<PAGE> 1
PROSPECTUS Rule 424(b)(4)
DATED JANUARY 14, 1998 Registration Statement No. 333-43077
OFFER TO EXCHANGE
7 3/8% UNSECURED NOTES DUE 2000, SERIES B
FOR ANY AND ALL OUTSTANDING 7 3/8% UNSECURED NOTES DUE 2000, SERIES A
OF
CMS ENERGY LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON FEBRUARY 13, 1998, UNLESS EXTENDED.
CMS Energy Corporation, a Michigan corporation ("CMS Energy"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal, to exchange
up to an aggregate principal amount of $300 million of its 7 3/8% Unsecured
Notes Due 2000, Series B (the "Exchange Notes") for an equal principal amount of
its 7 3/8% Unsecured Notes Due 2000, Series A (the "Notes"). The Exchange Notes
will be substantially identical (including principal amount, interest rate,
maturity and redemption rights) to the Notes for which they may be exchanged
pursuant to the Exchange Offer, except for certain transfer restrictions,
registration rights and interest rate step-up provisions applicable only to the
Notes. The Notes have been, and the Exchange Notes will be, issued under the
Senior Debt Indenture (as defined herein). The Exchange Notes will bear interest
from November 7, 1997 (the date of issuance of the Notes for which the Exchange
Offer is being made) or from the most recent interest payment date to which
interest on the Notes has been paid, at a rate equal to 7 3/8% per annum.
Interest on the Exchange Notes will be payable semiannually on May 15 and
November 15, commencing May 15, 1998. The Exchange Notes will mature on November
15, 2000. The Exchange Notes are redeemable at the option of CMS Energy, in
whole or in part, at any time or from time to time, on not less than 30 days'
notice, at the redemption prices determined as described herein, together with
accrued interest to the date fixed for redemption. In the event of any Change in
Control (as defined herein), a Holder (as defined herein) may require CMS Energy
to purchase all or any part of such Holder's Notes at a price equal to 101% of
their principal amount, plus interest accrued thereon, if any, to the date of
purchase. See "Description of Exchange Notes" herein.
The Exchange Notes will be unsecured debt securities of CMS Energy. As of
September 30, 1997, CMS Energy had outstanding approximately $1.984 billion
aggregate principal amount of indebtedness, none of which was secured. None of
such indebtedness would be senior to the Exchange Notes and the Exchange Notes
will not be senior to such indebtedness, except as described herein. The
Exchange Notes will rank on a parity in right of payment with all other
unsecured and unsubordinated indebtedness of CMS Energy. See "Description of
Exchange Notes -- General."
The Notes were sold by CMS Energy on November 7, 1997 to the Initial
Purchasers (as defined herein) who offered a portion of the Notes in the United
States to qualified institutional buyers in reliance on Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act"), and the remainder of
the Notes were offered by the Initial Purchasers in reliance on Regulation S
under the Securities Act. See "The Exchange Offer." Accordingly, the Notes may
not be reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available.
(continued on next page)
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.
The date of this Prospectus is January 14, 1998.
<PAGE> 2
(Continued from front cover page)
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of CMS Energy contained in the Registration Rights Agreement dated
as of November 7, 1997 (the "Registration Rights Agreement") by and among CMS
Energy and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities
Inc., CIBC Oppenheimer Corp., Morgan Stanley & Co. Incorporated, and Salomon
Brothers Inc (the last five named entities collectively referred to herein as
the "Initial Purchasers"), with respect to the initial sale of the Notes.
CMS Energy will not receive any proceeds from the Exchange Offer. CMS
Energy will pay all the expenses incident to the Exchange Offer. Tenders of
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. See "The Exchange Offer."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the Staff of the Securities and Exchange Commission
(the "Commission") which require each tendering noteholder to represent that it
is acquiring the Exchange Notes in the ordinary course of its business and that
such holder does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Notes where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities.
There has not previously been any public market for the Exchange Notes. CMS
Energy does not intend to list the Exchange Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Exchange Notes will develop. To
the extent that an active market for the Exchange Notes does develop, the market
value of the Exchange Notes will depend on market conditions, CMS Energy's
financial condition and other factors. Such conditions might cause the Exchange
Notes, to the extent they are actively traded, to trade at a significant
discount from face value.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
February 13, 1998, or such later date and time to which it may be extended by
CMS Energy, which in no event shall be later than February 20, 1998. The
Exchange Offer is not conditioned upon any minimum principal amount of Notes
being tendered for exchange pursuant to the Exchange Offer.
<PAGE> 3
AVAILABLE INFORMATION
CMS Energy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. CMS Energy has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act for the registration of the Exchange Notes
offered hereby (the "Exchange Offer Registration Statement"). This Prospectus,
which constitutes a part of the Exchange Offer Registration Statement, does not
contain all the information set forth in the Exchange Offer Registration
Statement, certain items of which are contained in exhibits and schedules to the
Exchange Offer Registration Statement as permitted by the rules and regulations
of the Commission. For further information about CMS Energy and the Exchange
Notes offered hereby, reference is made to the Exchange Offer Registration
Statement, including the exhibits thereto, which may, along with reports, proxy
statements and other information filed by CMS Energy with the Commission
pursuant to the informational requirements of the Exchange Act, be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048; and Citicorp Center, 500 West Madison Street (Suite 1400), Chicago,
Illinois 60601; and copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates, or through the World Wide Web (http://www.sec.gov).
The outstanding shares of CMS Energy common stock are listed on the New York
Stock Exchange, and reports, proxy statements and other information concerning
CMS Energy may also be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by CMS Energy (File No.
001-9513) are incorporated by reference in this Prospectus:
(a) CMS Energy's Annual Report on Form 10-K for the year ended December 31,
1996;
(b) CMS Energy's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1997; and
(c) CMS Energy's Current Reports on Form 8-K dated March 7, April 24, May
1, June 5, June 11, July 1, August 21, and December 23, 1997.
All documents and reports subsequently filed by CMS Energy with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the termination of the offering of the Exchange Notes shall be deemed
to be incorporated by reference into this Prospectus and 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").
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN. CMS ENERGY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE
FOREGOING DOCUMENTS INCORPORATED BY REFERENCE HEREIN, OTHER THAN CERTAIN
EXHIBITS TO SUCH DOCUMENTS. REQUESTS SHOULD BE DIRECTED TO CMS ENERGY
CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICES LOCATED AT FAIRLANE PLAZA SOUTH,
SUITE 1100, 330 TOWN CENTER DRIVE, DEARBORN, MICHIGAN 48126, ATTENTION: OFFICE
OF THE SECRETARY, TELEPHONE: (313) 436-9200. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY FEBRUARY 6, 1998.
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent any
statement contained herein or in any subsequently filed document, which is also
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
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.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Prospectus and is qualified in its entirety by
such more detailed information and consolidated financial statements, including
the notes thereto, incorporated by reference in this Prospectus.
THE NOTE OFFERING
The Notes.................. The Notes were sold by CMS Energy on November 7,
1997 (the "Issue Date"), and were subsequently
offered to qualified institutional buyers
pursuant to Rule 144A and to institutional
investors that are accredited investors in a
manner exempt from registration under the
Securities Act as well as to purchasers pursuant
to Regulation S under the Securities Act.
Registration Rights
Agreement.................. In connection with the offering of the Notes, CMS
Energy entered into the Registration Rights
Agreement, which granted holders of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy the
obligations of CMS Energy with respect to such
exchange and registration rights which, except
for limited instances involving the Initial
Purchasers (as defined in the Registration Rights
Agreement) or Holders (as defined in the
Registration Rights Agreement) who are not
eligible to participate in the Exchange Offer,
terminate upon the consummation of the Exchange
Offer. See "The Exchange Offer."
THE EXCHANGE OFFER
Securities Offered......... $300 million aggregate principal amount of 7 3/8%
Unsecured Notes Due 2000, Series B.
The Exchange Offer......... The Exchange Notes are being offered in exchange
for an equal principal amount of Notes. As of the
date hereof, $300 million aggregate principal
amount of Notes are outstanding. The Notes may be
tendered only in integral multiples of $1,000.
Resale of Exchange Notes... Based on interpretations by the Staff of the
Commission as set forth in no action letters
issued to third parties, CMS Energy believes that
the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold
or otherwise transferred by any holder thereof
(other than any such holder that is a
broker-dealer or an "affiliate" of CMS Energy
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that: (i) such
Exchange Notes are acquired in the ordinary
course of business, (ii) at the time of the
commencement of the Exchange Offer, such holder
has no arrangement with any person to participate
in a distribution of the Exchange Notes and (iii)
such holder is not engaged in, and does not
intend to engage in, a distribution of the
Exchange Notes. By tendering the Notes in
exchange for the Exchange Notes, each holder will
represent to CMS Energy that: (i) it is not such
an affiliate of CMS Energy, (ii) any Exchange
Notes to be received by it will be acquired in
the ordinary course of business and (iii) at the
time of the commencement of the Exchange Offer it
is not engaged in, and does not intend to engage
in, and has no arrangement or understanding with
any person to participate in, a distribution of
the Exchange Notes. If a
3
<PAGE> 5
holder of Notes is unable to make the foregoing
representations, such holder may not rely on the
applicable interpretations of the Staff of the
Commission and must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any secondary
resale transaction.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that, by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to
time, may be used by a broker-dealer in
connection with resales of the Exchange Notes
received in exchange for the Notes where such
Exchange Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. CMS
Energy has agreed that, starting on the
Expiration Date and ending on the close of
business on the first anniversary of the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or to register the Exchange Notes prior to
offering or selling such Exchange Notes. CMS
Energy has agreed, pursuant to the Registration
Rights Agreement and subject to certain specified
limitations therein, to cooperate with selling
Holders or underwriters in connection with the
registration and qualification of the Exchange
Notes for offer or sale under the securities or
"blue sky" laws of such jurisdictions as may be
necessary to permit the holders of Exchange Notes
to trade the Exchange Notes without any
restrictions or limitations under the securities
laws of the several states of the United States.
Consequences of Failure to
Exchange Notes........... Upon consummation of the Exchange Offer, subject to
certain limited exceptions, holders of Notes who
do not exchange their Notes for Exchange Notes in
the Exchange Offer will no longer be entitled to
registration rights and will not be able to offer
or sell their Notes, unless such Notes are
subsequently registered under the Securities Act
(which, subject to certain limited exceptions,
CMS Energy will have no obligation to do), except
pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
Expiration Date............ 5:00 p.m., New York City time, on February 13,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Conditions to the
Exchange Offer........... The Exchange Offer is not conditioned upon any
minimum principal amount of Notes being tendered
for exchange. However, the Exchange Offer is
subject to certain customary conditions, which
may
4
<PAGE> 6
be waived by CMS Energy. See "The Exchange Offer
-- Conditions." Except for the requirements of
applicable United States federal and state
securities laws, there are no United States
federal or state regulatory requirements to be
complied with or obtained by CMS Energy in
connection with the Exchange Offer.
Procedures for Tendering
Notes.................... Each holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with any other required documentation to
the Exchange Agent at the address set forth
herein and effect a tender of Notes pursuant to
the procedures for book-entry transfer as
provided for herein. See "The Exchange Offer --
Procedures for Tendering; Book-Entry Transfer."
Guaranteed Delivery
Procedures............... Holders of Notes who wish to tender their Notes and
who cannot deliver their Notes and a properly
completed Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date may tender their Notes according to the
guaranteed delivery procedures set forth under
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders of Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Notes, a
written or facsimile transmission notice of
withdrawal must be received by the Exchange Agent
at its address set forth under "The Exchange
Offer -- Exchange Agent" prior to 5:00 p.m., New
York City time, on the Expiration Date.
Acceptance of Notes and
Delivery of Exchange
Notes.................... Subject to certain conditions, any and all Notes
that are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date will be accepted for exchange.
The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Acceptance of Notes for Exchange;
Delivery of Exchange Notes."
Certain United States Tax
Consequences............. The exchange of Notes for Exchange Notes will not
constitute a taxable exchange for United States
federal income tax purposes. See "Certain United
States Federal Income Tax Consequences."
Exchange Agent............. NBD Bank is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer.
Fees and Expenses.......... All expenses incident to CMS Energy's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by
CMS Energy. See "The Exchange Offer -- Fees and
Expenses."
Use of Proceeds............ There will be no cash proceeds payable to CMS
Energy from the issuance of the Exchange Notes
pursuant to the Exchange Offer. The proceeds from
the sale of the Notes were used to repay $269
million of the outstanding balance under CMS
Energy's revolving credit facility, to repay $24
million of one of CMS Energy's lines of credit,
and for general corporate purposes. See "Use of
Proceeds."
5
<PAGE> 7
THE EXCHANGE NOTES
Securities Offered......... $300 million principal amount of 7 3/8% Unsecured
Notes Due 2000, Series B ("Exchange Notes").
Maturity................... November 15, 2000
Interest Rate.............. The Exchange Notes will bear interest from November
7, 1997, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes,
at a rate of 7 3/8% per annum, payable
semiannually on May 15 and November 15 of each
year, commencing May 15, 1998. See "Description
of Exchange Notes -- Payment and Maturity."
Optional Redemption........ The Exchange Notes will be redeemable at the option
of CMS Energy, in whole or in part, at any time
or from time to time, on not less than 30 days'
notice, at the redemption prices determined as
described herein, together with accrued interest
to the date fixed for redemption. See
"Description of Exchange Notes -- Redemption."
Change in Control.......... Upon the occurrence of a Change in Control, each
Holder of Exchange Notes may require CMS Energy
to repurchase such Exchange Notes, in whole or in
part, at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any. See "Description of Exchange
Notes -- Purchase of Exchange Notes Upon Change
in Control."
Ranking.................... The Exchange Notes will be unsecured debt
securities of CMS Energy. As of September 30,
1997, CMS Energy had outstanding approximately
$1.984 billion aggregate principal amount of
indebtedness, none of which was secured. None of
such indebtedness would be senior to the Exchange
Notes and the Exchange Notes will not be senior
to any such indebtedness, except that the
Exchange Notes will be senior to certain
subordinated debentures in aggregate principal
amount of $178 million issued in connection with
certain Trust Preferred Securities of an
affiliated trust. The Exchange Notes will rank on
a parity in right of payment with all other
unsecured and unsubordinated indebtedness of CMS
Energy. See "Description of Exchange
Notes -- General."
Certain Covenants.......... The Senior Debt Indenture will contain certain
covenants that, among other things, restrict the
ability of CMS Energy and its Restricted
Subsidiaries (as defined) to: incur or guarantee
additional indebtedness; make restricted
payments; create liens; and sell assets and
consolidate, merge or sell all or substantially
all of their assets. See "Description of Exchange
Notes -- Certain Restrictive Covenants."
Form and Denomination...... The Exchange Notes will be fully registered under
the Securities Act and will be issued in the form
of one or more Global Exchange Notes in fully
registered form, deposited with a custodian for
and registered in the name of a nominee of the
Depositary. Beneficial interests in the Global
Exchange Notes will be shown on, and transfers
thereof will be effected through, records
maintained by the Depositary and its
Participants. See "Description of Exchange
Notes -- General."
6
<PAGE> 8
Exchange Offer,
Registration Rights........ Pursuant to a Registration Rights Agreement among
CMS Energy and the Initial Purchasers, CMS Energy
agreed, among other things: (i) to file a
registration statement (the "Exchange Offer
Registration Statement") on or prior to 60 days
after the closing of the offering (the "Closing")
with respect to an offer to exchange the Notes
for Exchange Notes registered under the
Securities Act, with terms substantially
identical to those of the Notes (the "Exchange
Offer") and (ii) to use its best efforts to cause
the Exchange Offer Registration Statement to be
declared effective by the Commission on or prior
to 120 days after Closing. In certain
circumstances, CMS Energy will be required to
provide a shelf registration statement (the
"Shelf Registration Statement") to cover resales
of the Notes by the Holders thereof. If CMS
Energy fails to satisfy its registration
obligation under the Registration Rights
Agreement, CMS Energy will be required to pay
liquidated damages ("Liquidated Damages") to the
Holders of Notes under certain circumstances. See
"The Exchange Offer -- Registration Rights;
Liquidated Damages."
CMS ENERGY
CMS Energy, incorporated in Michigan 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) energy marketing, risk management
and energy management to large utility, commercial and industrial customers;
(iv) transmission, storage and processing of natural gas; and (v) international
energy distribution.
CMS Energy conducts its principal operations through the following seven
business segments: (i) electric utility operations; (ii) gas utility operations;
(iii) oil and gas exploration and production operations; (iv) independent power
production; (v) energy marketing, services and trading; (vi) natural gas
storage, transmission and processing; and (vii) international energy
distribution. Consumers or Consumers' subsidiaries are engaged in two segments:
electric operations and gas operations. Consumers' electric and gas businesses
are principally regulated utility operations.
CMS Energy and its subsidiaries routinely evaluate, invest in, acquire and
divest energy-related assets and/or businesses both domestically and
internationally. Consideration for such transactions may involve the delivery of
cash and/or securities.
CMS Energy's 1996 consolidated operating revenue was $4,333 million. This
consolidated operating revenue was derived from its electric utility operations
(approximately 57% or $2,446 million), its gas utility operations (approximately
30% or $1,282 million), gas transmission, storage and marketing (approximately
7% or $320 million), oil and gas exploration and production activities
(approximately 3% or $130 million) and independent power production and other
non-utility activities (approximately 3% or $155 million). Consumers'
consolidated operations in the electric and gas utility businesses account for
the majority of CMS Energy's total assets, revenue and income. The
unconsolidated share of non-utility electric generation and distribution and gas
transmission and storage revenue for 1996 was $557 million.
Consumers is a public utility serving almost six million of Michigan's nine
and one-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' 1996 consolidated operating
revenue of $3,770 million was derived approximately 65% ($2,446 million) from
its electric utility business,
7
<PAGE> 9
approximately 34% ($1,282 million) from its gas utility business and
approximately 1% ($42 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 and the Federal Energy Regulatory Commission.
The foregoing information concerning CMS Energy and its subsidiaries does
not purport to be comprehensive. For additional information concerning CMS
Energy and its subsidiaries' businesses 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.
RECENT DEVELOPMENTS
On November 20, 1997, CMS Energy issued 4.142 million shares of CMS Energy
common stock, par value $.01 per share ("CMS Energy Common Stock"), and used the
proceeds for general corporate purposes, including the repayment of long-term
debt.
On December 3, 1997, CMS Energy and CMS Energy X-TRAS(SM) Pass-Through
Trust I, a statutory business trust created under the Delaware Business Trust
Act (the "Trust"), filed a Form S-3 and Form S-1 Registration Statement under
the Securities Act to register $150 million of Pass-Through Certificates due
2005 (the "Certificates") and $150 million of Extendible Tenor Rate-Adjusted
Securities due 2005 ("X-TRAS(SM)") of CMS Energy. On January 8, 1998, CMS Energy
and the Trust filed with the Commission to register an additional $30 million of
the Certificates and the X-TRAS(SM). The public offering of the Certificates
closed January 13, 1998. The Trust used the proceeds of the public offering of
the Certificates, together with amounts payable to it under a certain ISDA
Master Agreement, to purchase the X-TRAS(SM) from CMS Energy. CMS Energy will
use the proceeds from the sale of the X-TRAS(SM) for general corporate purposes,
including the repayment of borrowings under its revolving and working capital
facilities.
On December 4, 1997, CMS Energy and a privately held Brazilian utility,
Companhia Forca e luz Cataguazes-Leopoldina ("CFLCL"), announced that the
Brazilian State of Sergipe selected CFLCL as the winning bidder in the
privatization of the Energipe electric distribution utility. Energipe serves
approximately 348,000 customers in Sergipe, located in northeastern Brazil.
CFLCL submitted the winning bid of (US) $520.3 million for 86.4% of the
ownership interest of Energipe. CMS Electric and Gas Company, a subsidiary of
CMS Energy, has agreed to acquire a 42.6% ownership interest in the
CFLCL/Energipe combined company for a price of approximately (US) $180 million
and assume an active role in advising the company on technical matters.
On December 19, 1997, the Michigan Public Service Commission issued an ex
parte order, responsive to a December 9, 1997 Consumers application, authorizing
a voluntary, experimental program that will allow up to 300,000 Michigan natural
gas customers to choose their own supplier over the next three years. The new
program will begin April 1, 1998, when 100,000 residential, commercial and
industrial retail gas sales customers of Consumers will be offered the
opportunity to participate on a first-come, first-served basis. An additional
100,000 customers will be allowed to participate in the program in each of the
following two years. During the program, Consumer's distribution service rates
for all retail gas customers will be frozen. In addition, the gas cost recovery
clause will be suspended and the gas commodity charge will be frozen at the
1996-97 rate of $2.8364 per thousand cubic feet (Mcf) for customers who remain
full-service sales customers. Finally, an earnings sharing mechanism will
provide for refunds to customers in the event that Consumer's actual gas utility
business earnings exceed certain predetermined levels.
On January 8, 1998, CMS Energy announced that the Government of Turkey had
selected its consortium to exclusively negotiate the purchase of a concession to
acquire and operate the Bursa-Yalova region electric distribution system in a
(US) $165 million privatization in Turkey. The Bursa-Yalova electric
distribution system serves approximately 700,000 customers in and around the
City of Bursa, an industrial and commercial center, located about 62 miles south
of Istanbul. CMS Energy will hold a 30% ownership interest in the consortium and
will also serve as operator for the consortium. Ihlas Holding of Turkey and
Howard Energy Group of Oceanside, California will hold 55% and 15% ownership,
respectively, in the consortium.
8
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain financial information of CMS Energy
and its Consolidated Subsidiaries and is qualified in its entirety by, and
should be read in conjunction with, the detailed information and CMS Energy's
consolidated financial statements and notes thereto included in the Incorporated
Documents. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue................................ $3,142 $3,476 $3,614 $3,890 $4,333 $3,150 $3,394
Pretax operating income.......................... 231 439 503 603 677 547 565
Operating expenses............................... 2,911 3,037 3,111 3,287 3,656 2,603 2,829
Income taxes..................................... (146) 75 92 118 139 116 107
Net income....................................... (297) 155 179 204 240 196 204
Net income (loss) attributable to common stocks
CMS Energy..................................... (297) 155 179 201 226 186 195
Class G........................................ -- -- -- 3 14 10 9
Average common shares outstanding
CMS Energy..................................... 80 81 86 89 92 92 95
Class G........................................ -- -- -- 8 8 8 8
Earnings (loss) per average common share......... $(3.72) $ 1.90 $ 2.09 $ 2.27 $ 2.45 $ 2.02 $ 2.04
CMS Energy Common Stock
Class G Common Stock........................... -- -- -- 0.38 1.82 1.38 1.13
Dividends declared per common share
CMS Energy..................................... .48 .60 .78 .90 1.02 .75 .84
Class G........................................ -- -- -- .56 1.15 .855 .90
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 89 $ 28 $ 79 $ 56 $ 56 $ 55 $ 134
Net plant and property........................... 4,326 4,583 4,814 5,074 5,280 5,177 5,415
Total assets..................................... 6,842 6,958 7,378 8,143 8,615 8,291 9,500
Long-term debt, excluding current maturities..... 2,725 2,405 2,709 2,906 2,842 2,996 3,060
Non-current portion of capital leases............ 98 115 108 106 103 92 82
Notes payable.................................... 215 259 339 341 333 341 394
Other liabilities................................ 2,914 3,050 2,759 2,965 3,179 2,787 3,499
Company-obligated mandatorily redeemable Trust
Preferred Securities of Consumers Power Company
Financing I.................................... -- -- -- -- 100 100 100
Company-obligated mandatorily redeemable Trust
Preferred Securities of Consumers Energy
Company Financing II........................... -- -- -- -- -- -- 120
Company-obligated convertible Trust Preferred
Securities of CMS Energy Trust I............... 163 163 356 356 356 356 238
Common stockholders' equity...................... $ 727 $ 966 $1,107 $1,469 $1,702 $1,619 $1,834
</TABLE>
9
<PAGE> 11
USE OF PROCEEDS
There will be no cash proceeds payable to CMS Energy from the issuance of
the Exchange Notes pursuant to the Exchange Offer. The proceeds from the sale of
the Notes were used to repay $269 million of the outstanding balance under CMS
Energy's revolving credit facility, to repay $24 million of one of CMS Energy's
lines of credit, and for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the nine months ended September
30, 1997 and for each of the years ended December 31, 1992 through 1996 are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------
1996 1997 1992 (1) 1993 1994 1995 1996
- ---- ------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................ 2.01 -- 1.88 2.07 1.94 2.01
</TABLE>
- -------------------------
(1) For the year ended December 31, 1992, fixed charges exceeded earnings by
$441 million. Earnings as defined include a $520 million pretax loss on the
settlement of MCV power purchases, $(15) million for potential customer
refunds and other reserves related to 1992 but recorded in 1991, and $6
million relating to CMS Generation Co.'s reduction in its investment in The
Oxford Energy Company. The ratio of earnings to fixed charges would have
been 1.33 excluding these amounts.
For the purpose of computing such ratio, earnings represent net income
before income taxes, net interest charges and estimated interest portion of
lease rentals.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
CMS Energy at September 30, 1997, and as adjusted to reflect the sale of the
Exchange Notes offered hereby, the application of the estimated net proceeds
from such sale and certain other items referred to below. See "Use of Proceeds."
The table should be read in conjunction with CMS Energy's consolidated financial
statements and notes thereto included in the Incorporated Documents. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Non-current portion of capital leases....................... $ 82 $ 82
Long-term debt (excluding current maturities)
(1)(2)(3)(4).............................................. 3,060 3,099
Total long-term debt................................... 3,060 3,099
------ ------
Company-obligated mandatorily redeemable Trust Preferred
Securities of Consumers Power Company Financing I (5)..... 100 100
Company-obligated mandatorily redeemable Trust Preferred
Securities of Consumers Energy Company Financing II (5)... 120 120
Company-obligated convertible Trust Preferred Securities of
CMS Energy Trust I (5).................................... 173 173
Total stockholders' equity:
Preferred stock of subsidiary............................. 238 238
Common stockholders' equity (2)............................. 1,834 1,986
------ ------
Total stockholders' equity............................. 2,070 2,224
------ ------
Total capitalization................................. $5,607 $5,798
====== ======
</TABLE>
- -------------------------
(1) Adjusted to reflect the issuance on November 7, 1997 of $300 million
principal amount of 7 3/8% Senior Unsecured Notes due 2000, Series A (the
"Notes") and the concurrent repayment of $269 million of the outstanding
balance under CMS Energy's revolving credit facility and repayment of $24
million under one of CMS Energy's lines of credit with the proceeds from the
issuance of such Notes.
(2) Adjusted to reflect net proceeds of $152 million from the issuance of 4.142
million shares of CMS Energy Common Stock on November 20, 1997, which
proceeds were used for general corporate purposes including the repayment of
long-term debt.
(3) Adjusted to reflect the issuance of $180 million principal amount of
X-TRAS(SM) as filed on December 3, 1997 by CMS Energy and the Trust on a
combined Form S-3 and Form S-1 Registration Statement. See "Recent
Developments."
(4) Adjusted to reflect the December 8, 1997 borrowing of $180 million under the
Company's revolving credit facility to fund a CMS Energy subsidiary's
acquisition of an ownership interest in a Brazilian electric distribution
company, and the repayment of $176.1 million of such borrowings with the
proceeds of the issuance of the Extendible Tenor Rate-Adjusted Securities
due 2005.
(5) The primary asset of Consumers Power Company Financing I is approximately
$103 million principal amount of 8.36% subordinated deferrable interest
notes due 2015 from Consumers Energy Company. The primary asset of Consumers
Energy Company Financing II is approximately $124 million principal amount
of 8.20% subordinated deferrable interest notes due 2027 from Consumers
Energy Company. The primary asset of CMS Energy Trust I is approximately
$178 million principal amount of 7.75% convertible subordinated debentures
due 2027 from CMS Energy.
11
<PAGE> 13
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued as a series of debt securities under the
Indenture dated as of September 15, 1992, as previously supplemented (the
"Indenture") and as further supplemented by a Fifth Supplemental Indenture
establishing the Exchange Notes (the "Supplemental Indenture") dated as of
November 4, 1997, between CMS Energy and NBD Bank, as Trustee (the "Trustee").
The Indenture and the Supplemental Indenture are hereinafter referred to
collectively as the "Senior Debt Indenture." The following summaries of certain
provisions of the Senior Debt Indenture, the Exchange Notes and the Registration
Rights Agreement (as defined herein) do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the respective documents, including the definitions therein of certain terms.
Certain capitalized terms used in this "Description of Exchange Notes" shall
have the meanings respectively set forth in the Senior Debt Indenture or
Registration Rights Agreement, as applicable. Wherever particular defined terms
of the Senior Debt Indenture are referred to, such defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. Section references
below are references to sections of the Senior Debt Indenture. Copies of the
Senior Debt Indenture are available from the Trustee upon request.
The Exchange Notes will be limited to an aggregate principal amount of $300
million. The Senior Debt Indenture does not limit the aggregate principal amount
of debt securities that may be issued thereunder and provides that debt
securities may be issued thereunder, from time to time, in one or more series.
The Exchange Notes and all other debt securities hereafter issued under the
Senior Debt Indenture are collectively referred to herein as the "Senior Debt
Securities."
GENERAL
The Exchange Notes will be unsecured debt securities of CMS Energy. As of
September 30, 1997, CMS Energy had outstanding approximately $1.984 billion
aggregate principal amount of indebtedness, none of which was secured. None of
such indebtedness would be senior to the Exchange Notes and the Exchange Notes
will not be senior to any such indebtedness, except that the Exchange Notes will
be senior to certain subordinated debentures in aggregate principal amount of
$178 million, issued in connection with certain preferred securities of a
subsidiary trust. The Exchange Notes will rank on a parity in right of payment
with all other unsecured and unsubordinated indebtedness of CMS Energy.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. The Exchange Notes will be obligations
exclusively of CMS Energy. CMS Energy's ability to service its indebtedness,
including the Exchange Notes, is dependent primarily upon the earnings of its
subsidiaries and the distribution or other payment of such earnings to CMS
Energy in the form of dividends, loans or advances, and repayment of loans and
advances from CMS Energy. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Exchange Notes 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 Exchange Notes, to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary (in which case the claims
of CMS Energy would still be subject to the prior claims of any secured creditor
of such subsidiary and of any holder of indebtedness of such subsidiary that is
senior to that held by CMS Energy). As of September 30, 1997, CMS Energy's
subsidiaries had total indebtedness for borrowed money (excluding intercompany
indebtedness) of approximately $2,780 million.
The Exchange Notes will be issued in the form of one or more Global
Exchange Notes, in registered form, without coupons, in denominations of $1,000
or an integral multiple thereof as described under "Description of Exchange
Notes -- Book-Entry; Delivery; Form and Transfer." The Global Exchange Notes
will be registered in the name of a nominee of DTC. Each Global Exchange Note
(and any Note issued in exchange therefor) will be subject to certain
restrictions on transfer set forth therein as described under
12
<PAGE> 14
"-- Book-Entry; Delivery; Form and Transfer -- Transfers of Interests in Global
Exchange Notes for Certificated Exchange Notes." Except as set forth herein
under "-- Book-Entry; Delivery; Form and Transfer -- Transfers of Interests in
Global Exchange Notes for Certificated Exchange Notes," owners of beneficial
interests in a Global Exchange Note will not be entitled to have Exchange Notes
registered in their names, will not receive or be entitled to receive physical
delivery of any such Note and will not be considered the registered holder
thereof under the Senior Debt Indenture.
PAYMENT AND MATURITY
The Exchange Notes will mature on November 15, 2000, unless redeemed
earlier by CMS Energy as described below, and will bear interest at the rate of
7 3/8% per annum.
Each Exchange Note will bear interest from the Issue Date, payable
semiannually on May 15 and November 15, commencing May 15, 1998, and at
maturity. So long as Exchange Notes are held in the form of one or more Global
Exchange Notes, payments of principal, premium, interest and Liquidated Damages
(as defined herein), if any, will be payable through the facilities of DTC.
In any case where any interest payment date, repurchase date or maturity of
any Exchange Note shall not be a Business Day (as hereinafter defined) at any
place of payment, then payment of interest or principal (and premium, if any)
need not be made on such date, but may be made on the next succeeding Business
Day at such place of payment with the same force and effect as if made on the
interest payment date, repurchase date or at maturity; and no interest shall
accrue on the amount so payable for the period from and after such interest
payment date, redemption date, repurchase date or maturity, as the case may be,
to such Business Day.
REDEMPTION
The Exchange Notes will be redeemable at CMS Energy's option, in whole or
in part, at any time or from time to time, at a redemption price equal to 100%
of the principal amount of such Exchange Notes being redeemed plus the
Applicable Premium, if any, thereon at the time of redemption, together with
accrued interest, if any, thereon to the redemption date. In no event will the
redemption price ever be less than 100% of the principal amount of the Exchange
Notes plus accrued interest to the redemption date.
The following definitions are used to determine the Applicable Premium:
"Applicable Premium" means, with respect to an Exchange Note (or
portion thereof) being redeemed at any time, the excess of (A) the present
value at such time of the principal amount of such Exchange Note (or
portion thereof) being redeemed plus all interest payments due on such Note
(or portion thereof), which present value shall be computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
principal amount of such Exchange Note (or portion thereof) being redeemed
at such time. For purposes of this definition, the present values of
interest and principal payments will be determined in accordance with
generally accepted principles of financial analysis.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled
and published in the most recent Federal Reserve Statistical Release
H.15(519) (the "Statistical Release") which has become publicly available
at least two Business Days prior to the redemption date or, in the case of
defeasance, prior to the date of deposit (or, if such Statistical Release
is no longer published, any publicly available source of similar market
data)) most nearly equal to the then remaining average life to stated
maturity of the Exchange Notes; provided, however, that if the average life
to stated maturity of the Exchange Notes is not equal to the constant
maturity of a United States Treasury security for which a weekly average
yield is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average
yields of United States Treasury securities for which such yields are
given.
If less than all of the Exchange Notes are to be redeemed, the Trustee
shall select, in such manner as it shall deem appropriate and fair, the
particular Exchange Notes or portions thereof to be redeemed. Notice of
redemption shall be given by mail not less than 30 nor more than 60 days prior
to the date fixed for redemption
13
<PAGE> 15
to the Holders of Exchange Notes to be redeemed (which, as long as the Exchange
Notes are held in the book-entry only system, will be DTC (or its nominee) or a
successor depositary (the "Depositary")); provided, however, that the failure to
duly give such notice by mail, or any defect therein, shall not affect the
validity of any proceedings for the redemption of Exchange Notes as to which
there shall have been no such failure or defect. On and after the date fixed for
redemption (unless CMS Energy shall default in the payment of the Exchange Notes
or portions thereof to be redeemed at the applicable redemption price, together
with interest accrued thereon to such date), interest on the Exchange Notes or
the portions thereof so called for redemption shall cease to accrue.
No sinking fund is provided for the Exchange Notes.
PURCHASE OF EXCHANGE NOTES UPON CHANGE IN CONTROL
In the event of any Change in Control (as defined below) each Holder of an
Exchange Note will have the right, at such Holder's option, subject to the terms
and conditions of the Senior Debt Indenture, to require CMS Energy to repurchase
all or any part of such Holder's Exchange Note on a date selected by CMS Energy
that is no earlier than 60 days nor later than 90 days (the "Change in Control
Purchase Date") after the mailing of written notice by CMS Energy of the
occurrence of such Change in Control at a repurchase price payable in cash equal
to 101% of the principal amount of such Exchange Notes plus accrued interest to
the Change in Control Purchase Date (the "Change in Control Purchase Price").
Within 30 days after the Change in Control Date, CMS Energy is obligated to
mail to each Holder of an Exchange Note a notice regarding the Change in
Control, which notice shall state, among other things: (i) that a Change in
Control has occurred and that each such Holder has the right to require CMS
Energy to repurchase all or any part of such Holder's Exchange Notes at the
Change in Control Purchase Price; (ii) the Change in Control Purchase Price;
(iii) the Change in Control Purchase Date; (iv) the name and address of the
Paying Agent; and (v) the procedures that Holders must follow to cause the
Exchange Notes to be repurchased.
To exercise this right, a Holder must deliver a written notice (the "Change
in Control Purchase Notice") to the Paying Agent at its corporate trust office
in Detroit, Michigan, or any other office of the Paying Agent maintained for
such purposes, not later than 30 days prior to the Change in Control Purchase
Date. The Change in Control Purchase Notice shall state: (i) the portion of the
principal amount of any Exchange Notes to be repurchased, which must be $1,000
or an integral multiple thereof; (ii) that such Exchange Notes are to be
repurchased by CMS Energy pursuant to the applicable change-in-control
provisions of the Senior Debt Indenture; and (iii) unless the Exchange Notes are
represented by one or more Global Exchange Notes, the certificate numbers of the
Exchange Notes to be repurchased.
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent not later than three
Business Days prior to the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and, if applicable, the certificate
numbers of the Exchange Notes as to which the withdrawal notice relates and the
principal amount, if any, which remains subject to a Change in Control Purchase
Notice.
If an Exchange Note is represented by a Global Exchange Note, the
Depositary or its nominee will be the holder of such Exchange Note and therefore
will be the only entity that can require CMS Energy to repurchase Exchange Notes
upon a Change in Control. To obtain repayment with respect to such Exchange Note
upon a Change in Control, the beneficial owner of such Exchange Note must
provide to the broker or other entity through which it holds the beneficial
interest in such Exchange Note: (i) the Change in Control Purchase Notice signed
by such beneficial owner, and such signature must be guaranteed by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States; and (ii) instructions to such broker or
other entity to notify the Depositary of such beneficial owner's desire to cause
CMS Energy to repurchase such Exchange Notes. Such broker or other entity will
provide to the Paying Agent: (i) a Change in Control Purchase Notice received
from such beneficial owner; and (ii) a certificate satisfactory to the Paying
Agent from such broker or other entity that it represents such beneficial owner.
Such
14
<PAGE> 16
broker or other entity will be responsible for disbursing any payments it
receives upon the repurchase of such Exchange Notes by CMS Energy.
Payment of the Change in Control Purchase Price for an Exchange Note in
registered, certificated form (a "Certificated Note") for which a Change in
Control Purchase Notice has been delivered and not withdrawn is conditioned upon
delivery of such Certificated Exchange Note (together with necessary
endorsements) to the Paying Agent at its office in Detroit, Michigan, or any
other office of the Paying Agent maintained for such purpose, at any time
(whether prior to, on or after the Change in Control Purchase Date) after the
delivery of such Change in Control Purchase Notice. Payment of the Change in
Control Purchase Price for such Certificated Exchange Note will be made promptly
following the later of the Change in Control Purchase Date or the time of
delivery of such Certificated Exchange Note.
If the Paying Agent holds, in accordance with the terms of the Senior Debt
Indenture, money sufficient to pay the Change in Control Purchase Price of an
Exchange Note on the Business Day following the Change in Control Purchase Date
for such Exchange Note, then, on and after such date, interest on such Exchange
Note will cease to accrue, whether or not such Exchange Note is delivered to the
Paying Agent, and all other rights of the Holder shall terminate (other than the
right to receive the Change in Control Purchase Price upon delivery of the
Exchange Note).
Under the Senior Debt Indenture, a "Change in Control" means an event or
series of events by which: (i) CMS Energy ceases to beneficially own, directly
or indirectly, at least 80% of the total voting power of all classes of Capital
Stock then outstanding of Consumers (whether arising from issuance of securities
of CMS Energy or Consumers, any direct or indirect transfer of securities by CMS
Energy or Consumers, any merger, consolidation, liquidation or dissolution of
CMS Energy or Consumers or otherwise); or (ii) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as such term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person or group shall be deemed to have "beneficial
ownership" of all shares that such person or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the Voting Stock of CMS
Energy; or (iii) CMS Energy consolidates with or merges into another corporation
or directly or indirectly conveys, transfers or leases all or substantially all
of its assets to any person, or any corporation consolidates with or merges into
CMS Energy, in either event pursuant to a transaction in which the outstanding
Voting Stock of CMS Energy is changed into or exchanged for cash, securities, or
other property, other than any such transaction where (A) the outstanding Voting
Stock of CMS Energy is changed into or exchanged for Voting Stock of the
surviving corporation and (B) the holders of the Voting Stock of CMS Energy
immediately prior to such transaction retain, directly or indirectly,
substantially proportionate ownership of the Voting Stock of the surviving
corporation immediately after such transaction.
The Senior Debt Indenture requires CMS Energy to comply with the provisions
of Regulation 14E and any other tender offer rules under the Exchange Act which
may then be applicable in connection with any offer by CMS Energy to purchase
Exchange Notes at the option of Holders upon a Change in Control. The Change in
Control purchase feature of the Exchange Notes may in certain circumstances make
more difficult or discourage a takeover of CMS Energy and, thus, the removal of
incumbent management. The Change in Control purchase feature, however, is not
the result of management's knowledge of any specific effort to accumulate shares
of its common stock or to obtain control of CMS Energy by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by management to
adopt a series of anti-takeover provisions. Instead, the Change in Control
purchase feature is a term contained in many similar debt offerings and the
terms of such feature result from negotiations between CMS Energy and the
Initial Purchasers. Management has no present intention to propose any
anti-takeover measures although it is possible that CMS Energy could decide to
do so in the future.
No Exchange Note may be repurchased by CMS Energy as a result of a Change
of Control if there has occurred and is continuing an Event of Default described
under "Events of Default" below (other than a default in the payment of the
Change in Control Purchase Price with respect to the Exchange Notes). In
addition, CMS Energy's ability to purchase Exchange Notes may be limited by its
financial resources and its
15
<PAGE> 17
inability to raise the required funds because of restrictions on issuance of
securities contained in other contractual arrangements.
CERTAIN RESTRICTIVE COVENANTS
The Senior Debt Indenture contains the covenants described below. Certain
capitalized terms used below are defined herein under the heading "Certain
Definitions."
Limitation on Restricted Payments
Under the terms of the Senior Debt Indenture, so long as any of the
Exchange Notes are Outstanding and until the Exchange Notes are rated BBB- or
above (or an equivalent rating) by Standard & Poor's and one Other Rating
Agency, at which time CMS Energy will be permanently released from the
provisions of this "Limitation on Restricted Payments," CMS Energy will not, and
will not permit any of its Restricted Subsidiaries, directly or indirectly, to
(i) declare or pay any dividend or make any distribution on the Capital Stock of
CMS Energy to the direct or indirect holders of its Capital Stock (except
dividends or distributions payable solely in its Non-Convertible Capital Stock
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), (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 (any such dividend,
distribution, purchase, redemption, repurchase, defeasing, other acquisition or
retirement being hereinafter referred to as a "Restricted Payment") if at the
time CMS Energy or such Subsidiary makes such Restricted Payment: (1) an Event
of Default, or an event that with the lapse of time or the giving of notice or
both would constitute an Event of Default, shall have occurred and be continuing
(or would result therefrom); or (2) the aggregate amount of such Restricted
Payment and all other Restricted Payments made since May 6, 1997 would exceed
the sum of: (a) $100,000,000 plus 100% of Consolidated Net Income from May 6,
1997 to the end of the most recent fiscal quarter ending at least 45 days prior
to the date of such Restricted Payment (or, in case such sum shall be a deficit,
minus 100% of the deficit) and (b) the aggregate Net Cash Proceeds received by
CMS Energy from the issue or sale of or contribution with respect to its Capital
Stock after May 6, 1997.
The foregoing provisions will not prohibit: (i) dividends or other
distributions paid in respect of any class of Capital Stock issued by CMS Energy
in connection with the acquisition of any business or assets by CMS Energy or a
Restricted Subsidiary where the dividends or other distributions with respect to
such Capital Stock are payable solely from the net earnings of such business or
assets; (ii) any purchase or redemption of Capital Stock of CMS Energy made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of CMS Energy (other than Redeemable Stock or Exchangeable Stock);
(iii) dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividends would have complied with this covenant;
or (iv) payments pursuant to the Tax Sharing Agreement.
Limitation on Certain Liens
Under the terms of the Senior Debt Indenture, so long as any of the
Exchange Notes are Outstanding, CMS Energy shall not create, incur, assume or
suffer to exist any Lien upon or with respect to any of its property of any
character, including without limitation any shares of Capital Stock of Consumers
or Enterprises, without making effective provision whereby the Exchange Notes
shall be (so long as any such other creditor shall be so secured) equally and
ratably secured. The foregoing restrictions shall not apply to (a) Liens
securing Indebtedness of CMS Energy, provided that on the date such Liens are
created, and after giving effect to such Indebtedness, the aggregate principal
amount at maturity of all the secured Indebtedness of CMS Energy at such date
shall not exceed 5% of Consolidated Net Tangible Assets or (b) certain liens for
taxes, pledges to secure workman's compensation, other statutory obligations and
Support Obligations, certain materialmen's, mechanic's and similar liens and
certain purchase money liens.
16
<PAGE> 18
Limitation on Asset Sales
Under the terms of the Senior Debt Indenture, so long as any of the
Exchange Notes are outstanding, CMS Energy may not sell, transfer or otherwise
dispose of any property or assets of CMS Energy, including Capital Stock of any
Consolidated Subsidiary, in one transaction or a series of transactions in an
amount which exceeds $50,000,000 (an "Asset Sale") unless CMS Energy shall (i)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
Indebtedness of a Consolidated Subsidiary or Indebtedness of CMS Energy which is
pari passu with the Exchange Notes or (ii) invest an equal amount not so used in
clause (i) in property or assets of related business within 24 months after the
date of the Asset Sale (the "Application Period") or (iii) apply such excess Net
Cash Proceeds not so used in (i) or (ii) (the "Excess Proceeds") to make an
offer, within 30 days after the end of the Application Period, to purchase from
the Holders on a pro rata basis an aggregate principal amount of Exchange Notes
on the relevant purchase date equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Exchange Notes on
the relevant purchase date and unpaid interest, if any, to the purchase date.
CMS Energy shall only be required to make an offer to purchase Exchange Notes
from Holders pursuant to subsection (iii) if the Excess Proceeds equal or exceed
$25,000,000 at any given time.
The procedures to be followed by CMS Energy in making an offer to purchase
Exchange Notes from the Holders with Excess Proceeds, and for the acceptance of
such offer by the Holders, shall be the same as those set forth above in
"Purchase of Exchange Notes Upon Change of Control" with respect to a Change in
Control.
Limitation on Consolidation, Merger, Sale or Conveyance
The Senior Debt Indenture provides that CMS Energy may consolidate with or
merge into, or sell, lease or convey its property as an entirety or
substantially as an entirety to, any other corporation if such corporation
assumes the obligations of CMS Energy under the Exchange Notes and the Senior
Debt Indenture and is organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia. (Section 9.1) The
Senior Debt Indenture further provides that so long as any of the Exchange Notes
are Outstanding and until the Exchange Notes are rated BBB- or above (or an
equivalent rating) by Standard & Poor's and one Other Rating Agency, at which
time CMS Energy will be permanently released from the provisions of this
"Limitation on Consolidation, Merger, Sale or Conveyance," CMS Energy shall not
consolidate with or merge into any other Person or sell, lease or convey the
property of CMS Energy in the entirety or substantially as an entirety, unless
(i) immediately after giving effect to such transaction the Consolidated Net
Worth of the surviving entity is at least equal to the Consolidated Net Worth of
CMS Energy immediately prior to the transaction, and (ii) after giving effect to
such transaction, the surviving entity would be entitled to incur at least one
dollar of additional Indebtedness (other than revolving Indebtedness to banks)
pursuant to the first paragraph under "-- Limitation on Consolidated
Indebtedness" below. Notwithstanding the foregoing provisions, such a
transaction may constitute a Change of Control as described in "-- Purchase of
Exchange Notes Upon Change in Control" above and give rise to the right of a
Holder to require CMS Energy to repurchase all or part of such Holder's Exchange
Notes.
Limitation on Consolidated Indebtedness
Under the terms of the Senior Debt Indenture, so long as any of the
Exchange Notes are Outstanding and until the Exchange Notes are rated BBB- or
above (or an equivalent rating) by Standard & Poor's and one Other Rating
Agency, at which time CMS Energy will be permanently released from the
provisions of this "Limitation on Consolidated Indebtedness," CMS Energy will
not, and will not permit any of its Consolidated Subsidiaries to, issue, create,
assume, guarantee, incur or otherwise become liable for (collectively, "issue"),
directly or indirectly, any Indebtedness unless the Consolidated Coverage Ratio
of CMS Energy and its Consolidated Subsidiaries for the four consecutive fiscal
quarters immediately preceding the issuance of such Indebtedness (as shown by a
pro forma consolidated income statement of CMS Energy and its Consolidated
Subsidiaries for the four most recent fiscal quarters ending at least 30 days
prior to the issuance of such Indebtedness after giving effect to (i) the
issuance of such Indebtedness and (if applicable) the application of the net
proceeds thereof to refinance other Indebtedness as if such Indebtedness was
issued at the beginning of
17
<PAGE> 19
the period, (ii) the issuance and retirement of any other Indebtedness since the
first day of the period as if such Indebtedness was issued or retired at the
beginning of the period and (iii) the acquisition of any company or business
acquired by CMS Energy or any Subsidiary since the first day of the period
(including giving effect to the pro forma historical earnings of such company or
business), including any acquisition which will be consummated contemporaneously
with the issuance of such Indebtedness, as if in each case such acquisition
occurred at the beginning of the period) exceeds a ratio of 1.7 to 1.0.
The foregoing limitation is subject to exceptions for: (i) Indebtedness of
CMS Energy to banks not to exceed $1 billion in aggregate outstanding principal
amount at any time; (ii) Indebtedness outstanding on the date of the
Supplemental Indenture and certain refinancings thereof; (iii) certain
refinancings and Indebtedness of CMS Energy to a Subsidiary or by a Subsidiary
to CMS Energy; (iv) Indebtedness of a Consolidated Subsidiary issued to acquire,
develop, improve, construct or to provide working capital for a gas, oil or
electric generation, exploration, production, distribution, storage or
transmission facility and related assets provided that such Indebtedness is
without recourse to any assets of CMS Energy, Consumers, Enterprises, CMS
Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission and Storage, CMS
MST or any other Designated Enterprises Subsidiary; (v) Indebtedness of a Person
existing at the time at which such Person became a Subsidiary and not incurred
in connection with, or in contemplation of, such Person becoming a Subsidiary;
(vi) Indebtedness issued by CMS Energy not to exceed $150,000,000 in aggregate
outstanding principal amount at any time; and (vii) Indebtedness of a
Consolidated Subsidiary in respect of rate reduction bonds issued to recover
electric restructuring transition costs of Consumers provided that such
Indebtedness is without recourse to the assets of Consumers.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Senior
Debt Indenture. Reference is made to the Senior Debt Indenture for a full
definition of all terms as well as any other capitalized terms used herein and
not otherwise defined.
"Business Day" means a day on which banking institutions in New York, New
York or Detroit, Michigan are not authorized or required by law or regulation to
close.
"Capital Lease Obligation" of a Person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or assets to
which such lease relates.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock or letter
stock; provided that Hybrid Preferred Securities are not considered Capital
Stock for purposes of this definition.
"CMS Electric and Gas" means CMS Electric and Gas Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"CMS Gas Transmission and Storage" means CMS Gas Transmission and Storage
Company, a Michigan corporation and wholly-owned subsidiary of Enterprises.
"CMS Generation" means CMS Generation Co., a Michigan corporation and
wholly-owned subsidiary of Enterprises.
"CMS MST" means CMS Marketing, Services and Trading Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.
18
<PAGE> 20
"Consolidated Assets" means, at any date of determination, the aggregate
assets of CMS Energy and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Consolidated Coverage Ratio" with respect to any period means the ratio of
(i) the aggregate amount of Operating Cash Flow for such period to (ii) the
aggregate amount of Consolidated Interest Expense for such period.
"Consolidated Current Liabilities" means, for any period, the aggregate
amount of liabilities of CMS Energy and its Consolidated Subsidiaries which may
properly be classified as current liabilities (including taxes accrued as
estimated), after (i) eliminating all inter-company items between CMS Energy and
any Consolidated Subsidiary and (ii) deducting all current maturities of
long-term Indebtedness, all as determined in accordance with generally accepted
accounting principles.
"Consolidated Indebtedness" means, at any date of determination, the
aggregate Indebtedness of CMS Energy and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that Consolidated Indebtedness shall not include
any subordinated debt owned by any Hybrid Preferred Securities Subsidiary.
"Consolidated Interest Expense" means, for any period, the total interest
expense in respect of Consolidated Indebtedness of CMS Energy and its
Consolidated Subsidiaries, including, without duplication, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) cash and noncash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of discount) and (vii) interest expense in
respect of obligations of other Persons deemed to be Indebtedness of CMS Energy
or any Consolidated Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness, provided, however, that Consolidated Interest Expense shall
exclude (a) any costs otherwise included in interest expense recognized on early
retirement of debt and (b) any interest expense in respect of any Indebtedness
of any Subsidiary of Consumers, CMS Generation, NOMECO, CMS Electric and Gas,
CMS Gas Transmission and Storage, CMS MST or any other Designated Enterprises
Subsidiary provided that such Indebtedness is without recourse to any assets of
CMS Energy, Consumers, Enterprises, CMS Generation, NOMECO, CMS Electric and
Gas, CMS Gas Transmission and Storage, CMS MST or any other Designated
Enterprises Subsidiary.
"Consolidated Net Income" means, for any period, the net income of CMS
Energy and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income (i) any net
income of any Person if such Person is not a Subsidiary, except that (A) CMS
Energy's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to CMS Energy or a
Consolidated Subsidiary as a dividend or other distribution and (B) CMS Energy's
equity in a net loss of any such Person for such period shall be included in
determining such Consolidated Net Income; (ii) any net income of any Person
acquired by CMS Energy or a Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any gain or loss
realized upon the sale or other disposition of any property, plant or equipment
of CMS Energy or its Consolidated Subsidiaries which is not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Capital Stock of any Person; and (iv)
any net income of any Subsidiary of Consumers, CMS Generation, NOMECO, CMS
Electric and Gas, CMS Gas Transmission and Storage, CMS MST or any other
Designated Enterprises Subsidiary whose interest expense is excluded from
Consolidated Interest Expense, provided, however, that for purposes of this
subsection (iv), any cash, dividends or distributions of any such Subsidiary to
CMS Energy shall be included in calculating Consolidated Net Income.
"Consolidated Net Tangible Assets" means, for any period, the total amount
of assets (less accumulated depreciation or amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) as set forth on the most recently available quarterly or annual
consolidated balance sheet of CMS Energy and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with
19
<PAGE> 21
generally accepted accounting principles, and after giving effect to purchase
accounting and after deducting therefrom, to the extent otherwise included, the
amounts of: (i) Consolidated Current Liabilities; (ii) minority interests in
Consolidated Subsidiaries held by Persons other than CMS Energy or a Restricted
Subsidiary; (iii) excess of cost over fair value of assets of businesses
acquired, as determined in good faith by the Board of Directors as evidenced by
Board resolutions; (iv) any revaluation or other write-up in value of assets
subsequent to December 31, 1996, as a result of a change in the method of
valuation in accordance with generally accepted accounting principles; (v)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses
organization or developmental expenses and other intangible items; (vi) treasury
stock; and (vii) any cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated Current
Liabilities.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the consolidated balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such Person not more
than 90 days prior to the taking of any action for the purpose of which the
determination is being made (and adjusted for any material events since such
date), as (i) the par or stated value of all outstanding Capital Stock plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable to
Exchangeable Stock.
"Consolidated Subsidiary" means, any Subsidiary whose accounts are or are
required to be consolidated with the accounts of CMS Energy in accordance with
generally accepted accounting principles.
"Consumers" means Consumers Energy Company, a Michigan corporation, all of
whose common stock is on the date hereof owned by CMS Energy.
"Designated Enterprises Subsidiary" means any wholly-owned subsidiary of
Enterprises formed after the date of the Supplemental Indenture which is
designated a Designated Enterprises Subsidiary by the Board of Directors.
"Enterprises" means CMS Enterprises Company, a Michigan corporation and
wholly-owned subsidiary of CMS Energy.
"Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock nor Redeemable Stock).
"Holder" means the Person in whose name a Note is registered in the
security register kept by CMS Energy for that purpose.
"Hybrid Preferred Securities" means any preferred securities issued by a
Hybrid Preferred Securities Subsidiary, where such preferred securities have the
following characteristics: (i) such Hybrid Preferred Securities Subsidiary lends
substantially all of the proceeds from the issuance of such preferred securities
to CMS Energy or Consumers in exchange for subordinated debt issued by CMS
Energy or Consumers, respectively; (ii) such preferred securities contain terms
providing for the deferral of distributions corresponding to provisions
providing for the deferral of interest payments on such subordinated debt; and
(iii) CMS Energy or Consumers (as the case may be) makes periodic interest
payments on such subordinated debt, which interest payments are in turn used by
the Hybrid Preferred Securities Subsidiary to make corresponding payments to the
holders of the Hybrid Preferred Securities.
"Hybrid Preferred Securities Subsidiary" means any business trust (or
similar entity) (i) all of the common equity interest of which is owned (either
directly or indirectly through one or more wholly-owned Subsidiaries of CMS
Energy or Consumers) at all times by CMS Energy or Consumers, (ii) that has been
formed for the purpose of issuing Hybrid Preferred Securities and (iii)
substantially all of the assets of which consist at all times solely of
subordinated debt issued by CMS Energy or Consumers (as the case may be) and
payments made from time to time on such subordinated debt.
20
<PAGE> 22
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by Exchange Notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, bankers' acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) all obligations of the type referred to in clauses (i)
through (iv) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable as obligor,
guarantor or otherwise; and (vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured.
"Lien" means any lien, mortgage, pledge, security interest, conditional
sale, title retention agreement or other charge or encumbrance of any kind.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
aggregate proceeds of such Asset Sale including the fair market value (as
determined by the Board of Directors and net of any associated debt and of any
consideration other than Capital Stock received in return) of property other
than cash, received by CMS Energy, net of (i) brokerage commissions and other
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of CMS Energy and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by CMS Energy or any Restricted Subsidiary of CMS Energy as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with generally accepted accounting principles and (b) with respect to any
issuance or sale or contribution in respect of Capital Stock, the aggregate
proceeds of such issuance, sale or contribution, including the fair market value
(as determined by the Board of Directors and net of any associated debt and of
any consideration other than Capital Stock received in return) of property other
than cash, received by CMS Energy, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof, provided, however, that if
such fair market value as determined by the Board of Directors of property other
than cash is greater than $25,000,000, the value thereof shall be based upon an
opinion from an independent nationally recognized firm experienced in the
appraisal or similar review of similar types of transactions.
"NOMECO" means, CMS NOMECO Oil & Gas Co., a Michigan corporation and
wholly-owned subsidiary of Enterprises.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
21
<PAGE> 23
"Other Rating Agency" shall mean any one of Duff & Phelps Credit Rating
Co., Fitch Investors Service, L.P. or Moody's Investors Service, Inc., and any
successor to any of these organizations which is a nationally recognized
statistical rating organization.
"Operating Cash Flow" means, for any period, with respect to CMS Energy and
its Consolidated Subsidiaries, the aggregate amount of Consolidated Net Income
after adding thereto Consolidated Interest Expense (adjusted to include costs
recognized on early retirement of debt), income taxes, depreciation expense,
Amortization Expense and any noncash amortization of debt issuance costs, any
nonrecurring, noncash charges to earnings and any negative accretion
recognition.
"Paying Agent" means any person authorized by CMS Energy to pay the
principal of (and premium, if any) or interest on any of the Exchange Notes on
behalf of CMS Energy. Initially, the Paying Agent is the Trustee.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any Class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other Class of such
corporation; provided that Hybrid Preferred Securities are not considered
Preferred Stock for purposes of this definition.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed prior to the first anniversary of the stated maturity
of the Outstanding Exchange Notes or is redeemable at the option of the holder
thereof at any time prior to the first anniversary of the stated maturity of the
Outstanding Exchange Notes.
"Restricted Subsidiary" means any Subsidiary (other than Consumers and its
subsidiaries) of CMS Energy which, as of the date of CMS Energy's most recent
quarterly consolidated balance sheet, constituted at least 10% of the total
Consolidated Assets of CMS Energy and its Consolidated Subsidiaries and any
other Subsidiary which from time to time is designated a Restricted Subsidiary
by the Board of Directors provided that no Subsidiary may be designated a
Restricted Subsidiary if, immediately after giving effect thereto, an Event of
Default or event that, with the lapse of time or giving of notice or both, would
constitute an Event of Default would exist or CMS Energy and its Restricted
Subsidiaries could not incur at least one dollar of additional Indebtedness
pursuant to the first paragraph under "Description of Exchange Notes -- Certain
Restrictive Covenants -- Limitation on Consolidated Indebtedness," and (i) any
such Subsidiary so designated as a Restricted Subsidiary must be organized under
the laws of the United States or any State thereof, (ii) more than 80% of the
Voting Stock of such Subsidiary must be owned of record and beneficially by CMS
Energy or a Restricted Subsidiary and (iii) such Restricted Subsidiary must be a
Consolidated Subsidiary.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division
of McGraw Hill Inc., and any successor thereto which is a nationally recognized
statistical rating organization, or if such entity shall cease to rate the
Exchange Notes or shall cease to exist and there shall be no such successor
thereto, any other nationally recognized statistical rating organization
selected by CMS Energy which is acceptable to the Trustee.
"Subordinated Indebtedness" means any Indebtedness of CMS Energy (whether
outstanding on the date of the Supplemental Indenture or thereafter incurred)
which is contractually subordinated or junior in right of payment to the
Exchange Notes.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by CMS Energy or by one or more
other Subsidiaries, or by CMS Energy and one or more other Subsidiaries. For the
purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior Class of stock has such voting power by reason of any contingency.
"Support Obligations" means, for any person, without duplication, any
financial obligation, contingent or otherwise, of such person guaranteeing or
otherwise supporting any debt or other obligation of any other
22
<PAGE> 24
person in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such person, direct or indirect, (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such debt or
to purchase (or to advance or supply funds for the purchase of) any security for
the payment of such debt, (ii) to purchase property, securities or services for
the purpose of assuring the owner of such debt of the payment of such debt,
(iii) to maintain working capital, equity capital, available cash or other
financial statement condition of the primary obligor so as to enable the primary
obligor to pay such debt, (iv) to provide equity capital under or in respect of
equity subscription arrangements (to the extent that such obligation to provide
equity capital does not otherwise constitute debt), or (v) to perform, or
arrange for the performance of, any non-monetary obligations or non-funded debt
payment obligations of the primary obligor.
"Tax-Sharing Agreement" means the Amended and Restated Agreement for the
Allocation of Income Tax Liabilities and Benefits, dated January 1, 1994, as
amended or supplemented from time to time, by and among CMS Energy, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"Voting Stock" means securities of any Class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).
EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the Exchange
Notes will constitute an "Event of Default" with respect to the Exchange Notes:
(a) default for 30 days in the payment of any interest on, or Liquidated Damages
(as defined herein), if any, with respect to, any of the Exchange Notes; (b)
default in the payment when due of any of the principal of or the premium, if
any, on any of the Exchange Notes, whether at maturity, upon redemption,
acceleration, purchase by CMS Energy at the option of the Holders or otherwise;
(c) default for 60 days by CMS Energy in the observance or performance of any
other covenant or agreement contained in the Senior Debt Indenture relating to
the Exchange Notes after written notice thereof as provided in the Senior Debt
Indenture; (d) certain events of bankruptcy, insolvency or reorganization
relating to CMS Energy or Consumers; (e) entry of final judgments against CMS
Energy or Consumers aggregating in excess of $25,000,000 which remain
undischarged or unbonded for 60 days; or (f) a default resulting in the
acceleration of indebtedness of CMS Energy or Consumers 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 Senior Debt
Indenture.
If an Event of Default on the Exchange Notes shall have occurred and be
continuing, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Exchange Notes then Outstanding may declare the
principal of all the Exchange Notes and the premium thereon and interest, if
any, accrued thereon to be due and payable immediately. (Section 5.1)
Upon certain conditions, any such declaration may be rescinded and annulled
if all Events of Default, other than the nonpayment of accelerated principal,
with respect to the Senior Debt Securities of all affected series then
Outstanding shall have been cured or waived as provided in the Senior Debt
Indenture by the holders of a majority in aggregate principal amount of the
Senior Debt Securities of the affected series then Outstanding. (Section 5.1)
The Senior Debt Indenture provides that the Trustee will be under no
obligation to exercise any of its rights or powers under the Senior Debt
Indenture at the request, order or direction of the Holders of the Exchange
Notes, unless such Holders shall have offered to the Trustee reasonable
indemnity. (Sections 6.1 and 6.2(d)) Subject to such provisions for indemnity
and certain other limitations contained in the Senior Debt Indenture, the
Holders of a majority in aggregate principal amount of the Senior Debt
Securities of each affected series then Outstanding (voting as one class) will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, with respect to the Senior Debt Securities of such
affected series. (Sections 5.9 and 6.2)
23
<PAGE> 25
The Senior Debt Indenture provides that no holder of Senior Debt
Securities, including the Exchange Notes, may institute any action against CMS
Energy under the Senior Debt Indenture (except actions for payment of overdue
principal, premium or interest) unless such holder previously shall have given
to the Trustee written notice of default and continuance thereof and unless the
holders of not less than 25% in aggregate principal amount of Senior Debt
Securities of the affected series then Outstanding (voting as one class) shall
have requested the Trustee to institute such action and shall have offered the
Trustee reasonable indemnity, the Trustee shall not have instituted such action
within 60 days of such request and the Trustee shall not have received direction
inconsistent with such request by the holders of a majority in aggregate
principal amount of the Senior Debt Securities of the affected series then
Outstanding (voting as one class). (Sections 5.6, 5.7 and 5.9)
The Senior Debt Indenture requires CMS Energy to furnish to the Trustee
annually a statement as to CMS Energy's compliance with all conditions and
covenants under the Senior Debt Indenture. (Section 4.3(d)) The Senior Debt
Indenture provides that the Trustee may withhold notice to the Holders of the
Exchange Notes of any default affecting such Exchange Notes (except defaults as
to payment of principal, premium or interest on the Exchange Notes) if it
considers such withholding to be in the interests of the Holders of the Exchange
Notes. (Sections 5.11)
DEFEASANCE, COVENANT DEFEASANCE AND DISCHARGE
The Senior Debt Indenture provides that, at the option of CMS Energy: (a)
CMS Energy will be discharged from any and all obligations in respect of the
Exchange Notes (except for certain obligations to register the transfer of or
exchange of the Exchange Notes, to replace stolen, lost or mutilated Exchange
Notes, to maintain paying agencies and to maintain the trust described below);
or (b) CMS Energy need not comply with certain restrictive covenants of the
Senior Debt Indenture (including those described under "Limitation on
Consolidation, Merger or Sale of Assets"), in each case if CMS Energy
irrevocably deposits in trust with the 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 Exchange Notes on the stated maturity of
such Exchange Notes (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 Trustee an opinion
of independent counsel to the effect that the exercise of such option would not
cause the Holders of the Exchange Notes to recognize income, gain or loss for
United States Federal income tax purposes as a result of such defeasance, and
such Holders will be subject to United States Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred, and, in the case of a discharge as described
in clause (a) of the preceding sentence, such opinion is to be accompanied by a
private letter ruling to the same effect received from the Internal Revenue
Service, a revenue ruling to such effect pertaining to a comparable form of
transaction published by the Internal Revenue Service or appropriate evidence
that since the date of the Senior Debt Indenture there has been a change in the
applicable Federal income tax law. (Section 10.1)
In the event CMS Energy exercises its option to effect a covenant
defeasance with respect to the Exchange Notes as described in the preceding
paragraph and the Exchange Notes 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 Trustee would be insufficient to pay
amounts due on the Exchange Notes 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 Senior Debt Indenture with
respect to all Senior Debt Securities then Outstanding (except for certain
obligations to register the transfer of or exchange such Senior Debt Securities,
to replace stolen, lost or mutilated Senior Debt Securities, to maintain paying
agencies and to maintain the trust described below) by irrevocably depositing in
trust with the 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
24
<PAGE> 26
pay all the principal of and premium, if any, and interest on the Senior Debt
Securities on the stated maturities thereof (including one or more redemption
dates), provided that such Senior Debt Securities are by their terms due and
payable, or are to be called for redemption, within one year. (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 Exchange Notes
outstanding for other property. Accordingly, Holders 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.
MODIFICATION OF THE SENIOR DEBT INDENTURE
The Senior Debt Indenture permits CMS Energy and the Trustee to enter into
supplemental indentures thereto without the consent of the holders of any Senior
Debt Securities, including the Exchange Notes, to: (a) secure the Senior Debt
Securities of one or more series; (b) evidence the assumption by a successor
corporation of the obligations of CMS Energy under the Senior Debt Indenture and
the Senior Debt Securities then Outstanding; (c) add covenants for the
protection of the holders of the Senior Debt Securities; (d) cure any ambiguity
or correct any defect or inconsistency in the Senior Debt Indenture or to make
such other provisions as CMS Energy deems necessary or desirable with respect to
matters or questions arising under the Senior Debt Indenture, provided that no
such action adversely affects the interests of any holders of Senior Debt
Securities; (e) establish the form and terms of any series of securities under
the Senior Debt Indenture; and (f) evidence the acceptance of appointment by a
successor Trustee. (Section 8.1)
The Senior Debt Indenture also permits CMS Energy and the Trustee, with the
consent of the holders of not less than a majority in aggregate principal amount
of the Senior Debt Securities of all series then Outstanding and affected
(voting as one class), to enter into supplemental indentures, to add any
provisions to, or change in any manner or eliminate any of the provisions of,
the Senior Debt Indenture or modify in any manner the rights of the holders of
the Senior Debt Securities of each such affected series; provided, however, that
CMS Energy and the Trustee may not, without the consent of the holders of each
Senior Debt Security then outstanding and affected thereby, enter in to any
supplemental indenture to: (a) change the time of payment of the principal (or
any installment of principal) of any Senior Debt Security, or reduce the
principal amount thereof, or reduce the rate or change the time or payment of
interest thereon, or reduce the amount payable on any Original Issue Discount
Securities upon acceleration or provable in bankruptcy, or impair the right to
institute suit for the enforcement of any payment on any Senior Debt Security
when due; or (b) reduce the percentage in principal amount of the Senior Debt
Securities of the affected series, the consent of whose holders is required for
any such modification or for any waiver provided for in the Senior Debt
Indenture. (Section 8.2)
Prior to the acceleration of the maturity of any Senior Debt Security, the
holders of a majority in aggregate principal amount of the Senior Debt
Securities of all series at the time Outstanding with respect to which a default
or an Event of Default shall have occurred and be continuing (voting as one
class) may on behalf of the holders of all such affected Senior Debt Securities
waive any past default of Event of Default and its consequences, except a
default or an Event of Default in respect of a covenant or provision of the
Senior Debt Indenture or of any Senior Debt Security which cannot be modified or
amended without the consent of the holder of each Senior Debt Security affected.
(Section 5.10)
GOVERNING LAW
The Senior Debt Indenture and the Exchange Notes will be governed by, and
construed in accordance with, the laws of the State of Michigan unless the laws
of another jurisdiction shall mandatorily apply.
CONCERNING THE TRUSTEE
NBD Bank, the Trustee under the Senior Debt Indenture, is one of a number
of banks with which CMS Energy and its subsidiaries maintain ordinary banking
relationships, including credit facilities.
25
<PAGE> 27
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Exchange Notes will be issued initially in the form of one or more
registered global Exchange Notes without interest coupons (collectively, the
"Global Exchange Notes"). Upon issuance, the Global Exchange Notes will be
deposited with the Trustee, as custodian for DTC, and registered in the name of
DTC or its nominee, in each case for credit to the accounts of DTC's Direct and
Indirect Participants (as defined below).
The Global Exchange Notes may be transferred, in whole and not in part,
only to another nominee of DTC or to a successor of DTC or its nominee in
certain limited circumstances. Beneficial interests in the Global Exchange Notes
may be exchanged for Exchange Notes in certificated form in certain limited
circumstances. See "-- Transfer of Interests in Global Exchange Notes for
Certificated Exchange Notes."
DEPOSITARY PROCEDURES
DTC has advised CMS Energy that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities that clear through or maintain
a direct or indirect, custodial relationship with a Direct Participant
(collectively, the "Indirect Participants"). DTC may hold securities
beneficially owned by other persons only through the Direct Participants or
Indirect Participants, and such other persons' ownership interest and transfer
of ownership interest will be recorded only on the records of the appropriate
Direct Participant and/or Indirect Participant, and not on the records
maintained by DTC.
DTC has also advised CMS Energy that, pursuant to DTC's procedures, (i)
upon deposit of the Global Exchange Notes, DTC will credit the accounts of the
Direct Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Exchange Notes allocated by the Initial
Purchasers to such Direct Participants, and (ii) DTC will maintain records of
the ownership interests of such Direct Participants in the Global Exchange Notes
and the transfer of ownership interests by and between Direct Participants. DTC
will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Exchange Notes. Direct Participants and
Indirect Participants must maintain their own records of the ownership interests
of, and the transfer of ownership interests by and between, Indirect
Participants and other owners of beneficial interests in the Global Exchange
Notes.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Exchange Note
to such persons. Because DTC can act only on behalf of Direct Participants,
which in turn act on behalf of Indirect Participants and others, the ability of
a person having a beneficial interest in a Global Exchange Note to pledge such
interest to persons or entities that are not Direct Participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the lack
of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Exchange Notes see "--Transfers of
Interests in Global Exchange Notes for Certificated Exchange Notes."
EXCEPT AS DESCRIBED IN "-- TRANSFERS OF INTERESTS IN GLOBAL EXCHANGE NOTES
FOR CERTIFICATED EXCHANGE NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL
EXCHANGE NOTES WILL NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the Senior Debt Indenture, CMS Energy and the Trustee
will treat the persons in whose names the Exchange Notes are registered
(including Exchange Notes represented by Global Exchange Notes) as the owners
thereof for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium and interest on Global
Exchange Notes registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee as the registered holder under the Senior Debt
Indenture. Consequently, neither CMS Energy, the Trustee nor any agent of
26
<PAGE> 28
CMS Energy or the Trustee has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Exchange Notes or for maintaining, supervising
or reviewing any of DTC's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in any
Global Exchange Note or (ii) any other matter relating to the actions and
practices of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised CMS Energy that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Exchange Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Exchange Notes as
shown on DTC's records. Payments by Direct Participants and Indirect
Participants to the beneficial owners of the Exchange Notes will be governed by
standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or CMS Energy. Neither CMS Energy nor the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Exchange
Notes, and CMS Energy and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Exchange Notes for all purposes.
The Global Exchange Notes will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between Direct Participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between Indirect Participants who hold an interest
through a Direct Participant will be effected in accordance with the procedures
of such Direct Participant but generally will settle in immediately available
funds.
DTC has advised CMS Energy that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Exchange Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such Direct Participant or Direct Participants
has or have given direction. However, if there is an Event of Default with
respect to the Exchange Notes, DTC reserves the right to exchange Global
Exchange Notes (without the direction of one or more of its Direct Participants)
for legended Exchange Notes in certificated form, and to distribute such
certificated forms of Exchange Notes to its Direct Participants. See "--
Transfers of Interests in Global Exchange Notes for Certificated Exchange
Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Exchange Notes among Direct Participants, it is under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of CMS Energy or the Trustee
will have any responsibility for the performance by DTC, or its respective
Direct and Indirect Participants of their respective obligations under the rules
and procedures governing any of their operations.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that CMS Energy believes to be reliable, but CMS
Energy takes no responsibility for the accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL EXCHANGE NOTES FOR CERTIFICATED EXCHANGE NOTES
An entire Global Note may be exchanged for Certificated Exchange Notes if:
(i) (x) DTC notifies CMS Energy that it is unwilling or unable to continue as
Depositary for the Global Exchange Notes or CMS Energy determines that DTC is
unable to act as such Depositary and CMS Energy thereupon fails to appoint a
successor depositary within 90 days or (y) DTC has ceased to be a clearing
agency registered under the Exchange Act; (ii) CMS Energy, at its option,
notifies the Trustee in writing that it elects to cause the issuance of
Certificated Exchange Notes; or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Exchange Notes.
In any such case, CMS Energy will notify the Trustee in writing that, upon
surrender by the Direct and Indirect Participants of their interest in such
Global Note, Certificated Exchange Notes will be issued to each person that such
Direct and Indirect Participants and the DTC identify as being the beneficial
owner of the related Exchange Notes.
27
<PAGE> 29
Beneficial interests in Global Exchange Notes held by any Direct or
Indirect Participant may be exchanged for Certificated Exchange Notes upon
request to DTC, by such Direct Participant (for itself or on behalf of an
Indirect Participant), to the Trustee in accordance with customary DTC
procedures. Certificated Exchange Notes delivered in exchange for any beneficial
interest in any Global Note will be registered in the names, and issued in any
approved denominations, requested by DTC on behalf of such Direct or Indirect
Participants (in accordance with DTC's customary procedures).
Neither CMS Energy nor the Trustee will be liable for any delay by the
holder of the Global Exchange Notes or DTC in identifying the beneficial owners
of Exchange Notes, and CMS Energy and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global Note
or DTC for all purposes.
Certificated Exchange Notes may be exchangeable for other Certificated
Exchange Notes of any authorized denominations and of a like aggregate principal
amount and tenor. Certificated Exchange Notes may be presented for exchange, and
may be presented for registration of transfer (duly endorsed, or accompanied by
a duly executed written instrument of transfer), at the office of the Trustee in
Detroit, Michigan (the "Security Registrar"). The Security Registrar will not
charge a service charge for any registration of transfer or exchange of Exchange
Notes; however, CMS Energy may require payment by a Holder of a sum sufficient
to cover any tax, assessment or other governmental charge payable in connection
therewith, as described in the Senior Debt Indenture. Such transfer or exchange
will be effected upon the Security Registrar or such other transfer agent, as
the case may be, being satisfied with the documents of title and identity of the
person making the request. CMS Energy may at any time designate additional
transfer agents with respect to the Exchange Notes.
CMS Energy shall not be required to: (a) issue, exchange or register the
transfer of any Certificated Note for a period of 15 days next preceding the
mailing of notice of redemption of such Note; or (b) exchange or register the
transfer of any Certificated Note or portion thereof selected, called or being
called for redemption, except in the case of any Certificated Note to be
redeemed in part, the portion thereof not so to be redeemed.
If a Certificated Note is mutilated, destroyed, lost or stolen, it may be
replaced at the office of the Security Registrar upon payment by the Holder of
such expenses as may be incurred by CMS Energy and the Security Registrar in
connection therewith and the furnishing of such evidence and indemnity as CMS
Energy and the Security Registrar may require. Mutilated Exchange Notes must be
surrendered before new Exchange Notes will be issued. (Section 2.9)
SAME DAY SETTLEMENT AND PAYMENT
Payments in respect of the Exchange Notes represented by the Global
Exchange Notes (including principal, premium, if any, and interest, will be made
by wire transfer of immediately available same day funds to the accounts
specified by the holder of interests in such Global Note. Principal, premium, if
any, and interest on all Certificated Exchange Notes in registered form will be
payable at the office or agency of the 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) Payment of any interest due on Exchange Notes will be
made to the Persons in whose name such Exchange Notes are registered at the
close of business on the Record Date for such interest payments. (Section
2.3(f)) The record dates for the Exchange Notes shall be May 1 or November 1
preceding the applicable payment date.
28
<PAGE> 30
THE EXCHANGE OFFER
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Notes were sold by CMS Energy on November 7, 1997, pursuant to the
Purchase Agreement dated November 4, 1997 (the "Purchase Agreement") by and
among CMS Energy and the Initial Purchasers and were subsequently offered by the
Initial Purchasers to qualified institutional buyers pursuant to Rule 144A that
are accredited investors in a manner exempt from registration under the
Securities Act as well as to purchasers pursuant to Regulation S under the
Securities Act.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement which has been filed as an
exhibit to the Exchange Offer Registration Statement and a copy of which is
available as set forth in "Available Information."
CMS Energy and the Initial Purchasers entered into the Registration Rights
Agreement pursuant to which CMS Energy agreed to file with the Commission a
registration statement (the "Exchange Offer Registration Statement") on the
appropriate form under the Securities Act with respect to the offer to exchange
the Notes for the Exchange Notes to be registered under the Securities Act with
terms substantially identical to those of the Notes (the "Exchange Offer")
(except that the Exchange Notes will not contain terms with respect to certain
transfer restrictions, registration rights and interest step-in provisions).
Upon the effectiveness of the Exchange Offer Registration Statement, CMS Energy
will offer Exchange Notes pursuant to the Exchange Offer in exchange for
Transfer Restricted Securities (as defined herein) to the Holders of Transfer
Restricted Securities who are able to make certain representations. If: (i) CMS
Energy is not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy; or (ii) any Holder of Transfer
Restricted Securities notifies CMS Energy that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) it may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) it is a broker-dealer and owns Exchange Notes acquired directly from CMS
Energy or an affiliate of CMS Energy, CMS Energy will file with the Commission a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of the Exchange Notes by the Holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. CMS Energy will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for an Exchange Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of such Note for an Exchange Note, the date on which such an Exchange Note
is sold to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of this Prospectus, (iii) the date on which such Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement, or (iv) the date on which such
Note is eligible to be distributed to the public pursuant to Rule 144 under the
Securities Act.
The Registration Rights Agreement provides that (i) CMS Energy will file an
Exchange Offer Registration Statement with the Commission on or prior to 60 days
after the Closing, (ii) CMS Energy will use its best efforts to have the
Exchange Offer Registration Statement declared effective by the Commission on or
prior to 120 days after the Closing Date, (iii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, CMS Energy will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, CMS Energy will file the Shelf Registration
Statement with the Commission on or prior to 60 days after such filing
obligation arises and to use its best efforts to cause the Shelf Registration to
be declared effective by the Commission on or prior to 120 days after the date
on which CMS Energy becomes obligated to file such Shelf Registration Statement.
29
<PAGE> 31
Except as provided in the next paragraph, if (a) CMS Energy fails to file any of
the Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) CMS
Energy fails to consummate the Exchange Offer within 30 business days after the
Registration Statement is first declared effective with respect to the Exchange
Offer Registration Statement or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above being a
"Registration Default"), then CMS Energy will pay liquidated damages to each
Holder of Notes, with respect to the first 90-day period immediately following
the occurrence of the first Registration Default in an amount equal to $0.05 per
week per $1,000 principal amount of Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $0.05 per week per $1,000
principal amount of Notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.25 per week per $1,000 principal amount of Notes. All accrued
Liquidated Damages will be paid by CMS Energy on each interest payment date to
the Depositary by wire transfer of immediately available funds or by federal
funds check and to Holders of certificated securities by mailing checks to their
registered addresses. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to CMS
Energy (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean February 13, 1998, unless CMS Energy,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
To extend the Expiration Date, CMS Energy will notify the Exchange Agent of
any extension by oral or written notice and will notify the holders of the Notes
by means of a press release or other public announcement prior to 9:00 A.M., New
York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that CMS Energy is extending the
Exchange Offer for a specified period of time.
CMS Energy reserves the right (i) to delay acceptance of any Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Notes not previously accepted if any of the conditions set forth
herein under "-- Conditions" shall have occurred and shall not have been waived
by CMS Energy, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by CMS
Energy to constitute a material change, CMS Energy will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Notes
of such amendment.
Without limiting the manner in which CMS Energy may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, CMS Energy shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
30
<PAGE> 32
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest at the rate of 7 3/8% per annum
from the last date on which interest was paid on the Notes, or, if no interest
has been paid on such Notes, from November 7, 1997, the date of issuance of the
Notes for which the Exchange Offer is being made. Interest on the Exchange Notes
is payable semiannually on May 15 and November 15, commencing May 15, 1997.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
Medallion Guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
any other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Notes into the
Exchange Agent's account at The Depositary (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (ii) the holder
must comply with the guaranteed delivery procedures described below. THE METHOD
OF DELIVERY OF LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDERS.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED
DOCUMENTS SHOULD BE SENT TO CMS ENERGY. Delivery of all documents must be made
to the Exchange Agent at its address set forth below. Holders may also request
their respective brokers, dealers, commercial banks, trust companies or nominees
to effect such tender for such holders.
The tender by a holder of Notes will constitute an agreement between such
holder and CMS Energy in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal. Any beneficial owner whose
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should contact such registered
holder promptly and instruct such registered holder to tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be Medallion Guaranteed by any member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor' institution within
the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution") unless the Notes tendered pursuant thereto are tendered for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations, or
others acting in a fiduciary or representative capacity, such person should so
indicate when signing, and unless waived by CMS Energy, evidence satisfactory to
CMS Energy of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Notes will be determined by CMS Energy,
in its sole discretion, which determination will be final and binding. CMS
Energy reserves the absolute right to reject any and all Notes not properly
tendered or any Notes which, if accepted, would, in the opinion of counsel for
CMS Energy, be unlawful. CMS Energy also reserves the absolute right to waive
any irregularities or conditions of tender as to particular Notes. CMS Energy's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Notes must be cured within such time as CMS Energy shall determine. Neither
CMS Energy, the Exchange Agent nor any other person shall be under any duty to
give notification of defects
31
<PAGE> 33
or irregularities with respect to tenders of Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Notes will not
be deemed to have been made until such irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, CMS Energy reserves the right, in its sole discretion, subject
to the provisions of the Senior Debt Indenture, to purchase or make offers for
any Notes that remain outstanding subsequent to the Expiration Date or, as set
forth under "-- Conditions," to terminate the Exchange Offer in accordance with
the terms of the Registration Agreement, and to the extent permitted by
applicable law, purchase Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Notes properly tendered will be accepted promptly after the Expiration Date,
and the Exchange Notes will be issued promptly after acceptance of the Notes.
See "-- Conditions." For purposes of the Exchange Offer, Notes shall be deemed
to have been accepted as validly tendered for exchange when, as and if CMS
Energy has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a Book-Entry Confirmation of such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer, such unaccepted or such
nonexchanged Notes will be credited to an account maintained with such
Book-Entry Transfer Facility as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Notes at the Book-Entry Transfer Facility for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any financial
institution that is a participant in the Book- Entry Transfer Facility's systems
may make book-entry delivery of Notes by causing the Book-Entry Transfer
Facility to transfer such Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, the Letter of Transmittal (or
facsimile) thereof with any required Medallion Guarantees and any other required
documents must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth under "-- Exchange Agent" on or prior to
the Expiration Date or the guaranteed delivery procedures described below must
be complied with.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by CMS Energy (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Notes and the amount of Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange, Inc.
("NYSE') trading days after the date of execution of the Notice of Guaranteed
Delivery, a Book-Entry Confirmation and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) a Book-Entry Confirmation and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
32
<PAGE> 34
WITHDRAWAL OF TENDERS
Tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date at one of the addresses set forth under "--Exchange Agent." Any
such notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility from which the Notes were tendered, identify the
principal amount of the Notes to be withdrawn, and specify the name and number
of the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Notes and otherwise comply with the procedures of such Book-Entry
Transfer Facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notice will be determined by CMS Energy,
whose determination shall be final and binding on all parties. Any Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Notes which have been tendered for exchange
but which are not exchanged for any reason will be credited to an account
maintained with such Book-Entry Transfer Facility for the Notes as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering" and "-- Book-Entry
Transfer" at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Notes will not be
required to be accepted for exchange, nor will Exchange Notes be issued in
exchange for any Notes, and CMS Energy may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Notes, if, because of any
change in law, or applicable interpretations thereof by the Commission, CMS
Energy determines that it is not permitted to effect the Exchange Offer. CMS
Energy has no obligation to, and will not knowingly, permit acceptance of
tenders of Notes from affiliates of CMS Energy or from any other holder or
holders who are not eligible to participate in the Exchange Offer under
applicable law or interpretations thereof by the Staff of the Commission, or if
the Exchange Notes to be received by such holder or holders of Notes in the
Exchange Offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act and the Exchange Act and without material
restrictions under the "blue sky" or securities laws of substantially all of the
states of the United States.
EXCHANGE AGENT
NBD Bank has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
By Mail (Certified, Registered, Overnight or First Class) or Hand Delivery:
NBD Bank
c/o First Chicago Trust Company of New York
14 Wall Street
8th Floor, Window 2
New York, New York 10005
By Facsimile
(For Eligible Institutions Only)
(212) 240-8938
Telephone Number
(212) 240-8801
33
<PAGE> 35
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by CMS Energy. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of CMS Energy.
CMS Energy will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. CMS Energy, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith.
The expenses to be incurred in connection with the Exchange Offer will be
paid by CMS Energy, including fees and expenses of the Exchange Agent and the
Trustee, and accounting, legal, printing and related fees and expenses.
CMS Energy will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Notes
for principal amounts not tendered or accepted for exchange are to be registered
or issued in the name of any person other than the registered holder of the
Notes tendered, or if tendered Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, CMS Energy believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any owner of such Exchange Notes
(other than any such owner which is an "affiliate" of CMS Energy within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such owner's
business and such owner does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any owner of Notes who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the Exchange Notes may not rely on the position of the staff of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13,1998, as interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993) and Morgan Stanley & Co., Incorporated (available June 5, 1991) or
similar no-action letters (collectively the "No-Action Letters") but rather must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Notes, where such Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder (or DTC participant, in the
case of tenders of interests in the Global Notes held by DTC) will represent to
CMS Energy (which representation may be contained the Letter of Transmittal) to
the effect that (A) it is not an affiliate of CMS Energy, (B) it is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Exchange Notes to be
issued in the Exchange Offer and (C) it is acquiring the Exchange Notes in its
ordinary course of business. Each Holder will acknowledge and agree that any
broker-dealer and any such Holder using the Exchange Offer to participate in a
distribution of the Exchange Notes acquired in
34
<PAGE> 36
the Exchange Offer (1) could not under Commission policy as in effect on the
date of the Registration Rights Agreement rely on the position of the Commission
enunciated in the No-Action Letters, and (2) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale transaction must
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Exchange Notes obtained by such Holder in
exchange for Notes acquired by such Holder directly from CMS Energy or an
affiliate thereof.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or to register the Exchange Notes prior to
offering or selling such Exchange Notes. CMS Energy has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to cooperate with selling Holders or underwriters in connection with
the registration and qualification of the Exchange Notes for offer or sale under
the securities or "blue sky" laws of such jurisdictions as may be necessary to
permit the holders of Exchange Notes to trade the Exchange Notes without any
restrictions or limitations under the securities laws of the several states of
the United States.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Notes who do not exchange their Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Notes as set forth in the legend thereon as a consequence of
the issuance of the Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Notes may not be registered under the
Securities Act, except pursuant a transaction not subject to, the Securities Act
and applicable state securities laws. CMS Energy does not currently anticipate
that it will register the Notes under the Securities Act. To the extent that
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Notes could be adversely affected.
DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item appears under: (i) "Nominees for
Election as Directors" on pages 2 through 5 of CMS Energy's definitive Proxy
Statement, dated April 21, 1997, relating to it 1997 Annual Meeting of
Shareholders (the "1997 Proxy Statement"); (ii) "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 6 of the 1997 Proxy Statement; and (iii)
"CMS Energy and Consumers Executive Officers" on pages 25 through 27 of CMS
Energy and Consumers Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, all of which information is incorporated by reference.
EXECUTIVE COMPENSATION
The information required by this item appears under: (i) "Executive
Compensation" on pages 10 through 12 of the 1997 Proxy Statement; (ii)
"Organization and Compensation Committee Report" on pages 13 through 14 of the
1997 Proxy Statement; and (iii) "Comparison of Five-year Cumulative Total Return
Among CMS Energy Corporation, S&P 500 Index & Dow Jones Utility Index" on page
15 of the 1997 Proxy Statement all of which information is incorporated by
reference.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OF
NOTES FOR EXCHANGE NOTES
The following summary describes the principal United States federal income
tax consequences to holders who exchange Notes for Exchange Notes pursuant to
the Exchange Offer. This summary is intended to address the beneficial owners of
Notes that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any State or the
35
<PAGE> 37
District of Columbia, or estates or trusts that are not foreign estates or
trusts for United States federal income tax purposes, in each case, that hold
the Notes as capital assets.
The exchange of Notes for Exchange Notes pursuant to the Exchange Offer
will not constitute a taxable exchange for United States federal income tax
purposes. As a result, a holder of a Note whose Note is accepted in the Exchange
Offer will not recognize gain or loss on the exchange. A tendering holder's tax
basis in the Exchange Notes received pursuant to the Exchange Offer will be the
same as such holder's tax basis in the Notes surrendered therefor. A tendering
holder's holding period for the Exchange Notes received pursuant to the Exchange
Offer-will include its holding period for the Notes surrendered therefor.
ALL HOLDERS OF NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
EXCHANGE OF NOTES FOR EXCHANGE NOTES, AND OF THE OWNERSHIP AND DISPOSITION OF
EXCHANGE NOTES RECEIVED IN THE EXCHANGE OFFER IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN
THE EXCHANGE NOTES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes or the
Exchange Notes by a United States Holder (as defined below). This summary deals
only with the United States Holders that will hold the Notes or the Exchange
Notes as capital assets. The discussion does not cover-all aspects of federal
taxation that may be relevant to, or the actual tax effect that any of the
matters described herein will have on, the acquisition, ownership or disposition
of the Notes or the Exchange Notes by particular investors, and does not address
state, local, foreign or other tax laws. In particular, this summary does not
discuss all of the tax considerations that may be relevant to certain types of
investors subject to special treatment under the federal income tax laws (such
as banks, insurance companies, investors liable for the alternative minimum tax,
individual retirement accounts and other tax- deferred accounts, tax-exempt
organizations, dealers in securities or currencies, investors that will hold the
Notes or the Exchange Notes as part of straddles, hedging transactions or
conversion transactions for federal tax purposes or investors whose functional
currency is not United States Dollars). Furthermore, the discussion below is
based on provisions of the Internal Revenue Code of 1986, as amended, and
regulations, rulings, and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
U.S. federal income tax consequences different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, OR DISPOSITION OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME
TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING
JURISDICTION.
As used herein, the term "United States Holder" means a beneficial owner of
the Notes or the Exchange Notes that is (i) a citizen or resident of the United
States for United States federal income tax purposes, (ii) a corporation created
or organized under the laws of the United States or any State thereof, (iii) a
person or entity that is otherwise subject to United States federal income tax
on a net income basis in respect of income derived from the Notes or the
Exchange Notes, or (iv) a partnership to the extent the interest therein is
owned by a person who is described in clause (i), (ii) or (iii) of this
paragraph.
INTEREST
Interest paid on an Existing Note or an Exchange Note will be taxable to a
United States Holder as ordinary income at the time it is received or accrued,
depending on the holder's method of accounting for tax purposes.
36
<PAGE> 38
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general (with certain exceptions described below) a United States
Holder's tax basis in an Exchange Note will equal the price paid for the Notes
for which such Exchange Note was exchanged pursuant to the Exchange Offer. A
United States Holder generally will recognize gain or loss on the sale,
exchange, retirement, redemption or other disposition of an Note or an Exchange
Note (or portion thereof) equal to the difference between the amount realized on
such disposition and the United States Holder's tax basis in the Note or the
Exchange Note (or portion thereof). Except to the extent attributable to accrued
but unpaid interest, gain or loss recognized on such disposition of an Note or a
Exchange Note will be capital gain or loss. Under the "Taxpayer Relief Act of
1997" (the "Taxpayer Act") the maximum rate applicable to long-term capital
gains of individuals has been reduced to 20%. However, the Taxpayer Act also
extends the holding period for long-term capital gains to 18 months for capital
assets disposed of after July 28, 1997. Gain on capital assets held between 12
months and 18 months are subject to tax at a maximum rate of 28%. Any such gain
will generally be United States source gain.
BOND PREMIUM
If a United States Holder acquires an Exchange Note or has acquired a Note,
in each ease, for an amount more than its redemption price, the Holder may elect
to amortize such bond premium on a yield to maturity basis. Once made, such an
election applies to all bonds (other than bonds the interest on which is
excludable from gross income) held by the United States Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the United States Holder, unless the IRS consents to a revocation of the
election. The basis of an Exchange Note will be reduced by any amortizable bond
premium taken as a deduction.
MARKET DISCOUNT
The purchase of an Exchange Note or the purchase of a Note other than at
original issue may be affected by the market discount provisions of the Code.
These rules generally provide that, subject to a statutorily defined de minimis
exception, if a United States Holder purchases an Exchange Note (or purchased a
Note) at a "market discount," as defined below, and thereafter recognizes gain
upon a disposition of the Exchange Note (including dispositions by gift or
redemption), the lesser of such gain (or appreciation, in the case of a gift) or
the portion of the market discount that has accrued ("accrued market discount")
while the Exchange Note (and its predecessor Note, if any) was held by such
United States Holder will be treated as ordinary interest income at the time of
disposition rather than as capital gain. For an Exchange Note or a Note, "market
discount" is the excess of the stated redemption price at maturity over the tax
basis immediately after its acquisition by a United States Holder. Market
discount generally will accrue ratably during the period from the date of
acquisition to the maturity date of the Exchange Note, unless the United States
Holder elects to accrue such discount on the basis of the constant yield method.
Such an election applies only to the Exchange Note with respect to which it is
made and is irrevocable.
In lieu of including the accrued market discount income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a Note acquired at a market discount) may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the Internal Revenue Service
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of a Exchange Note (or,
where applicable, a predecessor Note) in the hands of the United States Holder
will be increased by the accrued market discount thereon as it is includible in
income. A United States Holder of a market discount Exchange Note who does not
elect to include market discount in income currently generally will be required
to defer deductions for interest on borrowings allocable to such Exchange Note,
if any, in an amount not exceeding the accrued market discount on such Exchange
Note until the maturity or disposition of such Exchange Note.
37
<PAGE> 39
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest and principal on, and the proceeds of sale or other
disposition of the Notes or the Exchange Notes payable to a United States
Holder, may be subject to information reporting requirements and backup
withholding at a rate of 31% will apply to such payments if the United States
Holder fails to provide an accurate taxpayer identification number or to report
all interest and dividends required to be shown on its federal income tax
returns. Certain United States Holders (including, among others, corporations)
are not subject to backup withholding. United States Holders should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of the Exchange Notes received in
exchange for the Notes where such Notes were acquired as a result of
market-making activities or other trading activities. CMS Energy has agreed
that, starting on the Expiration Date and ending on the close of business on the
first anniversary of the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
CMS Energy will not receive any proceeds from any sale of the Exchange
Notes by broker-dealers. The Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, CMS Energy will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. CMS Energy has agreed to pay all expenses incident
to the Exchange Offer and will indemnify the holders of the Exchange Notes
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Opinions as to the legality of the Exchange Notes will be rendered for CMS
Energy by Michael D. Van Hemert, Assistant General Counsel for CMS Energy.
EXPERTS
The consolidated financial statements and schedules of CMS Energy as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP, 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.
38
<PAGE> 40
With respect to the unaudited interim consolidated financial information
for the periods ended March 31, June 30, and September 30, 1996 and 1997, Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports
thereon state that they did not audit and they did not express an opinion on
that interim consolidated financial information. Accordingly, the degree of
reliance on their reports on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act, for their reports on the unaudited interim consolidated
financial information because these reports are not "reports" or "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extend that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
39
<PAGE> 41
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CMS
ENERGY, THE INITIAL PURCHASERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE EXCHANGE
NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
CMS Energy............................ 7
Selected Consolidated Financial
Data................................ 9
Use of Proceeds....................... 10
Ratio of Earnings to Fixed Charges.... 10
Capitalization........................ 11
Description of Exchange Notes......... 12
The Exchange Offer.................... 29
Directors and Executive Officers...... 35
Executive Compensation................ 35
Certain United States Federal Income
Tax Consequences.................... 35
Plan of Distribution.................. 38
Legal Matters......................... 38
Experts............................... 38
</TABLE>
======================================================
======================================================
CMS ENERGY LOGO
OFFER TO EXCHANGE
7 3/8% UNSECURED NOTES
DUE 2000,
SERIES B
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED
FOR ANY AND ALL
OF THE OUTSTANDING
7 3/8% UNSECURED NOTES
DUE 2000,
SERIES A
======================================================
