<PAGE> 1
Filed Pursuant To Rule 424B(5)
Registration No. 333-77197
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PROSPECTUS
MAY 13, 1999
[LOGO]
EXCHANGE OFFER
6.75% SENIOR NOTES DUE 2004, SERIES A
FOR
6.75% SENIOR NOTES DUE 2004, SERIES B
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THE COMPANY:
- - We are a leading diversified energy company operating in the United States and
around the world.
- - CMS Energy Corporation
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313) 436-9200
THE OFFERING:
- - We will exchange the Series A notes for Series B Exchange Notes until the
close of business on June 15, 1999.
- - We will receive no proceeds from the exchange.
THE SERIES B EXCHANGE NOTES:
- - Terms: Will be substantially identical to the Series A notes and will be
registered under the Securities Act of 1933.
- - Maturity: January 15, 2004.
- - Interest Payments: Semi-annually in cash in arrears on January 15 and July 15,
commencing on July 15, 1999.
- - Redemption: We can redeem some or all of the Series B Exchange Notes at our
option on at least 30 days' notice.
- - Mandatory Offer to Repurchase: If we experience certain types of change in
control, holders of the Series B Exchange Notes can require us to purchase
some or all of the Series B Exchange Notes they hold.
- - Ranking of Notes: The Series B Exchange Notes rank equally with all of our
other unsecured and unsubordinated indebtedness.
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE .
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These Securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May 13, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward-Looking Statements.................................. i
Where to Find More Information.............................. i
Prospectus Summary.......................................... 1
Selected Historical and Pro Forma Financial Data............ 10
Risk Factors................................................ 12
Ratio of Earnings to Fixed Charges.......................... 16
Use of Proceeds............................................. 16
Capitalization.............................................. 17
The Company................................................. 18
Description of the Exchange Notes........................... 21
The Exchange Offer.......................................... 42
Directors and Executive Officers............................ 50
Executive Compensation...................................... 50
Certain United States Federal Income Tax Consequences....... 51
Plan of Distribution........................................ 54
Legal Matters............................................... 54
Experts..................................................... 55
</TABLE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains or incorporates by reference forward-looking
statements. The factors identified under "Risk Factors" are important factors
(but not necessarily all important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made by,
or on behalf of, us.
Where any such forward-looking statements include a statement of the
assumptions or bases underlying such forward-looking statements, we caution
that, while such assumptions or bases are believed to be reasonable and are made
in good faith, assumed facts or bases almost always vary from actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we express an expectation or belief as to future results, such
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe", "expect", "estimate", "project" and "anticipate" and similar
expressions identify forward-looking statements.
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and current reports as well as other information
with the Securities and Exchange Commission. The public may read and copy any
reports or other information that we file at the SEC's public reference room at
Judiciary Plaza, 450 Fifth
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Street N.W., Washington, D.C., 20549. The public may obtain information on the
operation of the public reference room by calling the SEC at 1(800) SEC-0330.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
We have securities listed on the New York Stock Exchange. You can inspect
and copy reports and other information about us at the NYSE's offices at 20
Broad Street, New York, New York 10005.
We are "incorporating by reference" information into this Prospectus. This
means that we are disclosing important information by referring to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this Prospectus, except for any information
superseded by information in this Prospectus. This Prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about us and our finances.
<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 1-9513) PERIOD/DATE
----------------------------- -----------
<S> <C>
-- Registration Statement on Form November 21, 1996
8-B/A Year ended December 31, 1998
-- Annual Report on Form 10-K Filed January 20, 1999 and April 6, 1999
-- Current Reports on Form 8-K
</TABLE>
The documents we have filed with the SEC after the date of this Prospectus
and prior to the termination of the offering made by this Prospectus are also
incorporated by reference into this Prospectus.
This Prospectus, which is a part of the exchange offer registration
statement, does not contain all of the information found in the exchange offer
registration statement including various exhibits and schedules. We are
incorporating by reference the exchange offer registration statement.
You may request a copy of these filings and the exchange offer registration
statement at no cost, by writing or telephoning CMS Energy at the following
address:
CMS Energy Corporation
Attn: Office of the Secretary
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
Telephone: (313) 436-9200
You should rely only on the information contained or incorporated by
reference in this Prospectus. We have not authorized anyone to provide you with
information that is different from this information.
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<PAGE> 4
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire Prospectus, including the financial data and
related notes, before making an investment decision. The terms "CMS ENERGY",
"COMPANY", "OUR" and "WE" as used in this Prospectus refer to CMS Energy
Corporation and its subsidiaries. The term "YOU" as used in this Prospectus as
the context requires refers to a holder of Notes or Exchange Notes.
THE COMPANY
We are a leading diversified energy company operating in the United States
and around the world. Our two principal subsidiaries are Consumers Energy
Company ("CONSUMERS") and CMS Enterprises Company ("ENTERPRISES"). Consumers is
a public utility that provides natural gas and electricity to almost six million
of the nine and one-half million residents in Michigan's Lower Peninsula.
Enterprises, through subsidiaries, is engaged in several domestic and
international energy businesses including:
- Transmission, storage and processing of natural gas;
- Independent power production;
- Oil and gas exploration and production;
- International energy distribution; and
- Energy marketing, services and trading.
Our consolidated operating revenue in 1998 was $5.1 billion. 51% of our
consolidated operating revenue was derived from electric utility operations, 21%
from gas utility operations, 18% from energy marketing, services and trading
operations, 6% from independent power production and other non-utility
operations, 3% from transmission, storage and processing of natural gas, and 1%
from oil and gas exploration and production operations.
Consumers' consolidated operations currently account for a majority of our
total assets, revenues and income. Consumers' service areas include automotive,
metal, chemical, food and wood products and a diversified group of other
industries. At year end 1998, Consumers provided service to 1.64 million
electric customers and 1.55 million gas customers. Consumers' consolidated
operating revenue in 1998 was $3.7 billion. 70% of Consumers' operating revenue
was generated from its electric utility business, 29% from its gas utility
business, and 1% from its non-utility business.
We routinely evaluate, invest in, acquire and divest energy-related assets
and/or businesses both domestically and internationally. Cash or securities are
routinely the consideration for such transactions.
We were incorporated in Michigan in 1987 and our world wide web address is
http://www.cmsenergy.com. Our web site is not part of this Prospectus. Our
telephone number is (313) 436-9200.
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BUSINESS STRATEGY
We seek to remain a leader in the domestic and international energy
industry, focusing our growth primarily in three energy sectors: electric
utility, natural gas and diversified energy. As a result of our acquisition of
the Panhandle Companies described below, approximately one-third of our assets
is in each of these three energy sectors. Our Consumers subsidiary is a leading
producer and distributor of electricity and natural gas in Michigan's Lower
Peninsula. Through the acquisition of the Panhandle Companies we have
significantly enhanced our domestic natural gas assets. Through our Enterprises
subsidiary, we intend to become a leading diversified energy company with
operations in virtually all segments of the North American and worldwide energy
industry.
In pursuing these business objectives, we intend to: (i) generate stable
earnings and cash flow from our regulated businesses through maximization of
retail electricity and natural gas services and natural gas transportation
revenues, as well as active cost management; (ii) invest in energy-related
projects which complement and expand our non-regulated and diversified energy
businesses, as well as in selected projects in regulated businesses which
management believes are capable of generating favorable risk-adjusted returns;
and (iii) pursue new areas for energy-related business expansion, including
strategic acquisitions and joint ventures. We expect to continue to capitalize
on emerging trends in the energy industry, including the growing worldwide
demand for energy infrastructure and the privatization of existing governmental
energy assets, as well as the deregulation of the natural gas and electricity
industries in the United States.
We believe that our recent acquisition of Panhandle Eastern Pipe Line
Company ("PANHANDLE") and its principal subsidiaries, Trunkline Gas Company
("TRUNKLINE") and Pan Gas Storage Company, as well as its affiliates, Panhandle
Storage Company and Trunkline LNG Company ("TRUNKLINE LNG" and, collectively,
the "PANHANDLE COMPANIES"), as further described below enhances our ability to
achieve our business objectives. See '--Recent Developments". In fact, we have
implemented our business strategy to capitalize on the ownership of the
Panhandle Companies by: (i) participating in the construction, ownership and
operation of a 550 megawatt natural gas-fired cogeneration facility in Dearborn,
Michigan which will require approximately 100 million cubic feet of natural gas
per day which we will seek to transport using the Panhandle Companies; and (ii)
integrating the operations of the Panhandle Companies with those of our existing
and in-development natural gas transmission, processing and storage operations.
This integration includes connecting our natural gas gathering and processing
systems in the mid-continent region to our Midwestern markets and the pending
development of the TriState Pipeline running from a natural gas transportation
hub outside Chicago through a combination of new and existing pipelines to
ultimately connect to a natural gas transportation hub in southwest Ontario.
RECENT DEVELOPMENTS
ACQUISITION OF THE PANHANDLE COMPANIES
On March 29, 1999 we acquired all of the outstanding common stock of the
Panhandle Companies from Duke Energy Corporation. We paid $1.9 billion in cash
to Duke Energy Corporation and assumed $300 million of existing Panhandle debt.
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The Panhandle Companies are primarily engaged in the interstate
transmission and storage of natural gas. The Panhandle Companies operate one of
the nation's largest natural gas pipeline networks, providing customers in the
Midwest and Southwest with a comprehensive array of transportation services.
This interconnected 10,400 mile system accesses virtually all major natural gas
regions in the United States.
Panhandle's transmission system consists of four large-diameter parallel
pipelines and extends approximately 1,300 miles from producing areas in the
Anadarko Basin of Texas, Oklahoma and Kansas through the states of Missouri,
Illinois, Indiana and Ohio into Michigan. Panhandle's system connects with the
Trunkline system at Tuscola, Illinois.
Trunkline's transmission system consists principally of three
large-diameter parallel pipelines extending approximately 1,400 miles from the
Gulf Coast areas of Texas and Louisiana through the states of Arkansas,
Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the
Indiana-Michigan border. Trunkline also owns and operates two offshore Louisiana
natural gas supply systems consisting of 337 miles of pipeline extending
approximately 81 miles into the Gulf of Mexico.
Panhandle's major customers include approximately 20 utilities located in
the Midwest market area that encompasses large portions of Michigan, Ohio,
Indiana, Illinois and Missouri. Trunkline's major customers include six
utilities located in portions of Illinois, Indiana, Michigan, Ohio and
Tennessee. Transportation service for Consumers accounted for approximately 10%
of the combined revenue of the Panhandle Companies.
The Panhandle Companies own and operate five underground gas storage fields
located in Illinois, Michigan, Kansas, Oklahoma and Louisiana with a combined
maximum working gas storage capacity of 70 billion cubic feet.
Trunkline LNG owns a liquified natural gas ("LNG") regasification plant and
related LNG tanker port, unloading facilities and LNG and gas storage facilities
located at Lake Charles, Louisiana. The LNG plant has the capacity to deliver
700 million cubic feet per day but has been operated on a limited basis for a
number of years.
The rates and operations of the Panhandle Companies are subject to
regulation by the Federal Energy Regulatory Commission.
We used approximately $600 million in bridge financing, $500 million in
revolving credit loans and $800 million of senior unsecured notes issued by CMS
Panhandle Holding Company to fund the cash portion of the purchase price for the
acquisition of the Panhandle Companies. We expect to complete permanent
financing of the acquisition with the sale of approximately $600 million of our
common stock.
Please refer to our Forms 8-K dated January 20, and April 6, 1999 for
further information concerning this transaction.
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The following information summarizes our results of operation for the year
ended December 31, 1998 as well as the comparable prior year amounts. Certain of
our prior year information presented has been restated as a result of a 1998
change in accounting for investments in oil and gas properties.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
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1998 1997
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(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Operating revenue........................................... $5,141 $4,781
Operating expenses.......................................... 4,366 4,065
Pretax operating income..................................... 775 716
Income taxes................................................ 100 108
Consolidated net income before cumulative effect of change
in accounting principle................................... 242 244
Cumulative effect of change in accounting for property
taxes, net of tax(1)...................................... 43 --
Consolidated net income..................................... 285 244
Net income attributable to common stocks(1)
CMS Energy................................................ $ 272 $ 229
Class G................................................... 13 15
Average common shares outstanding
CMS Energy................................................ 102 96
Class G................................................... 8 8
Earnings per average common share(1)
CMS Energy
Basic.................................................. $ 2.65 $ 2.39
Diluted................................................ 2.62 2.37
CMS Class G Basic and Diluted............................. 1.56 1.84
Dividends declared per common share
CMS Energy................................................ 1.26 1.14
Class G................................................... 1.27 1.21
</TABLE>
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(1) In 1998, Consumers implemented a change in the method of accounting for
property taxes which had the cumulative effect of increasing other
income by $66 million, including $18 million attributable to the
portion of business relating to Class G common stock. Our earnings, net
of tax, increased by $43 million, or $0.40 per share for CMS Energy
common stock and $0.36 per share for Class G common stock.
Our consolidated net income and earnings per share in 1998 as reported
above increased 17% and 11%, respectively, over 1997. The results reflect
substantial improvements in our utility and diversified energy businesses and
were achieved despite the warmest weather in Michigan since 1921 and the lowest
oil prices worldwide in the last 13 years.
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THE NOTE OFFERING
The Notes.................... On February 3, 1999 we sold $300 million of our
6.75% Senior Notes Due 2004, Series A (the
"NOTES"). The Notes were offered to qualified
institutional buyers under Rule 144A as well as
certain qualified foreign purchasers pursuant to
Regulation S.
Registration Rights
Agreement.................... We executed a Registration Rights Agreement
which provides that we will grant certain
registration and exchange rights to Note
holders. As a result, we have filed a
registration statement with the SEC which will
permit you to exchange the Notes for new notes
which are registered under the Securities Act of
1933. The transfer restrictions will be removed
from the new notes. We are conducting the
exchange offer to satisfy our obligations with
respect to certain exchange and registration
rights. Except for a few limited circumstances,
these rights will terminate when the exchange
offer ends.
THE EXCHANGE OFFER
Securities Offered........... $300 million principal amount of 6.75% Senior
Notes Due 2004, Series B (the "EXCHANGE NOTES").
Exchange Offer............... The Exchange Notes will be offered for all
outstanding Notes. Currently, there are $300
million aggregate principal amount of Notes
outstanding. The Notes may be tendered only in
integral amounts of $1,000.
Resale of Exchange
Notes........................ Based on SEC no action letters, we believe that
after the exchange offer you may offer and sell
the Exchange Notes without registration under
the Securities Act of 1933 so long as:
- You acquire the Exchange Notes in the ordinary
course of business.
- When the exchange offer begins you do not have
an arrangement with another person to
participate in a distribution of the Exchange
Notes.
- You are not engaged in a distribution of, nor
do you intend to distribute, the Exchange
Notes.
When you tender the Notes we will ask you to
represent to us that:
- You are not our affiliate.
- You will acquire the Exchange Notes in the
ordinary course of business.
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<PAGE> 9
- When the exchange offer begins you are not
engaged in nor do you have plans with another
person to be engaged in a distribution of the
Exchange Notes.
If you are unable to make these representations,
you will be required to comply with the
registration and prospectus delivery
requirements under the Securities Act of 1933 in
connection with any secondary resale
transaction.
If you are a broker-dealer and receive Exchange
Notes for your own account, you must acknowledge
that you will deliver a prospectus if you resell
the Exchange Notes. By acknowledging your intent
and delivering a prospectus you will not be
deemed to admit that your are an "underwriter"
under the Securities Act of 1933. You may use
this Prospectus as it is amended from time to
time when you resell Exchange Notes which were
acquired from market-making or trading
activities. For a year after the Expiration Date
we will make this Prospectus available to any
broker-dealer in connection with such a resale.
See "Plan of Distribution."
If necessary, we will cooperate with you to
register and qualify the Exchange Notes for
offer or sale without any restrictions or
limitations under state "blue sky" laws.
Consequences of Failure to
Exchange Notes............... If you do not exchange your Notes during the
exchange offer you will no longer be entitled to
registration rights. You will not be able to
offer or sell the Notes unless they are later
registered, sold pursuant to an exemption from
registration or sold in a transaction not
subject to the Securities Act of 1933 or state
securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange."
Expiration Date.............. 5:00 p.m., EST, on June 15, 1999 (the
"EXPIRATION DATE"). We may extend the exchange
offer.
Conditions to the Exchange
Offer........................ No minimum principal amount of Notes must be
tendered to complete the exchange offer.
However, the exchange offer is subject to
certain customary conditions which we may waive.
See "The Exchange Offer--Conditions." Other than
United States federal and state securities laws
we do not need to satisfy any regulatory
requirements or obtain any regulatory approval
to conduct the exchange offer.
Procedures for Tendering
Notes........................ If you wish to participate in the exchange offer
you must complete, sign and date the letter of
transmittal or
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a facsimile copy and mail it or deliver it to
the exchange agent along with any necessary
documentation. Instructions and the address of
the exchange agent will be on the letter of
transmittal and can be found in this Prospectus.
See "The Exchange Offer--Procedures for
Tendering" and; "--Exchange Agent." You must
also effect a tender of Notes pursuant to the
procedures for book-entry transfer as described
in this Prospectus. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures................... If you cannot tender the Notes, complete the
letter of transmittal or provide the necessary
documentation prior to the termination of the
exchange offer, you may tender your Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights............ You may withdraw tendered Notes at any time
prior to 5:00 p.m. EST on the Expiration Date.
You must send a written or facsimile withdrawal
notice to the Exchange Agent prior to 5:00 p.m.
on the Expiration Date.
Acceptance of Notes and
Delivery of Exchange Notes... All Notes properly tendered to the Exchange
Agent by 5:00 p.m. on the Expiration Date will
be accepted for exchange. The Exchange Notes
will be delivered promptly after the Expiration
Date. See "The Exchange Offer--Acceptance of
Notes for Exchange; Delivery of Exchange Notes"
Certain United States Tax
Consequences................. Exchanging Notes for the Exchange Notes will not
be a taxable exchange for United States federal
income tax purposes. See "Certain United States
Federal Income Tax Consequences."
Exchange Agent............... NBD Bank is exchange agent (the "EXCHANGE
AGENT") for the exchange offer.
Fees and Expenses............ We will pay all fees and expenses associated
with the exchange offer and compliance with the
Registration Rights Agreement.
Use of Proceeds.............. We will receive no cash proceeds in connection
with the exchange offer. We used the net
proceeds of $295.5 million from the sale of the
Notes to repay debt outstanding under our
existing revolving credit facility and for
general corporate purposes.
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THE EXCHANGE NOTES
Issuer....................... CMS Energy Corporation, a Michigan corporation.
Securities Offered........... $300 million principal amount of 6.75% Senior
Notes Due 2004, Series B (the "EXCHANGE NOTES").
Maturity..................... January 15, 2004.
Interest Rate................ The Exchange Notes will bear interest at the
rate of 6.75% per annum, payable semiannually in
cash in arrears on January 15 and July 15 of
each year, commencing July 15, 1999.
Optional Redemption.......... The Exchange Notes will be redeemable at our
option, 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
in this Prospectus, plus any accrued interest to
the date fixed for redemption.
Change in Control............ If a change in control were to occur, each
holder of Exchange Notes would be able to
require us to repurchase such Exchange Notes, in
whole or in part, at a price equal to 101% of
the principal amount of those Exchange Notes,
plus any accrued and unpaid interest.
Ranking...................... The Exchange Notes will be unsecured debt
securities of the Company. The Exchange Notes
will rank equally in right of payment with all
our other unsecured and unsubordinated
indebtedness. As of December 31, 1998, we had
outstanding approximately $2.766 billion
aggregate principal amount of indebtedness, none
of which was secured. None of such indebtedness
at the parent-only level would be senior to the
Exchange Notes and the Exchange Notes will not
be senior to such indebtedness. 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.
Certain Covenants............ The indenture governing the Exchange Notes will
contain covenants that will, among other things,
limit our ability to pay dividends or
distributions, incur additional indebtedness,
incur additional liens, sell, transfer or
dispose of certain assets, enter into certain
transactions with affiliates or enter into
certain mergers or consolidations.
Form and Denomination........ The Exchange Notes will be fully registered
under the Securities Act of 1933. The Exchange
Notes will be issued in the form of one or more
global notes and will be held by a custodian and
registered in the name of a designee of the
depositary. Beneficial interests in the global
notes as well as any sales of interests in the
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<PAGE> 12
global notes will be shown on records maintained
by the depositary.
Exchange Offer; Registration
Rights....................... To remove the transferability restrictions on
the Notes, we agreed to file a registration
statement with the SEC to permit you to exchange
the Notes for new Exchange Notes which are
registered under the Securities Act of 1933. We
agreed to file the registration statement within
90 days after the sale of the Notes; to use our
best efforts to have it declared effective
within 120 days after the sale of the Notes; and
complete the exchange offer within 30 days after
the registration statement is effective. If we
do not comply with these requirements, we must
pay you higher interest until we are in
compliance.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical and pro forma financial data for the
years ended December 31, 1996 through 1998 has been derived from our audited
consolidated financial statements. Certain historical selected financial
information presented herein has been restated as a result of a 1998 change in
accounting for investments in oil and gas properties. Please refer to our Form
8-K dated July 30, 1998 which is incorporated by reference into this Prospectus.
Other data presented herein, which was not previously restated to reflect the
change in accounting method described in the Form 8-K, has also been restated.
The financial information set forth below should be read in conjunction with the
consolidated financial statements, related notes and other financial information
which is included elsewhere in this Prospectus and incorporated by reference
into this Prospectus. See "Where to Find More Information."
The unaudited pro forma selected financial information illustrates the
effects of (i) various restructuring, realignment, and elimination of activities
between the Panhandle Companies and Duke Energy Corporation prior to the closing
of the acquisition of the Panhandle Companies by CMS Energy (the "ACQUISITION");
(ii) the adjustments resulting from the Acquisition; and (iii) certain Panhandle
and CMS Energy financing transactions which were completed to facilitate the
Acquisition, including the public issuance of $800 million of senior notes by
CMS Panhandle Holding Company, $500 million of senior debt by CMS Energy as well
as the anticipated sale of 14 million shares of common stock by CMS Energy which
is expected to aggregate approximately $600 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
PRO FORMA
1996 1997 1998 1998
------ ------ ------ ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue........................ $4,324 $4,781 $5,141 $5,566
Operating expense........................ 3,648 4,065 4,366 4,625
Pre-tax operating income................. 676 716 775 941
Income taxes............................. 137 108 100 128
Consolidated net income before cumulative
effect of change in accounting
principle................................ $ 224 $ 244 $ 242 $ 277
Cumulative effect of change in accounting
for property taxes, net of tax(1)........ -- -- 43 43
Consolidated net income.................. 224 244 285 320
Net income attributable to common
stocks(1)
CMS Energy............................ $ 210 $ 229 $ 272 $ 307
Class G............................... 14 15 13 13
Average common shares outstanding
CMS Energy............................... 92 96 102 116
Class G.................................. 8 8 8 8
Earnings per average common share(1)
CMS Energy
Basic................................. $ 2.27 $ 2.39 $ 2.65 $ 2.66
Diluted............................... 2.26 2.37 2.62 2.63
CMS Class G Basic and Diluted............ 1.82 1.84 1.56 1.56
Dividends declared per common share
CMS Energy............................... 1.02 1.14 1.26 1.26
Class G.................................. 1.15 1.21 1.27 1.27
</TABLE>
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<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
PRO FORMA
1996 1997 1998 1998
------ ------ ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 58 $ 69 $ 101 $ 101
Net plant and property.................... 5,029 5,144 6,040 7,616
Total assets.............................. 8,363 9,508 11,310 13,784
Long-term debt, excluding current
maturities............................. 2,842 3,272 4,726 6,344
Non-current portion of capital leases..... 103 75 105 105
Notes payable............................. 333 382 328 328
Other liabilities......................... 3,093 3,361 3,304 3,560
Company-obligated mandatorily redeemable
trust preferred securities of Consumers
Power Company Financing I(2)........... 100 100 100 100
Company-obligated mandatorily redeemable
trust preferred securities of Consumers
Energy Company Financing II(2)......... -- 120 120 120
Preferred stock of subsidiary............. 356 238 238 238
Company-obligated convertible trust
preferred securities of CMS EnergyTrust
I(3)................................... -- 173 173 173
Common stockholders' equity............... $1,536 $1,787 $ 2,216 $ 2,816
</TABLE>
- -------------------------
(1) During the first quarter of 1998, Consumers implemented a change in the
method of accounting for property taxes which had the cumulative effect
of increasing other income by $66 million, including $18 million
attributable to the portion of business relating to Class G common
stock. Earnings, net of tax, increased by $43 million or $0.40 per
share for CMS Energy common stock and $0.36 per share for Class G
common stock.
(2) The primary asset of Consumers Power Company Financing I is $103
million principal amount of 8.36% subordinated deferrable interest
notes due 2015 from Consumers. The primary asset of Consumers Energy
Company Financing II is $124 million principal amount of 8.20%
subordinated deferrable interest notes due 2027 from Consumers.
(3) The primary asset of CMS Energy Trust I is $178 million principal
amount of 7.75% convertible subordinated debentures due 2027 from CMS
Energy.
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RISK FACTORS
In addition to the information set forth in this Prospectus, you should
carefully consider the risks described below before making an investment in the
Exchange Notes. The risks described below are not the only ones facing us.
Additional risks not presently known to us or that we currently deem immaterial
may also impair our business operations.
LEVERAGE, DEBT SERVICE AND ABILITY TO PAY DIVIDENDS
We, as a parent holding company, have substantial leverage and significant
debt service obligations which must be serviced by dividends or other
distributions and cash transfers from our subsidiaries or jointly owned
enterprises. As of December 31, 1998, we had outstanding $2.766 billion of
unsecured senior debt which will be ranked on an equal basis with the Exchange
Notes and our other liabilities and obligations to trade and other creditors. On
a consolidated basis, we and our subsidiaries had outstanding $6.094 billion of
long-term indebtedness and mandatorily redeemable trust preferred securities. On
a consolidated basis our debt was 67% of total capitalization as of December 31,
1998. As a result of restrictions contained in Consumers' mortgage bond
indenture and preferred stock provisions, and other legal restrictions,
Consumers' ability to pay dividends or acquire its own stock from us is limited.
Based upon the most restrictive provision, as of December 31, 1998, Consumers
would be able to pay an aggregate of $300 million in dividends to us. In the
four years ended December 31, 1998, Consumers paid out $729 million or 60% of
its earnings in cash dividends to us. Enterprises is also limited in the amount
of dividends it is able to pay since it is expanding its developing businesses
at a rapid rate and also has various restrictions on its ability to pay
dividends or acquire its own stock. Adverse financial or other economic
circumstances affecting our subsidiaries may adversely affect our ability to
meet our obligations to make payments on the Exchange Notes.
Our high debt leverage and the structurally subordinated position of the
Exchange Notes just described, as well as restrictions on the issuance of
additional debt in our financing agreements, could limit our ability to obtain
additional capital for future operating requirements and capital expenditures.
Our ability to take full advantage of opportunities and to adjust to rapidly
changing conditions in the markets we now serve or plan to enter and to react to
possible adverse national and international financial markets also could be
adversely affected. In turn, these factors could adversely affect our ability to
make payments on the Exchange Notes.
STRUCTURAL SUBORDINATION
Due to our holding company structure and the restrictions on dividend and
other types of payments by our subsidiaries to us as the parent company, the
Exchange Notes are effectively subordinated to the payment of interest,
principal and preferred distributions on the debt, preferred securities and
other liabilities of Consumers and Enterprises and each of their subsidiaries.
None of these entities will be obligated to pay amounts due on the Exchange
Notes.
DOMESTIC COMPETITION AND REGULATORY RESTRUCTURING
Federal and state regulation of electric and natural gas utilities,
interstate pipelines and independent electric power producers has changed
dramatically in the last two decades
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<PAGE> 16
and could continue to change over the next several years. In general, such
regulatory changes have resulted and will continue to result in increased
competition in our domestic energy businesses.
The regulatory changes have been particularly significant in our natural
gas businesses. As a result of these changes, gas distribution companies like
Consumers deliver the natural gas which is sold directly to customers by gas
producers, marketers and others, some of whom are our competitors for these
sales. While Consumers' current rates allow it to charge gas delivery rates
which enable Consumers to maintain its margins in retail gas service, the full
impact of competition remains to be seen, particularly if and when Consumers'
existing pilot program providing other gas suppliers direct access to its
customers is extended to all of Consumers' gas customers. Our unregulated gas
marketing subsidiary is an experienced and successful competitor in this new
market environment, but rapidly changing competitive conditions could adversely
affect its margins and market share and add volatility to its financial results.
Further changes in federal and state regulation of the natural gas industry
could also adversely affect Consumers' gas utility business and Enterprises'
non-utility gas marketing business.
Since we have completed the Acquisition, a significant portion of our
domestic cash flow and revenue comes from our interstate pipeline business.
Federal Energy Regulatory Commission ("FERC") policy allows the issuance of
certificates authorizing the construction of new interstate pipelines which are
competitive with existing pipelines. A number of new pipeline and pipeline
expansion projects have been approved or are pending approval by the FERC in
order to transport large additional volumes of natural gas to the Midwest from
Canada. These pipelines will be able to compete with Panhandle and Trunkline.
Increased competition could reduce the volumes of gas transported by Panhandle
and Trunkline to their existing markets or cause them to lower rates in order to
meet competition. This could lower the financial benefits we expect from the
Acquisition.
Federal regulation of wholesale sales and transmission of electricity and
state regulation of the retail sale and distribution of electricity have also
changed significantly. This is particularly true since 1992 when the Energy
Policy Act was enacted. This legislation and FERC regulations which followed it
have effectively granted independent power producers and electricity marketers
"direct access" to the interstate electric transmission systems owned by
electric utilities. All electric utilities are required to offer transmission
services to new market entrants on a non-discriminatory basis. As a result,
wholesale electricity markets have become much more competitive. While this has
not adversely affected us to date, and does present us with opportunities to
expand our market reach for electric power sales by both Consumers and our
non-utility generating facilities, the rapidly changing nature of the
marketplace creates the opportunity for competitors to market electricity to our
wholesale customers, such as municipal systems in Michigan. Ultimately, these
new power suppliers may sell power directly to our retail customers when
Consumers' electric distribution system is open for competitors to transmit
power to Consumers' retail markets. While Consumers would be allowed under
current regulations to charge compensatory rates for distributing electricity
supplied by others, it is uncertain whether Consumers' profit margins on retail
electric service will be maintained over the long run.
The Michigan Public Service Commission ("MPSC") issued several orders in
1997 and 1998 restructuring the electric power industry in Michigan. Under these
orders as currently in effect, Consumers is required to allow certain customers
to elect to purchase electric power directly from other suppliers, such as
independent power producers, power
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<PAGE> 17
marketers and other utilities. This direct access program is expected to
commence in 1999 and will be phased in to cover 750 megawatts of Consumers'
retail market by 2001. By January 1, 2002, all of Consumers' customers will have
this option. It is not possible at this time to predict the extent to which
Consumers' customers will elect this option or what the ultimate financial
impact will be to Consumers. Under the current orders, however, Consumers
believes it will be able to maintain its profit margins on and continue to
expand its retail electric service.
In 1998, the Governor of Michigan supported legislation introduced to
restructure the electric power industry in Michigan in a manner similar to the
MPSC's restructuring orders. The legislation was not enacted, but it is expected
that electric industry restructuring legislation will be reconsidered in 1999.
While Consumers supported the legislation supported by the Governor, the
uncertainty as to whether legislation will be introduced and enacted and what
effect any enacted legislation will have on Consumers represents a risk to
investors purchasing the Exchange Notes. Similar uncertainty exists with respect
to the possibility that federal legislation restructuring the electric power
industry will be enacted. A variety of bills changing existing federal
regulation of the industry and, in some cases, affecting state regulation have
been introduced in the Congress in recent years but none has been enacted.
Adverse federal or state legislation or adverse future rate determinations
by the MPSC in the electric markets could result in Consumers being unable to
collect rates sufficient to recover fully its current investment in electric
generating facilities and the cost of purchased power.
INTERNATIONAL PROJECT RISKS AND EXCHANGE RATE FLUCTUATIONS
Our international investments in electric generating facilities, oil and
gas exploration, production and processing facilities, natural gas pipelines and
electric distribution systems face a number of risks inherent in acquiring,
developing and owning these types of facilities. There is significant time and
expense in preparing proposals or competitive bids, obtaining the numerous
required permits, licenses and approvals, negotiating the necessary agreements
with governmental and private parties and obtaining financing. Money spent for
these purposes is at risk until all these elements are successfully finalized
and it is often impractical to finalize all elements before significant sums
have been spent. As a result, there is a risk that these up-front expenditures
will be of little value if one of the required approvals or other elements is
not finally achieved and the project does not go forward or is not completed.
More importantly, international investments of the type we are making are
subject to the risk that they may be expropriated or that the required
agreements, licenses, permits and other approvals may be changed or terminated
in violation of their terms. In addition, the local foreign currency may be
devalued or the conversion of the currency may be restricted or prohibited or
other actions may be taken which adversely affect the value and the recovery of
the investment such as taxes, royalties, or import duties being increased. In
some cases the investment may have to be abandoned or disposed of at a loss.
These factors could significantly adversely affect the financial results of the
affected subsidiary and, in turn, our growth plans for Enterprises'
international investments and our financial position and results of operations.
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<PAGE> 18
POSSIBLE INABILITY TO PURCHASE EXCHANGE NOTES UPON A CHANGE OF CONTROL
In the event of a change of control of our Company, each holder of Exchange
Notes may require us to purchase all or a portion of its Exchange Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest. Our ability to purchase the Exchange Notes will be limited by the
terms of our other debt agreements and our ability to finance the purchase. It
is expected that we will issue additional debt with similar change of control
provisions. If this occurs, the financial requirements for any purchases could
be increased significantly. In addition, the terms of any debt securities issued
to purchase debt under these change of control provisions may be unfavorable to
us. We cannot assure holders of Exchange Notes that we will be able to finance
these purchase obligations or obtain consents to do so from holders of Exchange
Notes under other debt agreements restricting these purchases.
NO PUBLIC MARKET FOR THE EXCHANGE NOTES
There is no active trading market for the Exchange Notes. If any of the
Exchange Notes are traded after their initial issuance, they may trade at a
discount from their initial offering price. Factors that could cause the
Exchange Notes to trade at a discount are an increase in prevailing interest
rates, a decline in our credit worthiness, a weakness in the market for similar
securities, and declining general economic conditions. Although we have entered
into a registration rights agreement with the Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Capital Inc, Chase Securities Inc. and
NationsBanc Montgomery Securities LLC (collectively the "INITIAL PURCHASERS")
under which we are obligated to file a registration statement and to use our
best efforts to have it declared effective, which would allow you to exchange
the Notes for Exchange Notes which are registered under the Securities Act of
1933, we cannot assure you that the registration statement although filed will
be declared effective, that the exchange will occur, or that an active market
for the Exchange Notes will develop. The liquidity of, and trading markets for,
the Exchange Notes may also be adversely affected by declines in the markets for
high-yield securities generally.
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<PAGE> 19
RATIO OF EARNINGS TO FIXED CHARGES
The consolidated ratio of earnings to fixed charges for each of the years
ended December 31, 1994 through 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............. 2.07 1.90 1.96 1.78 1.59
</TABLE>
For the purpose of computing the ratio, earnings represent net income
before income taxes, net interest charges and the estimated interest portions of
lease rentals.
USE OF PROCEEDS
There will be no cash proceeds payable to us from the issuance of the
Exchange Notes. We applied the net proceeds from the sale of the Notes to repay
$225 million of the outstanding balance under the $600 million revolving credit
facility with The Chase Manhattan Bank, as administrative agent (the "REVOLVING
CREDIT FACILITY"), and for general corporate purposes. The Revolving Credit
Facility has a weighted average interest rate of 6.6%.
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<PAGE> 20
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at December 31, 1998, and as adjusted to reflect the sale of $480
million principal amount of 7.5% Senior Notes Due 2009 on January 25, 1999, the
sale of the Notes, the application of the net proceeds from such sale and
certain other items referred to below. See "Use of Proceeds." The table should
be read in conjunction with the Company's consolidated financial statements and
notes thereto included in the incorporated documents as described under "Where
to Find More Information."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Non-current portion of capital leases.................... $ 105 $ 105
Long-term debt:
Other long-term debt (excluding current
maturities)(1)...................................... 4,726 4,029
6.75% Senior Notes Due 2004(2)......................... -- 300
7.50% Senior Notes Due 2009(3)......................... -- 480
------ ------
Total long-term debt.............................. 4,726 4,809
------ ------
Total stockholders' equity:
Company-obligated mandatorily redeemable preferred
securities of:
Consumers Power Company Financing I(4).............. 100 100
Consumers Energy Company Financing II(5)............ 120 120
Company-obligated convertible preferred securities of CMS
Energy Trust I(6)...................................... 173 173
Preferred stock of subsidiary.......................... 238 238
Common stockholders' equity............................ 2,216 2,216
------ ------
Total stockholders' equity........................ 2,847 2,847
------ ------
Total capitalization........................... $7,678 $7,761
====== ======
</TABLE>
- -------------------------
(1) Adjusted to reflect the repayment of $697 million of outstanding
balances under the Revolving Credit Facility and other credit
facilities from the sale of the Notes and other securities.
(2) Adjusted to reflect the issuance of $300 million principal amount of
the Notes on February 3, 1999.
(3) Adjusted to reflect the issuance of $480 million principal amount of
7.5% Senior Notes Due 2009 on January 25, 1999.
(4) The primary asset of Consumers Power Company Financing I is
approximately $103 million principal amount of 8.36% subordinated
interest notes due 2015 from Consumers.
(5) The primary asset of Consumers Energy Company Financing II is
approximately $124 million principal amount of 8.20% subordinated
interest notes due 2027 from Consumers.
(6) The primary asset of CMS Energy Trust I is approximately $178 million
principal amount of 7.75% convertible subordinated debentures due 2027
from the Company.
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<PAGE> 21
THE COMPANY
We are a leading diversified energy company operating in the United States
and around the world. Our two principal subsidiaries are Consumers and
Enterprises. Consumers is a public utility that provides natural gas and
electricity to almost six million of the nine and one-half million residents in
Michigan's Lower Peninsula. Enterprises, through subsidiaries, is engaged in
several domestic and international energy businesses including:
- Transmission, storage and processing of natural gas;
- Independent power production;
- Oil and gas exploration and production;
- International energy distribution; and
- Energy marketing, services and trading.
Our consolidated operating revenue in 1998 was $5.1 billion. 51% of our
consolidated operating revenue was derived from electric utility operations, 21%
from gas utility operations, 18% from energy marketing, services and trading
operations, 6% from independent power production and other non-utility
operations, 3% from transmission, storage and processing of natural gas, and 1%
from oil and gas exploration and production operations.
CONSUMERS
Consumers, formed in Michigan in 1968, is the successor to a corporation
organized in Maine in 1910 that did business in Michigan from 1915 to 1968.
Consumers was named Consumers Power Company from 1910 to the first quarter of
1997, when Consumers changed its name to Consumers Energy Company. Consumers'
consolidated operations currently account for a majority of our total assets,
revenues and income. Consumers' service areas include automotive, metal,
chemical, food and wood products and a diversified group of other industries. At
year end 1998, Consumers provided service to 1.6 million electric customers and
1.5 million gas customers. Consumers' consolidated operating revenue in 1998 was
$3.7 billion. 70% of Consumers' operating revenue was generated from its
electric utility business, 29% from its gas utility business, and 1% from its
non-utility business.
ELECTRIC UTILITY OPERATION
Consumers' electric utility operation constitutes the twelfth largest
electric company in the U.S. It serves 1.64 million customers in 61 of 68 of
Michigan's Lower Peninsula counties. Principal cities served include Battle
Creek, Flint, Grand Rapids, Jackson, Kalamazoo, Midland, Muskegon, and Saginaw.
Consumers' electric utility customer base includes a mix of residential,
commercial, and diversified industrial customers, the largest segment of which
is the automotive industry. Consumers' electric operations are not dependent
upon a single customer, or even a few customers, and the loss of any one or even
a few of such customers would not have a material adverse effect on its
financial condition.
Consumers' owned and operated an aggregate of 6,190 megawatts ("MW") of
electric generating capacity in 1998. In 1998, Consumers purchased 2,545 MW of
net capacity, which amounted to 34% percent of Consumers' total system
requirements, from
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<PAGE> 22
independent power producers, the largest being the MCV Facility. Consumers,
through wholly-owned subsidiaries, owns a significant ownership and lessor
interest in the MCV Facility, a natural gas-fueled cogeneration facility. Total
electric sales in 1998 were 40 billion kilowatt hours ("KWH"), a 6% increase
over 1997 levels. Consumers' electric operating revenue in 1998 was $2.6
billion, an increase of 3.6% from 1997.
GAS UTILITY OPERATION
Consumers' gas utility operation purchases, transports, stores and
distributes natural gas. It renders gas service to 1.55 million customers and is
authorized to serve in 54 of the 68 counties in Michigan's Lower Peninsula.
Principal cities served include Bay City, Flint, Jackson, Kalamazoo, Lansing,
Pontiac and Saginaw, as well as the suburban Detroit area. Consumers owns gas
transmission and distribution mains and other gas lines, compressor stations and
facilities, storage rights, wells and gathering facilities in several storage
fields in Michigan. Consumers and its wholly-owned subsidiary, Michigan Gas
Storage, inject natural gas into storage during the summer months of the year
for use during the winter months when demand is higher. Consumers' gas operation
is not dependent upon a single customer, or even a few customers, and the loss
of any one or even a few of such customers would not have a material adverse
effect on its financial condition.
Consumers' gas operation is seasonal to the extent that peak demand occurs
in winter due to colder temperatures. Total deliveries of natural gas sold by
Consumers and from other sellers over Consumers' pipeline and distribution
network to ultimate customers, including the MCV Partnership, totaled 360
billion cubic feet ("BCF") in 1998. Consumers' gas operating revenue in 1998 was
$1.1 billion, a decrease of 12.7% from 1997.
ENTERPRISES
TRANSMISSION, STORAGE AND PROCESSING OF NATURAL GAS
CMS Gas Transmission and Storage ("CMS GTS"), formed in 1988, owns,
develops and manages domestic and international natural gas transmission,
processing and storage projects consisting of a total of 12,996 miles of
pipeline with a capacity of approximately 6.3 Bcf per day. In addition, CMS GTS
has processing capabilities of over 760 million cubic feet per day ("MMCF/D") of
natural gas. In our Michigan CO(2) removal plants, we process over 330 MMcf/d,
representing more natural gas processed than any other processor in the state.
We have expanded the importance of this line of business with the recent
acquisition of the Panhandle Companies, a natural gas pipeline in Western
Australia and gathering systems in the panhandle region of Texas and Oklahoma.
See "Prospectus Summary--Recent Developments--Acquisition of the Panhandle
Companies."
CMS GTS's operating revenue in 1998 was $160 million, an increase of 67%
from 1997.
INDEPENDENT POWER PRODUCTION
CMS Generation, formed in 1986, acquires, develops, invests in, constructs
and operates non-utility electric power generation projects both in the United
States and internationally. As of December 31, 1998, CMS Generation had
ownership interests in 32 operating power plants totaling 7,300 (gross) MW
(3,236 MW net) throughout the United
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<PAGE> 23
States and in Argentina, Australia, India, Jamaica, Morocco and the Philippines.
Our net generating capacity has more than tripled since 1993. Projects range in
size from 3 MW to 2,000 MW and are fueled by hydro, coal, natural gas, oil,
wood, wind, and waste material. Additional projects totaling approximately 6,500
MW are under construction or advanced development.
The rapid growth in our generating capacity has been matched by growth in
this business segment's operating revenue. CMS Generation's operating revenue in
1998 was $277 million an increase of 65% from 1997.
OIL AND GAS EXPLORATION AND PRODUCTION
CMS Oil & Gas (formerly known as CMS NOMECO Oil & Gas), formed in 1967,
conducts oil and gas exploration and development operations throughout the U.S.
and seven other countries. Most of the domestic operations focus on gas
exploration and production in Michigan and Louisiana while the international
operations focus on oil exploration and production and are distributed across
three other continents.
CMS Oil & Gas achieved production levels in 1998 of 7.7 million barrels of
oil, condensate and plant products and 26.5 Bcf of gas.. CMS Oil & Gas' proven
oil and gas reserves total 182.6 million net equivalent barrels reflecting a
balanced portfolio of high-quality reserves, including 49% oil and condensate
and 51% natural gas.
CMS Oil & Gas' operating revenue, including sales between business
segments, was $127 million in 1998, a decrease of 24% from 1997.
INTERNATIONAL ENERGY DISTRIBUTION
CMS Electric and Gas Distribution, formed in 1996, is our international
energy distribution subsidiary. We have ownership interests in electric
distribution companies which provide service in the states of Rio de Janeiro,
Sergipe and Minas Gerais in Brazil, the province of Entre Rios in Argentina, and
the area of Margarita Island in Venezuela. These electric distribution companies
serve a total of 992,000 customers with electricity sales of 4,790 GWh in 1998.
We are currently negotiating on an exclusive basis for the acquisition of
Turkey's Bursa-Yalova electric distribution system which distributes 3,300 GWh
of electricity annually to 700,000 customers near Bursa, about 60 miles south of
Istanbul.
ENERGY MARKETING, SERVICES AND TRADING
CMS Marketing, Services and Trading ("CMS MST"), formed in 1996, provides
gas, oil, coal and electric marketing, risk management and energy management
services to industrial, commercial, utility and municipal energy users
throughout the United States and internationally. CMS MST has grown dramatically
since its inception. Currently, it has more than 7,000 customers, including 30
major gas distribution companies and is active in 30 states and 3 countries. CMS
MST's operating revenue in 1998 was $939 million, an increase of 36% from 1997.
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<PAGE> 24
DESCRIPTION OF THE 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 an Eighth Supplemental Indenture,
dated as of February 3, 1999, establishing the Exchange Notes (the "SUPPLEMENTAL
INDENTURE") between CMS Energy and NBD Bank, as Trustee (the "SENIOR DEBT
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 Senior Debt Trustee upon request.
The Exchange Notes will be limited in 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 the Company.
As of December 31, 1998 the Company had outstanding approximately $2.8
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 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 equally in right of payment with
all other unsecured and unsubordinated indebtedness of the Company.
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 has
been incurred by its subsidiaries. Therefore, CMS Energy's rights and the rights
of its creditors, including
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<PAGE> 25
Holders (as defined in the Registration Rights Agreement) 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).
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 "Book-Entry; Delivery; Form
and Transfer." The Global Exchange Notes will be registered in the name of a
nominee of the Depositary Trust Company ("DTC"). Each Global Exchange Note (and
any Exchange Note issued in exchange therefor) will be subject to certain
restrictions on transfer set forth therein as described under "--Book-Entry;
Delivery; Form and Transfer--Transfer 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
Exchange Note and will not be considered the registered holder thereof under the
Senior Debt Indenture.
PAYMENT AND MATURITY
The Exchange Notes will mature on January 15, 2004, unless redeemed earlier
by the Company as described below, and will bear interest at the rate of 6.75%
per annum. At maturity, the Company will pay the aggregate principal amount of
the Exchange Notes then outstanding.
Each Exchange Note will bear interest from the original date of issue,
payable semiannually in arrears on January 15, and July 15, commencing July 15,
1999, 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 the Company'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 be less than 100% of the principal
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<PAGE> 26
amount of the Exchange Notes plus accrued interest, if any, thereon 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 Exchange
Note (or portion thereof) on the redemption date, 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 Senior Debt
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 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); 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 the Company shall default in the payment of the
Exchange Notes or portions thereof to be redeemed at the applicable redemption
price, together with accrued interest, if any, 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 the Company to
repurchase all or any part of such Holder's Exchange Note on a date selected by
the Company that is no earlier than 60 days nor later than 90 days (the "CHANGE
IN CONTROL PURCHASE DATE") after the
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mailing of written notice by the Company of the occurrence of such Change in
Control, at a repurchase price payable in cash equal to 101% of the principal
amount of such Exchange Notes plus accrued interest, if any, thereon to the
Change in Control Purchase Date (the "CHANGE IN CONTROL PURCHASE PRICE").
Within 30 days after the Change in Control Date, the Company is obligated
to mail to each Holder of a 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 the
Company 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 the Company 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 (as defined herein) or its nominee will be the holder of such
Exchange Note and therefore will be the only entity that can require the Company
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. (NASD") or a commercial
bank or trust company having an office or correspondent in the United States and
(ii) instructions to such broker or other entity to notify the Depositary of
such beneficial owner's desire to cause the Company 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 broker or other entity will be
responsible for disbursing any payments it receives upon the repurchase of such
Exchange Notes by the Company.
Payment of the Change in Control Purchase Price for an Exchange Note in
registered, certificated form (a "CERTIFICATED EXCHANGE NOTE") for which a
Change in
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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) the Company ceases to beneficially own, directly
or indirectly, at least 80% of the total voting power of all classes of Capital
Stock then outstanding of Consumers (whether arising from issuance of securities
of the Company or Consumers, any direct or indirect transfer of securities by
the Company or Consumers, any merger, consolidation, liquidation or dissolution
of the Company 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 the
Company; or (iii) the Company 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 the Company, in either event pursuant to a transaction in
which the outstanding Voting Stock of the Company is changed into or exchanged
for cash, securities, or other property, other than any such transaction where
(A) the outstanding Voting Stock of the Company is changed into or exchanged for
Voting Stock of the surviving corporation and (B) the holders of the Voting
Stock of the Company 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 the Company 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 the Company 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 the Company and,
thus, the removal of incumbent management. The Change in Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate shares of its common stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, or part
of a plan by management to adopt a series of anti-takeover provisions. Instead,
the Change in Control purchase feature is a term contained in many similar debt
offerings and the terms of such
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feature result from negotiations between the Company and the Initial Purchasers.
Management has no present intention to propose any anti-takeover measures
although it is possible that the Company could decide to do so in the future.
No Exchange Note may be repurchased by the Company as a result of a Change
of Control if there has occurred and is continuing an Event of Default described
under "Events of Default" below (other than a default in the payment of the
Change in Control Purchase Price with respect to the Exchange Notes). In
addition, the Company's ability to purchase Exchange Notes may be limited by its
financial resources and its inability to raise the required funds because of
restrictions on issuance of securities contained in other contractual
arrangements.
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 the Company will be permanently released from the
provisions of this "Limitation on Restricted Payments," the Company will not,
and will not permit any of its Restricted Subsidiaries, directly or indirectly,
to (i) declare or pay any dividend or make any distribution on the Capital Stock
of the Company to the direct or indirect holders of 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 the Company or a
Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company, 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 the Company or such Subsidiary makes such Restricted Payment: (1) an Event
of Default, or an event that with the lapse of time or the giving of notice or
both would constitute an Event of Default, shall have occurred and be continuing
(or would result therefrom); or (2) the aggregate amount of such Restricted
Payment and all other Restricted Payments made since 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
the Company 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 the
Company in connection with the acquisition of any business or assets by the
Company or a Restricted Subsidiary where the dividends or other distributions
with respect to such Capital Stock are payable solely from the net earnings of
such business or assets; (ii) any purchase or redemption of Capital Stock of the
Company made by exchange for, or out of the proceeds of the substantially
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<PAGE> 30
concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or
Exchangeable Stock); (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividends would have
complied with this covenant; or (iv) payments pursuant to the Tax Sharing
Agreement.
LIMITATION ON CERTAIN LIENS
Under the terms of the Senior Debt Indenture, so long as any of the
Exchange Notes are Outstanding, the Company 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 the Company, provided that on the date such Liens are
created, and after giving effect to such Indebtedness, the aggregate principal
amount at maturity of all the secured Indebtedness of the Company 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.
LIMITATION ON ASSET SALES
Under the terms of the Senior Debt Indenture, so long as any of the
Exchange Notes are outstanding, the Company may not sell, transfer or otherwise
dispose of any property or assets of the Company, 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 the Company shall (i)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
Indebtedness of a Consolidated Subsidiary or Indebtedness of the Company 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.
The Company 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 the Company 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 the Company may consolidate or
merge into, or sell, lease or convey its property as an entirety to, any other
corporation if such corporation assumes the obligations of the Company under the
Exchange Notes and the Senior Debt Indenture and is organized and existing under
the laws of the United States
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<PAGE> 31
of America, any state thereof or the District of Columbia. The Senior Debt
Indenture provides that the provisions of this "Limitation on Consolidation,
Merger, Sale or Conveyance" will continue to apply 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 the Company will be permanently released from the
provisions of this "Limitation on Consolidation, Merger, Sale or Conveyance".
The Company shall not consolidate with or merge into any other Person or sell,
lease or convey the property of the Company 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 the Company 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 the Company 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 the Company will be permanently released from the
provisions of this "Limitation on Consolidated Indebtedness," the Company 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 the Company and its Consolidated Subsidiaries for the four consecutive fiscal
quarters immediately preceding the issuance of such Indebtedness (as shown by a
pro forma consolidated income statement of the Company and its Consolidated
Subsidiaries for the four most recent fiscal quarters ending at least 30 days
prior to the issuance of such Indebtedness after giving effect to (i) the
issuance of such Indebtedness and (if applicable) the application of the net
proceeds thereof to refinance other Indebtedness as if such Indebtedness was
issued at the beginning of the period, (ii) the issuance and retirement of any
other Indebtedness since the first day of the period as if such Indebtedness was
issued or retired at the beginning of the period and (iii) the acquisition of
any company or business acquired by the Company or any Subsidiary 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
the Company to banks not to exceed $1,000,000,000 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 the Company to a Subsidiary or by a Subsidiary
to the Company; (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
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of the Company, Consumers, Enterprises, CMS Generation, CMS Oil & Gas, 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 the Company 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.
"CMS Oil & Gas" means, CMS Oil & Gas Co. (formerly known as, "CMS NOMECO
Oil & Gas Co."), a Michigan corporation and wholly-owned subsidiary of the
Company.
"Consolidated Assets" means, at any date of determination, the aggregate
assets of the Company and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.
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"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 the Company 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 the Company
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 the Company 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 the Company and its
Consolidated Subsidiaries, including, without duplication, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) cash and noncash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of discount) and (vii) interest expense in
respect of obligations of other Persons deemed to be Indebtedness of the Company
or any Consolidated Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness, provided, however, that Consolidated Interest Expense shall
exclude (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, CMS Oil & Gas, 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 the Company, Consumers, Enterprises, CMS Generation, CMS Oil &
Gas, 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 the
Company and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income (i) any net
income of any Person if such Person is not a Subsidiary, except that (A) the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Consolidated Subsidiary as a dividend or other distribution and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income of any
Person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any gain
or loss realized upon the sale or other disposition of any property, plant or
equipment of the Company or its Consolidated Subsidiaries which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
and (iv) any net income of any Subsidiary of Consumers, CMS Generation, CMS Oil
& Gas, CMS Electric and Gas, CMS Gas Transmission and Storage, CMS MST or
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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
the Company 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 the Company and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with 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 the Company 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 writeup 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 the Company 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 the Company.
"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 the Company.
"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).
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"Holder" means the Person in whose name an Exchange Note is registered in
the security register kept by the Company 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 the Company or Consumers in exchange for subordinated debt issued by the
Company or Consumers, respectively; (ii) such preferred securities contain terms
providing for the deferral of distributions corresponding to provisions
providing for the deferral of interest payments on such subordinated debt; and
(iii) the Company or Consumers (as the case may be) makes periodic interest
payments on such subordinated debt, which interest payments are in turn used by
the Hybrid Preferred Securities Subsidiary to make corresponding payments to the
holders of the Hybrid Preferred Securities.
"Hybrid Preferred Securities Subsidiary" means any business trust (or
similar entity) (i) all of the common equity interest of which is owned (either
directly or indirectly through one or more wholly-owned Subsidiaries of the
Company or Consumers) at all times by the Company or Consumers, (ii) that has
been formed for the purpose of issuing Hybrid Preferred Securities and (iii)
substantially all of the assets of which consist at all times solely of
subordinated debt issued by the Company or Consumers (as the case may be) and
payments made from time to time on such subordinated debt.
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) all obligations of such Person for the reimbursement of any
obligor 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 the Company, net of
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(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 the Company 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 the Company or any
Restricted Subsidiary of the Company 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 the Company, 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 million, the value thereof shall be based upon an
opinion from an independent nationally recognized firm experienced in the
appraisal or similar review of similar types of transactions.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
"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 the Company
and its Consolidated Subsidiaries, the aggregate amount of Consolidated Net
Income after adding thereto Consolidated Interest Expense (adjusted to include
costs recognized on early retirement of debt), income taxes, depreciation
expense, Amortization Expense 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 the Company to pay the
principal of (and premium, if any) or interest on any of the Exchange Notes on
behalf of the Company. Initially, the Paying Agent is the Senior Debt 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.
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"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 the Company which, as of the date of the Company's most recent
quarterly consolidated balance sheet, constituted at least 10% of the total
Consolidated Assets of the Company and its Consolidated Subsidiaries and any
other Subsidiary which from time to time is designated a Restricted Subsidiary
by the Board of Directors 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 the Company and its Restricted
Subsidiaries could not incur at least one dollar of additional Indebtedness
pursuant to the first paragraph under "--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 the Company 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 the Company which is acceptable to the Senior Debt Trustee.
"Subordinated Indebtedness" means any Indebtedness of the Company (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 the Company or by one or
more other Subsidiaries, or by the Company 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 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
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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 the Company, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).
EVENTS OF DEFAULT
The 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 the Company at the option of the Holders or otherwise;
(c) default for 60 days by the Company 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 the Company or Consumers; (e) entry of final judgments against the
Company 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 the Company 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 Senior Debt 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.
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.
The Senior Debt Indenture provides that the Senior Debt Trustee will be
under no obligation to exercise any of its rights or powers under the Senior
Debt Indenture at the request, order or direction of the Holders of the Exchange
Notes, unless such Holders shall have offered to the Senior Debt Trustee
reasonable indemnity. Subject to such provisions for indemnity and certain other
limitations contained in the Senior Debt Indenture, the Holders of a majority in
aggregate principal amount of the Senior Debt Securities of each affected series
then Outstanding (voting as one class) will have the right to direct the time,
method and place of conducting any proceeding for any remedy
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available to the Senior Debt Trustee, or exercising any trust or power conferred
on the Senior Debt Trustee, with respect to the Senior Debt Securities of such
affected series.
The Senior Debt Indenture provides that no Holder of Senior Debt
Securities, including the Exchange Notes, may institute any action against the
Company under the Senior Debt Indenture (except actions for payment of overdue
principal, premium or interest) unless such Holder previously shall have given
to the Senior Debt Trustee written notice of default and continuance thereof and
unless the Holders of not less than 25% in aggregate principal amount of Senior
Debt Securities of the affected series then Outstanding (voting as one class)
shall have requested the Senior Debt Trustee to institute such action and shall
have offered the Senior Debt Trustee reasonable indemnity, the Senior Debt
Trustee shall not have instituted such action within 60 days of such request and
the Senior Debt Trustee shall not have received direction inconsistent with such
request by the Holders of a majority in aggregate principal amount of the Senior
Debt Securities of the affected series then Outstanding (voting as one class).
The Senior Debt Indenture requires the Company to furnish to the Senior
Debt Trustee annually a statement as to the Company's compliance with all
conditions and covenants under the Senior Debt Indenture. The Senior Debt
Indenture provides that the Senior Debt Trustee may withhold notice to the
Holders of the 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.
MODIFICATION OF THE SENIOR DEBT INDENTURE
The Senior Debt Indenture permits CMS Energy and the Senior Debt Trustee to
enter into supplemental indentures thereto without the consent of the Holders of
the Senior Debt Securities to:
- Secure the Senior Debt Securities of one or more series;
- 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;
- Add covenants for the protection of the Holders of the Senior Debt
Securities;
- 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;
- Establish the form and terms of any series of securities under the
Senior Debt Indenture; and
- Evidence the acceptance of appointment by a successor Senior Debt
Trustee.
The Senior Debt Indenture also permits CMS Energy and the Senior Debt
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Senior Debt Securities of all series then
Outstanding and affected (voting as one class), to enter into supplemental
indentures to add any provisions to, or change in any matter or eliminate any of
the provisions of, the Senior Debt Indenture or modify in any manner the rights
of the Holders of the Senior Debt Securities of each such affected series;
provided, however, that CMS Energy and the Senior Debt Trustee may not, without
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the consent of the Holder of each Senior Debt Security then outstanding and
affected thereby, enter into any supplemental indenture to:
- 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 of payment of
interest thereon, or reduce the amount payable on any Original Issue
Discount Securities upon acceleration or provable in bankruptcy, or
impair the right to institute suit for the enforcement of any
payment on any Senior Debt Security when due; or
- Reduce the percentage in principal amount of the Senior Debt
Securities of the affected series, the consent of whose Holders is
required for any such modification or for any waiver provided for in
the Senior Debt Indenture.
Prior to the acceleration of the maturity of any Senior Debt Security, the
Holders (voting as one class) 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 may
on behalf of the Holders of all such affected Senior Debt Securities waive any
past default or Event of Default and its consequences, except a default or an
Event of Default in respect of a covenant or provision of the Senior Debt
Indenture or of any Senior Debt Security which cannot be modified or amended
without the consent of the Holder of each Senior Debt Security affected.
DEFEASANCE, 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
Senior Debt Securities of a particular series then Outstanding (except for
certain obligations to register the transfer of or exchange the Senior Debt
Securities of such series, to replace stolen, lost or mutilated Senior Debt
Securities of such series, to maintain paying agencies and to maintain the trust
described below); or (b) CMS Energy need not comply with certain restrictive
covenants of the Senior Debt Indenture (including those described under
'--Limitation on Consolidation, Merger, Sale or Conveyance"), in each case if
CMS Energy irrevocably deposits in trust with the Senior Debt Trustee money,
and/or securities backed by the full faith and credit of the United States
which, through the payment of the principal thereof and the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of and premium, if any, and interest on the Senior Debt
Securities of such series on the stated maturity of such Senior Debt Securities
(which may include one or more redemption dates designated by CMS Energy) in
accordance with the terms thereof. To exercise such option, CMS Energy is
required, among other things, to deliver to the Senior Debt Trustee an opinion
of independent counsel to the effect that the exercise of such option would not
cause the Holders of the Senior Debt Securities of such series to recognize
income, gain or loss for United States federal income tax purposes as a result
of such defeasance, and such Holders will be subject to United States federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred, and, in the case
of a discharge as described in clause (a) of the preceding sentence, such
opinion is to be accompanied by a private letter ruling to the same effect
received from the Internal Revenue Service, a revenue ruling to such effect
pertaining to a comparable form of transaction published by the Internal Revenue
Service or appropriate evidence that since the date of the Senior Debt Indenture
there has been a change in the applicable federal income tax law.
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In the event CMS Energy exercises its option to effect a covenant
defeasance with respect to the Senior Debt Securities of any series as described
in the preceding paragraph and the Senior Debt Securities of such series are
thereafter declared due and payable because of the occurrence of any Event of
Default other than an Event of Default caused by failing to comply with the
covenants which are defeased, and the amount of money and securities on deposit
with the Senior Debt Trustee would be insufficient to pay amounts due on the
Senior Debt Securities of such series at the time of 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 Senior Debt Trustee money, and/or securities backed by the full
faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any, and interest on the Senior Debt Securities on the stated maturities
thereof (including one or more redemption dates), provided that such Senior Debt
Securities are by their terms due and payable, or are to be called for
redemption, within one year.
For United States federal income tax purposes any deposit contemplated in
the preceding paragraph would be treated as an exchange of the Senior Debt
Securities outstanding for other property. Accordingly, Holders of Senior Debt
Securities outstanding may be required to recognize a gain or loss for United
States federal income tax purposes upon such exchange. In addition, such Holders
thereafter may be required to recognize income from such property which could be
different from the amount that would be includable in the absence of such
deposit. Prospective investors are urged to consult their own tax advisors as to
the specific consequences to them of such deposit.
GOVERNING LAW
The Senior Debt Indenture and Senior Debt Securities will be governed by,
and construed in accordance with, the laws of the State of Michigan unless the
laws of another jurisdiction shall mandatorily apply.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Exchange Notes which are exchanged for Notes which were sold to
qualified institutional buyers ("QIB'S") 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."
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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 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 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, Liquidated Damages, if any, 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
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as the registered holder under the Indenture. Consequently, neither CMS Energy,
the Trustee nor any agent of 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
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 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 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 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 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 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 Notes, DTC reserves the right to exchange Global Exchange Notes (without the
direction of one or more of its Direct Participants) for legended Notes in
certificated form, and to distribute such certificated forms of 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, the Initial
Purchasers 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.
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TRANSFERS OF INTERESTS IN GLOBAL EXCHANGE NOTES FOR CERTIFICATED EXCHANGE
NOTES
An entire Global Exchange 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 Exchange 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.
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 Exchange 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
Exchange 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 Exchange Note for a period of 15 days next
preceding the mailing of notice of redemption of such Exchange Note or (b)
exchange or register the transfer of any Certificated Exchange Note or portion
thereof selected, called or being called for redemption, except in the case of
any Certificated Exchange Note to be redeemed in part, the portion thereof not
so to be redeemed.
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If a Certificated Exchange 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.
SAME DAY SETTLEMENT AND PAYMENT
Payments in respect of the Exchange Notes represented by the Global
Exchange Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) will be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global
Exchange Note. Principal, premium, if any, and interest and Liquidated Damages,
if any, 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 and Liquidated Damages, if any,
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
January 1 or July 1 preceding the applicable payment date.
THE EXCHANGE OFFER
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Notes were sold by CMS Energy on February 3, 1999, pursuant to the
Purchase Agreement dated January 29, 1999 (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 "Where to Find More Information."
CMS Energy and the Initial Purchasers entered into the Registration Rights
Agreement pursuant to which CMS Energy agreed to file with the SEC 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
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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 SEC policy or (ii) any Holder of Transfer Restricted
Securities notifies CMS Energy that (A) it is prohibited by law or SEC 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 SEC 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 SEC. 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 SEC on or prior to 90 days after
the Closing, (ii) CMS Energy will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the SEC on or prior to 120
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or SEC 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 SEC, 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 SEC 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 SEC on or prior to 120 days after the date on which CMS Energy becomes
obligated to file such Shelf Registration Statement. 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 SEC 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
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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 June 15, 1999, 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.
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INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest at the rate of 6.75% 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 February 3, 1999, the date of issuance of the
Notes for which the Exchange Offer is being made. Interest on the Exchange Notes
is payable semiannually on January 15 and July 15, commencing July 15, 1999.
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.
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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 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
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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
signature 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.
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.
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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 SEC, 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 SEC, 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
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.
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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 SEC 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 SEC
enunciated in Exxon Capital Holdings Corporation (available May 13,1998, as
interpreted in the SEC's letter to Shearman & Sterling dated July 2, 1993),
Morgan Stanley & Co., Incorporated (available June 5, 1991), Warnaco,
Inc.(available June 5, 1991), and Epic Properties, Inc.(available October 21,
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 Exchange 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 the Exchange
Offer (1) could not under SEC policy as in effect on the date of the
Registration Rights Agreement rely on the position of the SEC enunciated in the
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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 (i) under "Nominees for
Election as Members of the Board of Directors" on pages 1 through 4 of CMS
Energy's definitive Proxy Statement, dated April 15, 1999, relating to it 1999
Annual Meeting of Shareholders (the "1999 Proxy Statement"); (ii) under "Section
16(a) Beneficial Ownership Reporting Compliance" on page 5 of the 1999 Proxy
Statement; and (iii) under "CMS Energy and Consumers Executive Officers" on
pages 21 through 23 of CMS Energy and Consumers Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, all of which information is
incorporated by reference.
EXECUTIVE COMPENSATION
The information required by this item appears under (i) "Executive
Compensation" on pages 9 through 11 of the 1999 Proxy Statement; (ii)
"Organization and Compensation Committee Report" on pages 12 through 13 of the
1999 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
14 of the 1999 Proxy Statement all of which information is incorporated by
reference.
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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 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.
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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.
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.
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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.
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.
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<PAGE> 57
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant 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
connections 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 transaction,
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. As of
December 31, 1998, Mr. Van Hemert beneficially owned approximately 4,025 shares
of CMS Energy Commons Stock.
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<PAGE> 58
EXPERTS
The consolidated financial statements and schedules of CMS Energy as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
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.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements............ i
Where to Find More Information........ i
Prospectus Summary.................... 1
Selected Historical and Pro Forma
Financial Data...................... 10
Risk Factors.......................... 12
Ratio of Earnings to Fixed Charges.... 16
Use of Proceeds....................... 16
Capitalization........................ 17
The Company........................... 18
Description of the Exchange Notes..... 21
The Exchange Offer.................... 42
Directors and Executive Officers...... 50
Executive Compensation................ 50
Certain United States Federal Income
Tax Consequences.................... 51
Plan of Distribution.................. 54
Legal Matters......................... 54
Experts............................... 55
</TABLE>
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OFFER TO EXCHANGE
6.75% SENIOR NOTES
DUE 2004,
SERIES B
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED
FOR ANY AND ALL OF THE OUTSTANDING
6.75% SENIOR NOTES
DUE 2004,
SERIES A
[LOGO]
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