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Filed Pursuant to Rule 424(b)(5)
Registration Number 333-48899
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 1, 1998
4,500,000 Shares of
[CMS ENERGY LOGO]
Common Stock
(par value $.01 per share)
------------------
Salomon Smith Barney Inc. has agreed to purchase the common stock at a price of
$46.189 per share. We will receive $207,850,500 in net proceeds before deducting
our expenses of approximately $50,000. Our stock is listed on the New York Stock
Exchange under the symbol "CMS". On November 9, 1998, the last reported sales
price of our stock on the New York Stock Exchange was $47.500 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Salomon Smith Barney Inc. may offer the shares of common stock from time to time
on the New York Stock Exchange or other stock exchanges, in the over-the-counter
market or through negotiated transactions. These sales may be at prevailing
market prices or as otherwise negotiated.
We expect that the shares of common stock will be ready for delivery in
book-entry form only through the facilities of The Depository Trust Company in
New York, New York on or about November 16, 1998.
SALOMON SMITH BARNEY
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The date of this Prospectus Supplement is November 10, 1998.
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PROSPECTUS SUPPLEMENT SUMMARY
This summary may not contain all the information that may be important to you.
You should read the entire Prospectus Supplement and the accompanying
Prospectus, including the financial data and related notes, before making an
investment decision. The terms "CMS", "our" and "we" as used in this Prospectus
Supplement and the Prospectus refer to "CMS Energy Corporation" and its
subsidiaries and predecessors.
CMS ENERGY CORPORATION
We are the parent holding company of Consumers Energy Company ("Consumers") and
CMS Enterprises Company ("Enterprises"). Consumers is a public utility that
provides gas or electricity to almost six million of the nine and a half million
residents in Michigan's Lower Peninsula. Enterprises is engaged in several
domestic and international energy-related businesses including:
- - Oil and gas exploration and production;
- - Acquisition, development and operation of independent power production
facilities;
- - Storage, transmission and processing of natural gas;
- - Energy marketing, services and trading; and
- - International energy distribution.
Our consolidated operating revenues in 1997 were $4,781 million. 53% of our
operating revenue was generated from our electric utility operations, 25% from
our gas utility operations, 14% from our marketing, services and trading
operations, 4% from our independent power production and other non-utility
activities, 2% from natural gas transmission, storage and processing and 2% from
our oil and gas exploration and production activities.
Consumers' consolidated operations account for a majority of our total assets,
revenues and income. Consumers' service areas include automotive, metal,
chemical, food and wood products and a diversified group of other industries. At
December 31, 1997, Consumers provided service to 1.6 million electric customers
and 1.5 million gas customers. Consumers' consolidated operating revenues in
1997 were $3,769 million. 67% of Consumers' operating revenue was generated from
its electric utility business, 32% from its gas utility business and 1% from its
non-utility business.
Our principal executive offices are located a Fairlane Plaza South, Suite 1100,
330 Town Center Drive, Dearborn, Michigan 48126-2712. Our telephone number is
(313) 436-9200.
RECENT DEVELOPMENTS
On November 2, 1998 we announced the execution of a Stock Purchase Agreement
with PanEnergy Corp and certain other wholly owned subsidiaries of Duke Energy
Company under which we would buy all of the outstanding stock of Panhandle
Eastern Pipe Line Company, Panhandle Storage Company and Trunkline LNG Company.
We will pay for the stock of these companies by making a cash payment of $1.9
billion and assuming existing debt of $300 million.
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The companies we are purchasing are primarily engaged in the interstate
transmission and storage of natural gas. We will acquire the following assets:
- - Mainline gas pipeline systems extending 1,400 miles from the Texas Gulf Coast
to Michigan and 1,300 miles from the Texas, Oklahoma and Kansas producing
areas to Michigan;
- - 337 miles of pipeline in the offshore Gulf of Mexico;
- - 70 billion cubic feet of underground gas storage facilities; and
- - Liquified natural gas regasification facilities and port.
We expect to have $1.9 billion in bridge financing commitments available to fund
the purchase price. We expect to permanently finance the acquisition at or near
the closing with approximately $900 million from the sale of our common stock
and/or securities convertible into common stock and approximately $1 billion
from the issuance of debt securities by the companies we are acquiring. The
closing is scheduled for January 4, 1999, but may be delayed by mutual
agreement. The closing is subject to certain contingencies including the Hart-
Scott-Rodino pre-merger notification clearance. Please refer to our Form 8-K
dated November 3, 1998 for further information concerning this transaction.
On November 5, 1998 we announced that we will participate with DTE Energy
Services in constructing a 550-megawatt natural gas fired cogeneration facility
which will serve all of the electric and steam needs of the Rouge Steel Company
and Ford Motor Company at the Rouge complex located in Dearborn, Michigan. We
will hold a 70% ownership interest in the project which will have a construction
cost of $240 million and require approximately 100 million cubic feet of gas per
day. Full operation of the project is scheduled for 2001.
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THE OFFERING
<TABLE>
<S> <C>
Shares offered.......................... 4,500,000 shares of CMS Energy Common
Stock.
CMS Energy Common Stock outstanding as
of November 9, 1998................... 103,476,048 shares
Use of Proceeds......................... The net proceeds will be used for
general corporate purposes, including
capital expenditures, investment in
subsidiaries, working capital and
repayment of debt.
CMS Energy Common Stock Prices:
Reported Ranges -- 1998............... High Low
(First Quarter).................... $47.313-- $41.875
(Second Quarter)................... $47.188-- $40.688
(Third Quarter).................... $47.438-- $38.750
(Fourth Quarter to November 9,
1998)............................ $47.813-- $46.188
Reported last sale on NYSE -- November
9, 1998............................... $47.500
Current indicated annual dividend rate
per share............................. $1.32
NYSE symbol............................. CMS
</TABLE>
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CMS ENERGY HISTORICAL SELECTED FINANCIAL INFORMATION
The following summary financial information has been derived from our historical
consolidated financial statements. Selected unaudited financial data for the
nine months ended September 30, 1997 and 1998 include all adjustments
(consisting only of normal recurring adjustments) that we consider necessary for
a fair presentation of consolidated operating results and financial position for
such interim periods. Results for the interim periods are not necessarily
indicative of results for the full year. Certain historical selected financial
information presented herein has been restated as a result of a 1998 change in
accounting for investments in oil and gas properties. Please refer to our Form
8-K dated July 30, 1998 incorporated by reference in the accompanying
Prospectus. Other data presented herein which was not previously restated within
the Form 8-K has also been restated to reflect the change in accounting method.
The financial information set forth below should be read in conjunction with our
consolidated financial statements, related notes and other financial information
incorporated by reference in the accompanying Prospectus. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue....................... $3,890 $4,324 $4,781 $3,347 $3,792
Pretax operating income................. 608 676 716 540 607
Operating expenses...................... 3,282 3,648 4,065 2,807 3,185
Income taxes............................ 113 137 108 99 86
Consolidated net income before
cumulative effect of change in
accounting principle.................. $ 195 $ 224 $ 244 $ 185 $ 191
Cumulative effect of change in
accounting for property taxes, net of
tax(1)................................ -- -- -- -- 43
Consolidated net income................. 195 224 244 185 234
Net income attributable to common
stocks(1)
CMS Energy............................ $ 192 $ 210 $ 229 $ 176 $ 226
Class G............................... 3 14 15 9 8
Average common shares outstanding
CMS Energy............................ 89 92 96 95 101
Class G............................... 8 8 8 8 8
Earnings per average common share(1)
CMS Energy Common Stock
Basic.............................. $ 2.16 $ 2.27 $ 2.39 $ 1.85 $ 2.23
Diluted............................ $ 2.16 $ 2.26 $ 2.37 $ 1.83 $ 2.19
Class G Common Stock Basic and
Diluted............................ .38 1.82 1.84 1.13 1.04
Dividends declared per common share
CMS Energy............................ $ .90 $ 1.02 $ 1.14 $ .84 $ .93
Class G............................... .56 1.15 1.21 .90 .945
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 56 $ 58 $ 69 $ 136 $ 101
Net plant and property................ 4,814 5,029 5,144 5,130 5,270
Total assets.......................... 7,909 8,363 9,508 9,221 9,930
Long-term debt, excluding current
maturities.......................... 2,906 2,842 3,272 3,060 4,248
Non-current portion of capital
leases.............................. 106 103 75 82 77
Notes payable......................... 341 333 382 394 302
Other liabilities..................... 2,881 3,093 3,361 3,405 2,750
Company-obligated mandatorily
redeemable Trust Preferred
Securities of Consumers Energy
Company Financing I(2).............. -- 100 100 100 100
Company-obligated mandatorily
redeemable Trust Preferred
Securities of Consumers Energy
Company Financing II(2)............. -- -- 120 120 120
Preferred Stock of subsidiary......... 356 356 238 238 238
Company-obligated convertible Trust
Preferred Securities of CMS Energy
Trust I(3).......................... -- -- 173 173 173
Common stockholders' equity........... $1,319 $1,536 $1,787 $1,649 $1,922
</TABLE>
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(1) During the first quarter of 1998, our subsidiary, Consumers, implemented a
change in the method of accounting for property taxes which had the
cumulative effect of increasing other income by $66 million, including $18
million attributable to the portion of our business relating to Class G
Common Stock. Earnings, net of tax, increased for CMS Energy Common Stock
and Class G Common Stock by $43 million and $12 million, respectively, or
$.40 per share for CMS Energy Common Stock and $.36 per share for Class G
Common Stock.
(2) The primary asset of Consumers Power Company Financing I is $103 million
principal amount of 8.36% subordinated deferrable interest notes due 2015
from Consumers. The primary asset of Consumers Energy Company Financing II
is $124 million principal amount of 8.20% subordinated deferrable interest
notes due 2027 from Consumers.
(3) The primary asset of CMS Energy Trust I is $178 million principal amount of
7.75% convertible subordinated debentures due 2027 from us.
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USE OF PROCEEDS
CMS Energy Corporation ("CMS Energy") will apply the net proceeds from the sale
of the shares of the Common Stock, par value $.01 per share ("CMS Energy Common
Stock"), being offered hereby (the "Shares") for its general corporate purposes,
including capital expenditures, investment in subsidiaries, working capital and
repayment of debt.
SUPPLEMENTAL DESCRIPTION OF CAPITAL STOCK
The following information concerning the Shares supplements, and should be read
in conjunction with, the statements under "Description of Securities -- Capital
Stock" in the accompanying Prospectus.
GENERAL
The authorized capital stock of CMS Energy consists of 250 million shares of CMS
Energy Common Stock, 60 million shares of Class G Common Stock, no par value
("Class G Common Stock"), and 10 million shares of CMS Energy Preferred Stock,
$.01 par value ("Preferred Stock"). At November 9, 1998, there were outstanding
103,476,048 shares of CMS Energy Common Stock and 8,425,256 shares of Class G
Common Stock; no shares of Preferred Stock are issued or outstanding. The CMS
Energy Common Stock and the Class G Common Stock are sometimes together referred
to herein as the "Common Stock."
On January 1, 1995, the businesses of Consumers were internally reorganized into
separate electric utility and gas utility strategic business units. The initial
public offering of Class G Common Stock also occurred in July 1995, whereby
7,520,000 shares of Class G Common Stock were sold. The Class G Common Stock is
intended to reflect the separate performance of the gas distribution, storage
and transportation businesses conducted by Consumers and Michigan Gas Storage, a
subsidiary of Consumers (such businesses, collectively, have been attributed to
the "Consumers Gas Group"). The CMS Energy Common Stock is intended to reflect
the performance of all businesses of CMS Energy and its subsidiaries, including
the businesses of the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to the outstanding shares of Class G Common
Stock.
CERTAIN CONSIDERATIONS RELATING TO TWO CLASSES OF COMMON STOCK
Although CMS Energy is aware of no precedent concerning the manner in which
Michigan law would be applied to a board of directors' duties in the context of
multiple classes of common stock with divergent interests, CMS Energy believes
that a Michigan court would hold that a board of directors owes an equal duty to
all shareholders regardless of class and does not have separate or additional
fiduciary duties to the holders of separate classes of stock. That duty requires
each director to act in good faith with the care an ordinarily prudent person in
a like position would exercise under similar circumstances and in a manner such
director reasonably believes to be in the best interests of CMS Energy. CMS
Energy believes that, under Michigan law, a good faith determination by a
disinterested and adequately informed board, or a committee thereof, which
discharges such duty and which the directors honestly believe is in the best
interest of CMS Energy, would be a defense to any challenge by or on behalf of
the holders of either class of Common Stock to the Board of Directors'
determination that could have a disparate effect on each class of Common Stock.
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Disproportionate ownership interests of members of the Board of Directors in one
or both classes of Common Stock of CMS Energy or disparate values of the classes
of Common Stock of CMS Energy could create or appear to create potential
conflicts of interest when directors are faced with decisions that could have
different implications for different classes. Nevertheless, CMS Energy believes
that a director would be able to discharge his or her fiduciary duties even if
his or her interests in shares of the classes of Common Stock were
disproportionate and/or had disparate values. CMS Energy's Performance Incentive
Stock Plan permits the issuance of options for, or other incentive awards
consisting of, any class of Common Stock of CMS Energy.
The existence of separate classes of Common Stock could give rise to occasions
when the interests of the holders of Class G Common Stock and holders of CMS
Energy Common Stock may diverge or appear to diverge and determinations of the
Board of Directors could have disparate effects on each class of Common Stock.
Examples include determinations by the Board of Directors to (i) pay or omit the
payment of dividends on either class of Common Stock, (ii) attribute the
proceeds of issuances of securities of CMS Energy either to CMS Energy or to the
equity of the Consumers Gas Group, (iii) attribute consideration to be received
by common stockholders in connection with a merger or consolidation including
CMS Energy to either or both classes of Common Stock, (iv) exchange CMS Energy
Common Stock for all outstanding Class G Common Stock at a premium, (v) approve
dispositions of assets of CMS Energy attributable to the Consumers Gas Group and
(vi) make operational and financial decisions with respect to either CMS Energy
or the Consumers Gas Group that could be considered to be detrimental to the
other. Any determinations made in compliance with applicable law by the Board of
Directors under any of the provisions in the Articles of Incorporation, as
defined in the accompanying Prospectus, would be final and binding on all
shareholders of CMS Energy.
The Board of Directors has adopted certain management and accounting policies
with respect to dividends and the allocation of corporate expenses, assets and
liabilities (including contingent liabilities) including, without limitation,
its intention to attribute assets, liabilities and expenses between the
Consumers Gas Group and CMS Energy only on an arm's-length basis, any and all of
which could be modified or rescinded in the sole discretion of the Board of
Directors without approval of the shareholders. The Board of Directors may also
adopt additional policies depending upon the circumstances, including policies
that would have disparate impacts upon holders of Class G Common Stock and
holders of CMS Energy Common Stock.
The majority of the accounting allocation policies of CMS Energy have a long
standing basis whereby the financial statements for CMS Energy and the Consumers
Gas Group are prepared based upon consistent methods that management believes
are reasonable and appropriate to reflect their respective financial positions,
results of operations and cash flows. Where appropriate, the financial
statements of the Consumers Gas Group reflect the assets, liabilities, revenues
and expenses directly related to it. However, in instances where common accounts
(containing both electric and gas activities) are not readily attributable to a
single business segment, management allocates to CMS Energy and the Consumers
Gas Group financial statements based on certain measures of business activities,
such as gas revenues, salaries, other operations and maintenance expenditures,
number of gas customers in relationship to total utility customers and/or
functional use surveys. Management believes such allocations are reasonable.
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DIVIDENDS; RESTRICTIONS AND LIMITATIONS ON ABILITY TO PAY DIVIDENDS
Reference is made to "Description of Securities -- Common Stock -- Dividend
Rights and Policy; and "-- Primary Source of Funds of CMS Energy; Restrictions
on Sources of Dividends" in the accompanying Prospectus for information about
CMS Energy's dividend policies and other matters relating to dividends on the
Shares, including restrictions and limitations on CMS Energy's ability to pay
such dividends.
The high and low sales prices of CMS Energy Common Stock as reported in the Wall
Street Journal under "New York Stock Exchange Composite Transactions" for the
first quarter of 1998, the second quarter of 1998, the third quarter of 1998 and
the fourth quarter of 1998 through November 9, 1998 were $47.313 and $41.875,
$47.188 and $40.688, and $47.438 and $38.750 and $47.813 and $46.188,
respectively. The quarterly cash dividends declared per share for CMS Energy
Common Stock in each of the third and fourth quarters of 1998 were $.33 per
share.
In addition to the restrictions and limitations on payment of dividends
described in the accompanying Prospectus, CMS Energy is subject to the following
contractual restrictions on its ability to pay dividends:
Under the terms of a $725 million Credit Agreement (the "Credit Agreement")
among CMS Energy and certain banks, CMS Energy has agreed that it will not, and
will not permit certain of its subsidiaries, directly or indirectly, to (i)
declare or pay any dividend, payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any share of
any class of capital stock of CMS Energy or such subsidiaries, or (ii) purchase,
redeem, retire or otherwise acquire for value any such capital stock (a
"Restricted Payment"), unless: (1) no event of default under the Credit
Agreement, or event that with the lapse of time or giving of notice would
constitute such an event of default, has occurred and is continuing, or would
occur as a result of such Restricted Payment and (2) after giving effect to any
such Restricted Payment, the aggregate amount of all such Restricted Payments
since September 30, 1993 shall not have exceeded the sum of: (a) $120,000,000,
(b) 100% of CMS Energy's consolidated net income (as defined in the Indenture
dated as of September 15, 1992, as amended and supplemented (the "Senior Debt
Indenture")) since September 30, 1993 to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such sum shall be a deficit, minus 100% of the deficit), and (c)
the aggregate net proceeds (as defined in the Senior Debt Indenture) received by
CMS Energy for the issuance or sale of, or contribution with respect to, its
capital stock subsequent to September 30, 1993. At September 30, 1998, CMS
Energy could pay cash dividends of $1,527 million pursuant to this restriction.
Under the terms of an Indenture dated as of September 15, 1992, as amended and
supplemented, between CMS Energy and NBD Bank, as Trustee, (the " Senior Debt
Indenture") pursuant to which CMS Energy's 8 1/8% Unsecured Notes Due 2002,
7 5/8% Unsecured Notes Due 2004, 7 3/8% Unsecured Notes Due 2000, and X-TRAS(sm)
Pass-Through Trust I Certificates Due 2005 were issued, 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 (as defined
therein), at which time CMS Energy will be permanently released from the
provisions of this limitation, CMS Energy has agreed that it 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 (as
defined in
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such Indenture) of CMS Energy to the direct or indirect holders of its Capital
Stock (except dividends or distributions payable solely in its Non-Convertible
Capital Stock (as defined in such Indenture) or in options, warrants or other
rights to purchase such Non-Convertible Stock and except dividends or
distributions payable to CMS Energy or a subsidiary; (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of CMS Energy, or (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity or scheduled repayment thereof, any Subordinated
Indebtedness (as defined in such Indenture) (any such dividend, distribution,
purchase, redemption, repurchase, defeasing, other acquisition or retirement
being hereinafter referred to as a "Senior Debt Indenture Restricted Payment")
if at the time CMS Energy or such Subsidiary makes such Senior Debt Indenture
Restricted Payment: (1) an Event of Default (as defined in such Indenture), 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 Senior Debt Indenture
Restricted Payment and all other Senior Debt Indenture Restricted Payments made
since May 6, 1997 would exceed the sum of: (a) $100,000,000 plus 100% of
Consolidated Net Income of CMS Energy (as defined in such Indenture) from May 6,
1997 to the end of the most recent fiscal quarter ending at least 45 days prior
to the date of such Senior Debt Indenture Restricted Payment (or, in case such
sum shall be a deficit, minus 100% of the deficit) and (b) the aggregate Net
Cash Proceeds received by CMS Energy (as defined in such Indenture) from the
issue or sale of or contribution with respect to its Capital Stock after May 6,
1997. At September 30, 1998, CMS Energy could pay cash dividends of $534 million
pursuant to this restriction.
The Indenture, dated as of January 15, 1994, as amended and supplemented,
between CMS Energy and The Chase Manhattan Bank, as Trustee (the "GTN
Indenture"), pursuant to which CMS Energy's General Term Notes, Series A, Series
B, Series C, Series D or Series E ("GTNs") have been issued, provides that so
long as any GTNs issued thereunder are outstanding and are rated BBB- or above
(or an equivalent rating) by Standard & Poor's and one Other Rating Agency (as
defined in such Indenture), at which time CMS Energy will be permanently
released from the provisions of this limitation, CMS Energy will not, and will
not permit any of its Restricted Subsidiaries (as defined in such Indenture),
directly or indirectly, to, (i) declare or pay any dividend or make any
distribution on the Capital Stock (as defined in such Indenture) (except
dividends or distributions payable solely in Non-Convertible Capital Stock (as
defined in such Indenture) of CMS Energy or in options, warrants or other rights
to purchase such Non-Convertible Capital Stock and except dividends or
distributions payable to CMS Energy or a Subsidiary (as defined in such
Indenture)) or (ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of CMS Energy (any such dividend, distribution, purchase,
redemption, repurchase, other acquisition or retirement, being hereinafter
referred to as a "GTN Restricted Payment") if at any time CMS Energy or such
Subsidiary makes such GTN Restricted Payment: (1) an Event of Default (as
defined in such Indenture), 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 GTN Restricted Payment and all other GTN Restricted Payments made
since September 30, 1993, would exceed the sum of: (a) $120,000,000 plus 100% of
Consolidated Net Income(as defined therein) from September 30, 1993 to the end
of the most recent fiscal quarter ending at least 45 days prior to the date of
such GTN Restricted Payment (or, in case such sum shall be a deficit, minus 100%
of the deficit) and (b) the aggregate Net Proceeds (as defined therein) received
by CMS Energy from the issue or sale of or contribution with respect to its
Capital Stock after
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September 30, 1993. At September 30, 1998, CMS Energy could pay cash dividends
of $1,527 million pursuant to this restriction.
The foregoing provisions relating to restricted payments do not prohibit: (i)
dividends or other distributions paid by CMS Energy in respect of the capital
stock issued in connection with the acquisition of any business or assets by CMS
Energy where such payments are payable solely from the net earnings of such
business or assets; (ii) any purchase or redemption of capital stock made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
capital stock of CMS Energy (other than certain 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
the aforementioned limitations; or (iv) payments pursuant to the tax sharing
agreement among CMS Energy and its subsidiaries.
In June 1997, a CMS Energy affiliated trust issued $172.5 million of 7 3/4%
convertible Trust Preferred Securities ("Preferred Securities"). The Preferred
Securities are convertible at the option of the holder thereof into shares of
CMS Energy Common Stock. Such Preferred Securities are convertible at an initial
conversion rate of 1.2255 shares of CMS Energy Common Stock for each Preferred
Security (equivalent to a purchase price of $40.80 per share of CMS Energy
Common Stock), subject to certain adjustments. On or after July 16, 2001, CMS
Energy may, at its option, cause the conversion rights of the holders of the
Preferred Securities to expire upon certain conditions.
Under the terms of the Indenture dated June 1, 1997 between CMS Energy and The
Bank of New York, as Trustee, as amended and supplemented (the "Subordinated
Debt Indenture") and the Guarantee Agreement dated June 20, 1997 among CMS
Energy and The Bank of New York relating to the Preferred Securities of CMS
Energy Trust I (the "Guarantee") pursuant to which the Preferred Securities and
the related Convertible Subordinated Debentures due 2027 ("Subordinated
Debentures") were issued, CMS Energy will not, and it will not cause any of its
subsidiaries to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
CMS Energy's capital stock, if at such time (i) there shall have occurred any
event of which CMS Energy has actual knowledge that (a) with the giving of
notice or the lapse of time, or both, would constitute an Event of Default (as
defined in such Indenture) and (b) in respect of which CMS Energy shall not have
taken reasonable steps to cure, (ii) CMS Energy shall be in default with respect
to its payment of any obligations under the Guarantee or (iii) CMS Energy shall
have given notice of its selection of an Extension Period (as defined in such
Indebtedness) as provided in the Subordinated Debt Indenture with respect to the
Subordinated Debentures and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
In addition, Michigan law prohibits payment of a dividend if, after giving it
effect, CMS Energy would not be able to pay its debts as they become due in the
usual course of business, or its total assets would be less than the sum of its
total liabilities plus, unless the articles permit otherwise, the amount that
would be needed, if CMS Energy were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution (including the rights of holders of Preferred Stock, if any). CMS
Energy's net assets available for payment of dividends under the Michigan
Business Corporation Act at September 30, 1998, were $1,920 million.
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HOLDING COMPANY STRUCTURE; RESTRICTIONS ON SOURCES OF DIVIDENDS
CMS Energy is a legal entity separate and distinct from its various
subsidiaries. As a holding company with no significant operations of its own,
the principal sources of its funds are dividends or other distributions from its
operating subsidiaries (in particular, Consumers), borrowings and sales of
equity. The ability of Consumers and other subsidiaries of CMS Energy to pay
dividends or make distributions to CMS Energy and, accordingly, the ability of
CMS Energy to pay dividends on its capital stock will depend on the earnings,
financial requirements, contractual restrictions of the subsidiaries of CMS
Energy, in particular Consumers, and other factors. CMS Energy's subsidiaries
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts on the Shares or to make any funds available
therefor, whether by dividends, loans or other payments.
Consumers' ability to pay dividends to CMS Energy is restricted by Consumer's
Articles of Incorporation and certain agreements to which it is a party, as
described under "Description of Securities -- Common Stock -- Primary Source of
Funds of CMS Energy; Restrictions on Sources of Dividends" in the accompanying
Prospectus.
Under the provisions of the Michigan Business Corporation Act, at September 30,
1998, Consumers' net assets available for payment of dividends were $1,610
million. Under the most restrictive of the conditions on dividend payments to
which Consumers is subject, and Consumers' dividend policies, in each case as
described herein and in the accompanying Prospectus, at September 30, 1998, $68
million of Consumers' retained earnings were available to pay cash dividends on
its common stock. In October 1998, Consumers declared a $68 million common
dividend to be paid in November 1998.
TRANSFER AGENT
CMS Energy Common Stock is transferable at the offices of Consumers Energy
Company, 212 W. Michigan Avenue, Jackson, MI 49201. The transfer agent and
registrar for CMS Energy Common Stock is CMS Energy.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), Salomon Smith
Barney Inc. (the "Underwriter") has agreed to purchase, and CMS Energy has
agreed to sell, the Shares. Subject to the terms of the Underwriting Agreement,
the Underwriter is committed to take and pay for all of the Shares if any such
Shares are taken.
The Underwriter proposes to offer the Shares from time to time for sale in one
or more transactions (which may involve block transactions) on the New York
Stock Exchange or otherwise, at market prices prevailing at the time of sale, at
prices related to prevailing market prices or at negotiated prices, subject to
prior sale when, as and if delivered to and accepted by the Underwriter. In
connection with the sale of the Shares, the Underwriter may be deemed to have
received compensation from CMS Energy in the form of underwriting discounts. The
Underwriter may effect such transactions by selling Shares to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from
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<PAGE> 13
the Underwriter and/or purchasers of such Shares for whom they may act as agents
or to whom they may sell as principal.
In connection with the sale of the Shares, the Underwriter may receive
compensation from purchasers of the Shares for whom it may act as agent or to
whom it may sell as principal in the form of commissions or discounts, in each
case in amounts which will not exceed those customary in the types of
transactions involved. The Underwriter and any dealers that participate in the
distribution of the Shares may be deemed to be underwriters, and any discounts
received by them from CMS Energy and any compensation received by them on resale
of the Shares by them may be deemed to be discounts and commissions under the
Securities Act of 1933, as amended (the "Securities Act").
In connection with the offering, the Underwriter may purchase and sell the
Shares in the open market. These transactions may include over-allotment
transactions and purchases to cover short positions created by the Underwriter
in connection with the offering. Short positions created by the Underwriter
involve the sale by the Underwriter of a greater number of Shares than they are
required to purchase from CMS Energy in the offering. The Underwriter also may
impose a penalty bid, whereby selling concessions allowed to broker-dealers in
respect of the Shares may be reclaimed by the Underwriter if such Shares are
repurchased by the Underwriter in covering transactions. These activities may
maintain or otherwise affect the market price of the Shares, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the New York Stock Exchange, in the over-the-counter market
or otherwise.
CMS Energy has agreed in the Underwriting Agreement not to offer, sell, contract
to sell or otherwise dispose of any shares of its Common Stock or any securities
convertible into or exercisable or exchangeable for its Common Stock, other than
the Shares, for a period of 60 days after the date of this Prospectus
Supplement, without the prior written consent of Salomon Smith Barney Inc.,
provided that CMS Energy may during such period, in a manner generally
consistent with past practices regarding the number of shares issued by CMS
Energy from time to time thereunder, issue shares of its Common Stock under its
Stock Purchase Plan, Performance Incentive Stock Plan, Employee Stock Ownership
Plan and Employee Savings and Incentive Plan.
CMS Energy has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act. From time to time the
Underwriter has been retained to provide, and continues to provide, investment
banking services to CMS Energy.
LEGAL OPINIONS
Opinions as to the legality of the Shares will be rendered for CMS Energy by
Michael D. Van Hemert, Assistant General Counsel for CMS Energy. Certain legal
matters with respect to the Shares will be passed upon by Skadden, Arps, Slate,
Meagher & Flom LLP. As of June 30, 1998, an attorney currently employed by
Skadden, Arps, Slate, Meagher & Flom LLP, and formerly employed by CMS Energy,
owned approximately 50,326 shares of CMS Energy Common Stock, 2000 shares of
Class G Common Stock, options to acquire approximately 142,000 shares of CMS
Energy Common Stock, 10 shares of Consumers $4.50 Series Preferred Stock, $100
par value, and $50,000 aggregate principal amount of certain
S-13
<PAGE> 14
debt securities issued by CMS Energy. As of June 30, 1998, Mr. VanHemert
beneficially owned approximately 2,785 shares of CMS Energy Common Stock.
EXPERTS
The consolidated financial statements and schedule of CMS Energy as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997 incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial information for the
periods ended March 31, June 30, and September 30, 1998 and 1997. Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
thereon states that they did not audit and they did not express an opinion on
that interim consolidated financial information. Accordingly, the degree of
reliance on their report on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the unaudited interim consolidated financial
information because that report is not a "report" or "part" of the registration
statement prepared or certified by the accountants within the meaning of
Sections 7 and 11 of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports thereon
of Arthur Andersen LLP also will be incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus in reliance upon the authority of
that firm as experts in giving those reports to the extent that said firm has
audited said consolidated financial statements and consented to the use of their
reports thereon.
S-14
<PAGE> 15
CMS ENERGY CORPORATION
CMS ENERGY COMMON STOCK
CLASS G COMMON STOCK
SUBORDINATED DEBENTURES
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
AND
CMS ENERGY TRUST II
TRUST PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY CMS ENERGY CORPORATION
------------------------
CMS Energy Corporation, a Michigan corporation ("CMS Energy"), may offer,
from time to time, (i) shares of Common Stock, par value $.01 per share ("CMS
Energy Common Stock"), (ii) shares of Class G Common Stock, no par value ("Class
G Common Stock"), (iii) unsecured subordinated debt securities (the
"Subordinated Debentures") consisting of debentures, convertible debentures,
notes and other unsecured evidence of indebtedness, (iv) Stock Purchase
Contracts ("Stock Purchase Contracts") to purchase CMS Energy Common Stock, and
(v) Stock Purchase Units ("Stock Purchase Units"), each representing ownership
of a Stock Purchase Contract and Subordinated Debentures or Trust Preferred
Securities or debt obligations of third parties, including U.S. Treasury
Securities, securing the holder's obligation to purchase the CMS Energy Common
Stock under the Stock Purchase Contract, or any combination of the foregoing, in
each case in amounts, at prices and on terms to be determined at or prior to the
time of sale. See "Description of Securities."
CMS Energy Trust II (the "Trust"), a statutory business trust formed under
the laws of the State of Delaware, may also offer, from time to time, trust
preferred securities ("Trust Preferred Securities") representing preferred
undivided beneficial interests in the assets of the Trust in amounts, at prices
and on terms to be determined at or prior to the time of sale. The undivided
common beneficial interests in the Trust will be owned by CMS Energy. The
proceeds from the offering of the Trust Preferred Securities and the sale of the
common securities may be contributed by the Trust to purchase from CMS Energy
Subordinated Debentures in an aggregate principal amount equal to the aggregate
liquidation preference of the Trust Preferred Securities, bearing interest at an
annual rate equal to the annual distribution rate of such Trust Preferred
Securities and having certain redemption terms which correspond to the
redemption terms for the Trust Preferred Securities. The Subordinated Debentures
will rank subordinate in right of payment to all of CMS Energy's Senior
Indebtedness (as defined herein). Distributions on the Trust Preferred
Securities may not be made unless the Trust receives corresponding interest
payments on the Subordinated Debentures from CMS Energy. CMS Energy will
irrevocably guarantee, on a subordinated basis and to the extent set forth
therein, with respect to the Trust Preferred Securities, if any, the payment of
distributions, the redemption price, including all accrued or deferred and
unpaid distributions, and payment on liquidation, but only to the extent of
funds on hand. The guarantee will be unsecured and will be subordinate to all
Senior Indebtedness of CMS Energy. Upon the occurrence of certain events
(subject to the conditions to be described in an accompanying Prospectus
Supplement), the Trust may be liquidated and the holders of the Trust Preferred
Securities could receive Subordinated Debentures in lieu of any liquidating cash
distribution.
Specific terms of the CMS Energy Common Stock, Class G Common Stock,
Subordinated Debentures, Stock Purchase Contracts, Stock Purchase Units, and
Trust Preferred Securities in respect of which this Prospectus is being
delivered (the "Offered Securities"), will be set forth in an accompanying
Prospectus Supplement or Supplements, together with the terms of the offering of
the Offered Securities, the initial price thereof and the net proceeds from the
sale thereof. The Prospectus Supplement will set forth with regard to the
particular Offered Securities, without limitation, the following: (i) in the
case of Subordinated Debentures, the designation, aggregate principal amount,
denomination, maturity, premium, if any, any exchange, conversion, redemption or
sinking fund provisions, interest rate (which may be fixed or variable), the
time or method of calculating interest payments, the right of CMS Energy, if
any, to defer payment or interest on the Subordinated Debentures and the maximum
length of such deferral, put options, if any, public offering price, ranking,
any listing on a securities exchange and other specific terms of the offering;
(ii) in the case of CMS Energy Common Stock or Class G Common Stock, the
designation, number of shares, public offering price and other specific terms of
the Offering, from the sale thereof; (iii) in the case of Trust Preferred
Securities, the designation, number of shares, liquidation preference per
security, initial public offering price, any listing on a securities exchange,
dividend rate (or method of calculation thereof), dates on which dividends shall
be payable and dates from which dividends shall accrue, any voting rights, any
redemption, exchange, conversion or sinking fund provisions and any other
rights, preferences, privileges, limitations or restrictions relating to a
specific series or the Trust Preferred Securities including a description of the
Guarantee (as defined herein), as the case may be; and (iv) in the case of Stock
Purchase Units, the specific terms of the Stock Purchase Contracts and any
Subordinated Debentures, Trust Preferred Securities, or debt obligations of
third parties securing the holders obligation to purchase CMS Energy Common
Stock and Class G Common Stock under the Stock Purchase Contracts, and the terms
of the offering and sale thereof. The offering price to the public of the
Offered Securities will be limited to $200,000,000 in the aggregate.
The outstanding CMS Energy Common Stock and Class G Common Stock is traded
on the New York Stock Exchange, Inc. ("NYSE"). CMS Energy Common Stock and Class
G Common Stock sold pursuant to a Prospectus Supplement accompanying this
Prospectus will also be listed for trading on the NYSE, subject to official
notice of issuance.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
CMS Energy intends to sell the Offered Securities through underwriters,
dealers, agents or directly to a limited number of purchasers. The names of, and
the Offered Securities to be purchased by or through, underwriters, dealers or
agents, if any, the compensation of such persons and other special terms in
connection with the offering and sale of such Offered Securities will be set
forth in the related Prospectus Supplement. See "Plan of Distribution" herein.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is April 1, 1998
<PAGE> 16
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND ANY INFORMATION
OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CMS ENERGY OR ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH THEY RELATE OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
CMS Energy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Information, as of particular dates, concerning
CMS Energy's directors and officers, their remuneration, the principal holders
of CMS Energy's securities and any material interest of such persons in
transactions with CMS Energy is disclosed in proxy statements distributed to
shareholders of CMS Energy and filed with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 500 West Madison Street, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a Web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding CMS Energy. The outstanding shares of
CMS Energy Common Stock and Class G Common Stock are listed on the NYSE and
reports, proxy statements and other information concerning CMS Energy may also
be inspected and copied at the offices of such exchange at 20 Broad Street, New
York, New York 10005.
No separate financial statements of the Trust have been included herein.
CMS Energy and the Trust do not consider that such financial statements would be
material to holders of Trust Preferred Securities because the Trust is a newly
organized special purposes entity, has no operating history and no independent
operations and is not engaged in, and does not propose to engage in, any
activity other than as described under "CMS Energy Trust II". Further, CMS
Energy believes that financial statements of the Trust are not material to the
holders of the Trust Preferred Securities since CMS Energy will guarantee the
Trust Preferred Securities such that the holders of the Trust Preferred
Securities, with respect to the payment of distributions and amounts upon
liquidation, dissolution and winding-up, are at least in the same position
vis-a-vis the assets of CMS Energy as a preferred stockholder of CMS Energy. CMS
Energy beneficially owns directly or indirectly all of the undivided beneficial
interests in the assets of the Trust (other than the beneficial interests
represented by the Trust Preferred Securities). See "CMS Energy Trust II,"
"Description of Securities -- Trust Preferred Securities" and "Description of
Securities -- The Guarantee." In future filings under the Exchange Act, an
audited footnote to CMS Energy's annual financial statements will state that the
Trust is wholly-owned by CMS Energy, that the sole assets of the Trust are the
Subordinated Debentures of CMS Energy having a specified aggregate principal
amount, and, considered together, the back-up undertakings, including the
Guarantee, constitute a full and unconditional guarantee by CMS Energy of the
Trust's obligations under the Trust Preferred Securities issued by the Trust.
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<PAGE> 17
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by CMS Energy (File No. 1-9513) with the
Commission pursuant to the Exchange Act are hereby incorporated by reference in
this Prospectus and shall be deemed to be a part hereof: (i) CMS Energy's Annual
Report on Form 10-K for the year ended December 31, 1997; and (ii) CMS Energy's
Registration Statement on Form 8-B/A dated November 21, 1996.
All documents subsequently filed by CMS Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act and prior to the termination of the
offering made by this Prospectus (the "Offering") shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof from
the date of filing of such documents (such documents, and the documents
enumerated above, being hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
CMS Energy undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, upon
the written or oral request of any such person, a copy of any and 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 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.
3
<PAGE> 18
CMS ENERGY CORPORATION
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
segment 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) storage, transmission and
processing of natural gas; (iv) energy marketing, services and trading; and (v)
international energy distribution.
CMS Energy's 1997 consolidated operating revenue was $4,787 million. This
consolidated operating revenue was derived from its electric utility operations
(approximately 53% or $2,515 million), its gas utility operations (approximately
25% or $1,204 million), marketing, services and trading (approximately 14% or
$692 million), independent power production and other non-utility activities
(approximately 4% or $181 million), natural gas transmission, storage and
processing (approximately 2% or $102 million), and oil and gas exploration and
production activities (approximately 2% or $93 million). Consumers' consolidated
operations in the electric and gas utility businesses account for the majority
of CMS Energy's total assets, revenue and income. The unconsolidated share of
non-utility independent power production, gas transmission and storage,
marketing services and trading, and international energy distribution revenue
for 1997 was $913 million.
Consumers is a public utility serving almost six million of Michigan's nine
and a half million residents in Michigan's Lower Peninsula. Consumers' service
area includes automotive, metal, chemical, food and wood products industries and
a diversified group of other industries. Consumers' 1997 consolidated operating
revenue of $3,769 million was derived approximately 67% ($2,515 million) from
its electric utility business, approximately 32% ($1,204 million) from its gas
utility business and approximately 1% ($50 million) from its non-utility
business. Consumers' rates and certain other aspects of its business are subject
to the jurisdiction of the Michigan Public Service Commission (the "MPSC") and
the Federal Energy Regulatory Commission.
CMS Energy and its subsidiaries routinely evaluate, invest in, acquire and
divest energy-related assets and/or businesses both domestically and
internationally. Consideration for such transactions may involve the delivery of
cash or securities.
The foregoing information concerning CMS Energy and it 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.
4
<PAGE> 19
CMS ENERGY TRUST II
CMS Energy Trust II is a statutory business trust formed under the Delaware
Business Trust Act (the "Trust Act") pursuant to: (i) a trust agreement executed
by CMS Energy, as sponsor, and the trustees of the Trust (the "CMS Trustees");
and (ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware. The trust agreement will be amended and restated in its
entirety (as so amended and restated, the "Trust Agreement") and will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). CMS Energy will directly or indirectly acquire common
securities of the Trust in an aggregate liquidation amount equal to
approximately 3% of the total capital of the Trust. The Trust exists for the
exclusive purposes of: (i) issuing the Trust Preferred Securities and common
securities (the "Common Securities" and, together with the Trust Preferred
Securities, the "Trust Securities") representing undivided beneficial interests
in the assets of the Trust; (ii) investing the gross proceeds of the Trust
Securities in the Subordinated Debentures; and (iii) engaging in only those
other activities necessary or incidental thereto. The Trust has a term of
approximately 30 years, but may terminate earlier as provided in the Trust
Agreement.
Pursuant to the Trust Agreement, the number of CMS Trustees will initially
be three. Two of the CMS Trustees (the "Administrative Trustees") will be
persons who are employees or officers of or who are affiliated with CMS Energy.
The third trustee will be a financial institution that is unaffiliated with CMS
Energy, which trustee will serve as property trustee under the Trust Agreement
and as indenture trustee for the purposes of compliance with the provisions of
the Trust Indenture Act (the "Property Trustee"). Initially, The Bank of New
York, a New York banking corporation, will be the Property Trustee until removed
or replaced by the holder of the Common Securities. For the purpose of
compliance with the provisions of the Trust Indenture Act, The Bank of New York
will also act as trustee (the "Guarantee Trustee") under the Guarantee and The
Bank of New York (Delaware) will act as the Delaware Trustee for the purposes of
the Trust Act (as defined herein), until removed or replaced by the holder of
the Common Securities. See "Description of Securities -- The Guarantee."
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the holders of the Trust Securities and the Property Trustee will
have the power to exercise all rights, powers and privileges under the
Subordinated Debt Indenture (as defined herein) as the holder of the
Subordinated Debentures. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Subordinated
Debentures for the benefit of the holders of the Trust Securities. The Property
Trustee will make payments of distributions and payments on liquidation,
redemption and otherwise to the holders of the Trust Securities out of funds
from the Property Account. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Trust Preferred Securities. CMS Energy, as the
direct or indirect holder of all the Common Securities, will have the right to
appoint, remove or replace any CMS Trustee and to increase or decrease the
number of CMS Trustees; provided, that the number of CMS Trustees shall be at
least three, a majority of which shall be Administrative Trustees. CMS Energy
will pay all fees and expenses related to the Trust and the offering of the
Trust Securities.
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Trust Agreement, the Trust Act and the Trust Indenture Act.
The trustee in the State of Delaware is The Bank of New York (Delaware),
White Clay Center, Route 273, Newark, Delaware 19711. The principal place of
business of the Trust shall be c/o CMS Energy Corporation, Fairlane Plaza South,
Suite 1100, 330 Town Center Drive, Dearborn, Michigan 48126-2712.
5
<PAGE> 20
USE OF PROCEEDS
The proceeds received by the Trust from the sale of its Trust Preferred
Securities or the Common Securities will be invested in the Subordinated
Debentures. As will be more specifically set forth in the applicable Prospectus
Supplement, CMS Energy will use such borrowed amounts and the net proceeds from
the sale of CMS Energy Common Stock, Class G Common Stock, Stock Purchase
Contracts, Stock Purchase Units and any Subordinated Debentures offered hereby
for its general corporate purposes, including capital expenditures, investment
in subsidiaries, working capital and repayment of debt.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratios of earnings to fixed charges and the ratios of earnings to fixed
charges and preferred stock dividends for each of the years ended December 31,
1993 through 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.......................... 1.88 2.01 1.94 2.07 1.88
Ratio of earnings to fixed charges and preferred stock
dividends................................................. 1.67 1.79 1.77 1.87 1.81
</TABLE>
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.
6
<PAGE> 21
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The following summary of certain rights of the holders of CMS Energy
capital stock does not purport to be complete and is qualified in its entirety
by express reference to the Restated Articles of Incorporation of CMS Energy
(the "Articles of Incorporation") and the By-Laws of CMS Energy, copies of which
are filed as exhibits to the Registration Statement of which this Prospectus is
a part, and by express reference to the Registration Statement on Form 8-B/A,
which is incorporated into this Prospectus by reference. See "Incorporation of
Certain Documents by Reference" herein.
The authorized capital stock of CMS Energy consists of 250 million shares
of CMS Energy Common Stock, 60 million shares of Class G Common, and 10 million
shares of CMS Energy Preferred Stock, $.01 par value ("Preferred Stock"). The
CMS Energy Common Stock and the Class G Common Stock are sometimes together
referred to herein as the "Common Stock."
COMMON STOCK
The Class G Common Stock is intended to reflect the separate performance of
the gas distribution, storage and transportation businesses conducted by
Consumers and Michigan Gas Storage, a subsidiary of Consumers (such businesses,
collectively, have been attributed to the "Consumers Gas Group"). The CMS Energy
Common Stock is intended to reflect the performance of all businesses of CMS
Energy and its subsidiaries, including the businesses of the Consumers Gas
Group, except for the interest in the Consumers Gas Group attributable to the
outstanding shares of Class G Common Stock.
DIVIDEND RIGHTS AND POLICY; RESTRICTIONS ON DIVIDENDS
Dividends on the CMS Energy Common Stock are paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
CMS Energy, including the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to the outstanding shares of the Class G Common
Stock, and other factors. Dividends are payable out of the assets of CMS Energy
legally available therefore, including the Available Class G Dividend Amount (as
defined in the Articles of Incorporation).
Dividends on the Class G Common Stock are paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
the Consumers Gas Group, and, to a lesser extent, CMS Energy as a whole.
Dividends are payable out of the lesser of (i) the assets of CMS Energy legally
available therefore and (ii) the Available Class G Dividend Amount. Although the
Available Class G Dividend Amount is intended to reflect the amount available
for dividends to holders of outstanding Class G Common Stock, it is also legally
available for dividends to holders of CMS Energy Common Stock.
CMS Energy, in the sole discretion of its Board of Directors could pay
dividends exclusively to the holders of CMS Energy Common Stock, exclusively to
the holders of Class G Common Stock, or to the holders of both of such classes
in equal or unequal amounts.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. As a holding company with no significant
operations of its own, the principal sources of its funds are dependent
primarily upon the earnings of its subsidiaries (in particular, Consumers),
borrowings and sales of equity. CMS Energy's ability to pay dividends, including
dividends on CMS Energy Common Stock and Class G Common Stock, is dependent
primarily upon the earnings of its subsidiaries and the distribution or other
payment of such earnings to CMS Energy in the form of dividends, loans or
advances and repayment of loans and advances from CMS Energy. Accordingly, the
ability of CMS Energy to pay dividends on its capital stock will depend on the
earnings, financial requirements, contractual restrictions of the subsidiaries
of CMS Energy, in particular, Consumers, and other factors. CMS Energy's
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts on the capital stock of CMS Energy
or to make any funds available therefor, whether by dividends, loans or other
payments
7
<PAGE> 22
Dividends on capital stock of CMS Energy are limited by Michigan law to
legally available assets of CMS Energy. Distributions on Common Stock may be
subject to the rights of the holders, if any, of the CMS Energy Preferred Stock.
There are restrictions on CMS Energy's ability to pay dividends contained
in certain revolving credit and term loan agreements, the Indenture dated as of
September 15, 1992, as amended and supplemented, between CMS Energy and NBD
Bank, as Trustee, and the Indenture dated as of January 15, 1994, as amended and
supplemented, between CMS Energy and The Chase Manhattan Bank, as Trustee. A
discussion of specific restrictions on CMS Energy's ability to pay dividends
will be set forth in an accompanying Prospectus Supplement pursuant to which
convertible Subordinated Debentures, convertible Trust Preferred Securities,
Stock Purchase Contracts, Stock Purchase Units, CMS Energy Common Stock or Class
G Common Stock are offered.
VOTING RIGHTS
The holders of CMS Energy Common Stock vote with the holders of Class G
Common Stock as a single class, except on matters which would be required by law
or the Articles of Incorporation to be voted on by class. Each holder of Common
Stock is entitled to one vote for each share of Common Stock held by such holder
on each matter voted upon by the shareholders. Such right to vote is not
cumulative. A majority of the votes cast by the holders of shares entitled to
vote thereon is sufficient for the adoption of any question presented, except
that certain provisions of the Articles of Incorporation relating to special
shareholder meetings, the removal, indemnification and liability of the Board of
Directors and the requirements for amending these provisions may not be amended,
altered, changed or repealed unless such amendment, alteration, change or repeal
is approved by the affirmative vote of at least 75% of the outstanding shares
entitled to vote thereon.
Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class, would
be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other corporation if such merger or
consolidation would adversely affect the powers or special rights of such class
of stock, and to authorize any amendment to the Articles of Incorporation that
would increase or decrease the aggregate number of authorized shares of such
class (except pursuant to Section 303 of the Michigan Business Corporation Act,
which, under certain circumstances, would enable the Board of Directors to
increase the number of authorized shares to satisfy the exchange features of the
Common Stock described below) or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely. The
Articles of Incorporation also provide that unless the vote or consent of a
greater number of shares shall then be required by law, the vote or consent of
the holders of a majority of all the shares of either class of Common Stock then
outstanding, voting as a separate class, will be necessary for authorizing,
effecting or validating the merger or consolidation of CMS Energy into or with
any other entity if such merger or consolidation would adversely affect the
powers or special rights of such class of Common Stock, either directly by
amendment to the Articles of Incorporation or indirectly by requiring the
holders of such class to accept or retain, in such merger or consolidation,
anything other than (i) shares of such class or (ii) shares of the surviving or
resulting corporation, having, in either case, powers and special rights
identical to those of such class prior to such merger or consolidation. The
effect of these provisions may be to permit the holders of a majority of the
outstanding shares of either class of Common Stock to block any such merger or
amendment which would adversely affect the powers or special rights of holders
of such class of Common Stock.
PREEMPTIVE RIGHTS
The Articles of Incorporation provide that holders of Common Stock will
have no preemptive rights to subscribe for or purchase any additional shares of
the capital stock of CMS Energy of any class now or hereafter authorized, or
Preferred Stock, bonds, debentures, or other obligations or rights or options
convertible into or exchangeable for or entitling the holder or owner to
subscribe for or purchase any shares of capital stock, or any rights to exchange
shares issued for shares to be issued.
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LIQUIDATION RIGHTS
In the event of the dissolution, liquidation or winding up of CMS Energy,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of CMS Energy and after there shall have been paid
or set apart for the holders of Preferred Stock the full preferential amounts
(including any accumulated and unpaid dividends) to which they are entitled, the
holders of CMS Energy Common Stock and Class G Common Stock shall be entitled to
receive, on a per share basis, the same portion of all of the assets of CMS
Energy remaining for distribution to the holders of Common Stock, regardless of
whether or not any of such assets were attributed to the Consumers Gas Group.
Neither the merger or consolidation of CMS Energy into or with any other
corporation, nor the merger or consolidation of any other corporation into or
with CMS Energy nor any sale, transfer or lease of all or any part of the assets
of CMS Energy, shall be deemed to be a dissolution, liquidation or winding up
for the purposes of this provision.
Because CMS Energy has subsidiaries which have debt obligations and other
liabilities of their own, CMS Energy's rights and the rights of its creditors
and its stockholders to participate in the distribution of assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
prior claims of the subsidiary's creditors, except to the extent that CMS Energy
may itself be a creditor with recognized claims against the subsidiary.
SUBDIVISION OR COMBINATION
If CMS Energy subdivides (by stock split, stock dividend or otherwise) or
combines (by reverse stock split or otherwise) the outstanding shares of either
Class G Common Stock or CMS Energy Common Stock, the voting and liquidation
rights of shares of CMS Energy Common Stock relative to Class G Common Stock
will be appropriately adjusted so as to avoid any dilution in aggregate voting
or liquidation rights of either class of Common Stock. For example, in case CMS
Energy were to effect a two-for-one split of Class G Common Stock, the per share
liquidation rights of CMS Energy Common Stock would be multiplied by two in
order to avoid dilution in the aggregate liquidation rights of holders of CMS
Energy Common Stock and each post-split share of Class G Common Stock would have
one-half of a vote on matters voted upon by the Shareholders.
EXCHANGES
The Articles of Incorporation do not provide for either the mandatory or
optional exchange or redemption of CMS Energy Common Stock but do provide that
Class G Common Stock may be exchanged for CMS Energy Common Stock as described
in the Registration Statement on Form 8-B/A incorporated by reference herein.
CMS Energy cannot predict the impact of the potential for such exchanges on the
market prices of CMS Energy Common Stock.
CMS Energy may exchange the Class G Common Stock for a proportionate number
of shares of a subsidiary that holds all the assets and liabilities attributed
to the Consumers Gas Group, and no other assets and liabilities. If CMS Energy
transfers all or substantially all of the properties and assets attributed to
the Consumers Gas Group, CMS Energy is required, subject to certain exceptions
and conditions, to exchange each outstanding share of Class G Common Stock for a
number of shares of CMS Energy Common Stock having a Fair Market Value (defined
in the Articles of Incorporation) equal to 110% of the Fair Market Value of one
share of Class G Common Stock.
CMS Energy may, in the sole discretion of the Board of Directors, at any
time, exchange each outstanding share of Class G Common Stock for a number of
shares of CMS Energy Common Stock having a Fair Market Value equal to 115% of
the Fair Market Value of one share of Class G Common Stock.
CMS Energy cannot predict the impact of the potential for such exchanges on
the market prices of the CMS Energy Common Stock.
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TRANSFER AGENT AND REGISTRAR
CMS Energy Common Stock and Class G Common Stock are transferable at
Consumers Energy Company, 212 W. Michigan Avenue, Jackson, MI 49201. CMS Energy
is the registrar and transfer agent for CMS Energy Common Stock and Class G
Common Stock.
PREFERRED STOCK
The authorized Preferred Stock may be issued without the approval of the
holders of Common Stock in one or more series, from time to time, with each such
series to have such designation, powers, preferences and relative,
participating, optional or other special rights, voting rights, if any, and
qualifications, limitations or restrictions thereof, as shall be stated in a
resolution providing for the issue of any such series adopted by CMS Energy's
Board of Directors. The Articles of Incorporation provide that holders of
Preferred Stock will not have any preemptive rights to subscribe for or purchase
any additional shares of the capital stock of CMS Energy of any class now or
hereafter authorized, or any Preferred Stock, bonds, debentures or other
obligations or rights or options convertible into or exchangeable for or
entitling the holder or owner to subscribe for or purchase any shares of capital
stock. The future issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of CMS Energy.
PRIMARY SOURCE OF FUNDS OF CMS ENERGY; RESTRICTIONS ON SOURCES OF DIVIDENDS
The ability of CMS Energy to pay (i) dividends on its capital stock and
(ii) its indebtedness, including the Subordinated Debentures, depends and will
depend substantially upon timely receipt of sufficient dividends or other
distributions from its subsidiaries, in particular Consumers. Consumers' ability
to pay dividends on its common stock depends upon its revenues, earnings and
other factors. Consumers' revenues and earnings will depend substantially upon
rates authorized by the MPSC.
Consumers' ability to pay dividends is restricted by its First Mortgage
Bond Indenture (the "Mortgage Indenture") and its Articles of Incorporation
("Articles"). The Mortgage Indenture provides that Consumers can only pay
dividends on its common stock out of retained earnings accumulated subsequent to
September 30, 1945, provided that upon such payment, there shall remain of such
retained earnings an amount equivalent to any deficiency in maintenance and
replacement expenditures as compared with maintenance and replacement
requirements since December 31, 1945. Because of restrictions in its Articles
and Mortgage Indenture, Consumers was prohibited from paying dividends on its
common stock from June 1991 to December 31, 1992. However, as of December 31,
1992, Consumers effected a quasi-reorganization in which Consumers' accumulated
deficit of $574 million was eliminated against other paid-in capital. With the
accumulated deficit eliminated, Consumers satisfied the requirements under its
Mortgage Indenture and resumed paying dividends on its common stock in May 1993.
Consumers' Articles also provide two restrictions on its payment of
dividends on its common stock. First, prior to the payment of any common stock
dividend, Consumers must reserve retained earnings after giving effect to such
dividend payment of at least (i) $7.50 per share on all then outstanding shares
of its preferred stock, (ii) in respect to its Class A Preferred Stock, 7.5% of
the aggregate amount established by its Board of Directors to be payable on the
shares of each series thereof in the event of involuntary liquidation of
Consumers, and (iii) $7.50 per share on all then outstanding shares of all other
stock over which its preferred stock and Class A Preferred Stock do not have
preference as to the payment of dividends and as to assets. Second, dividend
payments during the 12 month period ending with the month the proposed payment
is to be paid are limited to: (i) 50% of net income available for the payment of
dividends during the base period (hereinafter defined) if the ratio of common
stock and surplus to total capitalization and surplus for 12 consecutive
calendar months within the 14 calendar months immediately preceding the proposed
dividend payment (the "base period"), adjusted to reflect the proposed dividend,
is less than 20%; and (ii) 75% of net income available for the payment of
dividends during the base period if the ratio of common stock and surplus to
total capitalization and surplus for the base period, adjusted to reflect the
proposed dividend, is at least 20% but less than 25%.
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In addition, Consumers' Indenture dated January 1, 1996, between Consumers
and Bank of New York as Trustee ("Indenture"), and certain Preferred Securities
Guarantees by Consumers dated January 23, 1996 and September 11, 1997
(collectively the "Consumers Preferred Securities Guarantees"), in connection
with which the 8.36% Trust Preferred Securities of Consumers Power Company
Financing 1 and the 8.20% Trust Securities of Consumers Energy Financing II
(collectively the "Consumers Trust Preferred Securities") were issued, provide
that Consumers shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase or make a liquidation payment with respect
to, any of its capital stock if: (i) there shall have occurred any event that
would constitute an event of default under the Indenture or the trust agreements
pursuant to which the Consumers Trust Preferred Securities were issued, (ii) a
default with respect to its payment of any obligations under the Consumers
Preferred Securities Guarantees or certain Consumers common stock guarantees, or
(iii) it gives notice of its election to extend the interest payment period on
the subordinated notes issued under the Indenture, at any time for up to 20
consecutive quarters provided, however, Consumers may declare and pay stock
dividends where the dividend stock is the same stock as that on which the
dividend is being paid.
Consumers' Articles also prohibit the payment of cash dividends on its
common stock if Consumers is in arrears on preferred stock dividend payments.
In addition, Michigan law prohibits payment of a dividend if, after giving
it effect, Consumers would not be able to pay its debts as they become due in
the usual course of business, or its total assets would be less than the sum of
its total liabilities plus, unless the articles permit otherwise, the amount
that would be needed, if Consumers were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Currently, it is Consumers' policy to pay annual dividends equal
to 80% of its annual consolidated net income. Consumers' Board of Directors
reserves the right to change this policy at any time.
SUBORDINATED DEBENTURES
The Subordinated Debentures will be issued under an Indenture (the
"Subordinated Debt Indenture"), between CMS Energy and The Bank of New York as
Trustee (the "Subordinated Debt Trustee "). The descriptions of the provisions
of the Subordinated Debentures and the Subordinated Debt Indenture contained
herein are brief summaries of such provisions and do not purport to be complete.
The form of the Subordinated Debt Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and reference is made
thereto for the respective definitive provisions of such Indenture. The
descriptions herein are qualified in their entirety by such reference. Certain
capitalized terms used herein shall have the meanings respectively set forth in
the Subordinated Debt Indenture. Section references below are references to
sections of the Subordinated Debt Indenture.
GENERAL
CMS Energy will offer under this Prospectus unsecured Subordinated
Debentures. The Subordinated Debt Indenture does not limit the aggregate
principal amount of Subordinated Debentures which may be issued thereunder.
Subordinated Debentures may be issued under the Subordinated Debt Indenture from
time to time in one or more series. The Subordinated Debentures shall mature on
a date not less than nine months nor more than 40 years after the date of
issuance. (Section 2.3) Capitalized terms used in this section "Subordinated
Debentures" and not otherwise specifically defined in this Prospectus shall have
the meanings respectively set forth in the Subordinated Debt Indenture. The
terms of any Subordinated Debentures may or may not restrict the issuance by CMS
Energy or its subsidiaries of additional indebtedness which is secured,
unsecured, senior, pari passu or subordinated to such Subordinated Debentures.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. The Subordinated Debentures will be obligations
exclusively of CMS Energy. CMS Energy's ability to service its indebtedness,
including the Subordinated Debentures, is dependent primarily upon the earnings
of its subsidiaries and the distribution or other payment of such earnings to
CMS Energy in the form of dividends, loans or advances, and repayment of loans
and advances from CMS Energy. The subsidiaries are separate and
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distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Subordinated Debentures or to make any funds
available therefor, whether by dividends, loans or other payments.
A substantial portion of the consolidated liabilities of CMS Energy have
been incurred by its subsidiaries. Therefore, CMS Energy's rights and the rights
of its creditors, including holders of Subordinated Debentures, to participate
in the distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary (in which case the claims
of CMS Energy would still be subject to the prior claims of any secured creditor
of such subsidiary and of any holder of indebtedness of such subsidiary that is
senior to that held by CMS Energy).
The applicable Prospectus Supplement will set forth the following terms
relating to the Subordinated Debentures: (1) the specific designation of the
Subordinated Debentures; (2) any limit on the aggregate principal amount of the
Subordinated Debentures; (3) the date or dates, if any (and whether fixed or
extendible), on which the Subordinated Debentures will mature; (4) the rate or
rates per annum (which may be fixed or variable) at which the Subordinated
Debentures will bear interest, if any, the date or dates on which any such
interest will be payable and the regular record dates for any interest payable
on the Subordinated Debentures; (5) the place or places where the principal of
and any interest on the Subordinated Debentures shall be payable and where such
Subordinated Debentures may be surrendered for registration of transfer or
exchange; (6) any provisions relating to the issuance of the Subordinated
Debentures at an original issue discount; (7) the option, if any, of CMS Energy
to redeem the Subordinated Debentures and the periods within which or the dates
on which, the prices at which and the terms and conditions upon which, such
Subordinated Debentures may be redeemed, in whole or in part, upon the exercise
of such option; (8) the obligation, if any, of CMS Energy to redeem such
Subordinated Debentures pursuant to any sinking fund or other mandatory
redemption provisions or at the option of the holder and the periods within
which or the dates on which, the prices at which and the terms and conditions
upon which such Subordinated Debentures will be redeemed, in whole or in part,
pursuant to such obligation; (9) the obligation, if any, of CMS Energy to permit
the conversion of the Subordinated Debentures into CMS Energy Common Stock, and
the terms and conditions upon which such conversion shall be effected; (10) the
denominations in which such Subordinated Debentures will be issued and whether
the Subordinated Debentures will be issuable in registered form or bearer form
or both, and, if issuable in bearer form, the restrictions as to the offer, sale
and delivery of the Subordinated Debentures in bearer form and as to exchanges
between registered and bearer form; (11) whether the Subordinated Debentures
will be issuable in the form of one or more temporary or permanent global
securities and, if so, the identity of the depository for such global
securities; (12) whether and under what circumstances CMS Energy will pay
additional amounts with respect to the Subordinated Debentures to a nonUnited
States Person (as defined in such Prospectus Supplement) on account of any tax,
assessment or governmental charge withheld or deducted and, if so, whether CMS
Energy will have the option to redeem such Subordinated Debentures rather than
pay such additional amounts; and (13) any other terms of the Subordinated
Debentures not inconsistent with the Subordinated Debt Indenture, including
covenants and events of default relating solely to the Subordinated Debentures.
Subordinated Debentures may be issued at a substantial discount from the stated
principal amount thereof ("Original Issue Discount Securities"). United States
federal income tax consequences and other special considerations applicable
thereto or to other Subordinated Debentures offered and sold at par which are
treated as having been issued at a discount for United States federal income tax
purposes will be described in the Prospectus Supplement relating thereto.
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the Subordinated Debt Indenture, is
one of a number of banks with which CMS Energy and its subsidiaries maintain
ordinary banking relationships, including credit facilities.
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EXCHANGE AND TRANSFER
Subordinated Debentures may be presented for exchange and registered
Subordinated Debentures may be presented for registration of transfer at the
offices and subject to the restrictions set forth therein and in the applicable
Prospectus Supplement without service charge, but upon payment of any taxes or
other governmental charges due in connection therewith, subject to any
applicable limitations contained in the Subordinated Debt Indenture.
Subordinated Debentures in bearer form and the coupons appertaining thereto, if
any, will be transferable by delivery. (Section 2.8)
PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of the principal of and the premium and interest, if any, on all Subordinated
Debentures in registered form will be made at the office or agency of the
Subordinated Debt Trustee in the City of New York, except that, at the option of
CMS Energy, payment of any interest may be made (i) by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 3.1 and
3.2) Unless otherwise indicated in the applicable Prospectus Supplement, payment
of any interest due on Subordinated Debentures in registered form will be made
to the Persons in whose name such Subordinated Debentures are registered at the
close of business on the Record Date for such interest payments. (Section
2.3(f))
EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the
Subordinated Debentures of any series will constitute an "Event of Default" with
respect to the Subordinated Debentures of such series: (a) default for 30 days
in the payment of any interest on any of the Subordinated Debentures of such
series (whether or not payment is prohibited by the subordination provisions of
the Subordinated Debt Indenture); provided, however, that if CMS Energy is
permitted by the terms of the Subordinated Debentures of the applicable series
to defer the payment in question, the date on which such payment is due and
payable shall be the date on which CMS Energy is required to make payment
following such deferral, if such deferral has been elected pursuant to the terms
of the Subordinated Debentures; (b) default in the payment when due of any of
the principal of or the premium, if any, on any of the Subordinated Debentures
of such series, whether at maturity, upon redemption, acceleration or otherwise
(whether or not payment is prohibited by the subordination provisions of the
Subordinated Debt Indenture); provided, however, that if CMS Energy is permitted
by the terms of the Subordinated Debentures of the applicable series to defer
the payment in question, the date on which such payment is due and payable shall
be the date on which CMS Energy is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Subordinated Debentures; (c) failure by CMS Energy to deliver shares of CMS
Energy Common Stock upon an appropriate election by holders of the Subordinated
Debentures to convert such Subordinated Debentures; (d) default in the deposit
or payment of any sinking fund or analogous payment in respect of any
Subordinated Debentures of such series (whether or not payment is prohibited by
the subordination provisions of the Subordinated Debt Indenture); (e) default
for 60 days by CMS Energy in the observance or performance of any other covenant
or agreement contained in the Subordinated Debt Indenture relating to the
Subordinated Debentures of such series after written notice thereof as provided
in the Subordinated Debt Indenture; (f) certain events of bankruptcy, insolvency
or reorganization relating to CMS Energy; (g) entry of final judgments against
CMS Energy or Consumers aggregating in excess of $25,000,000 which remain
undischarged or unbonded for 60 days; (h) a default resulting in the
acceleration of indebtedness of CMS Energy in excess of $25,000,000, which
acceleration has not been rescinded or annulled within 10 days after written
notice of such default as provided in the Subordinated Debt Indenture; or (i)
the voluntary or involuntary dissolution, winding-up or termination of a Trust,
except in connection with the distribution of Subordinated Debentures to the
holders of Trust Preferred Securities in liquidation of such Trust, the
redemption of all outstanding Trust Securities of the Trust and certain mergers,
consolidations or amalgamations permitted by the Trust Agreement of such Trust.
Additional Events of Default may be prescribed for the benefit of the
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Holders of a particular series of Subordinated Debentures and will be described
in the Prospectus Supplement relating to such Subordinated Debentures. (Section
5.1)
If an Event of Default on any series of Subordinated Debentures shall have
occurred and be continuing, either the Subordinated Debt Trustee or the Holders
of not less than 25% in aggregate principal amount of the Subordinated
Debentures of such series then Outstanding may declare the principal of all
Subordinated Debentures of such series and the interest, if any, accrued thereon
to be due and payable immediately and, should the Subordinated Debenture Trustee
or the holders of the Subordinated Debentures fail to make such declaration, the
holders of at least 25% in aggregate liquidation amount of the Trust Preferred
Securities then outstanding shall have such right. (Section 5.1)
Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Subordinated Debentures of all such affected
series then Outstanding shall have been cured or waived as provided in the
Subordinated Debt Indenture by the Holders of a majority in aggregate principal
amount of the Subordinated Debentures of the affected series then Outstanding
and, should the holders of the Subordinated Debentures fail to waive such
defaults, the holders of a majority in aggregate liquidation amount of the Trust
Preferred Securities shall have such right. (Section 5.1)
Reference is made to the Prospectus Supplement relating to any series of
Original Issue Discount Securities for the particular provisions relating to the
acceleration of a portion of the principal amount thereof upon the occurrence
and continuance of an Event of Default with respect thereto.
The Subordinated Debt Indenture provides that the Subordinated Debt Trustee
will be under no obligation to exercise any of its rights or powers under the
Subordinated Debt Indenture at the request, order or direction of the Holders of
the Subordinated Debentures, unless such Holders shall have offered to the
Subordinated Debt Trustee reasonable indemnity. (Sections 6.1 and 6.2(d))
Subject to such provisions for indemnity and certain other limitations contained
in the Subordinated Debt Indenture, the Holders of a majority in aggregate
principal amount of the Subordinated Debentures of each affected series then
Outstanding (voting as one class) will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Subordinated Debt Trustee, or exercising any trust or power conferred on the
Subordinated Debt Trustee, with respect to the Subordinated Debentures of such
affected series. (Sections 5.9 and 6.2)
The Subordinated Debt Indenture provides that no Holder of Subordinated
Debentures may institute any action against CMS Energy under the Subordinated
Debt Indenture (except actions for payment of overdue principal, premium or
interest) unless such Holder previously shall have given to the Subordinated
Debt Trustee written notice of default and continuance thereof and unless the
Holders of not less than 25% in aggregate principal amount of the Subordinated
Debentures of the affected series then Outstanding (voting as one class) shall
have requested the Subordinated Debt Trustee to institute such action and shall
have offered the Subordinated Debt Trustee reasonable indemnity, the
Subordinated Debt Trustee shall not have instituted such action within 60 days
of such request and the Subordinated Debt Trustee shall not have received
direction inconsistent with such request by the Holders of a majority in
aggregate principal amount of the Subordinated Debentures of the affected series
then Outstanding (voting as one class). (Sections 5.6, 5.7 and 5.9)
The Subordinated Debt Indenture requires CMS Energy to furnish to the
Subordinated Debt Trustee annually a statement as to CMS Energy's compliance
with all conditions and covenants under the Subordinated Debt Indenture.
(Section 4.3(d)) The Subordinated Debt Indenture provides that the Subordinated
Debt Trustee may withhold notice to the Holders of the Subordinated Debentures
of any series of any default affecting such series (except defaults as to
payment of principal, premium or interest on the Subordinated Debentures of such
series) if it considers such withholding to be in the interests of the Holders
of the Subordinated Debentures of such series. (Section 5.11)
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SUBORDINATION
The Subordinated Debt Indenture provides (and each Holder of Subordinated
Debentures by acceptance thereof agrees) that the Subordinated Debentures will
be subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (as defined herein) of CMS Energy. (Section 12.1) No payment on
account of principal of, premium, if any, or interest on the Subordinated
Debentures and no acquisition of, or payment on account of any sinking fund for,
the Subordinated Debentures may be made unless full payment of amounts then due
for principal, premium, if any, and interest then due on all Senior Indebtedness
by reason of the maturity thereof (by lapse of time, acceleration or otherwise)
has been made or duly provided for in cash or in a manner satisfactory to the
Holders of such Senior Indebtedness. In addition, the Subordinated Debt
Indenture provides that upon the happening and during the continuation of any
default in payment of the principal of, premium, if any, or interest on any
Senior Indebtedness when the same becomes due and payable or in the event any
judicial proceeding shall be pending with respect to any such default, then,
unless and until such default shall have been cured or waived or shall have
ceased to exist, no payment shall be made by CMS Energy with respect to the
principal of, premium, if any, or interest on Subordinated Debentures or to
acquire any Subordinated Debentures or on account of any sinking fund provisions
applicable to Subordinated Debentures. CMS Energy shall give prompt written
notice to the Subordinated Debt Trustee of any default in payment of principal
of or interest on any Senior Indebtedness. (Section 12.2) The Subordinated Debt
Indenture provisions described in this paragraph, however, do not prevent CMS
Energy from making sinking fund payments in Subordinated Debentures acquired
prior to the maturity of Senior Indebtedness or, in the case of default, prior
to such default and notice thereof. Upon any distribution of its assets in
connection with any dissolution, winding up, liquidation or reorganization of
CMS Energy, whether voluntary or involuntary, in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise: (i) all Senior Indebtedness must be paid in full before the Holders
of the Subordinated Debentures are entitled to any payments whatsoever; and (ii)
any payment or distribution of CMS Energy's assets of any kind or character,
whether in cash, securities or other property, which would otherwise (but for
the subordination provisions) be payable or deliverable in respect of the
Subordinated Debentures shall be paid or delivered directly to the Holders of
such Senior Indebtedness (or their representative or trustee) in accordance with
the priorities then existing among such Holders until all Senior Indebtedness
shall have been paid in full before any payment or distribution is made to the
Holders of Subordinated Debentures. (Section 12.3) In the event that
notwithstanding such subordination provisions, any payment or distribution of
assets of any kind or character is made on the Subordinated Debentures before
all Senior Indebtedness is paid in full, the Subordinated Debt Trustee or the
Holders of Subordinated Debentures receiving such payment will be required to
pay over such payment or distribution to the Holders of such Senior
Indebtedness. (Sections 12.2 and 12.3) Subject to the payment in full of all
Senior Indebtedness, the rights of the Holders of the Subordinated Debentures
will be subrogated to the rights of the Holders of Senior Indebtedness to
receive payments or distributions applicable to Senior Indebtedness until all
amounts owing on the Subordinated Debentures are paid in full. As a result of
the subordination provisions, in the event of CMS Energy's insolvency, Holders
of the Subordinated Debentures may recover ratably less than senior creditors of
CMS Energy.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including interest accruing on or after the filing of any petition in
bankruptcy relating to CMS Energy whether or not such claim for post-petition
interest is allowed in such proceeding) on the following, whether outstanding on
the date of execution of the Subordinated Debt Indenture or thereafter incurred,
created or assumed: (i) indebtedness of CMS Energy for money borrowed by CMS
Energy (including purchase money obligations, except indebtedness to trade
creditors or assumed by CMS Energy in the ordinary course of business in
connection with the obtaining of goods, materials or services) or evidenced by
debentures (other than the Subordinated Debentures), notes, bankers' acceptances
or other corporate Subordinated Debentures or similar instruments issued by CMS
Energy; (ii) all capital lease obligations of CMS Energy; (iii) obligations with
respect to letters of credit; (iv) all indebtedness of others of the type
referred to in the preceding clauses (i) and (iii) assumed by or guaranteed in
any manner by CMS Energy or in effect guaranteed by CMS Energy; or (v) renewals,
extensions or refundings of any of the indebtedness referred to in the preceding
clauses (i), (ii), (iii) and (iv) unless, in the case of any particular
indebtedness, renewal, extension or refunding, under the
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express provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding thereof
is not superior in right of payment to the Subordinated Debentures. (Section
12.1) The Subordinated Debt Indenture does not limit the aggregate amount of
Senior Indebtedness that may be issued.
CERTAIN COVENANTS
If Subordinated Debentures are issued to a Trust or a trustee of such Trust
in connection with the issuance of Trust Preferred Securities by such Trust, CMS
Energy will covenant that it will not, and it will not cause any of its
subsidiaries to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
CMS Energy's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of CMS Energy that
rank pari passu with or junior to the Subordinated Debentures (other than (a)
any dividend, redemption, liquidation, interest, principal or guarantee payment
by CMS Energy where the payment is made by way of securities (including capital
stock) that rank pari passu with or junior to the securities on which such
dividend, redemption, interest, principal or guarantee payment is being made,
(b) payments under the Guarantee, (c) purchases of CMS Energy Common Stock
related to the issuance of CMS Energy Common Stock under any of CMS Energy's
benefit plans for its directors, officers or employees, (d) as a result of a
reclassification of CMS Energy's capital stock or the exchange or conversion of
one series or class of CMS Energy's capital stock for another series or class of
CMS Energy's capital stock and (e) the purchase of fractional interests in
shares of CMS Energy's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged)
if at such time (i) there shall have occurred any event of which CMS Energy has
actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute an Event of Default and (b) in respect of which CMS
Energy shall not have taken reasonable steps to cure, (ii) CMS Energy shall be
in default with respect to its payment of any obligations under the Guarantee or
(iii) CMS Energy shall have given notice of its selection of an Extension Period
as provided in the Subordinated Debt Indenture with respect to the Subordinated
Debentures and shall not have rescinded such notice, or such Extension Period,
or any extension thereof, shall be continuing. CMS Energy will also covenant (i)
for so long as Trust Preferred Securities are outstanding, not to convert the
Subordinated Debentures except pursuant to a notice of conversion delivered to
the Conversion Agent by a holder of Trust Preferred Securities, (ii) to maintain
directly or indirectly 100% ownership of the Common Securities, provided that
certain successor which are permitted pursuant to the Subordinated Debt
Indenture may succeed to CMS Energy's ownership of the Common Securities, (iii)
not to voluntarily terminate, wind-up or liquidate such Trust, except (a) in
connection with a distribution of the Subordinated Debentures to the holders of
the Trust Preferred Securities in liquidation of such Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement, (iv) to maintain the reservation for issuance of the number of shares
of CMS Energy Common Stock that would be required from time to time upon the
conversion of all the Subordinated Debentures then outstanding, (v) to use its
reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause such Trust to remain classified as a grantor trust and not
as an association taxable as a corporation for United States federal income tax
purposes and (vi) to deliver shares of CMS Energy Common Stock upon an election
by the holders of the Trust Preferred Securities to convert such Trust Preferred
Securities into CMS Energy Common Stock. (Section 3.5).
As part of the Guarantee, CMS Energy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Trust Preferred Securities into or for CMS Energy Common Stock or Subordinated
Debentures.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Subordinated Debt Indenture provides that CMS Energy may consolidate
with or merge into, or sell, lease or convey its property as an entirety or
substantially as an entirety to, any other corporation if such corporation
assumes the obligations of CMS Energy under the Subordinated Debentures and the
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Subordinated Debt Indenture and is organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia.
(Section 9.1).
CONVERSION RIGHTS
If the Prospectus Supplement provides, the Holders of Subordinated
Debentures may convert the Subordinated Debentures into CMS Energy Common Stock,
as defined herein (see "Description of Securities -- Common Stock"), at the
option of the Holders at the principal amount thereof, or of such portion
thereof, at any time during the period specified in the Prospectus Supplement,
at the conversion price or conversion rate specified in the Prospectus
Supplement; except that, with respect to any Subordinated Debentures (or portion
thereof) called for redemption, such conversion right shall terminate at the
close of business on the fifteenth day prior to the date fixed for redemption of
such Subordinated Debentures, unless CMS Energy shall default in payment of the
amount due upon redemption thereof. (Section 13.2)
The conversion privilege and conversion price or conversion rate will be
adjusted in certain events, including if CMS Energy: (i) pays a dividend or
makes a distribution in shares of CMS Energy Common Stock; (ii) subdivides its
outstanding shares of CMS Energy Common Stock into a greater number of shares;
(iii) combines its outstanding shares of CMS Energy Common Stock into a smaller
number of shares; (iv) pays a dividend or makes a distribution on its CMS Energy
Common Stock other than in shares of its CMS Energy Common Stock; (v) issues by
reclassification of its shares of CMS Energy Common Stock any shares of its
capital stock; (vi) issues any rights or warrants to all holders of shares of
its CMS Energy Common Stock entitling them (for a period expiring within 45
days, or such other period as may be specified in the Prospectus Supplement) to
purchase shares of CMS Energy Common Stock (or Convertible Securities) at a
price per share less than the Average Market Price per share for such CMS Energy
Common Stock; and (vii) distributes to all holders of shares of its CMS Energy
Common Stock any assets or Subordinated Debentures or any rights or warrants to
purchase securities, provided that no adjustment shall be made under (vi) or
(vii) above if the adjusted conversion price would be higher than, or the
adjusted conversion rate would be less than, the conversion price or conversion
rate, as the case may be, in effect prior to such adjustment. (Sections 13.7,
13.8 and 13.9) CMS Energy may reduce the conversion price or increase the
conversion rate, temporarily or otherwise, by any amount but in no event shall
such adjusted conversion price or conversion rate result in shares of CMS Energy
Common Stock being issuable upon conversion of the Subordinated Debentures if
converted at the time of such adjustment at an effective conversion price per
share less than the par value of the CMS Energy Common Stock at the time such
adjustment is made. (Section 13.10) No adjustments in the conversion price or
conversion rate need be made unless the adjustment would require an increase or
decrease of at least one percent (1%) in the initial conversion price or
conversion rate. Any adjustment which is not made shall be carried forward and
taken into account in any subsequent adjustment. (Section 13.13) The foregoing
conversion provisions may be modified to the extent set forth in the Prospectus
Supplement.
MODIFICATION OF THE SUBORDINATED DEBT INDENTURE
The Subordinated Debt Indenture permits CMS Energy and the Subordinated
Debt Trustee to enter into supplemental indentures thereto without the consent
of the Holders of the Subordinated Debentures to: (a) secure the Subordinated
Debentures of one or more series; (b) evidence the assumption by a successor
corporation of the obligations of CMS Energy under the Subordinated Debt
Indenture and the Subordinated Debentures then Outstanding; (c) add covenants
for the protection of the Holders of the Subordinated Debentures; (d) cure any
ambiguity or correct any defect or inconsistency in the Subordinated Debt
Indenture or to make such other provisions as CMS Energy deems necessary or
desirable with respect to matters or questions arising under the Subordinated
Debt Indenture, provided that no such action adversely affects the interests of
any Holders of Subordinated Debentures; (e) establish the form and terms of any
series of securities under the Subordinated Debt Indenture; and (f) evidence the
acceptance of appointment by a successor Subordinated Debt Trustee. (Section
8.1)
The Subordinated Debt Indenture also permits CMS Energy and the
Subordinated Debt Trustee, with the consent of the Holders of not less than a
majority in aggregate principal amount of the Subordinated
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Debentures of all series then Outstanding and affected (voting as one class), to
enter into supplemental indentures to add any provisions to, or change in any
manner or eliminate any of the provisions of, the Subordinated Debt Indenture or
modify in any manner the rights of the Holders of the Subordinated Debentures of
each such affected series; provided, however, that CMS Energy and the
Subordinated Debt Trustee may not, without the consent of the Holder of each of
the Subordinated Debentures then outstanding and affected thereby, enter into a
supplemental indenture to: (a) change the time of payment of the principal (or
any installment of principal) of any of the Subordinated Debentures, or reduce
the principal amount thereof, or reduce the rate or change the time of payment
of interest thereon (other than any permitted deferrals of the payments of
interest), or reduce the amount payable on any Original Issue Discount
Securities upon acceleration or provable in bankruptcy, or impair the right to
institute suit for the enforcement of any payment on any of the Subordinated
Debentures when due, or materially adversely affects the subordination
provisions of the Subordinated Debt Indenture; or (b) reduce the percentage in
principal amount of the Subordinated Debentures of the affected series, the
consent of whose Holders is required for any such modification or for any waiver
provided for in the Subordinated Debt Indenture, provided that, so long as any
of the Trust Preferred Securities remain outstanding, no such modification may
be made that adversely affects the holders of such Trust Preferred Securities in
any material respect, and no termination of the Subordinated Debt Indenture may
occur, and no waiver of any Event of Default or compliance with any covenant
under the Subordinated Debt Indenture may be effective, without the prior
consent of the holders of at least a majority in aggregate liquidation amount of
the Trust Preferred Securities then outstanding unless and until the principal
of the Subordinated Debentures and all accrued and unpaid interest thereon has
been paid in full. (Section 8.2)
Prior to the acceleration of the maturity of any Subordinated Debentures,
the Holders of a majority in aggregate principal amount of the Subordinated
Debentures of all series at the time Outstanding with respect to which a default
or an Event of Default shall have occurred and be continuing (voting as one
class) may on behalf of the Holders of all such affected Subordinated Debentures
waive any past default or Event of Default and its consequences, except a
default or an Event of Default in respect of a covenant or provision of the
Subordinated Debt Indenture or of any Subordinated Debentures which cannot be
modified or amended without the consent of the Holder of each of the
Subordinated Debentures affected. (Section 5.10)
DEFEASANCE, COVENANT DEFEASANCE AND DISCHARGE
The Subordinated Debt Indenture provides that, at the option of CMS Energy:
(a) CMS Energy will be discharged from any and all obligations in respect of the
Subordinated Debentures of a particular series then Outstanding (except for
certain obligations to register the transfer of or exchange the Subordinated
Debentures of such series, to replace stolen, lost or mutilated Subordinated
Debentures of such series, to maintain paying agencies and to maintain the trust
described below), or (b) CMS Energy need not comply with certain restrictive
covenants of the Subordinated Debt Indenture (including those described under
"Consolidation, Merger or Sale of Assets") if CMS Energy irrevocably deposits in
trust with the Subordinated Debt Trustee money, and/or securities backed by the
full faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any, and interest on the Subordinated Debentures of such series on the stated
maturity of such Subordinated Debentures (which may include one or more
redemption dates designated by CMS Energy) in accordance with the terms thereof.
To exercise such option, CMS Energy is required, among other things, to deliver
to the Subordinated Debt Trustee an opinion of independent counsel to the effect
that the exercise of such option would not cause the Holders of the Subordinated
Debentures of such series to recognize income, gain or loss for United States
Federal income tax purposes as a result of such defeasance, and such Holders
will be subject to United States Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred, and, in the case of a discharge as described in clause (a) of
the preceding sentence, such opinion is to be accompanied by a private letter
ruling to the same effect received from the Internal Revenue Service, a revenue
ruling to such effect pertaining to a comparable form of transaction published
by the Internal Revenue Service or appropriate evidence that since the date of
the
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Subordinated Debt Indenture there has been a change in the applicable Federal
income tax law. (Section 10.1)
In the event CMS Energy exercises its option to effect a covenant
defeasance with respect to the Subordinated Debentures of any series as
described in the preceding paragraph and the Subordinated Debentures of such
series are thereafter declared due and payable because of the occurrence of any
Event of Default other than an Event of Default caused by failing to comply with
the covenants which are defeased, and the amount of money and securities on
deposit with the Subordinated Debt Trustee would be insufficient to pay amounts
due on the Subordinated Debentures of such series at the time of the
acceleration resulting from such Event of Default, CMS Energy would remain
liable for such amounts.
CMS Energy may also obtain a discharge of the Subordinated Debt Indenture
with respect to all Subordinated Debentures then Outstanding (except for certain
obligations to register the transfer of or exchange such Subordinated Debentures
to replace stolen, lost or mutilated Subordinated Debentures, to maintain paying
agencies and to maintain the trust described below) by irrevocably depositing in
trust with the Subordinated Debt Trustee money, and/or securities backed by the
full faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any and interest on the Subordinated Debentures on the stated maturities
thereof (including one or more redemption dates), provided that such
Subordinated Debentures are by their terms due and payable, or are to be called
for redemption, within one year. (Section 10.1)
For United States Federal income tax purposes any deposit contemplated in
the preceding paragraph would be treated as an exchange of the Subordinated
Debentures outstanding for other property. Accordingly, holders of Subordinated
Debentures outstanding may be required to recognize a gain or loss for United
States Federal income tax purposes upon such exchange. In addition, such Holders
thereafter may be required to recognize income from such property which could be
different from the amount that would be includable in the absence of such
deposit. Prospective investors are urged to consult their own tax advisors as to
the specific consequences to them of such deposit.
TRUST PREFERRED SECURITIES
GENERAL
The Trust may issue, from time to time, Trust Preferred Securities having
terms described in the Prospectus Supplement relating thereto. The Trust
Agreement of the Trust will authorize the establishment of no more than one
series of Trust Preferred Securities, having such terms, including
distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such rights or restrictions as shall be set
forth therein or otherwise established by the Trust Trustees pursuant thereto.
Reference is made to the Prospectus Supplement relating to the Trust Preferred
Securities for specific terms, including: (i) the distinctive designation and
the number of Trust Preferred Securities to be offered which will represent
undivided beneficial interests in the assets of the Trust; (ii) the annual
distribution rate and the dates or date upon which such distributions will be
paid, provided, however distributions on the Trust Preferred Securities will be
paid quarterly in arrears to holders of Trust Preferred Securities as of a
record date on which the Trust Preferred Securities are outstanding; (iii)
whether holders' can convert the Trust Preferred Securities into shares of CMS
Energy Common Stock; (iv) whether distributions on Trust Preferred Securities
would be deferred during any deferral of interest payments on the Subordinated
Debentures, provided, however that no such deferral, including extensions, if
any, may exceed 20 consecutive quarters nor extend beyond the stated maturity
date of the Subordinated Debentures, and at the end of any such deferrals, CMS
Energy shall make all interest payments then accrued or deferred and unpaid
(including any compounded interest); (v) the amount of any liquidation
preference; (vi) the obligation, if any, of the Trust to redeem Trust Preferred
Securities through the exercise of CMS Energy of an option on the corresponding
Subordinated Debenture and the price or prices at which, the period or periods
within which and the terms and conditions upon which Trust Preferred Securities
shall be purchased or redeemed, in whole or in part, pursuant to such
obligation; (vii) the period or periods within which and the terms and
conditions, if any, including the price or prices or
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the rate or rates of conversion or exchange and the terms and conditions of any
adjustments thereof, upon which the Trust Preferred Securities shall be
convertible or exchangeable at the option of the holder of the Trust Preferred
Securities or other property or cash; (viii) the voting rights, if any, of the
Trust Preferred Securities in addition to those required by law and in the Trust
Agreement, or set forth under the Guarantee (as defined below); (ix) the
additional payments, if any, which the Trust will pay as a distribution as
necessary so that the net amounts reserved by the Trust and distributable to the
holders of the Trust Preferred Securities, after all taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes) have
been paid will not be less than the amount that would have been reserved and
distributed by the Trust, and the amount the holders of the Trust Preferred
Securities would have reserved, had no such taxes, duties, assessments or
governmental charges been imposed; (x) the terms and conditions, if any, upon
which the Subordinated Debentures may be distributed to holders of Trust
Preferred Securities; and (xi) any other relative rights, powers, preferences,
privileges, limitations or restrictions of the Trust Preferred Securities not
inconsistent with the Trust Agreement or applicable law. All Trust Preferred
Securities offered hereby will be irrevocably guaranteed by CMS Energy, on a
subordinated basis and to the extent set forth below under "Description of The
Guarantee." Any applicable federal income tax considerations applicable to any
offering of the Trust Preferred Securities will be described in the Prospectus
Supplement relating thereto. The aggregate number of Trust Preferred Securities
which the Trust shall have authority to issue will be pursuant to the terms of
the Trust Agreement.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Trust Agreement, the sole purpose of the Trust is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, and to invest the proceeds from such issuance and sale to
acquire directly the Subordinated Debentures from CMS Energy.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Subordinated Debentures will be equal to the
sums of the aggregate stated liquidation amount of the Trust Securities; (ii)
the interest rate and the interest and other payment dates on the Subordinated
Debentures will match the distribution rate and distribution and other payment
dates for the Trust Preferred Securities; (iii) CMS Energy shall pay all, and
the Trust shall not be obligated to pay, directly or indirectly, all costs,
expenses, debt and obligations of the Trust (other than with respect to the
Trust Securities); and (iv) the Trust Agreement further provides that CMS Energy
Trustees shall not take or cause or permit the Trust to, among other things,
engage in any activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefore are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by CMS Energy as and to the extent set
forth under "The Guarantee" below. If CMS Energy does not make interest payments
on the Subordinated Debenture purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Trust Preferred
Securities. The Guarantee does not apply to any payment of distributions unless
and until the Trust has sufficient funds for the payment of distributions and
other payments on the Trust Preferred Securities only if and to the extent that
CMS Energy has made a payment of interest or principal on the Subordinated
Debenture held by the Trust as its sole asset. The Guarantee, when taken
together with CMS Energy's obligations under the Subordinated Debenture and the
Indenture and its obligations under the Trust Agreement, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust securities), provide a full and unconditional
guarantee of amounts on the Trust Preferred Securities.
If CMS Energy fails to make interest or other payments on the Subordinated
Debentures when due (taking account of any extension period), the Trust
Agreement provides a mechanism whereby the holders of the Trust Preferred
Securities may direct the Property Trustee to enforce its rights under the
Subordinated Debenture. If the Property Trustee fails to enforce its rights
under the Subordinated Debentures, a holder of Trust Preferred Securities may
institute a legal proceeding against CMS Energy to enforce the Property
Trustee's rights under the Subordinated Debentures without first instituting any
legal proceeding against the
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Property Trustee or any other person or entity. Notwithstanding the foregoing,
if an event of default has occurred and is continuing under the Trust Agreement,
and such event is attributable to the failure of CMS Energy to pay interest or
principal on the Subordinated Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption on the redemption date), then
a holder of Trust Preferred Securities may institute legal proceedings directly
against CMS Energy to obtain payment. If CMS Energy fails to make payments under
the Guarantee, the Guarantee provides a mechanism whereby the holders of the
Trust Preferred Securities may direct the Guarantee Trustee to enforce its
rights thereunder. Any holder of Trust Preferred Securities may institute a
legal proceeding directly against CMS Energy to enforce the Guarantee Trustee's
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee, or any other person or entity.
THE GUARANTEE
Set forth below is a summary of information concerning the Trust Preferred
Securities Guarantee (the "Guarantee") which will be executed and delivered by
CMS Energy for the benefit of the holders, from time to time, of the Trust
Preferred Securities. The Guarantee will be qualified as an indenture under the
Trust Indenture Act of 1939. The Bank of New York, an independent trustee, will
act as indenture trustee under the Guarantee for the purpose of compliance with
the provisions of the Trust Indenture Act of 1939. This summary does not purport
to be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
CMS Energy will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Trust Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Trust Preferred Securities, to the extent not paid by or on behalf of the Trust
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid distributions required to be paid on the Trust Preferred
Securities, to the extent that the Trust has funds on hand available therefor at
such time; (ii) the redemption price with respect to any Trust Preferred
Securities called for redemption to the extent that the Trust has funds on hand
available therefor at such time; or (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Trust (unless the Subordinated
Debentures are distributed to holders of the Trust Preferred Securities), the
lesser of (a) the liquidation distribution, to the extent that the Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Trust remaining available for distribution to holders of Trust Preferred
Securities. CMS Energy's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts of CMS Energy to the holders of the
Trust Preferred Securities or by causing the Trust to pay such amount to such
holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the Trust Preferred Securities, but will apply
only to the extent that the Trust has funds sufficient to make such payments,
and is not a guarantee of collection. If CMS Energy does not make interest
payments on the Subordinated Debentures held by the Trust, the Trust will not be
able to pay distributions on the Trust Preferred Securities and will not have
funds legally available therefor.
CMS Energy has, through the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Subordinated Debt Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of the Trust's obligations under the Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the Trust Preferred
Securities.
CMS Energy has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities to
the same extent as the Guarantee, except that upon the
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occurrence and during the continuation of a Trust Agreement Event of Default,
holders of Trust Preferred Securities shall have priority over holders of Common
Securities with respect to distributions and payments on liquidation, redemption
or otherwise.
CERTAIN COVENANTS OF CMS ENERGY
CMS Energy will covenant in the Guarantee that if and so long as (i) the
Trust is the holder of all the Subordinated Debentures, (ii) a Tax Event in
respect of the Trust has occurred and is continuing and (iii) CMS Energy has
elected, and has not revoked such election, to pay Additional Sums in respect of
the Trust Preferred Securities and Common Securities, CMS Energy will pay to the
Trust such Additional Sums. CMS Energy will also covenant that it will not, and
it will not cause any of its subsidiaries to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of CMS Energy's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities (including guarantees of indebtedness for money borrowed) of CMS
Energy that rank pari passu with or junior to the Subordinated Debentures (other
than (a) any dividend, redemption, liquidation, interest, principal or guarantee
payment by CMS Energy where the payment is made by way of securities (including
capital stock) that rank pari passu with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is being
made, (b) payments under the Guarantee, (c) purchases of CMS Energy Common Stock
related to the issuance of CMS Energy Common Stock under any of CMS Energy's
benefit plans for its directors, officers or employees, (d) as a result of a
reclassification of CMS Energy's capital stock or the exchange or conversion of
one series or class of CMS Energy's capital stock for another series or class of
CMS Energy's capital stock and (e) the purchase of fractional interests in
shares of CMS Energy's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged)
if at such time (i) there shall have occurred any event of which CMS Energy has
actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute a Subordinated Debenture Event of Default and (b) in
respect of which CMS Energy shall not have taken reasonable steps to cure, (ii)
CMS Energy shall be in default with respect to its payment of any obligations
under the Guarantee or (iii) CMS Energy shall have given notice of its selection
of an Extension Period as provided in the Subordinated Debt Indenture with
respect to the Subordinated Debentures and shall not have rescinded such notice,
or such Extension Period, or any extension thereof, shall be continuing. CMS
Energy also will covenant to (i) for so long as Trust Preferred Securities are
outstanding, not convert Subordinated Debentures except pursuant to a notice of
conversion delivered to the Conversion Agent by a holder of Trust Preferred
Securities, (ii) maintain directly or indirectly 100% ownership of the Common
Securities, provided that certain successors which are permitted pursuant to the
Subordinated Debt Indenture may succeed to CMS Energy's ownership of the Common
Securities, (iii) not voluntarily terminate, wind-up or liquidate the Trust,
except (a) in connection with a distribution of the Debentures to the holders of
the Trust Preferred Securities in liquidation of the Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement, (iv) maintain the reservation for issuance of the number of shares of
CMS Energy Common Stock that would be required from time to time upon the
conversion of all the Subordinated Debentures then outstanding, (v) use its
reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause the Trust to remain classified as a grantor trust and not as
an association taxable as a corporation for United States federal income tax
purposes and (vi) deliver shares of CMS Energy Common Stock upon an election by
the holders of the Trust Preferred Securities to convert such Trust Preferred
Securities into CMS Energy Common Stock.
As part of the Guarantee, CMS Energy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Trust Preferred Securities into or for CMS Energy Common Stock or Subordinated
Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority in aggregate liquidation amount of
such
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outstanding Trust Preferred Securities. All guarantees and agreements contained
in the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of CMS Energy and shall inure to the benefit of the holders of
the Trust Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the Trust Preferred Securities, upon
full payment of the amounts payable upon liquidation of the Trust, upon the
distribution, if any, of CMS Energy Common Stock to the holders of Trust
Preferred Securities in respect of the conversion of all such holders' Trust
Preferred Securities into CMS Energy Common Stock or upon distribution of the
Subordinated Debentures to the holders of the Trust Preferred Securities in
exchange for all of the Trust Preferred Securities. The Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of Trust Preferred Securities must restore payment of any sums paid under
such Trust Preferred Securities or the Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of CMS
Energy to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of the
Trust Preferred Securities may institute a legal proceeding directly against CMS
Energy to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. In addition, any record holder of Trust Preferred Securities shall have
the right, which is absolute and unconditional, to proceed directly against CMS
Energy to obtain Guarantee Payments, without first waiting to determine if the
Guarantee Trustee has enforced the Guarantee or instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. CMS
Energy has waived any right or remedy to require that any action be brought just
against the Trust, or any other person or entity before proceeding directly
against CMS Energy.
CMS Energy, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not CMS Energy is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of CMS Energy and
will rank subordinate and junior in right of payment to all other liabilities of
CMS Energy and will rank pari passu with any guarantee now or hereafter entered
into by CMS Energy in respect of any preferred or preference stock of any
affiliate of CMS Energy.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or upon
distribution of the Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee does not place a limitation on the amount of
additional indebtedness that may be incurred by CMS Energy or any of its
subsidiaries.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
CMS Energy may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from CMS Energy, and CMS Energy to sell to the
holders, a specified number of shares of CMS Energy Common Stock at a future
date or dates. The price per share of CMS Energy Common Stock may be fixed at
the time the Stock Purchase Contracts are issued or may be determined by
reference to a specific formula set forth in the Stock Purchase Contracts. The
Stock Purchase Contracts may require CMS Energy to make periodic payments to the
holders of the Stock Purchase Units or visa versa, and such payments may be
unsecured or refunded on some basis. The Stock Purchase Contracts may require
holders to secure their obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
LEGAL OPINIONS
Opinions as to the legality of certain of the Offered Securities will be
rendered for CMS Energy by Michael D. Van Hemert, Esq., Assistant General
Counsel for CMS Energy. Certain matters of Delaware law relating to the validity
of the Trust Preferred Securities will be passed upon on behalf of the Trust by
Skadden, Arps, Slate, Meagher & Flom special Delaware counsel to the Trust.
Certain United States Federal income taxation matters may be passed upon for CMS
Energy and the Trust by special tax counsel to CMS Energy and of the Trust, who
will be named in the Prospectus Supplement. Certain legal matters with respect
to Offered Securities will be passed upon by counsel for any underwriters,
dealers or agents, each of whom will be named in the related Prospectus
Supplement.
EXPERTS
The consolidated financial statements and schedule of CMS Energy as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 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.
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.
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PLAN OF DISTRIBUTION
CMS Energy and/or the Trust may sell the Offered Securities: (i) through
the solicitation of proposals of underwriters or dealers to purchase the Offered
Securities; (ii) through underwriters or dealers on a negotiated basis; (iii)
directly to a limited number of purchasers or to a single purchaser; or (iv)
through agents. The Prospectus Supplement with respect to any Offered Securities
will set forth the terms of such offering, including the name or names of any
underwriters, dealers or agents; the purchase price of the Offered Securities
and the proceeds to CMS Energy and/or the Trust from such sale; any underwriting
discounts and commissions and other items constituting underwriters'
compensation; any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchange on which
such Offered Securities may be listed. Any initial public offering price,
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover of such Prospectus Supplement. Unless otherwise set forth
in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, CMS Energy
and/or the Trust will sell such Offered Securities to the dealers as principals.
The dealers may then resell such Offered Securities to the public at varying
prices to be determined by such dealers at the time of resale. The names of the
dealers and the terms of the transaction will be set forth in the Prospectus
Supplement relating thereto.
The Offered Securities may be sold directly by CMS Energy and/or the Trust
or through agents designated by CMS Energy and/or the Trust from time to time.
Any agent involved in the offer or sale of the Offered Securities in respect to
which this Prospectus is delivered will be named, and any commissions payable by
CMS Energy and/or the Trust to such agent will be set forth, in the Prospectus
Supplement relating thereto. Unless otherwise indicated in the Prospectus
Supplement, any such agent will be acting on a best efforts basis for the period
of its appointment.
The Offered Securities may be sold directly by CMS Energy and/or the Trust
to institutional investors or others, who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale thereof. The
terms of any such sales will be described in the Prospectus Supplement relating
thereto.
Agents, dealers and underwriters may be entitled under agreements with CMS
Energy and/or the Trust to indemnification by CMS Energy and/or the Trust
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for CMS Energy and/or the Trust in the ordinary course of business.
The Offered Securities may or may not be listed on a national securities
exchange. Reference is made to the Prospectus Supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
Offered Securities.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT 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 SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CMS ENERGY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.... S-2
Use of Proceeds.................. S-7
Supplemental Description of
Capital Stock.................. S-7
Transfer Agent................... S-12
Underwriting..................... S-12
Legal Opinions................... S-13
Experts.......................... S-14
PROSPECTUS
Available Information............ 2
Incorporation of Certain
Documents by Reference......... 3
CMS Energy Corporation........... 4
CMS Energy Trust II.............. 5
Use of Proceeds.................. 6
Ratio of Earnings to Fixed
Charges and Ratio of Earnings
to Fixed Charges and Preferred
Stock Dividends................ 6
Description of Securities........ 7
Legal Opinions................... 24
Experts.......................... 24
Plan of Distribution............. 25
</TABLE>
4,500,000 SHARES
CMS ENERGY CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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[CMS ENERGY LOGO]
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SALOMON SMITH BARNEY
