<PAGE> 1
$200,000,000
CMS ENERGY CORPORATION
GENERAL TERM NOTES(R), SERIES D
DUE FROM 9 MONTHS TO 25 YEARS FROM DATE OF ISSUE
------------------------
CMS Energy Corporation (the "Company" or "CMS Energy") may offer from time
to time up to $200,000,000 aggregate principal amount of its General Term
Notes(R), Series D (the "Notes"). Each Note will bear interest at a fixed rate
payable monthly, quarterly or semi-annually and will mature on a date from 9
months to 25 years from the date of issue. The interest rate, issue price,
stated maturity, interest payment dates and certain other terms (including a
Survivor's Option, if applicable) with respect to each Note will be established
at the time of issuance and set forth in a pricing supplement to this Prospectus
(a "Pricing Supplement"). If provided in the applicable Pricing Supplement with
respect to any Note, such Note will be subject to redemption prior to its stated
maturity by the Company, in whole or in part, at redemption prices declining
from a specified premium, if any, to par, together with accrued interest to the
date of redemption. Notes will be issued only in denominations of $1,000 or any
amount in excess thereof which is an integral multiple of $1,000. The Notes will
be unsecured debt securities of the Company. See "Description of General Term
Notes(R)."
In the case of a Note that provides for monthly interest payments, interest
will be payable, in arrears, on the fifteenth day of each calendar month;
provided, however, that in the event such Note is issued between the first and
fifteenth day of a calendar month, interest otherwise payable on the fifteenth
day of such calendar month will be payable on the fifteenth day of the next
succeeding calendar month. In the case of a Note that provides for quarterly or
semi-annual interest payments, interest will be payable, in arrears, commencing
on the day that is either three months or six months, as appropriate, from (i)
the day on which such Note is issued, if such Note is issued on the fifteenth
day of a calendar month, or (ii) the fifteenth day of the calendar month prior
to the calendar month in which such Note is issued, if such Note is issued prior
to the fifteenth day of a calendar month, or (iii) the fifteenth day of the
calendar month in which such Note is issued, if such Note is issued after the
fifteenth day of a calendar month.
Each Note initially will be issued in book-entry form and will be
represented only by a global certificate (a "Global Note") registered in the
name of the nominee of The Depository Trust Company (as Depository). A
beneficial interest in a Global Note will be shown on, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants. A beneficial interest in a Global Note will not be represented by
Notes in definitive form except under the limited circumstances described
herein. See "Description of General Term Notes(R) -- Book-Entry System" and "--
Certificated Notes."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
PRICE TO AGENT'S DISCOUNT PROCEEDS TO
PUBLIC(1) OR COMMISSION(2) COMPANY(2)(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note......................... 100% Not to exceed 4% Not less than 96%
- ------------------------------------------------------------------------------------------------------------------------
Total............................ $200,000,000 Not to exceed $8,000,000 Not less than $192,000,000
========================================================================================================================
</TABLE>
(1) Unless otherwise specified in the applicable Pricing Supplement, the price
to the public for each Note will be equal to 100% of the principal amount
thereof. See "Plan of Distribution."
(2) The Company will pay J. W. Korth & Company (the "Agent") and such other
agent(s) as the Company may select from time to time (collectively, the
"Agents") an underwriting discount or commission, not to exceed 4% of the
principal amount of any Note, which discount or commission will be disclosed
in the applicable Pricing Supplement for the Note, depending upon the
maturity of the Note. The names of any additional Agents will be disclosed
in a supplement to this Prospectus. The Company has agreed to indemnify the
Agents against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments that the
Agents may be required to make in respect thereof. See "Plan of
Distribution."
(3) Before deducting expenses payable by the Company estimated at $181,696.
------------------------
Offers to purchase the Notes are being solicited from time to time by the
Agent on behalf of the Company. The Agent has agreed to use its reasonable best
efforts to solicit purchases of the Notes. Following such solicitation, Notes
will be sold through the Agent, acting as principal. The Notes are offered,
subject to prior sale, when, as, and if issued to and accepted by the Agent, and
subject to the right of the Company and the Agent to reject any order in whole
or in part and to withdraw, cancel or modify the offer made hereby without
notice. The Notes will not be listed on any securities exchange, and there can
be no assurance that the Notes offered by this Prospectus will be sold or that
there will be a secondary market for the Notes. See "Plan of Distribution."
J. W. Korth & Company
The date of this Prospectus is September 17, 1997.
- -------------------------
(R) Registered Servicemark of J. W. Korth & Company.
<PAGE> 2
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Notes.
Specifically, any agent may overallot in connection with the offering and may
bid for, and purchase, the Notes in the open market. For a description of these
activities, see "Plan of Distribution."
------------------------
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 Pricing 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 Pricing 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 Pricing 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, proxy statements and other information with the
Securities and Exchange Commission (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, 14th Floor, Chicago, Illinois 60661 and at 7 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 Commission
also maintains a web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding the Company. The outstanding Common
Stock of CMS Energy is listed on the New York Stock Exchange 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:
(1) CMS Energy's Annual Report on Form 10-K for the year ended
December 31, 1996;
(2) CMS Energy's Quarterly Reports on Form 10-Q for the quarters ended
March 31, and June 30, 1997; and
(3) CMS Energy's Current Reports on Forms 8-K dated March 7, April 24,
May 1, June 5, June 11, July 1 and August 21, 1997.
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 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.
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<PAGE> 3
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.
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.
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the information appearing elsewhere in this
Prospectus and the Incorporated Documents.
THE COMPANY
CMS Energy, incorporated in 1987, is the parent holding company of
Consumers Energy Company ("Consumers") and CMS Enterprises Company
("Enterprises"). Consumers, a combination electric and gas utility company
serving in all 68 counties 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 domestic and
international energy-related businesses including: (i) oil and gas exploration
and production; (ii) acquisition, development and operation of independent power
production facilities; (iii) energy marketing, risk management and energy
management to large customers; (iv) transmission, storage and processing of
natural gas; and (v) international energy distribution.
CMS Energy conducts its principal operations through the following seven
business segments: (i) electric utility operations; (ii) gas utility operations;
(iii) oil and gas exploration and production operations; (iv) independent power
production; (v) energy marketing, services and trading; (vi) natural gas
storage, transmission and processing; and (vii) international energy
distribution. 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, acquire and divest energy-related assets and/or
companies both domestically and internationally. Consideration for such
transactions may involve the delivery of cash or securities.
THE OFFERING
Securities Offered............ $200,000,000 aggregate principal amount of
General Term Notes(R), Series D (the "Notes").
Maturity Date................. The Notes will be offered at varying maturities
but in no event will any Note mature earlier
than 9 months from its date of issue or later
than 25 years from its date of issue. The
stated maturity of each Note will be set forth
in the applicable Pricing Supplement.
Interest Rate................. The interest rate on each Note will be a fixed
rate established at the time of issuance and
set forth in the Applicable Pricing Supplement.
Issue Price................... The Issue Price with respect to each Note will
be 100% of the principal amount, unless
otherwise set forth in the Applicable Pricing
Supplement.
Interest Payment Dates........ The interest payment dates with respect to each
Note will be set forth in the applicable
Pricing Supplement. The Pricing Supplement also
will state whether interest on the related Note
will be payable monthly, quarterly or
semi-annually. See "Description of General Term
Notes(R) -- Interest."
Repayment Upon Death.......... If the Pricing Supplement relating to any Note
provides that the holder of such Note will have
the option (the "Survivor's Option") to elect
repayment of such Note prior to its stated
maturity in the event of the death of the
beneficial owner of such Note, the Company will
repay such Note (or portion thereof) properly
tendered for repayment by or on behalf of the
person that has
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<PAGE> 5
authority to act on behalf of the deceased
owner of the beneficial interest in such Note
at a price equal to 100% of the principal
amount of the beneficial interest of the
deceased owner in such Note plus accrued
interest to the date of such repayment, subject
to an annual aggregate limitation and an
individual holder limitation on the dollar
amount of Notes that will be repaid in any year
under the Survivor's Option as well as a
limitation on the ability of surviving joint
tenants and tenants by the entirety to exercise
the Survivor's Option. See "Description of
General Term Notes(R) -- Repayment Upon Death."
Redemption at Company's
Option........................ If it is so provided in the Pricing Supplement,
the Notes will be redeemable, in whole or in
part in increments of $1,000, at the option of
the Company, at any time after a specified
initial redemption date, on notice given by the
Company not more than 60 nor less than 30 days
prior to the date of redemption, at redemption
prices declining over a specified period from a
specified premium, if any, to par, together
with accrued interest to the date of
redemption. See "Description of General Term
Notes(R) -- Redemption."
Purchase at the Option of
Holder after a Change in
Control....................... On a date no earlier than 60 days nor later
than 90 days (the "Change in Control Purchase
Date") after the date on which the Company
mails written notice to the Holders of the
Notes of the occurrence of a Change in Control
at any time while the Notes are outstanding,
the Company will purchase any Note, at the
option of its Holder, for a Change in Control
Purchase Price equal to 101% of the aggregate
outstanding principal amount of the Notes to be
repurchased plus accrued interest thereon to
the Change in Control Purchase Date. See
"Description of General Term Notes(R) --
Purchase of Notes Upon Change in Control" for a
summary of these provisions and the definition
of "Change in Control."
Mandatory Sinking Fund........ None.
Ranking....................... The Notes will be unsecured debt securities of
the Company. The Notes will rank on a parity in
right of payment with all other unsecured and
unsubordinated indebtedness of the Company. As
of June 30, 1997 the Company had no secured
indebtedness outstanding. However, the Company
has retained the right to pledge assets to
secure indebtedness in the future, subject to
certain limitations. See "Description of
General Term Notes(R) -- Certain Restrictive
Covenants -- Limitations on Certain Liens."
Certain Covenants............. So long as any of the Notes are outstanding the
Company has agreed to: (a) limitations on the
creation of liens or security interests upon
the stock of Consumers and certain other
Subsidiaries; (b) limitations on transactions
between the Company and its affiliates; and (c)
limitations on certain mergers, consolidations
and sales of assets. Also, so long as the Notes
are outstanding and until the Notes are rated
BBB- or above (or an equivalent rating) by
Standard & Poor's and one Other Rating Agency,
at which time the Company will be permanently
released from such limitations the Company has
agreed to: (a) limitations on the issuance or
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<PAGE> 6
incurrence of indebtedness by the Company and
certain of its Subsidiaries (other than
Consumers); (b) limitations on the declaration
or payment of dividends on, or the redemption,
retirement or other acquisition of, the capital
stock of the Company; and (c) additional
limitations on certain mergers, consolidations
and sales of assets. See "Description of
General Term Notes(R) -- Certain Restrictive
Covenants."
Use of Proceeds............... Unless otherwise provided in a Pricing
Supplement, the net proceeds of the sale of the
Notes will be used by the Company for its
general corporate purposes. See "Use of
Proceeds."
Liquidity..................... There is no active public trading market for
the Notes. Any Agent may make a market in the
Notes, but no Agent is obligated to do so and
any such market making so undertaken may be
discontinued without notice at any time. There
can be no assurance as to the liquidity of any
market that may develop for the Notes, the
ability of the Holders to sell their Notes, or
the price at which Holders would be able to
sell their Notes. If a trading market is not
developed or is not maintained, Holders of the
Notes may experience difficulty in reselling
them or may be unable to sell them at all. If a
market for the Notes develops, they may trade
at a discount from their Issue Price. Future
trading prices of the Notes will depend on many
factors, including prevailing interest rates,
the Company's operating results, and the market
for similar securities. The Company does not
intend to apply for listing of the Notes on any
securities exchange. Historically, and
particularly in recent periods, the market for
non-investment grade debt has been subject to
disruptions that have caused substantial
volatility in the prices of securities. There
can be no assurance that the market for the
Notes, if any, will not be subject to similar
disruptions.
6
<PAGE> 7
THE COMPANY
CMS Energy, incorporated in 1987, is the parent holding company of
Consumers Energy Company ("Consumers") and CMS Enterprises Company
("Enterprises"). Consumers, a combination electric and gas utility company
serving in all 68 counties 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 domestic and
international energy-related businesses including: (i) oil and gas exploration
and production; (ii) acquisition, development and operation of independent power
production facilities; (iii) energy marketing, risk management and energy
management to large customers; (iv) transmission, storage and processing of
natural gas; and (v) international energy distribution.
CMS Energy conducts its principal operations through the following seven
business segments: (i) electric utility operations; (ii) gas utility operations;
(iii) oil and gas exploration and production operations; (iv) independent power
production; (v) energy marketing, services and trading; (vi) natural gas
storage, transmission and processing; and (vii) international energy
distribution. 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, acquire and divest energy-related assets and/or
companies both domestically and internationally. Consideration for such
transactions may involve the delivery of cash or securities.
CMS Energy's 1996 consolidated operating revenue was $4,333 million. This
consolidated operating revenue was derived from its electric utility operations
(approximately 57% or $2,446 million), its gas utility operations (approximately
30% or $1,282 million), gas transmission, storage and marketing (approximately
7% or $320 million), oil and gas exploration and production activities
(approximately 3% or $130 million) and independent power production and other
non-utility activities (approximately 3% or $155 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, gas transmission and
storage and international energy distribution revenue for 1996 was $557 million.
Consumers is a public utility serving gas or electricity to almost six
million of Michigan's nine and a half 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' 1996 consolidated operating revenue of
$3,770 million was derived approximately 65% ($2,446 million) from its electric
utility business and approximately 34% ($1,282 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 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. See "Incorporation of Certain Documents by Reference" and "Available
Information" above.
The address of the principal executive officers of CMS Energy is 330 Town
Center Drive, Suite 1100, Dearborn, Michigan 48126. Its telephone number is
(313) 436-9200.
USE OF PROCEEDS
Unless otherwise provided in a Pricing Supplement, the net proceeds from
the sale of the Notes will be used by the Company for its general corporate
purposes.
7
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RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for each of the years ended
December 31, 1992 through 1996, and for the six months ended June 30, 1997, are
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ------------------------------------
------------- 1996 1995 1994 1993 1992
(UNAUDITED) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(1)
Ratio of earnings to fixed charges................. 2.13 2.01 1.94 2.07 1.88 --
</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's reduction in its investment in The
Oxford Energy Company. The ratio of earnings to fixed charges would have
been 1.33 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.
DESCRIPTION OF GENERAL TERM NOTES(R)
The Notes will be issued as a series of debt securities under an Indenture,
dated as of January 15, 1994 (such Indenture as amended or supplemented from
time to time by one or more supplemental indentures thereto, including a
supplemental indenture relating to the Notes, being referred to herein as the
"Indenture" and all debt securities hereafter issued under such Indenture being
collectively referred to herein as "Securities"), between the Company and The
Chase Manhattan Bank, a New York banking corporation, as trustee (the
"Trustee"). The Company is not limited by the Indenture as to the aggregate
principal amount of Securities it may issue. The descriptions of the Notes and
the Indenture in this Prospectus are brief summaries of the provisions contained
in such documents and do not purport to be complete. The form of the Indenture
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part, and reference is made thereto for the definitive provisions of such
Indenture. The descriptions herein are qualified in their entirety by such
reference. Certain capitalized terms used herein without definition shall have
the meanings respectively set forth in the Indenture.
GENERAL
The Notes will be offered pursuant to this Prospectus on a continuing
basis. Each Note will mature from 9 months to 25 years from its date of issue.
The Notes will be issued without coupons in registered form only and in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000.
CMS Energy is a holding company and its assets consist primarily of
investment in its subsidiaries. The Securities (including the Notes) will be
obligations exclusively of the Company. The Company's ability to service its
indebtedness, including the Securities, is dependent primarily upon the earnings
of its subsidiaries and the distribution or other payment of such earnings to
the Company in the form of dividends, loans or advances, and repayment of loans
and advances from the Company. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Securities or to make any funds available therefor, whether by
dividends, loans or other payments.
A substantial portion of the consolidated liabilities of the Company have
been incurred by its subsidiaries. Therefore, the Company's rights and the
rights of its creditors, including holders of 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 the Company may itself be a
creditor with recognized claims against the subsidiary (in which case the claims
of the Company would still be subject to the prior claims of any secured
creditor of such subsidiary and of any holder of indebtedness
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<PAGE> 9
of such subsidiary that is senior to that held by CMS Energy). As of June 30,
1997, the Company's subsidiaries had total indebtedness for borrowed money
(excluding intercompany indebtedness) of approximately $2,670 million.
The Notes rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company. As of June 30, 1997 the Company had no secured
indebtedness outstanding. However, the Company has retained the right to secure
indebtedness, subject to certain limitations. See "Certain Restrictive Covenants
- --Limitations on Certain Liens."
Notes will be represented by a Global Note registered in the name of the
nominee of the Depository, except under the limited circumstances described
below under "Certificated Notes." A single Global Note will represent all Notes
issued on the same day and having the same terms, including, but not limited to,
the same Interest Payment Dates, rate of interest, stated maturity and
repurchase and redemption provisions (if any). A beneficial interest in a Global
Note will be shown on, and transfers thereof will be effected only through,
records maintained by the Depository (with respect to interests of its
participants) and its participants (with respect to interests of persons other
than its participants).
Unless the applicable Pricing Supplement provides otherwise, the price at
which each Note will be issued (the "Issue Price") will be 100% of the principal
amount of the Note. Notes will not be issued as discounted securities, at prices
below stated principal amounts, or having an original issue discount for U.S.
federal income tax purposes, unless the applicable Pricing Supplement so
provides and, if applicable, describes potential U.S. federal income tax
consequences.
The Pricing Supplement relating to a Note will set forth, among other
things, the following terms: (i) the date on which such Note will be issued;
(ii) the Issue Price; (iii) the stated maturity date of such Note; (iv) the rate
per annum at which such Note will bear interest; (v) the Interest Payment Dates
for such Note; (vi) whether the holder of such Note will have the Survivor's
Option; (vii) whether and the terms on which such Note will be subject to
redemption by the Company prior to its stated maturity; and (viii) any other
terms not inconsistent with the provisions of the Indenture.
INTEREST
Each Note will bear interest from the date of issue at the fixed rate per
annum specified therein and in the applicable Pricing Supplement until the
principal thereof is paid or made available for payment. Interest will be
payable either monthly, quarterly or semi-annually on each Interest Payment Date
and at Maturity. Interest will be payable to the person in whose name a Note is
registered at the close of business on the Regular Record Date next preceding
each Interest Payment Date; provided, however, interest payable at Maturity will
be payable to the person to whom principal shall be payable. Unless otherwise
indicated in the applicable Pricing Supplement, interest will be paid in arrears
and shall be the amount of interest accrued to, but excluding, the Interest
Payment Date. Interest on the Notes will be computed on the basis of a 360-day
year of twelve 30-day months.
The Interest Payment Dates for a Note that provides for monthly interest
payments shall be the fifteenth day of each calendar month; provided, however,
that in the case of a Note issued between the first and fifteenth day of a
calendar month, interest otherwise payable on the fifteenth day of such calendar
month will be payable on the fifteenth day of the next succeeding calendar
month. In the case of a Note that provides for quarterly interest payments, the
Interest Payment Dates shall be the fifteenth day of each of the months
specified in the Pricing Supplement, commencing on the day that is three months
from (i) the day on which such Note is issued, if such Note is issued on the
fifteenth day of a calendar month, or (ii) the fifteenth day of the calendar
month immediately preceding the calendar month in which such Note is issued, if
such Note is issued prior to the fifteenth day of a calendar month, or (iii) the
fifteenth day of the calendar month in which such Note is issued, if such Note
is issued after the fifteenth day of a calendar month. In the case of a Note
that provides for semi-annual interest payments, the Interest Payment Dates
shall be the fifteenth day of each of the months specified in the Pricing
Supplement, commencing on the day that is six months from (i) the day on which
such Note is issued, if such Note is issued on the fifteenth day of a calendar
month, (ii) the fifteenth day of the calendar month immediately preceding the
calendar month in which such Note is issued, if such
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Note is issued prior to the fifteenth day of a calendar month, or (iii) the
fifteenth day of the calendar month in which such Note is issued, if such Note
is issued after the fifteenth day of a calendar month. The Regular Record Date
with respect to any Interest Payment Date (other than at Maturity) shall be the
first day (whether or not a Business Day) of the calendar month in which such
Interest Payment Date occurs, and, in the case of interest payable at Maturity,
the Regular Record Date shall be the date of Maturity.
Interest on the Notes that is not punctually paid or duly provided for on
any Interest Payment Date ("defaulted interest") shall cease to be payable to
the Holder thereof on the relevant Regular Record Date and may be paid by the
Company to Holders of Notes (i) at the close of business on a Special Record
Date for the payment of such defaulted interest fixed by the Trustee and not
more than 15 nor less than 10 days prior to the date of the proposed payment,
provided that the Company shall have notified the Trustee in writing of the
amount of such defaulted interest, deposited with the Trustee funds equal to the
amount of the proposed payment or made arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, or (ii) in such
other lawful manner which is not inconsistent with the requirements of any
securities exchange on which the Notes are listed for trading.
REDEMPTION
A Note is not subject to redemption at the option of the Company prior to
the date, if any, fixed at the time of sale and designated as the "Initial
Redemption Date" on the face of such Note and in the applicable Pricing
Supplement hereto. If no Initial Redemption Date is indicated with respect to a
Note, such Note is not subject to redemption at the option of the Company prior
to Stated Maturity. If so specified in the applicable Pricing Supplement, on and
after the Initial Redemption Date, the related Note will be redeemable in whole
or in part in increments of $1,000, at the option of the Company, at redemption
prices declining from a specified premium, if any, to par, together with accrued
interest to the date of redemption, on notice given by the Company not more than
60 nor less than 30 days prior to the date of redemption. If less than all of
the Notes of like tenor and terms are to be redeemed, the Notes to be redeemed
will be selected by the Trustee by such method as the Trustee shall deem fair
and appropriate. Notwithstanding the foregoing however, the Company may at any
time purchase Notes at any price in the open market or otherwise. Notes so
purchased by the Company may, at the discretion of the Company, be held or
resold or surrendered to the Trustee for cancellation. The Notes will not have a
sinking fund. See "Purchase of Notes Upon Change in Control" and "Repayment Upon
Death."
With respect to Notes redeemable at the option of the Company, the
applicable Pricing Supplement will specify if the Company would be prohibited
from redeeming such Note as a part of, or in anticipation of, any refunding
operation by the application, directly or indirectly, of moneys borrowed having
an effective interest cost to the Company of less than the effective interest
cost to the Company of such Note.
PURCHASE OF NOTES UPON CHANGE IN CONTROL
In the event of any Change in Control (as defined below) each Holder of a
Note will have the right, at such Holder's option, subject to the terms and
conditions of the Indenture, to require the Company to repurchase all or any
part of such Holder's Note on a date selected by the Company that is no earlier
than 60 days nor later than 90 days (the "Change in Control Purchase Date")
after the mailing of written notice by the Company of the occurrence of such
Change in Control at a repurchase price payable in cash equal to 101% of the
principal amount of such Notes plus accrued interest to the Change in Control
Purchase Date (the "Change in Control Purchase Price").
Within 30 days after the Change in Control, the Company is obligated to
mail to each Holder of a Note a notice regarding the Change in Control, which
notice shall state, among other things: (i) that a Change in Control has
occurred and that each such Holder has the right to require the Company to
repurchase all or any part of such Holder's Notes at the Change in Control
Purchase Price; (ii) the Change in Control Purchase Price; (iii) the Change in
Control Purchase Date; (iv) the name and address of the Paying Agent and (v) the
procedures that Holders must follow to cause the Notes to be repurchased.
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To exercise this right, a Holder must deliver a Change in Control Purchase
Notice to the Paying Agent at its office in The City of New York, or any other
office of the Paying Agent maintained for such purposes, not later than 30 days
prior to the Change in Control Purchase Date. The Change in Control Purchase
Notice shall state (i) the portion of the principal amount of any Notes to be
repurchased, which must be $1,000 or an integral multiple thereof, (ii) that
such Notes are to be repurchased by the Company pursuant to the applicable
change-in-control provisions of the Indenture, and (iii) unless the Notes are
represented by one or more Global Notes, the certificate numbers of the Notes to
be repurchased.
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent not later than three
Business Days prior to the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and, if applicable, the certificate
numbers of the Notes as to which the withdrawal notice relates and the principal
amount, if any, which remains subject to a Change in Control Purchase Notice.
If a Note is represented by a Global Note, the Depository or its nominee
will be the holder of such Note and therefore will be the only entity that can
require the Company to repurchase Notes upon a Change in Control. To obtain
repayment with respect to such Note upon a Change in Control, the beneficial
owner of such Note must provide to the broker or other entity through which it
holds the beneficial interest in such Note (i) a Change in Control Purchase
Notice signed by such beneficial owner, and such signature must be guaranteed by
a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust
company having an office or correspondent in the United States and (ii)
instructions to such broker or other entity to notify the Depository of such
beneficial owner's desire to cause the Company to repurchase such Notes. Such
broker or other entity will provide to the Paying Agent (i) a Change in Control
Purchase Notice received from such beneficial owner and (ii) a certificate
satisfactory to the Paying Agent from such broker or other entity that it
represents such beneficial owner. Such broker or other entity will be
responsible for disbursing any payments it receives upon the repurchase of such
Notes by the Company.
Payment of the Change in Control Purchase Price for a Note in certificated
form (a "Certificated Note") for which a Change in Control Purchase Notice has
been delivered and not withdrawn is conditioned upon delivery of such Note
(together with necessary endorsements) to the Paying Agent at its office in The
City of New York, or any other office of the Paying Agent maintained for such
purpose, at any time (whether prior to, on or after the Change in Control
Purchase Date) after the delivery of such Change in Control Purchase Notice.
Payment of the Change in Control Purchase Price for such Note will be made
promptly following the later of the Change in Control Purchase Date or the time
of delivery of such Note.
If the Paying Agent holds, in accordance with the terms of the Indenture,
money sufficient to pay the Change in Control Purchase Price of a Note on the
Business Day following the Change in Control Purchase Date for such Note, then,
on and after such date, interest on such Note will cease to accrue, whether or
not such Note is delivered to the Paying Agent, and all other rights of the
Holder shall terminate (other than the right to receive the Change in Control
Purchase Price upon delivery of the Note).
Under the Indenture, a "Change in Control" means an event or series of
events by which (i) CMS Energy ceases to beneficially own, directly or
indirectly, at least 80% of the total voting power of all classes of Capital
Stock then outstanding of Consumers (whether arising from issuance of securities
of the Company or Consumers, any direct or indirect transfer of securities by
CMS Energy or Consumers, any merger, consolidation, liquidation or dissolution
of CMS Energy or Consumers or otherwise); or (ii) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as such term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person or group shall be deemed to have "beneficial
ownership" of all shares that such person or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 30% of the Voting Stock of CMS
Energy; or (iii) CMS Energy consolidates with or merges into another corporation
or directly or indirectly conveys, transfers or leases all or substantially all
of its assets to any person, or any corporation consolidates with or merges into
CMS Energy, in either event pursuant to a transaction in which the outstanding
Voting Stock of CMS Energy is changed into or exchanged for cash,
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securities, or other property, other than any such transaction where (A) the
outstanding Voting Stock of CMS Energy is changed into or exchanged for Voting
Stock of the surviving corporation and (B) the holders of the Voting Stock of
CMS Energy immediately prior to such transaction retain, directly or indirectly,
substantially proportionate ownership of the Voting Stock of the surviving
corporation immediately after such transaction.
The Indenture requires CMS Energy to comply with the provisions of Rule
13e-4 and any other tender offer rules under the Exchange Act which may then be
applicable and file Schedule 13E-4 or any other schedule required thereunder in
connection with any offer by CMS Energy to purchase Notes at the option of
Holders upon a Change in Control. The Change in Control purchase feature of the
Notes may in certain circumstances make more difficult or discourage a takeover
of CMS Energy and, thus, the removal of incumbent management. The Change in
Control purchase feature, however, is not the result of management's knowledge
of any specific effort to accumulate shares of its common stock or to obtain
control of the Company by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. Instead, the Change in Control purchase feature is a customary term
contained in similar debt offerings and the terms of such feature result from
negotiations between CMS Energy and the Agents. Management has no present
intention to propose any anti-takeover measures although it is possible that CMS
Energy could decide to do so in the future.
No Note may be repurchased by the Company as a result of a Change of
Control if there has occurred and is continuing an Event of Default described
under "Events of Default" below (other than a default in the payment of the
Change in Control Purchase Price with respect to the Notes). In addition, the
Company's ability to purchase Notes may be limited by its financial resources
and its inability to raise the required funds because of restrictions on
issuance of securities contained in other contractual arrangements.
REPAYMENT UPON DEATH
The Pricing Supplement relating to any Note will indicate whether the
holder of such Note will have the Survivor's Option. SEE THE PRICING SUPPLEMENT
TO DETERMINE WHETHER THE SURVIVOR'S OPTION APPLIES TO ANY PARTICULAR NOTE.
Pursuant to exercise of the Survivor's Option, if applicable, the Company
will repay any Note (or portion thereof) properly tendered for repayment by or
on behalf of the person (the "Representative") that has authority to act on
behalf of the deceased owner of the beneficial interest in such Note under the
laws of the appropriate jurisdiction (including, without limitation, the
personal representative or executor of such deceased beneficial owner) at a
price equal to 100% of the principal amount of the beneficial interest of the
deceased owner in such Note plus accrued interest to the date of such repayment,
subject to the following limitations. Notwithstanding the foregoing, the
Survivor's Option will not be available to persons who are surviving joint
tenants or surviving tenants by the entirety. The Company may, in its sole
discretion, limit the aggregate principal amount of Notes as to which exercises
of the Survivor's Option will be accepted in any calendar year (the "Annual Put
Limitation") to one percent (1%) of the outstanding principal amount of the
Notes as of the end of the most recent fiscal year, but not less than $500,000
in any such calendar year, or such greater amount as the Company in its sole
discretion may determine for any calendar year, and may limit to $100,000, or
such greater amount as the Company in its sole discretion may determine for any
calendar year, the aggregate principal amount of Notes (or portions thereof) as
to which exercise of the Survivor's Option will be accepted in such calendar
year with respect to any individual deceased owner of beneficial interests in
such Notes (the "Individual Put Limitation"). Moreover, the Company will not
make principal repayments pursuant to exercise of the Survivor's Option in
amounts that are less than $1,000, and, in the event that the limitations
described in the preceding sentence would result in the partial repayment of any
Note, the principal amount of such Note remaining outstanding after repayment
must be at least $1,000 (the minimum authorized denomination of the Notes). Any
Note (or portion thereof) tendered pursuant to exercise of the Survivor's Option
may be withdrawn by a written request by the Representative of the deceased
owner received by the Trustee prior to its repayment.
Each Note (or portion thereof) that is tendered pursuant to valid exercise
of the Survivor's Option will be accepted promptly in the order all such Notes
are tendered, except for any Note (or portion thereof) the
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acceptance of which would contravene (i) the Annual Put Limitation, if applied,
or (ii) the Individual Put Limitation, if applied, with respect to the relevant
individual deceased owner of beneficial interests therein. If, as of the end of
any calendar year, the aggregate principal amount of Notes (or portions thereof)
that have been accepted pursuant to exercise of the Survivor's Option for such
year, has not exceeded the Annual Put Limitation, if applied, for such year, any
exercise(s) of the Survivor's Option with respect to Notes (or portions thereof)
not accepted during such calendar year because such acceptance would have
contravened the Individual Put Limitation, if applied, with respect to an
individual deceased owner of beneficial interests therein will be accepted in
the order all such Notes (or portions thereof) were tendered, to the extent that
any such exercise would not exceed the Annual Put Limitation for such calendar
year. Any Note (or portion thereof) accepted for repayment pursuant to exercise
of the Survivor's Option will be repaid no later than the first Interest Payment
Date that occurs 20 or more calendar days after the date of such acceptance.
Each Note (or any portion thereof) tendered for repayment that is not accepted
in any calendar year due to the application of the Annual Put Limitation will be
deemed to be tendered in the following calendar year in the order in which all
such Notes (or portions thereof) were originally tendered, unless any such Note
(or portion thereof) is withdrawn by the Representative for the deceased owner
prior to its repayment. In the event that a Note (or any portion thereof)
tendered for repayment pursuant to valid exercise of the Survivor's Option is
not accepted, the Trustee will deliver a notice by first-class mail to the
registered Holder thereof at its last known address as indicated in the Security
Register that states the reasons such Note (or portion thereof) has not been
accepted for repayment.
Subject to the foregoing, in order for a Survivor's Option to be validly
exercised with respect to any Note (or portion thereof), the Trustee must
receive from the Representative of the deceased owner (i) a written request for
repayment signed by the Representative, and such signature must be guaranteed by
a member firm of a registered national securities exchange or of the NASD or a
commercial bank or trust company having an office or correspondent in the United
States, (ii) if such Note is not represented by a Global Note as described
below, tender of the Note (or portion thereof) to be repaid, (iii) appropriate
evidence satisfactory to the Company and the Trustee that (A) the Representative
has authority to act on behalf of the deceased beneficial owner, (B) the death
of such beneficial owner has occurred and (C) the deceased was the owner of a
beneficial interest in such Note at the time of death, (iv) if applicable, a
properly executed assignment or endorsement, and (v) if the beneficial interest
in such Note is held by a nominee of the deceased beneficial owner, a
certificate satisfactory to the Trustee from such nominee attesting to the
deceased's ownership of a beneficial interest in such Note. All questions as to
the eligibility or validity of any exercise of the Survivor's Option will be
determined by the Company, in its sole discretion, which determinations will be
final and binding on all parties.
If a Note is represented by a Global Note, the Depository or its nominee
will be the Holder of such Note and therefore will be the only entity that can
exercise the Survivor's Option for such Note. To obtain repayment pursuant to
exercise of the Survivor's Option with respect to such Note, the Representative
must provide to the broker or other entity through which the beneficial interest
in such Note is held by the deceased owner (i) the documents described in
clauses (i) and (iii) of the preceding paragraph and (ii) instructions to such
broker or other entity to notify the Depository of such Representative's desire
to obtain repayment pursuant to exercise of the Survivor's Option. Such broker
or other entity will provide to the Trustee (i) the documents received from the
Representative referred to in clause (i) of the preceding sentence and (ii) a
certificate satisfactory to the Trustee from such broker or other entity stating
that it represents the deceased beneficial owner. Such broker or other entity
will be responsible for disbursing any payments it receives pursuant to exercise
of the Survivor's Option to the appropriate Representative. See "Book-Entry
System."
A REPRESENTATIVE MAY OBTAIN THE FORMS USED TO EXERCISE THE SURVIVOR'S
OPTION FROM THE CHASE MANHATTAN BANK, THE TRUSTEE, AT 450 WEST 33RD STREET, 15TH
FLOOR, NEW YORK, NEW YORK 10001-2697, ATTENTION: GLOBAL TRUST SERVICES, DURING
NORMAL BUSINESS HOURS.
PAYMENT AND PAYING AGENTS
Payments of principal, premium, if any, and interest on Notes represented
by a Global Note will be made to the Depository through such Paying Agent or
Paying Agents in The City of New York as the Company may
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designate from time to time or by wire transfer to the Depository. See
"Book-Entry System." Payments of principal, premium, if any, and interest on
Certificated Notes will be made upon surrender of such Notes at the office of
such Paying Agent or Paying Agents in The City of New York as the Company may
designate from time to time, except that at the option of the Company, payment
of any interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
The principal corporate trust office of The Chase Manhattan Bank, located
at 450 West 33rd Street, 15th Floor, New York, New York 10001-2697, has been
designated as the Company's sole Paying Agent for payments with respect to the
Notes. The Company may at any time designate additional Paying Agents or rescind
the designation of any Paying Agent or approve a change in the office through
which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each Place of Payment for the Notes.
BOOK-ENTRY SYSTEM
The Notes will be issued initially in the form of one or more Global Notes
that will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC"), which will act as securities depository for the Notes.
The Notes will be issued as fully-registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). DTC and any other depository which
may replace DTC as depository for the Notes are sometimes referred to herein as
the "Depository."
Upon issuance, all Notes having the same issue date, interest rate,
redemption provisions, provisions for repurchase at the option of the Holder,
stated maturity and other provisions will be represented by one or more Global
Notes. Except under the limited circumstances described below, Notes represented
by Global Notes will not be exchangeable for Certificated Notes.
So long as the Depository, or its nominee, is the registered owner of a
Global Note, such Depository or such nominee, as the case may be, will be
considered the sole registered holder of the individual Notes represented by
such Global Note for all purposes under the Indenture. Payments of principal of
and premium, if any, and any interest on individual Notes represented by a
Global Note will be made to the Depository or its nominee, as the case may be,
as the registered holder of such Global Note. Except as set forth below, owners
of beneficial interests in a Global Note will not be entitled to have any of the
individual Notes represented by such Global Note registered in their names, will
not receive or be entitled to receive physical delivery of any such Note and
will not be considered the registered holder thereof under the Indenture,
including, without limitation, for purposes of consenting to any amendment
thereof or supplement thereto as described in this Prospectus.
The following is based upon information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants ("Direct
Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the NASD. Access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of
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<PAGE> 15
each Note ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected
to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Notes, except in the event that
use of the book-entry system for one or more Notes is discontinued.
To facilitate subsequent transfers, all Global Notes deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Global Notes with DTC and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the
Notes; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Notes are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, DTC's practice is to determine by lot the amount
of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to Notes.
Under its usual procedures, DTC mails an Omnibus Proxy to the Company as
soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the payable
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the
payable date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such
Participant and not of DTC, any Agents, or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving 90 days' notice to the
Company or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Certificated Notes are
required to be printed and delivered in exchange for the Notes represented
by the Global Notes held by the DTC. See "Certificated Notes."
In addition, the Company may decide to discontinue use of the system
of book-entry transfers through DTC (or a successor securities depository).
In that event, Certificated Notes will be printed and delivered in exchange
for the Notes represented by the Global Notes held by DTC. See
"Certificated Notes."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC. The Company believes such information to be
reliable, but the Company takes no responsibility for the accuracy thereof.
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None of the Company, any Agents, the Trustee, any paying agent or the
registrar for the Notes will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CERTIFICATED NOTES
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by the Company by the
earlier of (i) 90 days from the date the Company receives notice to the effect
that the Depository is unwilling or unable to act, or the Company determines
that the Depository is unable to act or (ii) the effectiveness of the
Depository's resignation or failure to fulfill its duties as Depository, the
Company will issue Certificated Notes in exchange for the Notes represented by
the Global Notes held by the Depository. In addition, the Company may at any
time and in its sole discretion determine not to have Notes represented by a
Global Note and, in such event, will issue individual Certificated Notes in
exchange for the Notes represented by the Global Note. In either instance, the
owner of a beneficial interest in a Note represented by a Global Note will be
entitled to have such Note registered in its name and will be entitled to
physical delivery of such Note in certificated form. Individual Certificated
Notes so issued will be issued in fully registered form, without coupons, in one
or more authorized denominations as described above under "General."
Certificated Notes will be exchangeable for other Certificated Notes of any
authorized denominations and of a like aggregate principal amount and tenor.
Certificated Notes may be presented for exchange as provided above, and may
be presented for registration of transfer (duly endorsed, or accompanied by a
duly executed written instrument of transfer), at the office of The Chase
Manhattan Bank, the Trustee, in The City of New York, (the "Security Registrar")
or at the office of any other transfer agent designated by the Company for such
purpose with respect to the Notes and referred to in the applicable Pricing
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. Such transfer or exchange
will be effected upon the Security Registrar or such other transfer agent, as
the case may be, being satisfied with the documents of title and identity of the
person making the request. If a Pricing Supplement refers to any transfer agents
(in addition to the Security Registrar) designated by the Company with respect
to the Notes, the Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Company will be required to maintain a
transfer agent in each Place of Payment for the Notes. The Company may at any
time designate additional transfer agents with respect to the Notes.
The Company will not be required to (i) issue, register the transfer of or
exchange Certificated Notes during a period beginning at the opening of business
15 days before the selection of Notes to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; or (ii)
register the transfer of or exchange any Certificated Note, or portion thereof,
called for redemption, except the unredeemed portion of any Certificated Note
being redeemed in part.
If a Certificated Note is mutilated, destroyed, lost or stolen, it may be
replaced at the corporate trust office or agency of the Trustee in The City of
New York upon payment by the Holder of such expenses as may be incurred by the
Company and the Trustee in connection therewith and the furnishing of such
evidence and indemnity as the Company and the Trustee may require. Mutilated
Notes must be surrendered before new Notes will be issued.
CERTAIN RESTRICTIVE COVENANTS
The Indenture contains, among others, the covenants described below.
Certain capitalized terms used below are defined herein under the heading
"Certain Definitions."
Limitation on Consolidated Indebtedness. The Indenture provides that so
long as any of the Notes are Outstanding and until the Notes are rated BBB- or
above (or an equivalent rating) by Standard & Poor's and
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<PAGE> 17
one Other Rating Agency, at which time the Company will be permanently released
from the provisions of this "Limitation on Consolidated Indebtedness", the
Company shall not, and shall not permit any Restricted Subsidiary to, issue,
create, assume, guarantee, incur or otherwise become liable for (collectively,
"issue"), directly or indirectly, any Indebtedness unless (a) the Consolidated
Coverage Ratio of the Company and its Consolidated Subsidiaries for the four
consecutive fiscal quarters immediately preceding the issuance of such
Indebtedness (as shown by a pro forma consolidated income statement of the
Company and its Consolidated Subsidiaries for the four most recent fiscal
quarters ending at least 30 days prior to the issuance of such Indebtedness
after giving effect to (i) the issuance of such Indebtedness and (if applicable)
the application of the net proceeds thereof to refinance other Indebtedness as
if such Indebtedness was issued at the beginning of the period, (ii) the
issuance and retirement of any other Indebtedness since the first day of the
period as if such Indebtedness was issued or retired at the beginning of the
period and (iii) the acquisition of any company or business acquired by the
Company or any Subsidiary of the Company since the first day of the period
(including giving effect to the pro forma historical earnings of such company or
business), including any acquisition which will be consummated contemporaneously
with the issuance of such Indebtedness, as if in each case such acquisition
occurred at the beginning of the period) exceeds a ratio of 1.6 to 1.0 and (b)
immediately after giving effect to the issuance of such Indebtedness and (if
applicable) the application of the net proceeds thereof to refinance other
Indebtedness, the Consolidated Leverage Ratio shall not exceed a ratio of 0.75
to 1.0.
The foregoing limitation is subject to exceptions for certain revolving
Indebtedness to banks provided that the aggregate outstanding principal amount
of such revolving Indebtedness shall not exceed $1,000,000,000, Indebtedness
outstanding on the date of the original Indenture, certain refinancings and
Indebtedness of the Company to a Subsidiary or by a Subsidiary to the Company.
Limitation upon Restricted Payments. The Indenture provides that, so long
as any of the Notes are Outstanding and until the Notes are rated BBB- or above
(or an equivalent rating) by Standard & Poor's and one Other Rating Agency, at
which time the Company will be permanently released from the provisions of this
"Limitation upon Restricted Payments", the Company will not, and will not permit
any of its Restricted Subsidiaries, directly or indirectly, to, (i) declare or
pay any dividend or make any distribution on the Capital Stock of the Company to
the direct or indirect holders of the Company's Capital Stock (except dividends
or distributions payable solely in Non-Convertible Capital Stock of the Company
or in options, warrants or other rights to purchase such Non-Convertible Capital
Stock and except dividends or distributions payable to the Company or a
Subsidiary) or (ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company (any such dividend, distribution, purchase,
redemption, repurchase, other acquisition or retirement, being hereinafter
referred to as a "Restricted Payment") if at any time the Company or such
Subsidiary makes such Restricted Payment: (1) an Event of Default, or an event
that with the lapse of time or the giving of notice or both would constitute an
Event of Default, shall have occurred and be continuing (or would result
therefrom); or (2) the aggregate amount of such Restricted Payment and all other
Restricted Payments made since 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 the Company from
the issue or sale of or contribution with respect to its Capital Stock after
September 30, 1993.
The foregoing provisions will not prohibit: (i) dividends or other
distributions paid in respect of any class of Capital Stock issued by the
Company in connection with the acquisition of any business or assets by the
Company or a Restricted Subsidiary where the dividends or other distributions
with respect to such Capital Stock are payable solely from the net earnings of
such business or assets; (ii) any purchase or redemption of Capital Stock of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or
Exchangeable Stock); (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividends would have
complied with this covenant; or (iv) payments pursuant to the Tax Sharing
Agreement.
Limitations on Certain Liens. The Indenture provides that so long as any of
the Notes are outstanding, the Company shall not create, incur, assume or suffer
to exist any Lien or any other type of arrangement
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intended to or having the effect of conferring upon a creditor of the Company or
any Subsidiary of the Company a preferential interest upon or with respect to
the Capital Stock of Consumers, Enterprises or CMS NOMECO Oil & Gas Co.
("NOMECO") without making effective provision whereby the Notes shall be (so
long as such creditor shall be so secured) equally and ratably secured. The
foregoing does not apply to (a) Liens securing Indebtedness of the Company,
provided that on the date such Liens are created, and after giving effect to
such Indebtedness, the aggregate principal amount at maturity of all of the
secured Indebtedness of the Company shall not exceed 10% of Consolidated Assets
on such date or (b) certain liens for taxes, pledges to secure workman's
compensation, other statutory obligations and certain support obligations not to
exceed $30 million at any one time outstanding, certain materialmen's,
mechanic's and similar liens and certain purchase money liens.
The foregoing limitations regarding Consolidated Indebtedness, Restricted
Payments and Liens do not apply to Consumers, the Company's largest Subsidiary.
In addition, they do not currently limit transactions by any of the Company's
other Subsidiaries because none of such Subsidiaries would currently fall under
the definition of Restricted Subsidiaries.
Limitation on Transactions with Affiliates. The Indenture provides that so
long as any of the Notes are Outstanding, the Company may not, directly or
indirectly, conduct any business or enter into any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with an Affiliate unless the terms of
such business, transaction or series of transactions are as favorable to the
Company as terms that could be obtainable at the time for a comparable
transaction or series of related transactions in arm's-length dealings with an
unrelated third person. This covenant shall not apply to (i) any compensation
paid to officers and directors of the Company which has been approved by the
Board of Directors of the Company or (ii) loans to the Company or an Affiliate
pursuant to a global cash management program, which loans mature within one year
from the date thereof.
Limitation on Consolidation, Merger, Sale or Conveyance. The Indenture
provides that so long as any of the Notes are Outstanding, the Company shall not
consolidate with or merge into any other person or sell, lease or convey its
property as an entirety or substantially as an entirety unless, upon any such
consolidation, merger, sale, lease or conveyance, and after giving effect
thereto, (i) the person formed by such consolidation or into which the Company
shall have been merged or which shall have acquired such property (the
"Continuing Entity") shall be a corporation and shall have expressly assumed all
of the Company's obligations under the Notes and the Indenture, and (ii) no
Event of Default, or an event that, with the lapse of time or the giving of
notice or both, would become an Event of Default under the Indenture shall have
happened and be continuing. The Indenture also provides that so long as any of
the Notes are Outstanding and until the Notes are rated BBB- or above (or an
equivalent rating) by Standard & Poor's and one Other Rating Agency, at which
time the Company will be permanently released from such provisions, the Company
shall not consolidate with or merge into any other person or sell, lease or
convey its property as an entirety or substantially as an entirety unless, upon
any such consolidation, merger, sale, lease or conveyance, and after giving
effect thereto, (i) the Consolidated Net Worth of the Continuing Entity shall be
at least equal to the Consolidated Net Worth of the Company immediately prior to
the transaction and (ii) the Continuing Entity would be entitled to incur at
least $1 of additional Indebtedness (other than revolving Indebtedness to banks)
without violating the restriction set forth in "-- Limitations on Consolidated
Indebtedness" above.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made thereto for the full definition of all such terms,
as well as any other terms used herein for which no definition is provided.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct or cause the direction of the management and policies of such person,
directly or indirectly, whether through the ownership of voting
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securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Amortization Expense" means, for any period, amounts recognized during
such period as amortization of capital leases, depletion, nuclear fuel, goodwill
and assets classified as intangible assets in accordance with generally accepted
accounting principles.
"Capital Lease Obligations" of a person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or assets to
which such lease relates.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interest in
(however designated) corporate stock, including any Preferred Stock or Letter
Stock; provided that Hybrid Preferred Securities shall not be considered Capital
Stock for purposes of this definition.
"Consolidated Assets" means, at any date of determination, the aggregate
assets of the Company and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Consolidated Capital" means, at any date of determination, the sum of (a)
Consolidated Indebtedness, (b) consolidated equity of the common stockholders of
the Company and the Consolidated Subsidiaries, (c) consolidated equity of the
preference stockholders of the Company and the Consolidated Subsidiaries, (d)
consolidated equity of the preferred stockholders of the Company and the
Consolidated Subsidiaries and (e) the aggregate of all Hybrid Preferred
Securities, in each case, determined at such date in accordance with generally
accepted accounting principles.
"Consolidated Coverage Ratio" with respect to any period means the ratio of
(i) the aggregate amount of Operating Cash Flow for such period to (ii) the
aggregate amount of Consolidated Interest Expense for such period.
"Consolidated Indebtedness" means at any date of determination, the
aggregate Indebtedness of the Company and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles, provided, however, that Consolidated Indebtedness shall
not include any subordinated debt owned by any Hybrid Preferred Securities
Subsidiary.
"Consolidated Interest Expense" means, for any period, the total interest
expense in respect of Consolidated Indebtedness of the Company and its
Consolidated Subsidiaries, including, without duplication, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) cash and noncash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of discount) and (vii) interest expense in
respect of obligations of other persons deemed to be Indebtedness of the Company
or any Consolidated Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness, provided, however, that Consolidated Interest Expense shall
exclude any costs otherwise included in interest expense recognized on early
retirement of debt.
"Consolidated Leverage Ratio" means, at any date of determination, the
ratio of Consolidated Indebtedness to Consolidated Capital.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income of
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any person if such person is not a Subsidiary, except that (A) the Company's
equity in the net income of any such person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such person during such period to the Company or a Consolidated
Subsidiary as a dividend or other distribution and (B) the Company's equity in a
net loss of any such person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income of any person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; and (iii) any gain or loss realized upon
the sale or other disposition of any property, plant or equipment of the Company
or its Consolidated Subsidiaries which is not sold or otherwise disposed of in
the ordinary course of business and any gain or loss realized upon the sale or
other disposition of any Capital Stock of any person.
"Consolidated Net Worth" of any person means the total of the amounts shown
on the consolidated balance sheet of such person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such person not more
than 90 days prior to the taking of any action for the purpose of which the
determination is being made (and adjusted for any material events since such
date), as (i) the par or state value of all outstanding Capital Stock plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable to
Exchangeable Stock.
"Consolidated Subsidiary" means, any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Company in accordance with
generally accepted accounting principles.
"Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock nor Redeemable Stock).
"Hybrid Preferred Securities" means any preferred securities issued by a
Hybrid Preferred Securities Subsidiary, where such preferred securities have the
following characteristics:
(i) such Hybrid Preferred Securities Subsidiary lends substantially all
of the proceeds from the issuance of such preferred securities to the
Company or Consumers in exchange for subordinated debt issued by the
Company or Consumers, respectively;
(ii) such preferred securities contain terms providing for the deferral of
distributions corresponding to provisions providing for the deferral
of interest payments on such subordinated debt; and
(iii) the Company or Consumers (as the case may be) makes periodic interest
payments on such subordinated debt, which interest payments are in
turn used by the Hybrid Preferred Securities Subsidiary to make
corresponding payments to the holders of the Hybrid Preferred
Securities.
"Hybrid Preferred Securities Subsidiary" means any business trust (or
similar entity) (i) all of the common equity interest of which is owned (either
directly or indirectly through one or more wholly-owned Subsidiaries of the
Company or Consumers) at all times by the Company or Consumers, (ii) that has
been formed for the purpose of issuing Hybrid Preferred Securities and (iii)
substantially all of the assets of which consist at all times solely of
subordinated debt issued by the Company or Consumers (as the case may be) and
payments made from time to time on such subordinated debt.
"Indebtedness" of any person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is responsible or
liable; (ii) all Capital Lease Obligations of such person; (iii) all obligations
of such person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) all obligations of such person for the reimbursement of any
obligor or any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such
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person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third Business
Day following receipt by such person of a demand for reimbursement following
payment on the letter of credit); (v) all obligations of the type referred to in
clauses (i) through (iv) of other persons and all dividends of other persons for
the payment of which, in either case, such person is responsible or liable as
obligor, guarantor or otherwise; and (vi) all obligations of the type referred
to in clauses (i) through (v) of the other persons secured by any Lien on any
property or asset of such person (whether or not such obligation is assumed by
such person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured.
"Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Subsidiary against
fluctuations in interest rates.
"Letter Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is intended to
reflect the separate performance of certain of the businesses or operations
conducted by such corporation or any of its subsidiaries.
"Lien" means any lien, mortgage, pledge, security interest, conditional
sale, title retention agreement or other charge or encumbrance of any kind.
"Net Proceeds" means, with respect to any issuance or sale or contribution
in respect of Capital Stock, the aggregate proceeds of such issuance, sale or
contribution, including the fair market value (as determined by the Board of
Directors and net of any associated debt and of any consideration other than
Capital Stock received in return) of property other than cash received by the
Company, net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof, provided, however, that if such fair market
value as determined by the Board of Directors of property other than cash is
greater than $25 million, the value thereof shall be based upon an opinion from
an independent nationally recognized firm experienced in the appraisal or
similar review of similar types of transactions.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
"Operating Cash Flow" means for any period, with respect to the Company and
its Consolidated Subsidiaries, the aggregate amount of Consolidated Net Income
after adding thereto Consolidated Interest Expense (adjusted to include costs
recognized on early retirement of debt), income taxes, depreciation expense,
Amortization Expense, any noncash amortization of debt issuance costs, any
nonrecurring, noncash charges to earnings and any negative accretion
recognition.
"Other Rating Agency" means any one of Duff & Phelps Credit Rating Co.,
Fitch Investors Service, L.P. or Moody's Investors Service, Inc., and any
successor to any of these organizations which is a nationally recognized
statistical rating organization.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation; provided that Hybrid Preferred Securities shall not be considered
"Preferred Stock" for purposes of this definition.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed prior to the first anniversary of the Maturity of any
Outstanding Notes or is redeemable at the option of the holder thereof at any
time prior to the first anniversary of the Maturity of any Outstanding Notes.
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"Restricted Subsidiary" means any Subsidiary (other than Consumers and its
subsidiaries) of the Company which at the time of determination had assets
which, as of the date of the Company's most recent quarterly consolidated
balance sheet, constituted at least 10% of the total Consolidated Assets of the
Company and its Consolidated Subsidiaries and any other Subsidiary which from
time to time is designated a Restricted Subsidiary by the Board of Directors of
the Company, provided that no Subsidiary may be designated a Restricted
Subsidiary if, immediately after giving effect thereto, an Event of Default, or
an event that, with the lapse of time or the giving of notice or both, would
constitute an Event of Default, would exist or the Company and its Restricted
Subsidiaries could not incur at least $1 of additional Indebtedness under the
restriction set forth under "-- Limitations on Consolidated Indebtedness" above
and (i) any such Subsidiary so designated as a Restricted Subsidiary must be
organized under the laws of the United States or any state thereof; (ii) more
than 80% of the Voting Stock of such Subsidiary must be owned of record and
beneficially by the Company or a Restricted Subsidiary; (iii) such Restricted
Subsidiary must be a Consolidated Subsidiary; and (iv) such Subsidiary must not
therefore have been designated as a Restricted Subsidiary.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division
of McGraw Hill Inc., and any successor thereto which is a nationally recognized
statistical rating organization, or if such entity shall cease to rate the Notes
or shall cease to exist and there shall be no such successor thereto, any other
nationally recognized statistical rating organization selected by the Company
which is acceptable to the Trustee.
"Subsidiary" means any corporation of which more than 50% of the
outstanding Voting Stock is at the time directly or indirectly owned by the
parent company and/or one or more companies which are themselves subsidiaries of
such parent company. "Subsidiary" means a subsidiary of the Company.
"Tax Sharing Agreement" means the Amended and Restated Agreement for the
Allocation of Income Tax Liabilities and Benefits, dated as of January 1, 1994,
as amended or supplemented from time to time, by and among the Company, each of
the members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
the Notes: (a) default in the payment of interest upon any Note when such
interest becomes due and payable and continuance of such default for 30 days;
(b) default in the payment of all or any part of the principal of (or premium,
if any, on) any Note when it becomes due and payable at its Maturity; (c)
default in the performance of any covenants of the Company in the Indenture,
continued for 60 days after written notice as provided in the Indenture; (d) a
default or event of default in respect of any Indebtedness of the Company shall
occur which results in the acceleration of $25,000,000 or more of the principal
amount of such Indebtedness or Indebtedness of the Company in excess of
$25,000,000 shall not be paid at maturity thereof, which default shall not have
been waived by the holder or holders of such Indebtedness within 30 days of such
default; (e) entry of final judgments against the Company aggregating in excess
of $25,000,000 which remain undischarged or unbonded for a period (during which
execution shall not be effectively stayed) of 60 days; (f) certain events in
bankruptcy, insolvency or reorganization involving the Company. Subject to the
provisions of the Indenture relating to the duties of the Trustee in case an
Event of Default shall occur and be continuing, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders of Notes, unless such Holders shall
have offered to the Trustee reasonable indemnity.
If an Event of Default with respect to the Notes shall occur and be
continuing, (i) either the Trustee or the Holders of at least a majority in
aggregate principal amount of the Outstanding Notes may accelerate the maturity
of the Outstanding Notes and (ii) the Holders of not less than a majority of the
aggregate outstanding principal amount of the Outstanding Notes, may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee; provided,
however, that after any such acceleration, but before a judgment or decree for
payment of the money due has been obtained, the Holders of not less than a
majority in aggregate principal amount of
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Outstanding Notes may, under certain circumstances, rescind and annul such
acceleration and its consequences if all Events of Default, other than the
non-payment of accelerated principal, have been cured or waived as provided in
the Indenture. For information as to waiver of defaults, see "Modification of
the Indenture."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
satisfactory indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder of
a Note for the enforcement of payment of the principal of or interest on such
Note on or after the respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
MODIFICATION OF THE INDENTURE
Modification and amendment of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities affected thereby,
provided that no such modification or amendment may, without the consent of the
Holder of each Outstanding Security affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of principal or interest on,
any Outstanding Security, or reduce the principal amount thereof or rate of
interest thereon, or change the Redemption Price applicable to any Security; (b)
change the place or currency of payment of principal of or premium, if any, or
interest on any Security; (c) impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity (or in the case
of redemption or repayment at the option of the Holder, on or after the
Redemption Date or Repayment Date) thereof; (d) reduce the above-stated
percentage of Outstanding Securities necessary to modify or amend the Indenture
or the consent of whose Holders is required for any waiver or reduce the
percentage required for quorum or voting; or (e) modify the foregoing
requirements. The Holders of at least a majority in aggregate principal amount
of the Outstanding Securities of a series may waive past defaults with respect
to such series except payment defaults and the Holders of at least a majority in
aggregate principal amount of all Outstanding Securities may waive compliance by
the Company with certain covenants.
Modification and amendment of the Indenture may be made by the Company and
the Trustee without the consent of any Holder, for any of the following
purposes: (a) to evidence the succession of another corporation to the Company;
(b) to add to the covenants of the Company for the benefit of the Holders of all
or any series of Securities; (c) to add additional Events of Default for the
benefit of the Holders of all or any series of Securities; (d) to change any
provision of the Indenture to facilitate the issuance of Securities in bearer
form; (e) to change or eliminate any provision of the Indenture, provided no
Security Outstanding of any series is entitled to the benefit of such provision;
(f) to secure the Securities; (g) to establish the form or terms of Securities;
(h) to provide for the acceptance of appointment by a successor Trustee; (i) to
cure any ambiguity, defect or inconsistency in the Indenture provided such
action does not materially adversely affect the interests of Holders of
Securities or (j) to supplement provisions of the Indenture to permit or
facilitate the defeasance or discharge of a series of Securities provided that
such action shall not materially adversely affect the interests of Holders of
Securities of such Series.
DEFEASANCE, COVENANT DEFEASANCE AND DISCHARGE
The Indenture provides that the Company may elect (A) to defease and be
discharged from all of its obligations with respect to the Securities or any
series thereof (except for the obligations to register the transfer or exchange
of such Securities, to replace temporary or mutilated, destroyed, lost or stolen
Securities, to maintain an office or agency in respect of such Securities, to
hold monies for repayment in trust and certain
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other obligations), and that the provisions of the Indenture will no longer be
in effect with respect to such Securities (except as aforesaid) ("defeasance")
or (B) to be released from its covenants set forth in the Indenture with respect
to, among other things, limitation on Consolidated Indebtedness, limitation on
Restricted Payments, limitation on transactions with Affiliates, limitation on
Liens, limitation on consolidation, merger, sale or conveyance, repurchase
obligations on Change in Control, ("covenant defeasance") with respect to such
Securities, upon in the case of (A) or (B) the deposit with the Trustee (or
other qualifying trustee), in trust for such purpose, of money and/or U.S.
Government Obligations which, without any reinvestment, but through the
scheduled payment of principal and interest in accordance with their terms, will
provide money in an amount sufficient to pay the principal of (and premium, if
any) and interest on the Notes on the scheduled due dates therefor. Such a trust
may only be established, if, among other things, (x) such defeasance or covenant
defeasance will not result (whether immediately or with notice or lapse of time
or both) in a breach or violation of, or constitute a default under, any
material agreement to which the Company is party or by which it is bound and (y)
the Company has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of such Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to 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 or covenant defeasance had not occurred. Such
Opinion of Counsel, in the case of defeasance under clause (A) above, must refer
to and be based upon a ruling of the Internal Revenue Service or a change in
applicable federal income tax law occurring after the date of the Indenture.
In the event the Company exercises its option to effect a covenant
defeasance with respect to the Securities of any series as described in the
preceding paragraph and such Securities of such series are declared due and
payable because of the occurrence of any Event of Default (other than an Event
of Default caused by failure to comply with the covenants that are defeased),
and the amount of money and U.S. Government Obligations on deposit with the
Trustee would be insufficient to pay amounts due on the Securities of such
series at the time of the acceleration resulting from such Event of Default, the
Company will remain liable for such payments.
The Company may obtain a discharge of the Indenture with respect to all
Securities then Outstanding (except for certain obligations to register the
transfer or exchange of such Securities, to replace temporary or mutilated,
destroyed, lost or stolen Securities, to maintain an office or agency in respect
of such Securities, to hold monies for repayment in trust and certain other
obligations) when all Securities theretofore authenticated and delivered have,
with certain exceptions, been delivered to the Trustee for cancellation or by
irrevocably depositing in trust with the Trustee money, and/or U.S. Government
Obligations which, without any reinvestment but through the scheduled payment of
principal and interest 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 Securities on the Stated Maturities or redemption dates thereof, provided
that such Securities are by their terms due and payable, or are to be called for
redemption, within one year and the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of such Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such discharge and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
discharge had not occurred.
THE TRUSTEE UNDER THE INDENTURE
The Chase Manhattan Bank is the Trustee under the Indenture. The Company
maintains banking and borrowing relations with The Chase Manhattan Bank.
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<PAGE> 25
PLAN OF DISTRIBUTION
The Agents will be J. W. Korth & Company and such other agents as the
Company may designate from time to time. The names of any additional Agents will
be disclosed in a supplement to this Prospectus. Subject to the terms and
conditions set forth in a distribution agreement (the "Distribution Agreement")
among the Company and the Agents, offers to purchase the Notes will be solicited
from time to time by the Agents on behalf of the Company, and the Notes may be
offered on a continuous basis by the Company through the Agents. Each Agent will
agree to use its reasonable best efforts to solicit purchases of the Notes.
Following such solicitation, the Agents, severally and not jointly, may purchase
Notes from the Company, for their own account, from time to time. Notes acquired
by any Agent will be offered either directly to the public or to certain dealers
that will then reoffer the Notes to the public. Sales by an Agent to any dealer
will be made pursuant to an agreement between such Agent and dealer (each a
"Dealer Agreement").
A Pricing Supplement with respect to each offering of Notes by the Company
will set forth, among other things, the name of each Agent participating in the
distribution of such Notes, the price to public of such Notes and the proceeds
to the Company from such sale, any underwriting discounts or commissions and
other items constituting Agent's compensation, and any discounts or concessions
allowed, reallowed or paid to dealers. After any initial public offering of
Notes pursuant to a Pricing Supplement, the price to the public of such Notes,
and the related underwriting discount and selling concession, may be changed.
The Agent has advised the Company that all initial offers by any Agents and
by any dealers, unless otherwise set forth in the applicable Pricing Supplement,
are proposed to be made at prices equal to 100% of the principal amount of the
Notes being sold, less, in the case of an offer by an Agent to a dealer, a price
concession not in excess of the amount set forth in the applicable Pricing
Supplement. Offers and sales by Agents or dealers subsequent to the initial
offering may be at varying prices determined at the time of sale.
The Notes will not be listed on any securities exchange and will not be
traded, when issued, on any other established trading market. Any Agent may make
a market in the Notes, but no Agent is obligated to do so. Any market-making so
undertaken may be discontinued at any time without notice. There can thus be no
assurance that a secondary market for the Notes will exist or as to the
liquidity or continuation of any such market. Moreover, the Company reserves the
right to withdraw, cancel or modify the offer made hereby at any time without
notice, and any such withdrawal, cancellation or modification also may adversely
affect the liquidity of the Notes.
In order to facilitate the offering of the Notes, any Agent may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, any Agent may overallot in connection with the offering,
creating a short position in the Notes for its own account. In addition, to
cover overallotments or to stabilize the price of the Notes, any Agent may bid
for, and purchase, the Notes in the open market. Any of these activities may
stabilize or maintain the market price of the Notes above independent market
levels. The Agents are not required to engage in these activities, and may end
any of these activities at any time.
The Distribution Agreement provides, and the terms of each Dealer Agreement
will provide, that the obligations of any Agent or dealer to purchase Notes will
be subject to certain conditions precedent. The nature of the Agent's
obligations under the Distribution Agreement is such that an Agent will be
obligated to purchase all of the Notes offered by any Pricing Supplement naming
such Agent if any of such Notes are purchased. The Company, or any Agent with
respect to itself, may terminate the Distribution Agreement at any time upon
written notice.
The Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or to contribute to payments that the Agents may be required
to make in respect thereof.
25
<PAGE> 26
LEGAL OPINIONS
Opinions as to the legality of the Notes will be rendered for CMS Energy by
Michael D. VanHemert, Assistant General Counsel for CMS Energy. Certain legal
matters with respect to the Notes will be passed upon by Reid & Priest LLP, New
York, N.Y., counsel for the Agents. 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 schedules of CMS Energy as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31 and June 30, 1997, Arthur Andersen LLP has
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports thereon state that
they did not audit and they did not express an opinion on that interim
consolidated financial information. Accordingly, the degree of reliance on their
reports on that information should be restricted in light of the limited nature
of the review procedures applied. In addition, the accountants are not subject
to the liability provisions of Section 11 of the Securities Act, for their
reports on the unaudited interim consolidated financial information because
those reports are not a "report" or "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act.
Future consolidated financial statements of 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.
26
<PAGE> 27
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR ANY PRICING SUPPLEMENT IN CONNECTION WITH THE OFFERINGS COVERED BY
THIS PROSPECTUS AND ANY PRICING SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY AGENT. NEITHER THIS PROSPECTUS NOR ANY PRICING SUPPLEMENT
CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES TO WHICH THIS PROSPECTUS AND ANY PRICING SUPPLEMENT RELATE IN ANY
JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PRICING SUPPLEMENT
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
Prospectus Summary................... 4
The Company.......................... 7
Use of Proceeds...................... 7
Ratio of Earnings to Fixed Charges... 8
Description of General Term
Notes(R)........................... 8
Plan of Distribution................. 25
Legal Opinions....................... 26
Experts.............................. 26
</TABLE>
======================================================
======================================================
$200,000,000
CMS ENERGY
CORPORATION
GENERAL TERM NOTES(R),
SERIES D
------------------------
PROSPECTUS
SEPTEMBER 17, 1997
------------------------
J.W. KORTH & COMPANY
======================================================
