receiving such payment
will be required to pay over such payment or distribution to the Holders of such
Senior Indebtedness. The rights of the Holders of the Subordinated Debt
Securities will be subrogated to the rights of the Holders of Senior
Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Subordinated Debt Securities are
paid in full. As a result of these subordination provisions, in the event of CMS
Energy's insolvency, Holders of the Subordinated Debt Securities may recover
ratably less than senior creditors of CMS Energy.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date of execution of the
Subordinated Debt Indenture or thereafter incurred, created or assumed: (i)
indebtedness of CMS Energy for money borrowed by CMS Energy (including purchase
money obligations) or evidenced by debentures (other than the Subordinated Debt
Securities), notes, bankers' acceptances or other corporate debt securities or
similar instruments issued by CMS Energy; (ii) obligations with respect to
letters of credit; (iii) all indebtedness of others of the type referred to in
the preceding clauses (i) and (ii) assumed by or guaranteed in any manner by CMS
Energy or in effect guaranteed by CMS Energy; or (iv) renewals, extensions or
refundings of any of the indebtedness referred to in the preceding clauses (i),
(ii) and (iii) 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 aggregate amount of
Senior Indebtedness that may be issued. As of March 31, 1995, Senior
Indebtedness of CMS Energy aggregated approximately $816 million.
Consolidation, Merger or Sale of Assets. The Subordinated Debt Indenture
provides that CMS Energy may consolidate with or merge into, or sell, lease or
convey its property as an entirety or substantially as an entirety to, any other
corporation if such corporation assumes the obligations of CMS Energy under the
Subordinated Debt Securities and the Subordinated Debt Indenture and is
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia.
Modification of the Subordinated Debt Indenture. The Subordinated Debt
Indenture permits CMS Energy and the Subordinated Debt Trustee to enter into
supplemental indentures thereto without the consent of the Holders of the
Subordinated Debt Securities to: (a) secure the Subordinated Debt Securities of
one or more series, (b) evidence the assumption by a successor corporation of
the obligations of CMS Energy under the Subordinated Debt Indenture and the
Subordinated Debt Securities then Outstanding, (c) add covenants for the
protection of the Holders of the Subordinated Debt Securities, (d) cure any
ambiguity or correct any inconsistency in the Subordinated Debt Indenture, (e)
establish the form and terms of any series of securities under the Subordinated
Debt Indenture and (f) evidence the acceptance of appointment by a successor
Subordinated Debt Trustee.
The Subordinated Debt Indenture also permits CMS Energy and the
Subordinated Debt Trustee, with the consent of the Holders of not less than a
majority in aggregate principal amount of the Subordinated Debt Securities of
all series then Outstanding and affected (voting as one class), to add any
provisions to, or change in any manner or eliminate any of the provisions of,
the Subordinated Debt Indenture or modify in any manner the rights of the
Holders of the Subordinated Debt Securities of each such affected series;
provided, however, that CMS Energy and the Subordinated Debt Trustee may not,
without the consent of the Holder of each Subordinated Debt Security then
outstanding and affected thereby: (a) change the time of payment of the
principal (or any installment) of any Subordinated Debt Security, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce the amount payable on any Original Issue Discount
Securities upon acceleration or provable in bankruptcy, or impair the right to
institute suit for the enforcement of any payment on any Subordinated Debt
Security when due; or (b) reduce the percentage in principal amount of the
Subordinated Debt Securities of the affected series, the consent of
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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 Debt
Security, the Holders of a majority in aggregate principal amount of the
Subordinated Debt Securities of all series at the time Outstanding with respect
to which a default or an Event of Default shall have occurred and be continuing
(voting as one class) may on behalf of the Holders of all such affected
Subordinated Debt Securities waive any past default or Event of Default and its
consequences, except a default or an Event of Default in respect of a covenant
or provision of the Subordinated Debt Indenture or of any Subordinated Debt
Security which cannot be modified or amended without the consent of the Holder
of each Subordinated Debt Security affected.
Defeasance and Discharge. The Subordinated Debt Indenture provides that, at
the option of CMS Energy: (a) CMS Energy will be discharged from any and all
obligations in respect of the Subordinated Debt Securities of a particular
series then Outstanding (except for certain obligations to register the transfer
of or exchange the Subordinated Debt Securities of such series, to replace
stolen, lost or mutilated Subordinated Debt Securities of such series, to
maintain paying agencies and to maintain the trust described below), or (b) CMS
Energy need not comply with certain restrictive covenants of the Subordinated
Debt Indenture (including those described under "Consolidation, Merger or Sale
of Assets"), in each case if CMS Energy irrevocably deposits in trust with the
Subordinated Debt Trustee money, and/or securities backed by the full faith and
credit of the United States which, through the payment of the principal thereof
and the interest thereon in accordance with their terms, will provide money in
an amount sufficient to pay all the principal of and premium, if any, and
interest on the Subordinated Debt Securities of such series on the stated
maturity of such Subordinated Debt Securities (which may include one or more
redemption dates designated by CMS Energy) in accordance with the terms thereof.
To exercise such option, CMS Energy is required, among other things, to deliver
to the Subordinated Debt Trustee an opinion of independent counsel to the effect
that the exercise of such option would not cause the Holders of the Subordinated
Debt Securities of such series to recognize income, gain or loss for United
States Federal income tax purposes as a result of such defeasance, and such
Holders will be subject to United States Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred, and, in the case of a discharge as described in
clause (a) of the preceding sentence, such opinion is to be accompanied by a
private letter ruling to the same effect received from the Internal Revenue
Service, a revenue ruling to such effect pertaining to a comparable form of
transaction published by the Internal Revenue Service or appropriate evidence
that since the date of the Subordinated Debt Indenture there has been a change
in the applicable Federal income tax law.
In the event CMS Energy exercises its option to terminate its obligations
with respect to the Subordinated Debt Securities of any series as described in
the preceding paragraph and the Subordinated Debt Securities of such series are
thereafter declared due and payable because of the occurrence of any Event of
Default other than an Event of Default caused by failing to comply with the
covenants which are defeased, and the amount of money and securities on deposit
with the Subordinated Debt Trustee would be insufficient to pay amounts due on
the Subordinated Debt Securities of such series at the time of their accelerated
maturity, CMS Energy would remain liable for such amounts.
CMS Energy may also obtain a discharge of the Subordinated Debt Indenture
with respect to all Subordinated Debt Securities then Outstanding (except for
certain obligations to register the transfer of or exchange such Subordinated
Debt Securities to replace stolen, lost or mutilated Subordinated Debt
Securities, to maintain paying agencies and to maintain the trust described
below) by irrevocably depositing in trust with the Subordinated Debt Trustee
money, and/or securities backed by the full faith and credit of the United
States which, through the payment of the principal thereof and the interest
thereon in accordance with their terms, will provide money in an amount
sufficient to pay all the principal of and premium, if any and interest on the
Subordinated Debt Securities on the stated maturities thereof (including one or
more redemption dates), provided that such Subordinated Debt Securities are by
their terms due and payable, or are to be called for redemption, within one
year.
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It is possible that for federal income tax purposes any deposit
contemplated in the preceding paragraph could be treated as a taxable exchange
of the related Subordinated Debt Securities for an issue of obligations of the
trust or a direct interest in the cash and securities held in the trust. In that
case, Holders of such Subordinated Debt Securities would recognize gain or loss
as if the trust obligations or the cash or securities deposited, as the case may
be, had actually been received by them in exchange for their Subordinated Debt
Securities. Such gain or loss may be capital in nature to Holders for whom the
Subordinated Debt Securities are held as capital assets subject to the possible
application of the market discount rules and other limitations. After such a
taxable exchange, Holders would be required to include in income a share of the
income, gain or loss of the trust or the income from the securities held in
trust, as the case may be. The amount so required to be included in income could
be different from the amount that would be includible in the absence of such
deposit. Prospective investors are urged to consult their own tax advisors as to
the specific consequences to them of such deposit.
CAPITAL STOCK
The following outline of certain rights of the holders of CMS Energy
capital stock does not purport to be complete and is qualified in its entirety
by express reference to Article III of the Restated Articles of Incorporation of
CMS Energy (the "Restated Articles of Incorporation" or "Articles of
Incorporation," unless the context requires otherwise), the Senior Debt
Indenture, the Credit Facility and CMS Energy's Indenture dated as of January
15, 1994 (the "GTN Indenture") to The Chase Manhattan Bank, N.A., as Trustee,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
GENERAL
The Restated Articles of Incorporation currently authorize 320 million
shares of capital stock, of which 250 million are shares of CMS Energy Common
Stock, par value $.01 per share, 60 million are shares of CMS Energy Class G
Common Stock, no par value ("Class G Common Stock"), and 10 million are shares
of CMS Energy Preferred Stock, par value $.01 per share. At June 27, 1995, there
were outstanding 88,104,067 shares of CMS Energy Common Stock; no shares of
Class G Common Stock and CMS Energy Preferred Stock are issued or outstanding.
The outstanding shares of the CMS Energy Common Stock are fully paid and
nonassessable and the CMS Energy Common Stock offered hereby, when issued and
paid for, will be fully paid and nonassessable.
On March 21, 1995, CMS Energy's shareholders approved an amendment (the
"Charter Amendment") to its previous Articles of Incorporation which (1)
authorized 60 million shares of a new class of Common Stock of CMS Energy
designated Class G Common Stock and (2) increased the authorized number of
shares of CMS Energy Preferred Stock to 10 million. The CMS Energy Common Stock
and the Class G Common Stock are together referred to herein as the "Common
Stock." Class G Common Stock is intended to reflect the separate performance of
the gas distribution, storage and transportation businesses conducted by
Consumers and Michigan Gas Storage, a subsidiary of Consumers (such businesses,
collectively, will be attributed to the "Consumers Gas Group"). Effective
January 1, 1995, the management and operations of the Consumers Gas Group were
reorganized as a business unit separate from the electric utility operations of
the Consumers. The reorganization is intended to sharpen management focus,
improve efficiency and accountability in both business segments and better
position Consumers for growth in the gas market and to meet increased
competition in the electric power market. The Charter Amendment became effective
when CMS Energy filed the Restated Articles of Incorporation with the Michigan
Department of Commerce. The existing CMS Energy Common Stock will continue to be
outstanding and, if and after any shares of Class G Common Stock were issued by
CMS Energy, will reflect the performance of all of the businesses of CMS Energy
and its subsidiaries, including the business of the Consumers Gas Group, except
for the interest in the Consumers Gas Group attributable to the outstanding
shares of Class G Common Stock. After the Registration Statement of which this
Prospectus is a part has become effective, CMS Energy may, subject to prevailing
market and other conditions, offer shares of Class G Common Stock for sale for
cash in an initial public offering. The net proceeds of such offering would be
invested in the businesses of CMS Energy and used for its general corporate
purposes. Initially, such proceeds will be used to repay a portion of the debt
of CMS Energy
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(none of which is attributable to the Consumers Gas Group). The timing and size
of such public offering and the price at which such shares would be sold would
be determined by the Board of Directors of CMS Energy (the "Board of
Directors").
CMS ENERGY COMMON STOCK
The following outline of certain rights of the holders of CMS Energy Common
Stock describes such rights before the issuance and sale of Class G Common
Stock. A summary description and comparison of certain rights and limitations of
CMS Energy Common Stock after issuance and sale is set forth below under
"Comparison of Rights and Limitations of CMS Energy Common Stock and Class G
Common Stock."
The shares of CMS Energy Common Stock may be issued from time to time as
the Board of Directors shall determine for such consideration as shall be fixed
by the Board of Directors. Except as otherwise set forth in this Prospectus or
the accompanying Prospectus Supplement, each share of CMS Energy Common Stock
shall be equal to every other share of said stock in every respect.
Dividend Rights. The holders of the CMS Energy Common Stock are entitled to
receive dividends when and as declared by the Board of Directors out of funds
legally available therefor, subject to the terms of any CMS Energy Preferred
Stock which may in the future be issued and at the time be outstanding.
Voting Rights. Each holder of CMS Energy Common Stock is entitled to one
vote for each share of CMS Energy Common Stock held by such holder on each
matter voted upon by the shareholders. Such right to vote is not cumulative. A
majority of the votes cast by the holders of shares entitled to vote thereon is
sufficient for the adoption of any question presented, except that certain
provisions of the Articles of Incorporation relating to special shareholder
meetings, the removal, indemnification and liability of the Board of Directors
and the requirements for amending these provisions may not be amended, altered,
changed or repealed unless such amendment, alteration, change or repeal is
approved by the affirmative vote of at least 75% of the outstanding shares
entitled to vote thereon.
Preemptive Rights. Holders of CMS Energy Common Stock have no preemptive
rights to subscribe for or purchase any additional shares of the capital stock
of CMS Energy of any class now or hereafter authorized, or any CMS Energy
Preferred Stock or other securities or other right or option convertible into or
exchangeable for or entitling the holder or owner to subscribe for or purchase
any shares of capital stock.
Liquidation Rights. In the event of the liquidation of CMS Energy, the
holders of CMS Energy Common Stock will receive the assets, if any, remaining
for distribution to common stockholders.
Because CMS Energy has subsidiaries which have debt obligations and other
liabilities of their own, CMS Energy's rights and the rights of its creditors
and its stockholders to participate in the assets of any subsidiary upon the
latter's liquidation or recapitalization will be subject to prior claims of the
subsidiary's creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary.
Transfer Agent and Registrar. CMS Energy Common Stock is transferable at
Consumers Power Company, 212 W. Michigan Avenue, Jackson, MI 49201. Consumers is
the registrar and transfer agent for CMS Energy Common Stock.
COMPARISON OF RIGHTS AND LIMITATIONS OF CMS ENERGY COMMON STOCK AND CLASS G
COMMON STOCK
The following is a summary description and a comparison of the rights and
limitations appertaining to the CMS Energy Common Stock and the Class G Common
Stock before the issuance and sale in an initial public offering of the Class G
Common Stock and after such issuance. The Class G Common Stock is intended to
reflect the separate performance of the Consumers Gas Group and, after the
initial public offering of the Class G Common Stock, the CMS Energy Common Stock
is intended to reflect the performance of all businesses of CMS Energy and its
subsidiaries, including the businesses of the Consumers Gas Group, except
16
<PAGE> 26
for the interest in the Consumers Gas Group attributable to the outstanding
shares of Class G Common Stock.
<TABLE>
<CAPTION>
BEFORE ISSUANCE OF
CLASS G COMMON STOCK AFTER ISSUANCE OF CLASS G COMMON STOCK
---------------------------- -----------------------------------------------------------
CMS ENERGY COMMON STOCK CMS ENERGY COMMON STOCK CLASS G COMMON STOCK
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Voting Rights: One vote per share. The holders of CMS Energy The holders of Class G
Common Stock will vote with Common Stock will vote with
the holders of Class G the holders of CMS Energy
Common Stock as a single Common Stock as a single
class, except on matters class, except on matters
which would be required by which would be required by
law or the Articles of law or the Articles of
Incorporation to be voted on Incorporation to be voted on
by class. The CMS Energy by class. The Class G Common
Common Stock will have one Stock will have one vote per
vote per share. share.
Dividends: On each of February 22, 1995 On each of February 22, 1995 Dividends on the Class G
and May 22, 1995, CMS Energy and May 22, 1995, CMS Energy Common Stock will be paid at
paid a dividend of $.21 per paid a dividend of $.21 per the discretion of the Board
share on the CMS Energy share on the CMS Energy of Directors based primarily
Common Stock (an annualized Common Stock (an annualized upon the earnings and
rate of $.84 per share). On rate of $.84 per share). On financial condition of the
May 26, 1995, CMS Energy May 26, 1995, CMS Energy Consumers Gas Group, and, to
raised its dividend to an raised its dividend to an a lesser extent, CMS Energy
annualized rate of $.96 per annualized rate of $.96 per as a whole. Dividends will
share ($.24 per quarter). share ($.24 per quarter). be payable out of the lesser
The increase will be The increase will be of (i) the assets of CMS
effective with the next effective with the next Energy legally available
scheduled quarterly dividend scheduled quarterly dividend therefor and (ii) the
payment in August 1995. payment in August 1995. Available Class G Dividend
Dividends paid on CMS Dividends paid on CMS Amount (as defined in the
Energy's Common Stock in Energy's Common Stock in Charter Amendment).
1994 were $.78 per share. 1994 were $.78 per share.
Dividends are payable out of The issuance of the Class G Dividends with respect to
the assets of CMS Energy Common Stock is not expected the Class G Common Stock are
legally available therefor. to change the rate at which expected to be paid
dividends will be paid on commensurate with dividend
See also "-- Capital Stock the CMS Energy Common Stock. practices of comparable
-- Restrictions on Payment Future dividends on the CMS publicly-held local natural
of Dividends by CMS Energy" Energy Common Stock will be gas distribution companies
and "-- Primary Source of paid at the discretion of generally. Management
Funds of CMS Energy; the Board of Directors based believes that such practices
Restrictions on Sources of primarily upon the earnings currently are to pay out
Dividends." and financial condition of from 70% to 85% of annual
CMS Energy, including the earnings available for
Consumers Gas Group, except dividends on common stock.
for the interest in the Consistent with this policy,
Consumers Gas Group CMS Energy currently intends
attributable to the to pay an initial quarterly
outstanding shares of the dividend on the Class G
Class G Common Stock, and Common Stock of $.28 per
other factors. Dividends share, or an aggregate of
will be payable out of the $1.96 million, assuming an
assets of CMS Energy legally initial offering of 7
available therefor, million shares.
including the Available
Class G Dividend Amount (as CMS Energy, in the sole
defined in the Charter discretion of its Board of
Amendment). Directors, could pay
dividends exclusively to the
CMS Energy, in the sole holders of CMS Energy Common
discretion of its Board of Stock, exclusively to the
Directors could pay holders of Class G Common
dividends exclusively to the Stock, or to the holders of
holders of CMS Energy Common both of such classes in
Stock, exclusively to the equal or unequal amounts. It
holders of Class G Common is the Board of Directors'
Stock, or to the holders of current intention that the
both of such classes in declaration or payment of
equal or unequal amounts. It dividends with respect to
is the Board of Directors' the Class G Common Stock
current intention that the shall not be reduced,
declaration or payment of suspended or eliminated as a
result of factors
</TABLE>
17
<PAGE> 27
<TABLE>
<CAPTION>
BEFORE ISSUANCE OF
CLASS G COMMON STOCK AFTER ISSUANCE OF CLASS G COMMON STOCK
---------------------------- -----------------------------------------------------------
CMS ENERGY COMMON STOCK CMS ENERGY COMMON STOCK CLASS G COMMON STOCK
---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
dividends with respect to arising out of or relating
the Class G Common Stock to the electric utility
shall not be reduced, business or the non-utility
suspended or eliminated as a businesses of CMS Energy
result of factors arising unless such factors also
out of or relating to the require, in the Board of
electric utility business or Directors' sole discretion,
the non-utility businesses the omission of the
of CMS Energy unless such declaration or reduction in
factors also require, in the payment of dividends on both
Board of Directors' sole the CMS Energy Common Stock
discretion, the omission of and the Class G Common
the declaration or reduction Stock. While the Board of
in payment of dividends on Directors does not currently
both the CMS Energy Common intend to change this
Stock and the Class G Common dividend policy, it reserves
Stock. While the Board of the right to do so at any
Directors does not currently time and from time to time.
intend to change this Under the Articles of
dividend policy, it reserves Incorporation and Michigan
the right to do so at any law, the Board of Directors
time and from time to time. is not required to declare,
Under the Articles of and CMS Energy is not
Incorporation and Michigan required to pay, dividends
law, the Board of Directors in accordance with the
is not required to declare, foregoing dividend policy.
and CMS Energy is not
required to pay, dividends Dividends on the Class G
in accordance with the Common Stock are limited by
foregoing dividend policy. Michigan law, certain
agreements to which CMS
See also "-- Capital Stock Energy is a party and the
-- Restrictions on Payment Articles of Incorporation
of Dividends by CMS Energy" and will be payable when, as
and "-- Primary Source of and if declared by the Board
Funds of CMS Energy; of Directors out of the
Restriction on Sources of lesser of (i) the assets of
Dividends." CMS Energy legally available
therefor and (ii) the
Available Class G Dividend
Amount. Although the
Available Class G Dividend
Amount is intended to
reflect the amount available
for dividends to holders of
outstanding Class G Common
Stock, it is also legally
available for dividends to
holders of CMS Energy Common
Stock. As of March 31, 1995,
assuming an offering of 7
million shares of Class G
Common Stock had been
completed at that time, the
Available Class G Dividend
Amount would have been
approximately $80.1 million.
See also "-- Capital Stock
-- Restrictions on Payment
of Dividends by CMS Energy"
and "-- Primary Source of
Funds of CMS Energy;
Restrictions on Sources of
Dividends."
Exchanges: None. None. CMS Energy may exchange the
Class G Common Stock for a
proportionate number of
shares of a subsidiary that
holds all the assets and
liabilities attributed to
the Consumers Gas Group, and
no other assets and
liabilities.
</TABLE>
18
<PAGE> 28
<TABLE>
<CAPTION>
BEFORE ISSUANCE OF
CLASS G COMMON STOCK AFTER ISSUANCE OF CLASS G COMMON STOCK
---------------------------- -----------------------------------------------------------
CMS ENERGY COMMON STOCK CMS ENERGY COMMON STOCK CLASS G COMMON STOCK
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
If CMS Energy transfers all
or substantially all of the
properties and assets
attributed to the Consumers
Gas Group, CMS Energy is
required, subject to certain
exceptions and conditions,
to exchange each outstanding
share of Class G Common
Stock for a number of shares
of CMS Energy Common Stock
having a Fair Market Value
(defined in the Charter
Amendment) equal to 110% of
the Fair Market Value of one
share of Class G Common
Stock.
CMS Energy may, in the sole
discretion of the Board of
Directors, at any time,
exchange each outstanding
share of Class G Common
Stock for a number of shares
of CMS Energy Common Stock
having a Fair Market Value
equal to 115% of the Fair
Market Value of one share of
Class G Common Stock.
Liquidation: In the event of the In the event of the In the event of the
liquidation of CMS Energy, liquidation of CMS Energy, liquidation of CMS Energy,
the holders of CMS Energy each outstanding share of each outstanding share of
Common Stock will receive CMS Energy Common Stock will Class G Common Stock will be
the assets, if any, be entitled to a portion of entitled to a portion of the
remaining for distribution the assets remaining for assets remaining for
to common stockholders. distribution to holders of distribution to holders of
Common Stock equal to the Common Stock equal to the
amount of such assets amount of such assets
divided by the total number divided by the total number
of shares of CMS Energy of shares of CMS Energy
Common Stock and Class G Common Stock and Class G
Common Stock then Common Stock then
outstanding. outstanding.
</TABLE>
Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class, would
be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other corporation if such merger or
consolidation would adversely affect the powers or special rights of such class
of stock, and to authorize any amendment to the Articles of Incorporation that
would increase or decrease the aggregate number of authorized shares of such
class or alter or change the powers, preferences or special rights of the shares
of such class so as to affect them adversely. The Articles of Incorporation also
provide that unless the vote or consent of a greater number of shares shall then
be required by law, the approval of the holders of a majority of the outstanding
shares of either class of Common Stock, voting as a separate class, will be
necessary for authorizing, effecting or validating the merger or consolidation
of CMS Energy into or with any other corporation if such merger or consolidation
would adversely affect the powers or special rights of such class of Common
Stock, either directly by amendment to the Articles of Incorporation or
indirectly by requiring the holders of such class to accept or retain, in such
merger or consolidation, anything other than (i) shares of such class or (ii)
shares of the surviving or resulting corporation, having, in either case, powers
and special rights identical to those of such class prior to such merger or
consolidation. In the event that there is more than one class of Common Stock,
the effect of these provisions may be to permit the holders of a majority of the
outstanding shares of
19
<PAGE> 29
either class of Common Stock to block any such merger or amendment which would
adversely affect the powers or special rights of holders of such class of Common
Stock.
CMS ENERGY PREFERRED STOCK
The shares of CMS Energy Preferred Stock may be issued from time to time in
one or more series with such relative rights and preferences of the shares of
any such series as may be determined by the Board of Directors. The Board of
Directors is authorized to fix by resolution or resolutions adopted prior to the
issuance of any shares of each particular series of CMS Energy Preferred Stock,
the designation, powers, preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof, if
any, of such series, including, but without limiting the generality of the
foregoing, the following:
(a) The rate of dividend, if any;
(b) The price at and the terms and conditions upon which shares may be
redeemed;
(c) The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding up of CMS Energy;
(d) Sinking fund or redemption or purchase provisions, if any, to be
provided for shares of the series;
(e) The terms and conditions upon which shares may be converted into
shares of other series or other capital stock, if issued with the privilege
of conversion; and
(f) The voting rights in the event of default in the payment of
dividends or under such other circumstances and upon such conditions as the
Board of Directors may determine.
The specific terms of CMS Energy Preferred Stock will be described in the
Prospectus Supplement relating thereto.
Unless otherwise provided in a Prospectus Supplement, no holder of any
shares of any series of CMS Energy Preferred Stock shall be entitled to vote in
the election of directors or in respect of any other matter except as may be
required by the Michigan Business Corporation Act, as amended.
Unless otherwise provided in a Prospectus Supplement, holders of CMS Energy
Preferred Stock will not have any preemptive rights to subscribe for or purchase
any additional shares of the capital stock of CMS Energy of any class now or
hereafter authorized, or any CMS Energy Preferred Stock or other securities or
other right or option convertible into or exchangeable for or entitling the
holder or owner to subscribe for or purchase any shares of capital stock. The
future issuance of CMS Energy Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of CMS Energy.
RESTRICTIONS ON PAYMENT OF DIVIDENDS BY CMS ENERGY
CMS Energy is a legal entity separate and distinct from its various
subsidiaries. As a holding company with no significant operations of its own,
the principal sources of its funds are dividends or other distributions from its
operating subsidiaries, in particular, Consumers, borrowings and sales of
equity. The ability of Consumers and other subsidiaries of CMS Energy to pay
dividends or make distributions to CMS Energy, and, accordingly, the ability of
CMS Energy to pay dividends on its capital stock will depend on the earnings,
financial requirements, contractual restrictions of the subsidiaries of CMS
Energy, in particular, Consumers, and other factors. See "Primary Source of
Funds of CMS Energy; Restrictions on Sources of Dividends" below.
Dividends on capital stock of CMS Energy are limited by Michigan law to
legally available assets of CMS Energy. Distributions on Common Stock may be
subject to the rights of the holders, if any, of the CMS Energy Preferred Stock.
There are restrictions on CMS Energy's ability to pay dividends contained
in its Credit Facility, the Senior Debt Indenture and the GTN Indenture.
The Credit Facility provides that CMS Energy will not, and will not permit
certain of its subsidiaries, directly or indirectly, to (i) declare or pay any
cash dividend or distribution on the capital stock of CMS Energy or such
subsidiaries, or (ii) purchase, redeem, retire or otherwise acquire for value
any such capital stock (a "Restricted Payment"), unless: (1) no event of default
under the Credit Facility, or event that with
20
<PAGE> 30
the lapse of time or giving of notice would constitute such an event of default,
has occurred and is continuing, and (2) after giving effect to any such
Restricted Payment, the aggregate amount of all such Restricted Payments since
September 30, 1993 shall not have exceeded the sum of: (a) $120,000,000, (b)
100% of CMS Energy's consolidated net income (as defined in the Senior Debt
Indenture) since September 30, 1993 to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted Payment (or, in
case such sum shall be a deficit, minus 100% of the deficit), and (c) any net
proceeds (as defined in the Senior Debt Indenture) received by CMS Energy for
the issuance or sale of its capital stock subsequent to September 30, 1993. At
March 31, 1995, CMS Energy could pay cash dividends of $492 million pursuant to
this restriction.
The First and Second Supplemental Indentures to the Senior Debt Indenture,
pursuant to which CMS Energy's Series A Senior Deferred Coupon Notes due October
1, 1997 and Series B Senior Deferred Coupon Notes due October 1, 1999 were
issued, provide that so long as any of such Notes are outstanding, CMS Energy
will not, and will not permit certain of its subsidiaries, directly or
indirectly, to make a Restricted Payment, unless: (1) no event of default under
the Senior Debt Indenture, or event that with the lapse of time or giving of
notice would constitute such an event of default, has occurred and is
continuing, and (2) after giving effect to any such Restricted Payment, the
aggregate amount of all such Restricted Payments since September 30, 1992 shall
not have exceeded the sum of: (a) $40,000,000, (b) 100% of CMS Energy's
consolidated net income (as defined in the Senior Debt Indenture) since
September 30, 1992 to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case such sum shall
be a deficit, minus 100% of the deficit), and (c) any net proceeds (as defined
in the Senior Debt Indenture) received by CMS Energy for the issuance or sale of
its capital stock subsequent to September 15, 1992. At March 31, 1995, CMS
Energy could pay cash dividends of $499 million pursuant to this restriction.
The GTN Indenture provides that, so long as any of the General Term Notes,
Series A ("GTNs") issued thereunder are outstanding and are rated below BBB- by
Standard & Poor's or by Duff & Phelps, CMS Energy will not, and will not permit
certain of its subsidiaries, directly or indirectly, to make any Restricted
Payments, if at any time CMS Energy or such subsidiary makes such Restricted
Payment: (1) an Event of Default (as defined in the GTN Indenture), or an event
that with the lapse of time or the giving of notice or both would constitute
such an Event of Default, has occurred and is continuing (or would result
therefrom), or (2) the aggregate amount of such Restricted Payment and all other
Restricted Payments made since September 30, 1993, would exceed the sum of: (a)
$120,000,000 plus 100% of consolidated net income from September 30, 1993 to the
end of the most recent fiscal quarter ending at least 45 days prior to the date
of such Restricted Payment (or, in case such sum shall be a deficit, minus 100%
of the deficit) and (b) the aggregate net proceeds received by CMS Energy from
the issue or sale of or contribution with respect to its capital stock after
September 30, 1993. At March 31, 1995, CMS Energy could pay cash dividends of
$492 million pursuant to this restriction.
The foregoing provisions do not prohibit: (i) dividends or other
distributions paid by CMS Energy in respect of the capital stock issued in
connection with the acquisition of any business or assets by CMS Energy where
such payments are payable solely from the net earnings of such business or
assets; (ii) any purchase or redemption of capital stock made by exchange for,
or out of the proceeds of the substantially concurrent sale of, capital stock;
(iii) dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividends would have complied with the
aforementioned limitations; or (iv) payments pursuant to the tax sharing
agreement among CMS Energy and its subsidiaries.
In addition, Michigan law prohibits payment of a dividend if, after giving
it effect, CMS Energy would not be able to pay its debts as they become due in
the usual course of business, or its total assets would be less than the sum of
its total liabilities plus, unless the articles permit otherwise, the amount
that would be needed, if CMS Energy were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. CMS Energy's net assets available for payment of dividends under
the Michigan Business Corporation Act at March 31, 1995 were $1,207 million.
21
<PAGE> 31
DIVIDENDS AND PRICE RANGE OF CMS ENERGY COMMON STOCK
CMS Energy has paid dividends on its outstanding CMS Energy Common Stock
each year since its inception except 1987 and 1988. At June 27, 1995, there were
approximately 61,687 CMS Energy Common Stock shareholders of record. Future
dividends will depend upon CMS Energy's earnings, financial condition and other
factors. Reference is made to "Capital Stock -- Restrictions on Payment of
Dividends by CMS Energy" and "Primary Source of Funds of CMS Energy;
Restrictions on Sources of Dividends" regarding limitations upon payment of
dividends on the capital stock of CMS Energy.
The following table indicates the high and low sales prices of the CMS
Energy Common Stock for the calendar quarters indicated as reported in The Wall
Street Journal under "New York Stock Exchange Composite Transactions," and the
quarterly cash dividends declared per share of CMS Energy Common Stock, for the
calendar quarters indicated.
<TABLE>
<CAPTION>
PRICE RANGE
--------------
YEAR HIGH LOW DIVIDEND
- ---- ----- ----- --------
<S> <C> <C> <C> <C>
1991: First Quarter.................................................. $33 $26 1/2 $.12
Second Quarter................................................. 30 3/4 23 3/4 .12
Third Quarter.................................................. 25 7/8 18 .12
Fourth Quarter................................................. 19 3/4 16 5/8 .12
1992: First Quarter.................................................. 22 3/4 17 7/8 .12
Second Quarter................................................. 21 7/8 14 7/8 .12
Third Quarter.................................................. 17 1/2 15 1/4 .12
Fourth Quarter................................................. 18 3/8 16 3/4 .12
1993: First Quarter.................................................. 20 7/8 17 7/8 .12
Second Quarter................................................. 25 1/2 19 1/2 .12
Third Quarter.................................................. 27 1/2 24 7/8 .18
Fourth Quarter................................................. 27 1/8 23 .18
1994: First Quarter.................................................. 25 21 1/8 .18
Second Quarter................................................. 22 7/8 19 5/8 .18
Third Quarter.................................................. 23 3/8 20 5/8 .21
Fourth Quarter................................................. 23 1/4 20 7/8 .21
1995: First Quarter.................................................. 24 3/4 22 5/8 .21
Second Quarter (through June 27, 1995)......................... 25 3/8 22 1/2 .21
</TABLE>
The last reported sale price of the CMS Energy Common Stock on June 27,
1995 on the NYSE was $24 3/4.
PRIMARY SOURCE OF FUNDS OF CMS ENERGY; RESTRICTIONS ON SOURCES OF DIVIDENDS
The ability of CMS Energy to pay (i) dividends on its capital stock and
(ii) its indebtedness, including the Debt Securities, depends and will depend
substantially upon timely receipt of sufficient dividends or other distributions
from its subsidiaries, in particular Consumers. Consumers' ability to pay
dividends on its common stock depends upon its revenues, earnings and other
factors. Consumers' revenues and earnings will depend substantially upon rates
authorized by the MPSC.
Consumers' ability to pay dividends is restricted by its First Mortgage
Bond Indenture (the "Mortgage Indenture") and its Articles of Incorporation (the
"Articles"). The Mortgage Indenture provides that Consumers can only pay
dividends on its common stock out of retained earnings accumulated subsequent to
September 30, 1945, provided that upon such payment, there shall remain of such
retained earnings an amount equivalent to any deficiency in maintenance and
replacement expenditures as compared with maintenance and replacement
requirements since December 31, 1945. Because of restrictions in its Articles
and Mortgage Indenture, Consumers was prohibited from paying dividends on its
common stock from June 1991 to December 31, 1992. However, as of December 31,
1992, Consumers effected a quasi-reorganization in which Consumers' accumulated
deficit of $574 million was eliminated against other paid-in capital. With the
22
<PAGE> 32
accumulated deficit eliminated, Consumers satisfied the requirements under its
Mortgage Indenture and resumed paying dividends on its common stock in May 1993.
Consumers' Articles also provide two restrictions on its payment of
dividends on its common stock. First, prior to the payment of any common stock
dividend, Consumers must reserve retained earnings after giving effect to such
dividend payment of at least (i) $7.50 per share on all then outstanding shares
of its preferred stock, (ii) in respect to its Class A Preferred Stock, 7.5% of
the aggregate amount established by its Board of Directors to be payable on the
shares of each series thereof in the event of involuntary liquidation of
Consumers, and (iii) $7.50 per share on all then outstanding shares of all other
stock over which its preferred stock and Class A Preferred Stock do not have
preference as to the payment of dividends and as to assets. Second, dividend
payments during the 12 month period ending with the month the proposed payment
is to be paid are limited to: (i) 50% of net income available for the payment of
dividends during the base period (hereinafter defined) if the ratio of common
stock and surplus to total capitalization and surplus for 12 consecutive
calendar months within the 14 calendar months immediately preceding the proposed
dividend payment (the "base period"), adjusted to reflect the proposed dividend,
is less than 20%; and (ii) 75% of net income available for the payment of
dividends during the base period if the ratio of common stock and surplus to
total capitalization and surplus for the base period, adjusted to reflect the
proposed dividend, is at least 20% but less than 25%.
Consumers' Articles also prohibit the payment of cash dividends on its
common stock if Consumers is in arrears on preferred stock dividend payments.
In addition, Michigan law prohibits payment of a dividend if, after giving
it effect, Consumers would not be able to pay its debts as they become due in
the usual course of business, or its total assets would be less than the sum of
its total liabilities plus, unless the articles permit otherwise, the amount
that would be needed, if Consumers were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Consumers' net assets available for payment of dividends under the
Michigan Business Corporation Act at March 31, 1995 were $1,513 million.
Currently it is Consumers' policy to pay annual dividends equal to 80% of its
annual consolidated net income. Under the most restrictive of these conditions,
and Consumers current dividend policy, at March 31, 1995, $69.9 million of
Consumers' retained earnings were available to pay cash dividends on its common
stock. Consumers' Board of Directors reserves the right to change this policy at
any time.
Consumers paid dividends on its common stock of $16.0 million on February
22, 1994, of $65.6 million on May 20, 1994, $31.0 million on August 19, 1994,
$36.0 million on November 4, 1994, $27.4 million on December 20, 1994 and $69.9
million on May 19, 1995.
CMS ENERGY MICHIGAN PREFERRED SECURITIES
GENERAL
CMS Energy Michigan may issue, from time to time, CMS Energy Michigan
Preferred Securities, in one or more series, having terms described in the
Prospectus Supplement relating thereto. The Limited Partnership Agreement will
authorize the establishment of one or more series of CMS Energy Michigan
Preferred Securities, having such terms, including dividends, redemption,
voting, liquidation rights and such other preferred, deferred or other special
rights or such restrictions as shall be set forth therein or otherwise
established by the General Partner pursuant thereto. Reference is made to the
Prospectus Supplement relating to the CMS Energy Michigan Preferred Securities
of a particular series for specific terms, including (i) the distinctive
designation of such series which shall distinguish it from other series; (ii)
the number of CMS Energy Michigan Preferred Securities included in such series,
which number may be increased or decreased from time to time unless otherwise
provided by the General Partner in creating the series; (iii) the annual
dividend rate (or method of determining such rate) for CMS Energy Michigan
Preferred Securities of such series and the date or dates upon which such
dividends shall be payable, provided, however, dividends on any series of CMS
Energy Michigan Preferred Securities shall be payable on a monthly basis to
holders of such series of CMS Energy Michigan Preferred Securities as of a
record date in each month during which such series of CMS Energy Michigan
Preferred Securities are outstanding; (iv) whether dividends on CMS Energy
23
<PAGE> 33
Michigan Preferred Securities of such series shall be cumulative, and, in the
case of CMS Energy Michigan Preferred Securities of any series having cumulative
dividend rights, the date or dates or method of determining the date or dates
from which dividends on CMS Energy Michigan Preferred Securities of such series
shall be cumulative; (v) the amount or amounts which shall be paid out of the
assets of CMS Energy Michigan to the holders of CMS Energy Michigan Preferred
Securities of such series upon voluntary or involuntary dissolution, winding-up
or termination of CMS Energy Michigan; (vi) the price or prices at which, the
period or periods within which and the terms and conditions upon which CMS
Energy Michigan Preferred Securities of such series may be redeemed or
purchased, in whole or in part, at the option of CMS Energy Michigan or the
General Partner; (vii) the obligation, if any, of CMS Energy Michigan to
purchase or redeem CMS Energy Michigan Preferred Securities of such series
pursuant to a sinking fund or otherwise and the price or prices at which, the
period or periods within which and the terms and conditions upon which CMS
Energy Michigan Preferred Securities of such series shall be purchased or
redeemed, in whole or in part, pursuant to such obligation; (viii) the period or
periods within which and the terms and conditions, if any, including the price
or prices or the rate or rates of conversion or exchange and the terms and
conditions of any adjustments thereof, upon which the CMS Energy Michigan
Preferred Securities of such series shall be convertible or exchangeable at the
option of the holder of the CMS Energy Michigan Preferred Securities, or CMS
Energy Michigan, into any other securities or other property or cash or into any
other series of CMS Energy Michigan Preferred Securities; (ix) the voting
rights, if any, of CMS Energy Michigan Preferred Securities of such series in
addition to those required by law or set forth in the Limited Partnership
Agreement, and any requirement for the approval by the holders of CMS Energy
Michigan Preferred Securities, or of CMS Energy Michigan Preferred Securities of
one or more series, or of both, as a condition to specified action or amendments
to the Limited Partnership Agreement; (x) the additional amounts, if any, which
CMS Energy Michigan will pay as a distribution as necessary in order that the
net amounts received by holders of CMS Energy Michigan Preferred Securities of
such series after withholding or deduction of certain taxes, duties, assessments
or governmental charges will equal the amount which would have been receivable
in respect of such CMS Energy Michigan Preferred Securities in the absence of
such withholding or deduction; and (xi) any other relative rights, powers,
preferences, privileges, limitations or restrictions of CMS Energy Michigan
Preferred Securities of the series not inconsistent with the Limited Partnership
Agreement or with applicable law. All CMS Energy Michigan Preferred Securities
offered hereby will be guaranteed by CMS Energy to the extent set forth below
under "Description of the Guarantee." Any applicable federal income tax
considerations applicable to any offering of CMS Energy Michigan Preferred
Securities will be described in the Prospectus Supplement relating thereto.
Unless otherwise provided in a Prospectus Supplement, the aggregate number of
CMS Energy Michigan Preferred Securities which CMS Energy Michigan shall have
authority to issue is unlimited.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CMS ENERGY MICHIGAN PREFERRED
SECURITIES;
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
As discussed herein, CMS Energy Michigan will lend the proceeds of any sale
of CMS Energy Michigan Preferred Securities to CMS Energy in return for
Subordinated Debt Securities of CMS Energy in aggregate principal amount equal
to the aggregate liquidation preference of such Preferred Securities, bearing
interest at an annual rate equal to the annual dividend rate of such Preferred
Securities and having certain redemption terms which correspond to the
redemption terms for such Preferred Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
dividends and payments due on the CMS Energy Michigan Preferred Securities
primarily because (i) the aggregate principal amount of Subordinated Debt
Securities will be at least equal to the sum of the aggregate stated liquidation
preference of the CMS Energy Michigan Preferred Securities; (ii) the interest
rate and interest and other payment dates on the Subordinated Debt Securities
will match the dividend rate and dividend and other payment dates for the CMS
Energy Michigan Preferred Securities; (iii) the Limited Partnership Agreement
provides that CMS Energy, as General Partner, shall pay for all, and CMS Energy
Michigan shall not be obligated to pay, directly or indirectly, for any, costs
and expenses of CMS Energy Michigan; and (iv) the Limited Partnership Agreement
further provides that
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the General Partner shall not cause or permit CMS Energy Michigan to, among
other things, engage in any activity that is not consistent with the limited
purpose of CMS Energy Michigan.
If (i) CMS Energy Michigan fails to pay dividends in full on any series of
CMS Energy Michigan Preferred Securities for 18 consecutive monthly dividend
periods; (ii) an Event of Default (as defined in the Subordinated Debt
Indenture) occurs and is continuing on the related series of Subordinated Debt
Securities; or (iii) CMS Energy is in default on any of its payment or other
obligations under the Guarantee described below, under the terms of such series
of CMS Energy Michigan Preferred Securities, the holders of outstanding CMS
Energy Michigan Preferred Securities of such series will have the right to
appoint a Special Representative, which Special Representative shall, if an
Event of Default occurs under the Subordinated Debt Indenture, be authorized to
exercise CMS Energy Michigan's right to accelerate the principal amount of the
Subordinated Debt Securities and to enforce CMS Energy Michigan's other creditor
rights under the Subordinated Debt Securities and the rights of the holders of
outstanding CMS Energy Michigan Preferred Securities under the Guarantee. In
addition, if the General Partner or the Special Representative fails to enforce
the Guarantee, a holder of a CMS Energy Michigan Preferred Security may
institute a legal proceeding directly against CMS Energy to enforce its rights
under the Guarantee without first instituting a legal proceeding against CMS
Energy Michigan or any other person or entity.
Notwithstanding the appointment of any such Special Representative, CMS
Energy shall continue as General Partner and shall retain all rights under the
Subordinated Debt Indenture, including any rights it may have to defer interest
payments from time to time as may be provided with respect to the Subordinated
Debt Securities relating to a particular series of CMS Energy Michigan Preferred
Securities, and any such deferral would not constitute a default under the
Subordinated Debt Indenture or enable a holder of CMS Energy Michigan Preferred
Securities to require payment of a dividend that had not theretofore been
declared.
CMS Energy and CMS Energy Michigan believe that the above mechanisms and
obligations, taken together, constitute a full and unconditional guarantee by
CMS Energy of payments due on the CMS Energy Michigan Preferred Securities.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by CMS Energy for the benefit of the holders,
from time to time, of each series of CMS Energy Michigan Preferred Securities.
The 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
Guarantee, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
CMS Energy will irrevocably and unconditionally agree, to the extent set
forth herein, to pay in full, to the holders of the CMS Energy Michigan
Preferred Securities of each series, the Guarantee Payments (as defined below),
as and when due, regardless of any defense, right of set-off or counterclaim
which CMS Energy may have or assert against CMS Energy Michigan. The following
payments with respect to any series of CMS Energy Michigan Preferred Securities
to the extent not paid by CMS Energy Michigan (the "Guarantee Payments") will be
subject to the Guarantee (without duplication): (i) any accrued and unpaid
dividends which are required to be paid on the CMS Energy Michigan Preferred
Securities of such series, to the extent CMS Energy Michigan shall have funds on
hand sufficient to make such payment and funds legally available therefor, as
determined by the General Partner, (ii) the redemption price, including all
accrued and unpaid dividends (the "Redemption Price"), payable out of funds
legally available therefor, as determined by the General Partner with respect to
any CMS Energy Michigan Preferred Securities called for redemption by CMS Energy
Michigan and (iii) upon a liquidation of CMS Energy Michigan, the lesser of (a)
the aggregate of the liquidation preference and all accrued and unpaid dividends
on the CMS Energy Michigan Preferred Securities of such series to the date of
payment and (b) the amount of assets of CMS Energy Michigan remaining available
for distribution to holders of CMS Energy Michigan Preferred Securities of such
series in liquidation of CMS Energy Michigan. CMS Energy's obligation to make a
Guarantee Payment may be
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satisfied by direct payment of the required amounts by CMS Energy to the holders
of CMS Energy Michigan Preferred Securities or by causing CMS Energy Michigan to
pay such amounts to such holders.
CERTAIN COVENANTS OF CMS ENERGY
In the Guarantee, CMS Energy will covenant that, so long as any CMS Energy
Michigan Preferred Securities remain outstanding, CMS Energy will not declare or
pay any dividend on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock if at such time CMS Energy is in
default with respect to its payment or other obligations under the Guarantee or
there shall have occurred any event that, with the giving of notice or lapse of
time or both, would constitute an Event of Default under the Subordinated Debt
Indenture.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of CMS Energy Michigan Preferred Securities (in which case no vote
will be required), the Guarantee may be changed only with the prior approval of
the holders of not less than 66 2/3% in liquidation preference of the
outstanding CMS Energy Michigan Preferred Securities. All guarantees and
agreements contained in the Guarantee shall bind the successors, assignees,
receivers, trustees and representatives of CMS Energy and shall inure to the
benefit of the holders of the CMS Energy Michigan Preferred Securities then
outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect as to
the CMS Energy Michigan Preferred Securities of any series upon full payment of
the Redemption Price of all CMS Energy Michigan Preferred Securities of such
series and will terminate completely upon full payment of the amounts payable
upon liquidation of CMS Energy Michigan. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of CMS Energy Michigan Preferred Securities of any series must restore payment
of any sums paid under such series of CMS Energy Michigan Preferred Securities
or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of CMS Energy and
will rank (i) subordinate and junior in right of payment to all other
liabilities of CMS Energy (including the Subordinated Debt Securities), except
those made pari passu by their terms, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by CMS Energy and with any
guarantee now or hereafter entered into by CMS Energy in respect of any
preferred or preference stock of any affiliate of CMS Energy and (iii) senior to
Common Stock of CMS Energy. The Limited Partnership Agreement provides that each
holder of CMS Energy Michigan Preferred Securities by acceptance thereof agrees
to the subordination provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be deposited with the General Partner to be held for the benefit
of the holders of each series of CMS Energy Michigan Preferred Securities. In
the event of the appointment of a Special Representative to, among other things,
enforce the Guarantee, the Special Representative may take possession of the
Guarantee for such purpose. If no Special Representative has been appointed to
enforce the Guarantee, the General Partner has the right to enforce the
Guarantee on behalf of the holders of each series of CMS Energy Michigan
Preferred Securities. The holders of not less than 10% in aggregate liquidation
preference of the CMS Energy Michigan Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available in respect of the Guarantee, including the giving of directions to the
General Partner or the Special Representative, as the case may be. If the
General Partner or the Special Representative fails to enforce the Guarantee as
provided above, any holder of CMS Energy Michigan Preferred Securities may
institute a legal
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proceeding directly against the guarantor to enforce its rights under the
Guarantee, without first instituting a legal proceeding against CMS Energy
Michigan or any other person or entity. The Guarantee will not be discharged
except by payment of the Guarantee Payments in full and by complete performance
of all obligations under the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Michigan.
LEGAL OPINIONS
Opinions as to the legality of the securities offered hereby will be
rendered for CMS Energy and CMS Energy Michigan by Denise M. Sturdy, Esq.,
Assistant General Counsel for CMS Energy. Certain legal matters with respect to
Offered Securities will be passed upon by Sidley & Austin, Chicago, Illinois,
counsel to CMS Energy and CMS Energy Michigan, and by Reid & Priest LLP, New
York, New York, counsel for any underwriters, dealers or agents who will be
named in the related Prospectus Supplement.
EXPERTS
The consolidated financial statements and schedule of CMS Energy as of
December 31, 1994 and 1993, and for each of the three years in the period ended
December 31, 1994 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31, 1994 and 1995, Arthur Andersen LLP has applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report thereon states that they did
not audit and they did not express an opinion on that interim consolidated
financial information. Accordingly, the degree of reliance on their report on
that information should be restricted in light of the limited nature of the
review procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933, as amended
("Securities Act"), for their report on the unaudited interim consolidated
financial information because that report is not a "report" or "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
PLAN OF DISTRIBUTION
CMS Energy and/or CMS Energy Michigan may sell the Offered Securities (i)
through the solicitation of proposals of underwriters or dealers to purchase the
Offered Securities; (ii) through underwriters or dealers on a negotiated basis,
(iii) directly to a limited number of purchasers or to a single purchaser; or
(iv) through agents. The Prospectus Supplement with respect to any Offered
Securities will set forth the terms of such offering, including the name or
names of any underwriters, dealers or agents; the purchase price of the Offered
Securities and the proceeds to CMS Energy and/or CMS Energy Michigan from such
sale; any underwriting discounts and commissions and other items constituting
underwriters' compensation; any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers and any securities
exchange on which such Offered Securities may be listed. Any initial public
offering price, discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated
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transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The Offered Securities may be offered to the public either
through underwriting syndicates represented by one or more managing underwriters
or directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Offered
Securities will be named in the Prospectus Supplement relating to such offering
and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such Prospectus Supplement.
Unless otherwise set forth in the Prospectus Supplement relating thereto, the
obligations of the underwriters to purchase the Offered Securities will be
subject to certain conditions precedent, and the underwriters will be obligated
to purchase all the Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, CMS Energy
and/or CMS Energy Michigan will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
The Offered Securities may be sold directly by CMS Energy and/or CMS Energy
Michigan or through agents designated by CMS Energy and/or CMS Energy Michigan
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 CMS Energy and/or CMS Energy Michigan to such agent
will be set forth, in the Prospectus Supplement relating thereto. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be acting
on a best efforts basis for the period of its appointment.
The Offered Securities may be sold directly by CMS Energy and/or CMS Energy
Michigan 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 CMS
Energy and/or CMS Energy Michigan to indemnification by CMS Energy and/or CMS
Energy Michigan against certain civil liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments which such
agents, dealers or underwriters may be required to make in respect thereof.
Agents, dealers and underwriters may be customers of, engage in transactions
with, or perform services for CMS Energy and/or CMS Energy Michigan in the
ordinary course of business.
The Offered Securities may or may not be listed on a national securities
exchange. Reference is made to the Prospectus Supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
Offered Securities.
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