<PAGE> 1
Filed pursuant to Rule 424B5
Registration Statement No. 333-75805
PROSPECTUS SUPPLEMENT
(To Prospectus dated April 20, 1999)
$400,000,000
CMS ENERGY LOGO
$250,000,000 SENIOR NOTES, 8% RESET PUT SECURITIES, DUE 2011
$150,000,000 SENIOR NOTES, 8 3/8% RESET PUT SECURITIES, DUE 2013
------------------------
Interest payable on January 1 and July 1
------------------------
THE 2011 NOTES AND THE 2013 NOTES WILL BE REQUIRED TO BE PUT BY THE EXISTING
HOLDERS ON JULY 1, 2001 AND JULY 1, 2003, RESPECTIVELY. IN ADDITION, IF WE
EXPERIENCE CERTAIN TYPES OF CHANGE IN CONTROL, HOLDERS OF THE NOTES CAN REQUIRE
US TO REPURCHASE SOME OR ALL OF THE NOTES.
------------------------
INVESTING IN THE NOTES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE S-10.
------------------------
2011 NOTES -- PRICE 100% AND ACCRUED INTEREST, IF ANY
2013 NOTES -- PRICE 99.64% AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
-------- ------------- -----------
<S> <C> <C> <C>
Per 2011 Note............................. 100.000% 1.125% 100.995%
Per 2013 Note............................. 99.640% 1.375% 100.885%
Total..................................... $399,460,000 $4,875,000 $403,815,000
</TABLE>
- ---------------
(1) Includes consideration for the Notes and compensation for the Call Options.
------------------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus are truthful or complete. Any
representation to the contrary is a criminal offense.
The Underwriters expect to deliver the Notes to purchasers on June 22, 1999.
------------------------
Joint Book-Running Managers:
BANC OF AMERICA SECURITIES LLC MORGAN STANLEY DEAN WITTER
------------------------
CHASE SECURITIES INC. DONALDSON, LUFKIN & JENRETTE
June 17, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Forward-Looking Statements.................................. S-2
Prospectus Supplement Summary............................... S-3
Risk Factors................................................ S-10
Capitalization.............................................. S-14
The Company................................................. S-15
Ratio of Earnings to Fixed Charges.......................... S-17
Use of Proceeds............................................. S-17
Description of the Notes.................................... S-18
Underwriting................................................ S-36
Legal Opinions.............................................. S-37
Experts..................................................... S-37
Unaudited Pro Forma Financial Information................... F-1
BASE PROSPECTUS
Where to Find More Information.............................. 2
CMS Energy Corporation...................................... 3
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 4
Description of Debt Securities.............................. 5
Legal Opinions.............................................. 10
Experts..................................................... 10
Plan of Distribution........................................ 10
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus supplement or the
base prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized. This prospectus supplement and the
base prospectus do not constitute an offer to sell or the solicitation of an
offer to buy any securities other than the securities described in this
prospectus supplement or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this prospectus supplement or the base
prospectus nor any sale made hereunder or thereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein or therein is correct as of any time subsequent to its date.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying base prospectus contain or
incorporate 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 or our
subsidiaries.
Where any such forward-looking statements include a statement of the
assumptions or bases underlying such forward-looking statement, we believe that
the assumed results are reasonable, however, there is no assurance that they
will approximate actual results. Where, in any forward-looking statement, we, or
our subsidiaries, or our management, 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. However, 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.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus supplement and the accompanying base
prospectus, including the financial data and related notes, before making an
investment decision. The terms "CMS", "CMS ENERGY", "COMPANY", "OUR" and "WE" as
used in this prospectus supplement and the accompanying base prospectus refer to
CMS Energy Corporation and its subsidiaries.
CMS ENERGY CORPORATION
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:
- Natural gas transmission, storage and processing;
- 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
operating revenue was generated from our electric utility operations, 21% from
our gas utility operations, 18% from our energy marketing, services and trading
operations, 6% from our independent power production and other non-utility
activities, 3% from natural gas transmission, storage and processing and 1% from
our oil and gas exploration and production activities. Our acquisition of the
Panhandle Companies described below will significantly increase our percentage
of operating revenues from natural gas transmission, storage and processing.
Consumers' consolidated operations account for a majority of our total
assets, revenues and income. Consumers' service areas include automotive, metal,
chemical, food and wood products and a diversified group of other industries. At
December 31, 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, construct 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
supplement. Our telephone number is (313) 436-9200.
BUSINESS STRATEGY
We seek to be 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. Our
acquisition of the Panhandle Companies significantly enhanced our domestic
natural gas assets. Through our Enterprises subsidiary, we intend to become a
S-3
<PAGE> 4
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:
- 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;
- invest in energy-related projects which complement and expand our
non-regulated and diversified energy business, as well as in selected
projects in regulated businesses which management believes are capable of
generating favorable risk-adjusted returns; and
- 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 government 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 are
implementing our business strategy to capitalize on the ownership of the
Panhandle Companies by: (i) participating in the construction, ownership and
operation of a 710 megawatt natural gas-fired cogeneration facility in Dearborn,
Michigan which will require approximately 130 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 distribution, 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. It also includes expanding into new markets through 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 as
well as the pending development of the Guardian Pipeline running from the
Chicago hub to southeast Wisconsin.
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 approximately $300 million of existing
Panhandle debt.
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.
S-4
<PAGE> 5
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 services 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.
Please refer to our Forms 8-K dated January 20, and April 6, 1999 for
further information concerning this transaction.
CONSUMERS' REGULATORY MATTER
On May 27, 1999, the Michigan Public Service Commission ("MPSC") issued an
order in a matter arising from the Michigan-based Association of Business
Advocating Tariff Equity's ("ABATE") November 1997 complaint alleging that
Consumers' earnings are in excess of its authorized rate of return and seeking
an immediate reduction in Consumers' electric rates. The MPSC staff conducted an
investigation and concluded in an April 1998 report that no formal rate
proceeding was warranted at that time. The May 1999 order reversed an April 1999
decision of an administrative law judge which had restricted the scope of this
matter to a determination whether there should be a subsequent proceeding to
examine Consumers' electric rates. However, the order confirmed that ABATE and
intervenors bear the burden of persuading the MPSC in this matter that a rate
reduction is warranted. In the absence of meeting the burden that a reduction is
warranted, Consumers' rates will remain unchanged. This matter has now been
scheduled for further proceedings which should lead to more definitive MPSC
resolution in the first quarter of 2000.
ISSUANCE OF TRUST PREFERRED SECURITIES
On June 11, 1999 an affiliated trust of ours privately placed $250 million
of Redeemable Hybrid Income Overnight Shares (the "RHINOS") through Banc of
America Securities LLC ("BAS"). The entire issue of trust preferred securities,
which pays quarterly distributions at a floating rate, was purchased by a trust
organized by BAS. We have guaranteed the obligations of our affiliated trust,
including payments of distributions. The $250 million proceeds to the trust were
used to purchase our subordinated notes, which pay quarterly interest payments
at the same floating rate. We will use the proceeds of the sale of the RHINOS to
pay off a portion of the bridge loan used to finance the acquisition of the
Panhandle
S-5
<PAGE> 6
Companies. In addition, we also agreed with BAS to sell $250 million of CMS
Energy Common Stock within the next two years.
RISK FACTORS
You should carefully consider all the information set forth in this
prospectus supplement and the accompanying base prospectus. In particular, you
should evaluate the specific risk factors set forth under "Risk Factors"
beginning on page S-10 to ensure that you understand the risk associated with an
investment in the Notes. Please be aware when reading the accompanying base
prospectus that information contained in the base prospectus may have been
updated or superceded by information in this prospectus supplement or reports
that we have filed with the SEC.
S-6
<PAGE> 7
THE OFFERING
Issuer..................... CMS Energy Corporation.
Securities Offered......... $250 million principal amount of Senior Notes, 8%
Reset Put Securities, Due 2011 and $150 million
principal amount of Senior Notes, 8 3/8% Reset Put
Securities, Due 2013 (individually the "2011 NOTES"
and the "2013 NOTES" and collectively the "NOTES").
Maturity................... For the 2011 Notes: July 1, 2011, subject to the
Call Option and Mandatory Put.
For the 2013 Notes: July 1, 2013, subject to the
Call Option and Mandatory Put.
Interest Rate.............. For the 2011 Notes: 8% per annum until July 1,
2001.
For the 2013 Notes: 8 3/8% per annum until July 1,
2003.
If the Callholder calls the Notes, the interest
rate on the Notes will be reset by a calculation
agent effective the day they were called by the
Callholder.
Call Option................ NationsBank, N.A. (the "CALLHOLDER") has the right
to purchase the 2011 Notes and the 2013 Notes on
July 1, 2001 and July 1, 2003, respectively, for
100% of the then outstanding principal amount (the
"CALL OPTION").
Mandatory Put.............. If the Callholder does not purchase the 2011 Notes
on July 1, 2001 or the 2013 Notes on July 1, 2003,
Bank One Trust Company, NA, as trustee, must on
behalf of the holders exercise the right to require
us to purchase all of the Notes for 100% of the
then outstanding principal amount (the "MANDATORY
PUT").
Change in Control.......... If a change in control were to occur, each holder
of Notes would be able to require us to repurchase
such Notes, in whole or in part, at a price equal
to 101% of the principal amount of those Notes,
plus any accrued and unpaid interest.
Ranking.................... The Notes will be unsecured debt securities of the
Company. As of March 31, 1999, we had outstanding
approximately $4.208 billion aggregate principal
amount of indebtedness, none of which was secured.
None of such indebtedness would be senior to the
Notes and the Notes will not be senior to such
indebtedness. The Notes will be senior to certain
subordinated debentures in aggregate principal
amount of $436 million issued in connection with
certain preferred securities of certain subsidiary
trusts. The Notes will rank equally in right of
payment with all other unsecured and unsubordinated
indebtedness of the Company.
Certain Covenants.......... The Indenture governing the 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.
Use of Proceeds............ We intend to use the estimated net proceeds of
approximately $403 million to repay a bridge loan
used to finance the acquisition of the Panhandle
Companies. Any proceeds remaining will be used for
general corporate purposes.
S-7
<PAGE> 8
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected historical and pro forma financial information has
been derived from our historical consolidated financial statements. We have
prepared pro forma financial information to reflect our acquisition of the
common stock of Panhandle Eastern Pipe Line Company, Panhandle Storage Company
and Trunkline LNG Company (the "ACQUISITION"). Please refer to our Form 8-K
dated April 6, 1999 which is incorporated by reference . The financial
information set forth below should be read in conjunction with our consolidated
financial statements, related notes and other financial information incorporated
by reference in the accompanying base prospectus. See "Where to Find More
Information" in the base prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------ ------------------------------
PRO FORMA PRO FORMA
1996 1997 1998 1998(1) 1998 1999 1999
------ ------ ------ --------- ------- ------- ----------
(UNAUDITED)
(IN MILLIONS, EXCEPT (IN MILLIONS, EXCEPT
PER SHARE AMOUNTS) PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue................. $4,324 $4,781 $5,141 $5,566 $1,374 $1,538 $1,650
Operating expenses................ 3,648 4,065 4,366 4,625 1,177 1,293 1,345
Pretax operating income........... 676 716 775 941 197 245 305
Income taxes...................... 137 108 100 128 19 37 50
Consolidated net income before
cumulative effect of change in
accounting principle........... 224 244 242 277 45 98 119
Cumulative effect of change in
accounting for property taxes,
net of tax(1).................. -- -- 43 43 43 -- --
Consolidated net income........... 224 244 285 320 88 98 119
Net income attributable to common
stocks(2)
CMS Energy..................... 210 229 272 307 79 88 109
Class G........................ 14 15 13 13 9 10 10
Average common shares outstanding
CMS Energy..................... 92 96 102 116 101 108 121
Class G........................ 8 8 8 8 8 8 8
Earnings per average common
share(2)
CMS Energy
Basic........................ $ 2.27 $ 2.39 $ 2.65 $ 2.66 $ .79 $ .82 $ .90
Diluted...................... 2.26 2.37 2.62 2.63 .77 .80 .88
Class G Basic and Diluted...... 1.82 1.84 1.56 1.56 1.09 1.19 1.19
Dividends declared per common
share
CMS Energy..................... $ 1.02 $ 1.14 $ 1.26 $ 1.26 .30 .33 .33
Class G........................ 1.15 1.21 1.27 1.27 .31 .325 .325
</TABLE>
S-8
<PAGE> 9
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------- ----------------
PRO FORMA
1996 1997 1998 1998(1) 1998 1999
------ ------ ------- --------- ------ -------
(IN MILLIONS) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 58 $ 69 $ 101 $ 101 $ 72 $ 104
Net plant and property.................... 5,029 5,144 6,040 7,616 5,114 7,089
Total Assets......................... 8,363 9,508 11,310 13,784 9,505 13,767
Long-term debt, excluding current
maturities............................. 2,842 3,272 4,726 6,344 3,755 7,258
Non-current portion of capital leases..... 103 75 105 105 74 99
Notes payable............................. 333 382 328 328 245 139
Other liabilities......................... 3,093 3,361 3,304 3,560 2,933 3,342
Company-obligated mandatorily redeemable
trust preferred securities of Consumers
Power Company Financing I(3)........... 100 100 100 100 100 100
Company-obligated mandatorily redeemable
trust preferred securities of Consumers
Energy Company Financing II(3)......... -- 120 120 120 120 120
Preferred Stock of subsidiary............. 356 238 238 238 238 244
Company-obligated convertible trust
preferred securities of CMS Energy
Trust I(4)............................. -- 173 173 173 173 173
Common stockholders' equity............... $1,536 $1,787 $ 2,216 $ 2,816 $1,867 $ 2,292
</TABLE>
- ---------------
(1) The 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; (ii) the
adjustments resulting from the Acquisition; and (iii) certain Panhandle and
CMS Energy financing transactions which have been or will be completed,
including the issuance of $800 million of senior notes by Panhandle, $780
million of senior debt by CMS Energy and 13 million shares of common stock
(representing an estimated per share offering price of $45) by CMS Energy
aggregating approximately $600 million.
(2) During the first quarter of 1998, our subsidiary, Consumers implemented a
change in the method of accounting for property taxes which had the
cumulative effect of increasing other income by $66 million, including $18
million attributable to the portion of our business relating to Class G
Common Stock. Earnings, net of tax, increased by $43 million or $0.40 per
share for CMS Energy Common Stock and $12 million or $0.36 per share for
Class G Common Stock.
(3) 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.
(4) The primary asset of CMS Energy Trust I is $178 million principal amount of
7.75% convertible subordinated debentures due 2027 from us.
S-9
<PAGE> 10
RISK FACTORS
In addition to the information in the accompanying base prospectus and this
prospectus supplement, you should carefully consider the risks described below
before making an investment in the 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 March 31, 1999, we had outstanding $4.208 billion of
unsecured senior debt. On a consolidated basis, we and our subsidiaries had
outstanding $8.504 billion of long-term indebtedness and mandatorily redeemable
trust preferred securities. On a consolidated basis our debt was 74% of total
capitalization as of March 31, 1999. 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 March 31,
1999, Consumers would be able to pay an aggregate of $55 million in dividends to
us. In the four years ending 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 Notes.
Our high debt leverage 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 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
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 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 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 Consumers'
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
S-10
<PAGE> 11
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 of the Panhandle Companies, 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 of the Panhandle Companies.
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 MPSC issued several orders in 1997, 1998 and 1999 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
marketers and other utilities. This direct access program is expected to
commence in September this year 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 electric
industry restructuring legislation may 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
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.
S-11
<PAGE> 12
INTERNATIONAL PROJECT RISKS AND EXCHANGE RATE FLUCTUATIONS
Our international investments in 22 countries 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.
RISK OF YEAR 2000 NONCOMPLIANCE
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the failure
of computer applications or create erroneous results by or at the year 2000.
This issue is referred to as the "YEAR 2000 ISSUE." The Year 2000 Issue is a
broad business issue, whose impact extends beyond traditional computer hardware
and software to possible failure of automated plant systems and instrumentation
as well as to business third parties. Also, there can be no guarantee that third
parties of business importance to the Company will successfully reprogram or
replace, and test, all of their own computer hardware, software and process
control systems to ensure such systems are Year 2000 compliant. Failure by the
Company, third parties of business importance to the Company and/or other
constituents such as governments to become Year 2000 compliant on a timely basis
could have a material adverse effect on the Company's financial position and
results of operations.
POSSIBLE INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
In the event of a change of control of our Company, each holder of Notes
may require us to purchase all or a portion of its Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest. Our
ability to purchase the 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 Notes that we will be able to finance these purchase obligations or
obtain consents to do so from holders of Notes under other debt agreements
restricting these purchases.
RESULTS COULD DIFFER MATERIALLY FROM CERTAIN FORWARD-LOOKING STATEMENTS
From time to time, we may make statements regarding our assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "FORWARD-LOOKING STATEMENTS" under the Private
Securities Litigation Reform Act of 1995. We caution that these statements may
and often do vary from actual results and the differences between these
statements and actual results can be material. Accordingly, we cannot assure you
that actual results will not differ materially from those expressed or implied
by the forward-looking statements. Some of the factors that could cause actual
S-12
<PAGE> 13
achievements and events to differ materially from those expressed or implied in
any forward-looking statements are:
- the ability to achieve operating synergies and revenue enhancements;
- international, national, regional and local economic, competitive and
regulatory conditions and developments;
- capital and financial market conditions, including currency exchange
controls, interest rates and availability of non recourse financing;
- weather conditions;
- adverse regulatory or legal decisions, including environmental laws and
regulations;
- the pace of deregulation of the natural gas and electric industries;
- energy markets, including the timing and extent of changes in commodity
prices for oil, coal, natural gas, natural gas liquids, electricity and
certain related products;
- the timing and success of business development efforts;
- potential disruption, expropriation or interruption of facilities or
operations due to accidents or political events;
- nuclear power and other technological developments; and
- other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
S-13
<PAGE> 14
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at March 31, 1999, and as adjusted to reflect the sale of the 2011
Notes and the 2013 Notes offered hereby, the sale of the RHINOS and the
application of the net proceeds from such sales 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"
in the accompanying base prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
Non-current portion of capital leases..................... $ 99 $ 99
------- -------
Long-term debt:
Other long-term debt (excluding current
maturities)(1)....................................... 7,258 6,658
Senior Notes, 8% Reset Put Securities, Due 2011......... -- 250
Senior Notes, 8 3/8% Reset Put Securities, Due 2013..... -- 150
------- -------
Total long-term debt............................ 7,258 7,058
------- -------
Total stockholders' equity:
Company-obligated mandatorily redeemable preferred
securities of:
Consumers Power Company Financing I(2)............. 100 100
Consumers Energy Company Financing II(3)........... 120 120
CMS RHINOS Trust(4)................................ -- 250
Company-obligated convertible preferred securities of CMS
Energy Trust I(5)....................................... 173 173
Preferred stock of subsidiary(6).......................... 244 --
Common stockholders' equity............................... 2,292 2,292
------- -------
Total stockholders' equity...................... 2,929 2,935
------- -------
Total capitalization.......................... $10,286 $10,092
======= =======
</TABLE>
- ---------------
(1) Adjusted to reflect the payment from the proceeds of this offering and the
RHINOS of the $600 million CMS Energy bridge loan used to finance the
acquisition of the Panhandle Companies.
(2) 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.
(3) 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.
(4) The primary asset of CMS RHINOS Trust is approximately $258 million
principal amount of floating rate, subordinated interest notes due 2001 from
CMS Energy.
(5) 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.
(6) Adjusted to reflect the redemption of $200 million of Consumers' preferred
stock on April 1, 1999.
S-14
<PAGE> 15
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:
- Natural gas transmission, storage and processing;
- 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 natural gas transmission, storage and processing operations,
and 1% from oil and gas exploration and production operations. Our acquisition
of the Panhandle Companies described below will significantly increase our
percentage of operating revenues from natural gas transmission, storage and
processing.
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 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.
S-15
<PAGE> 16
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 carbon dioxide removal plants, we process over 330
MMcf/d, representing more natural gas processed than by any other processor in
the state.
We have expanded the importance of this line of business with the recent
acquisitions 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 C Recent Developments C 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
net MW) throughout the United 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
S-16
<PAGE> 17
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
on Margarita Island in Venezuela. These electric distribution companies served 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.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the years ended December
31, 1994 through 1998 and for the three months ended March 31, 1999 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------ THREE MONTHS ENDED
1994 1995 1996 1997 1998 MARCH 31, 1999
---- ---- ---- ---- ---- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges... 2.07 1.90 1.96 1.78 1.59 1.97
</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
The net proceeds from the sale of the Notes are estimated to be
approximately $403 million after: 1) deduction of underwriting discounts and
commissions and estimated offering expenses; and 2) receipt of the consideration
paid for the Call Options. We will apply the net proceeds from the sale of the
Notes to repay a bridge loan with Barclays Bank PLC, as administrative agent,
and other lenders thereunder which is scheduled to mature September 24, 1999
with any remaining proceeds to be used for general corporate purposes. The
bridge loan has a weighted average interest rate of 5.94%. The proceeds from the
bridge loan were used to purchase the Panhandle Companies.
S-17
<PAGE> 18
DESCRIPTION OF THE NOTES
GENERAL
The following information concerning the Notes supplements, and should be
read in conjunction with, the statements under "Descriptions of Debt Securities"
in the accompanying base prospectus. Capitalized terms not defined herein are
used as defined in the Senior Debt Indenture or the Supplemental Indenture.
The 2011 Notes and the 2013 Notes will be issued as one series of unsecured
senior debt securities (the "SENIOR DEBT SECURITIES") under an indenture dated
as of September 15, 1992, as amended and supplemented (the "SENIOR DEBT
INDENTURE") between CMS Energy and NBD Bank, as Trustee, (the "TRUSTEE") as
supplemented by the Ninth Supplemental Indenture thereto dated as of June 22,
1999 (the "SUPPLEMENTAL INDENTURE").
The Notes will be unsecured debt securities of the Company.
As of March 31, 1999 the Company had outstanding approximately $4.208
billion aggregate principal amount of indebtedness, none of which was secured.
None of such indebtedness would be senior to the Notes and the Notes will not be
senior to such indebtedness, except that the Notes will be senior to certain
subordinated debentures in aggregate principal amount of $436 million, issued in
connection with certain preferred securities of certain subsidiary trusts. The
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 Notes will be obligations exclusively of
CMS Energy. CMS Energy's ability to service its indebtedness, including the
Notes, is dependent primarily upon the earnings and cash flows 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 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 Holders of 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 Notes will be issued in the form of one or more global notes (each, a
"GLOBAL NOTE"), in registered form, without coupons, in denominations of $1,000
or an integral multiple thereof as described under "Book-Entry System." The
Global Notes will be registered in the name of a nominee of the Depository Trust
Company ("DTC"). Except as set forth herein under "Certificated Notes," owners
of beneficial interests in a Global Note will not be entitled to have Notes
registered in their names, will not receive or be entitled to receive physical
delivery of any such Note and will not be considered the registered holder
thereof under the Senior Debt Indenture.
PRINCIPAL, MATURITY AND INTEREST
The 2011 Notes are limited in aggregate principal amount to $250 million
and the 2013 Notes are limited in aggregate principal amount to $150 million.
The 2011 Notes and the 2013 Notes will bear interest at 8% and 8 3/8%,
respectively per annum from and including June 22, 1999 to but excluding July 1,
2001 for the 2011 Notes and July 1, 2003 for the 2013 Notes (each a "COUPON
RESET DATE"). Interest on the Notes will be payable semi-annually on January 1
and July 1, beginning January 1, 2000. Subject to certain exceptions, the
Indenture provides for the payment of interest on the interest payment date only
to
S-18
<PAGE> 19
persons in whose names the Notes are registered on the Regular Record Date,
which will be the December 15 or June 15 (whether or not a "BUSINESS DAY", as
defined in the Notes), as the case may be, immediately preceding the applicable
Interest Payment Date. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
If NationsBank, N.A. (the "CALLHOLDER") elects to purchase the Notes
pursuant to the Call Option (as defined below), the Calculation Agent (as
defined below) will reset the interest rate effective on the Coupon Reset Date,
pursuant to the Coupon Reset Process described below. In such circumstance, (i)
the Notes will be purchased from the holders by the Callholder, in whole but not
in part, at 100% of the principal amount thereof on the Coupon Reset Date, on
the terms and subject to the conditions described herein (interest accrued to
but excluding the Coupon Reset Date will be paid by CMS Energy on such date to
holders on the immediately preceding Record Date), and (ii) on and after the
Coupon Reset Date, the Notes will bear interest at the rate determined by the
Calculation Agent in accordance with the procedures set forth under "Coupon
Reset Process if Notes are Called" below.
FINAL MATURITY DATES
The 2011 Notes and the 2013 Notes will mature on July 1, 2011 and July 1,
2013, respectively (each a "FINAL MATURITY DATE"). On July 1, 2001, for the 2011
Notes, and July 1, 2003, for the 2013 Notes, however, holders of the 2011 Notes
and the 2013 Notes, respectively, will be required to sell their Notes at a
price equal to 100% of the principal amount thereof (i) to the Callholder if it
purchases the Notes pursuant to the Call Option or (ii) in the event the
Callholder does not exercise the Call Option or fails for any reason to pay the
Call Price (as defined below) to the Trustee when required, to CMS Energy
following the exercise by the Trustee for and on behalf of the holders of the
2011 Notes or the 2013 Notes of the Mandatory Put. The Trustee is required to
exercise the Mandatory Put without the consent of, or notice to, the holders of
the Notes. See "Call Option; Mandatory Put."
CALL OPTION; MANDATORY PUT
Call Option
The "CALLHOLDER" with respect to the Notes will be NationsBank, N.A.
Pursuant to the terms of the Notes, the Callholder has the right to purchase the
Notes, in whole but not in part, on the applicable Coupon Reset Date (the "CALL
OPTION"), at a price equal to 100% of the principal amount thereof (the "CALL
PRICE"), by giving notice to the Trustee (the "CALL NOTICE"). If the Callholder
exercises the Call Option, the Trustee will send a copy of the Call Notice to
the holders as required by the terms of the Notes. The Callholder will be
required to give the Call Notice to the Trustee, in writing, prior to 4:00 p.m.,
New York City time, no later than fifteen calendar days prior to the applicable
Coupon Reset Date. The Call Notice may be revoked by the Callholder at any time
prior to 2:00 p.m. New York City time, on the Business Day prior to the
applicable Coupon Reset Date. If the Callholder exercises the Call Option, (a)
not later than 2:00 p.m., New York City time, on the Business Day prior to the
Coupon Reset Date, the Callholder shall pay the amount of the Call Price in
immediately available funds to the Trustee for payment of the Call Price to the
holders of the Notes on the Coupon Reset Date and (b) the holders of the Notes
will be required to deliver the Notes against payment therefor on the Coupon
Reset Date through the facilities of DTC. The Callholder is not required to
exercise the Call Option, and no holder of the Notes or any interest therein
shall have any right or claim against the Callholder as a result of the
Callholder not purchasing the Notes.
The Call Option provides for certain circumstances under which such Call
Option may be terminated. If the Call Option terminates or if the Callholder
fails to pay the Call Price to the Trustee at or prior to the required time, the
Trustee shall exercise the Mandatory Put described below. The Trustee shall
notify the holders that it is exercising the Put Option as required by the
Notes.
S-19
<PAGE> 20
Mandatory Put
If the Callholder fails for any reason to purchase the Notes on the
applicable Coupon Reset Date, the Trustee will be obligated to exercise on
behalf of the holders of the Notes the right to require CMS Energy to purchase
the 2011 Notes or the 2013 Notes, in whole but not in part (the "MANDATORY
PUT"), on the applicable Coupon Reset Date at a price equal to 100% of the
principal amount thereof (the "PUT PRICE"). By its purchase of a Note, each
holder irrevocably agrees that the Trustee shall exercise the Mandatory Put for,
or on behalf of, the holder of the Notes as provided herein. If the Trustee
exercises the Mandatory Put, then CMS Energy shall deliver the Put Price in
immediately available funds to the Trustee by no later than 12:00 noon, New York
City time, on the applicable Coupon Reset Date and the holders of the 2011 Notes
and the 2013 Notes will be required to deliver such Notes to CMS Energy against
payment therefor on the applicable Coupon Reset Date through the facilities of
DTC. No holder of the Notes or any interest therein has the right to consent or
object to the exercise of the Trustee's duties under the Mandatory Put.
Notice to Holders
In anticipation of the exercise of the Call Option or Mandatory Put on the
applicable Coupon Reset Date, notice of delivery of the 2011 Notes or the 2013
Notes on the applicable Coupon Reset Date against payment of the Call Price or
Put Price (the "DELIVERY NOTICE") shall be given by mail not less than 30 nor
more than 60 days prior to the applicable Coupon Reset Date (which, as long as
the applicable Notes are held in the book-entry only system, will be DTC (or its
nominee) or a successor depositary (the "DEPOSITARY")); provided, however, that
the failure to duly give such Delivery Notice by mail, or any defect therein,
shall not affect the validity of any proceedings for the delivery of any Notes.
The Trustee will notify the holders of Notes once it is determined whether the
Call Price or the Put Price will be delivered on the applicable Coupon Reset
Date. Interest on the Notes accrues to, but excludes, the applicable Coupon
Reset Date.
The Notes have no sinking fund or other redemption provisions.
COUPON RESET PROCESS IF NOTES ARE CALLED
Pursuant to the terms of a Calculation Agency Agreement, Banc of America
Securities LLC has been appointed the calculation agent for the 2011 Notes and
the 2013 Notes (in its capacity as calculation agent, the "CALCULATION AGENT").
If the Callholder exercises the Call Option for either the 2011 Notes or the
2013 Notes, as set forth above, then the following steps (the "COUPON RESET
PROCESS") will be taken in order to determine the interest rate to be paid on
the applicable Notes, from and including the applicable Coupon Reset Date, to
but excluding the applicable Final Maturity Date (the "COUPON RESET RATE"). CMS
Energy and the Calculation Agent will use reasonable efforts to cause the
actions contemplated below to be completed in as timely a manner as possible.
(a) CMS Energy will provide the Calculation Agent with (i) a list (the
"Dealer List"), no later than five Business Days prior to the applicable
Coupon Reset Date, containing the names and addresses of three dealers, one
of which shall be Banc of America Securities LLC from which CMS Energy
desires the Calculation Agent to obtain Bids (as defined below) for the
purchase of the Notes and (ii) a copy of any other material reasonably
requested by the Calculation Agent to facilitate a successful Coupon Reset
Process.
(b) Within one Business Day following receipt by the Calculation Agent
of the Dealer List, the Calculation Agent will provide to each dealer
("DEALER") on the Dealer List (i) a copy of this Prospectus, (ii) a copy of
the applicable form of Note and (iii) a written request that each Dealer
submit a Bid to the Calculation Agent by 12:00 noon, New York City time, on
the third Business Day prior to the applicable Coupon Reset Date (the "BID
DATE"). "BID" means an irrevocable written offer given by a Dealer for the
purchase of all of the Notes settling on the applicable Coupon Reset Date,
and shall be quoted by such Dealer as a stated yield to maturity on the
Notes ("YIELD TO
S-20
<PAGE> 21
MATURITY"). Each Dealer shall also be provided with (A) CMS Energy' name,
(B) the Purchase Price (which shall be stated as a U.S. dollar amount and
be calculated by the Calculation Agent in accordance with clause (c)
below), (C) the principal amount and Final Maturity Date of the Notes and
(D) the method by which interest will be calculated on the Notes.
(c) The purchase price to be paid by any Dealer for the applicable
Notes (the "PURCHASE PRICE") shall be equal to (i) the total principal
amount of the Notes, plus (ii) a premium (the "NOTES PREMIUM") which shall
be equal to the excess, if any, on the applicable Coupon Reset Date of (A)
the discounted present value to the applicable Coupon Reset Date of a bond
with a maturity of July 1, 2011 for the 2011 Notes and July 1, 2013 for the
2013 Notes, which has an interest rate of 5.78% for the 2011 Notes and
5.78% for the 2013 Notes, semi-annual interest payments on each January 1
and July 1, commencing January 1, 2002 for the 2011 Notes and January 1,
2004 for the 2013 Notes and a principal amount of $250 million for the 2011
Notes and $150 million for the 2013 Notes, and assuming a discount rate
equal to the Treasury Rate over (B) $250 million for the 2011 Notes and
$150 million for the 2013 Notes. "TREASURY RATE" for the Notes means the
per annum rate equal to the offer side yield to maturity of the current
on-the-run ten-year United States Treasury security per Telerate page 500
(or any successor page or substitute page as may replace such page on such
service), at 11:00 a.m., New York City time, on the 90th calendar day prior
to the applicable Coupon Reset Date (or such other time or date that may be
agreed upon by CMS Energy and the Calculation Agent) or, if such rate does
not appear on Telerate page 500 (or any successor page or substitute page
as may replace such page on such service) at such time, the rate on GovPX
End-of-Day Pricing at 3:00 p.m., New York City time, on such date (or such
other time or date that may be agreed upon by CMS Energy and the
Calculation Agent).
(d) The Calculation Agent will provide written notice to CMS Energy by
12:30 p.m., New York City time, on the Bid Date, setting forth (i) the
names of each of the Dealers from whom the Calculation Agent received Bids
on the Bid Date, (ii) the Bid submitted by each such Dealer and (iii) the
Purchase Price as determined pursuant to paragraph (c) above. Unless the
Call Option has terminated, the Calculation Agent will thereafter select
from the Bids received the Bid with the lowest Yield to Maturity (the
"SELECTED BID") and set the Coupon Reset Rate equal to the interest rate
which would amortize the Notes Premium fully over the term of the Notes at
the Yield to Maturity indicated by the Selected Bid; provided, however,
that if the Calculation Agent has not received a timely Bid from a Dealer
on the Bid Date, the Selected Bid shall be the lowest of all Bids received
by such time, and provided further, that if any two or more of the lowest
Bids submitted are equivalent, CMS Energy shall in its sole discretion
select any of such equivalent Bids (and such selected Bid shall be the
Selected Bid). In all cases, Banc of America Securities LLC, in its
capacity as a dealer, has the right to match the Bid with the lowest Yield
to Maturity, whereby the Banc of America Securities LLC Bid becomes the
Selected Bid.
(e) Immediately after calculating the Coupon Reset Rate, the
Calculation Agent will provide written notice to CMS Energy and the
Trustee, setting forth the Coupon Reset Rate. At the request of the holders
of any Notes, the Calculation Agent will provide to the holders the Coupon
Reset Rate. The Coupon Reset Rate for the Notes will be effective from and
including the applicable Coupon Reset Date.
(f) The Callholder will sell the Notes to the Dealer that made the
Selected Bid at the Purchase Price, such sale is to be settled on the
applicable Coupon Reset Date in immediately available funds.
If the Calculation Agent determines (i) at any time prior to the sale of
the Notes on the Bid Date that an Event of Default has occurred and is
continuing under the Senior Debt Indenture as described in clauses (a) -- (c),
(e) and (f) under "Events of Default" (in such event, termination is at the
Callholder's option) or an Event of Default has occurred under the Senior Debt
Indenture as described in clause (d) under "Events of Default" (in such event,
termination is automatic), (ii) following the Call Notice, the Callholder fails
to pay the Call Price by 2:00 p.m., New York City time, on the Business Day
prior to the Coupon Reset Date due to the occurrence of a Market Disruption
Event (as defined below) or
S-21
<PAGE> 22
(iii) following the Call Notice, fewer than two Dealers have submitted Bids in a
timely manner substantially as provided above, the Call Option will be
automatically revoked and terminated, and the Trustee will exercise the
Mandatory Put on behalf of the holders. "MARKET DISRUPTION EVENT" shall mean any
of the following: (A) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or the establishment of
minimum prices on such exchange; (B) a general moratorium on commercial banking
activities declared by either federal or New York State authorities; (C) any
material adverse change in the existing financial, political or economic
conditions in the United States of America; (D) an outbreak or escalation of
major hostilities involving the United States of America or the declaration of a
national emergency or war by the United States of America; or (E) any material
disruption of the U.S. treasury securities market, U.S. corporate bond market or
U.S. federal wire system; provided, in each case, that in the judgment of the
Calculation Agent the effect of the foregoing makes it impracticable to conduct
the Coupon Reset Process.
The Calculation Agency Agreement provides that the Calculation Agent may
resign at any time as Calculation Agent, such resignation to be effective ten
Business Days after the delivery to CMS Energy and the Trustee of notice of such
resignation. In such case, CMS Energy may appoint a successor Calculation Agent.
The Calculation Agent, in its individual capacity, may buy, sell, hold and
deal in the Notes and may exercise any vote or join in any action which any
holder of the Notes may be entitled to exercise or take as if it were not the
Calculation Agent. The Calculation Agent, in its individual capacity, may also
engage in or have an interest in any transaction with CMS Energy or its
affiliates as if it were not the Calculation Agent.
PURCHASE OF NOTES UPON CHANGE IN CONTROL
In the event of any Change in Control (as defined below) each Holder of a
Note will have the right, at such Holder's option, subject to the terms and
conditions of the Senior Debt Indenture, to require the Company to repurchase
all or any part of such Holder's Note on a date selected by the Company that is
no earlier than 60 days nor later than 90 days (the "CHANGE IN CONTROL PURCHASE
DATE") after the mailing of written notice by the Company of the occurrence of
such Change in Control, at a repurchase price payable in cash equal to 101% of
the principal amount of such Notes plus accrued interest, 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 Note a notice regarding the Change in Control, which
notice shall state, among other things:
- that a Change in Control has occurred and that each such Holder has the
right to require the Company to repurchase all or any part of such
Holder's Notes at the Change in Control Purchase Price;
- the Change in Control Purchase Price;
- the Change in Control Purchase Date;
- the name and address of the Paying Agent; and
- the procedures that Holders must follow to cause the 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
- the portion of the principal amount of any Notes to be repurchased, which
must be $1,000 or an integral multiple thereof;
- that such Notes are to be repurchased by the Company pursuant to the
applicable change-in-control provisions of the Senior Debt Indenture; and
- unless the Notes are represented by one or more Global Notes, the
certificate numbers of the Notes to be repurchased.
S-22
<PAGE> 23
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent not later than three
Business Days prior to the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and, if applicable, the certificate
numbers of the Notes as to which the withdrawal notice relates and the principal
amount, if any, which remains subject to a Change in Control Purchase Notice.
If a Note is represented by a Global Note, the Depositary (as defined
herein) or its nominee will be the holder of such Note and therefore will be the
only entity that can require the Company to repurchase Notes upon a Change in
Control. To obtain repayment with respect to such Note upon a Change in Control,
the beneficial owner of such Note must provide to the broker or other entity
through which it holds the beneficial interest in such Note (i) 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 Notes.
Such broker or other entity will provide to the Paying Agent (i) a Change in
Control Purchase Notice received from such beneficial owner and (ii) a
certificate satisfactory to the Paying Agent from such broker or other entity
that it represents such beneficial owner. Such broker or other entity will be
responsible for disbursing any payments it receives upon the repurchase of such
Notes by the Company.
Payment of the Change in Control Purchase Price for a Note in registered,
certificated form (a "CERTIFICATED NOTE") for which a Change in Control Purchase
Notice has been delivered and not withdrawn is conditioned upon delivery of such
Certificated 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 Note will be made promptly following the later of the Change in
Control Purchase Date or the time of delivery of such Certificated 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 a
Note on the Business Day following the Change in Control Purchase Date for such
Note, then, on and after such date, interest on such Note will cease to accrue,
whether or not such Note is delivered to the Paying Agent, and all other rights
of the Holder shall terminate (other than the right to receive the Change in
Control Purchase Price upon delivery of the Note).
Under the 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.
S-23
<PAGE> 24
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 Notes at the option of Holders upon a Change in Control. The Change in
Control purchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of 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 feature result from negotiations between the Company and the
Underwriters. 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 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 or in the accompanying base prospectus (other
than a default in the payment of the Change in Control Purchase Price with
respect to the Notes). In addition, the Company's ability to purchase Notes may
be limited by its financial resources and its inability to raise the required
funds because of restrictions on issuance of securities contained in other
contractual arrangements.
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 Notes
are Outstanding and until the Notes are rated BBB- or above (or an equivalent
rating) by Standard & Poor's and one Other Rating Agency, at which time the
Company will be permanently released from the provisions of this "Limitation 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:
- 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;
S-24
<PAGE> 25
- any purchase or redemption of Capital Stock of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Redeemable Stock or
Exchangeable Stock);
- 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
- 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 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 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 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 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 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 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 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
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
Notes Upon Change of Control" with respect to a Change in Control.
LIMITATION ON CONSOLIDATION, MERGER, SALE OR CONVEYANCE
In addition to the terms of the Senior Debt Indenture relating to
consolidations or mergers described in the accompanying base prospectus, so long
as any of the Notes are Outstanding and until the Notes are rated BBB- or above
(or an equivalent rating) by Standard & Poor's and one Other Rating Agency, at
which time the Company will be permanently released from the provisions of this
"Limitation on Consolidation, Merger, Sale or Conveyance" (but not from the
provisions described in the accompanying base prospectus which permit a
consolidation or merger provided that the surviving corporation assumes the
obligations of the Company under the Notes and the Senior Debt Indenture and is
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia), 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
S-25
<PAGE> 26
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 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 Notes.
LIMITATION ON CONSOLIDATED INDEBTEDNESS
Under the terms of the Senior Debt Indenture, so long as any of the Notes
are Outstanding and until the Notes are rated BBB- or above (or an equivalent
rating) by Standard & Poor's and one Other Rating Agency, at which time the
Company will be permanently released from the provisions of this "Limitation 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:
- Indebtedness of the Company to banks not to exceed $1,000,000,000 in
aggregate outstanding principal amount at any time;
- Indebtedness outstanding on the date of the Supplemental Indenture and
certain refinancings thereof;
- certain refinancings and Indebtedness of the Company to a Subsidiary or
by a Subsidiary to the Company;
- Indebtedness of a Consolidated Subsidiary issued to acquire, develop,
improve, construct or to provide working capital for a gas, oil or
electric generation, exploration, production, distribution, storage or
transmission facility and related assets provided that such Indebtedness
is without recourse to any assets of 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;
- 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;
- Indebtedness issued by the Company not to exceed $150,000,000 in
aggregate outstanding principal amount at any time; and
- 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.
S-26
<PAGE> 27
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.
"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,
S-27
<PAGE> 28
(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 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 write-up in value of assets
subsequent to December 31, 1996, as a result of a change in the method of
valuation in accordance with generally accepted accounting principles; (v)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses
organization or developmental expenses and other intangible items; (vi) treasury
stock; and (vii) any cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated Current
Liabilities.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the consolidated balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such Person not more
than 90 days prior to the taking of any action for the purpose of which the
determination is being made (and adjusted for any material events since such
date), as (i) the par or stated value of all outstanding
S-28
<PAGE> 29
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).
"Holder" means the Person in whose name a 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
S-29
<PAGE> 30
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 (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 Notes on behalf of
the Company. Initially, the Paying Agent is the Senior Debt Trustee (as defined
in the accompanying base prospectus).
"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.
S-30
<PAGE> 31
"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 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 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 "Description of the Notes 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 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 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 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).
S-31
<PAGE> 32
EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the Notes
will constitute an "EVENT OF DEFAULT" with respect to the Notes: (a) default for
30 days in the payment of any interest on any of the Notes; (b) default in the
payment when due of any of the principal of or the premium, if any, on any of
the 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 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 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 Notes then Outstanding may declare the principal of all
the Notes and the premium thereon and interest, if any, accrued thereon to be
due and payable immediately.
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 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 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 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 Notes of any default affecting such Notes (except defaults as to
payment of principal, premium or interest on the Notes) if it considers such
withholding to be in the interests of the Holders of the Notes.
BOOK-ENTRY SYSTEM
The Notes will be issued initially in the form of one or more Global Notes
that will be deposited with, or on behalf of, DTC, which will act as securities
depository for the Notes. The Notes will be issued as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). DTC and any
other depository which may replace DTC as depositary for the Notes are sometimes
referred to herein as the
S-32
<PAGE> 33
"DEPOSITARY." Except under the limited circumstances described below, Notes
represented by Global Notes will not be exchangeable for Certificated Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, such Depositary or such nominee, as the case may be, will be
considered the sole registered holder of the individual Notes represented by
such Global Note for all purposes under the Senior Debt Indenture. Payments of
principal of and premium, if any, and any interest on individual Notes
represented by a Global Note will be made to the Depositary or its nominee, as
the case may be, as the registered holder of such Global Note. Except as set
forth below, owners of beneficial interests in a Global Note will not be
entitled to have any of the individual Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of any such Note and will not be considered the registered holder
thereof under the Senior Debt Indenture, including, without limitation, for
purposes of consenting to any amendment thereof or supplement thereto as
described in the accompanying Prospectus.
The following is based upon information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("PARTICIPANTS") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
("DIRECT PARTICIPANTS") include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is owned
by a number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc., and the NASD. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("INDIRECT PARTICIPANTS"). The rules
applicable to DTC and its Participants are on file with the Commission.
In addition, the Depositary's management is aware that some computer
applications, systems, and the like for processing data ("SYSTEMS") that are
dependent upon calendar dates, including dates before, on and after January 1,
2000, may encounter "Year 2000 Problems." The Depositary has informed
participants and other members of the financial community that it has developed
and is implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
security holders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, the
Depositary's plan includes a testing phase, which is expected to be completed
within appropriate time frames. However, the Depositary's ability to perform its
services properly is also dependent upon other parties, including but not
limited to issuers and their agents, as well as third party vendors from whom
the Depositary licenses software and hardware, and third party vendors on whom
the Depositary relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Depositary has informed the financial community that it is contacting, and will
continue to contact, third party vendors from whom the Depositary acquires
services to impress upon them the importance of such services being Year 2000
compliant, and the determine the extend of their efforts for Year 2000
rededication and, as appropriate, testing of their services. In addition, DTC is
in the process of developing such contingency plans as it deems appropriate.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note ("Beneficial Owner") is
in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic
S-33
<PAGE> 34
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Notes, except in
the event that use of the book-entry system for one or more Notes is
discontinued.
To facilitate subsequent transfers, all Global Notes deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Global Notes with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Notes; DTC's records reflect
only the identity of the Direct Participants to whose accounts such Notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Notes.
Under its usual procedures, DTC mails an Omnibus Proxy to the Company as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Notes are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Principal and interest payments on the Notes will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of such Participant and not of DTC, any Agents, or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to DTC is the responsibility of
the Company, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving 90 days' notice to the Company or the
Senior Debt Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Certificated Notes are required to be
printed and delivered in exchange for the Notes represented by the Global Notes
held by the DTC. See "Certificated Notes."
In addition, the Company may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depositary). In that
event, Certificated Notes will be printed and delivered in exchange for the
Notes represented by the Global Notes held by DTC. See "Certificated Notes."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC. The Company believes such information to be
reliable, but the Company takes no responsibility for the accuracy thereof.
None of the Company, the Underwriters, the Senior Debt Trustee, any paying
agent or the registrar for the Notes will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Note or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
S-34
<PAGE> 35
CERTIFICATED NOTES
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company by the
earlier of (i) 90 days from the date the Company receives notice to the effect
that the Depositary is unwilling or unable to act, or the Company determines
that the Depositary is unable to act or (ii) the effectiveness of the
Depositary's resignation or failure to fulfill its duties as Depositary, the
Company will issue Certificated Notes in exchange for the Notes represented by
the Global Notes held by the Depositary. Further, within seven days after the
occurrence of an Event of Default described in clauses (a), (b) or (c) under
"Description of Debt Securities--Senior Debt Securities--Events of Default" in
the accompanying base prospectus, the Company will issue Certificated Notes in
exchange for Notes represented by a Global Note. In addition, the Company may at
any time and in its sole discretion determine not to have Notes represented by a
Global Note and, in such event, will issue individual Certificated Notes in
exchange for the Notes represented by the Global Note. In any such instance, the
owner of a beneficial interest in a Note represented by a Global Note will be
entitled to have such Notes registered in its name and will be entitled to
physical delivery of such Note in certificated form. Individual Certificated
Notes so issued will be issued in fully registered form, without coupons, in one
or more authorized denominations as described above under "General."
Certificated Notes will be exchangeable for other Certificated Notes of any
authorized denominations and of a like aggregate principal amount and tenor.
Certificated Notes may be presented for exchange as provided above, and may
be presented for registration of transfer (duly endorsed, or accompanied by a
duly executed written instrument of transfer), at the office of the Senior Debt
Trustee, in Detroit, Michigan (the "SECURITY REGISTRAR"). The Security Registrar
will not charge a service charge for any registration of transfer or exchange of
Notes; however, the Company 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. The Company may at any time designate additional
transfer agents with respect to the Notes.
The Company shall not be required to (a) issue, exchange or register the
transfer of any Certificated Note for a period of 15 days next preceding the
mailing of notice of redemption of such Note or (b) exchange or register the
transfer of any Certificated Note or portion thereof selected, called or being
called for redemption, except in the case of any Certificated Note to be
redeemed in part, the portion thereof not so to be redeemed.
If a Certificated Note is mutilated, destroyed, lost or stolen, it may be
replaced at the office of the Security Registrar upon payment by the Holder of
such expenses as may be incurred by the Company and the Security Registrar in
connection therewith and the furnishing of such evidence and indemnity as the
Company and the Security Registrar may require. Mutilated Notes must be
surrendered before new Notes will be issued.
S-35
<PAGE> 36
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "UNDERWRITING AGREEMENT"), the underwriters
named below (the "UNDERWRITERS"), for whom Banc of America Securities LLC and
Morgan Stanley & Co. Incorporated are acting as joint book-running managers,
have severally agreed to purchase, and the Company has agreed to sell to them,
the respective principal amounts of the Notes set forth opposite their names
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME OF 2011 NOTES OF 2013 NOTES
---- ---------------- ----------------
<S> <C> <C>
Banc of America Securities LLC.................. $ 87,500,000 $ 52,500,000
Morgan Stanley & Co. Incorporated............... 87,500,000 52,500,000
Chase Securities Inc. .......................... 37,500,000 22,500,000
Donaldson, Lufkin & Jenrette Securities
Corporation................................... 37,500,000 22,500,000
------------ ------------
Total...................................... $250,000,000 $150,000,000
============ ============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to approval
of certain legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the Notes if any are taken,
provided that, under certain circumstances relating to a default of one or more
Underwriters, less than all of the Notes may be purchased. Default by one or
more Underwriters would not relieve the non-defaulting Underwriters from their
several obligations, and in the event of such default, the Company would have
the right to require the non-defaulting Underwriters to purchase the respective
principal amount of Notes which they have severally agreed to purchase and, in
addition, to purchase Notes which the defaulting Underwriter or Underwriters
shall have so failed to purchase up to a principal amount thereof equal to
one-ninth of the respective principal amounts of Notes which such non-defaulting
Underwriters have otherwise agreed to purchase.
The Underwriters initially propose to offer part of the Notes directly to
the public at the public offering price set forth on the cover page of this
prospectus supplement and part to certain dealers at prices that represent
concessions not to exceed .675% for the 2011 Notes and .825% for the 2013 Notes
of the principal amount of the Notes. The Underwriters may allow, and such
dealers may reallow, concessions not to exceed .250% of the principal amount of
the Notes to certain other dealers. After the initial offering of the Notes, the
offering price and other selling terms may be varied from time to time by the
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Notes are a new issue of securities with no established trading market.
The Company does not intend to apply for listing the Notes on any securities
exchange or for quotation through any inter-dealer quotation system. The Company
has been advised by the Underwriters that they presently intend to make a market
in the Notes as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in any of the Notes and any such
market making may be discontinued at any time without notice at the discretion
of the Underwriters. No assurances can be given as to the liquidity of, or the
trading market for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the Underwriters may overallot in connection with the
offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions
S-36
<PAGE> 37
or otherwise. Any of these activities may stabilize or maintain the market price
of the Notes above independent market levels. The Underwriters are not required
to engage in these activities, and may end any of these activities at any time.
Each of Morgan Stanley & Co. Incorporated, Banc of America Securities LLC,
Donaldson, Lufkin & Jenrette Securities Corporation, and Chase Securities Inc.
and certain of their respective affiliates have provided, and may continue to
provide, investment banking services to the Company.
LEGAL OPINIONS
Opinions as to the legality of the Notes will be rendered for CMS Energy by
Michael D. Van Hemert, Assistant General Counsel for CMS Energy. Certain legal
matters with respect to the Notes will be passed upon by Skadden, Arps, Slate,
Meagher & Flom LLP. As of March 31, 1999, an attorney currently employed by
Skadden, Arps, Slate, Meagher & Flom LLP, and formerly employed by CMS Energy,
owned approximately 50,326 shares of CMS Energy Common Stock, 2,000 shares of
Class G Common Stock,10 shares of Consumers $4.50 Series Preferred Stock, $100
par value, and $50,000 aggregate principal amount of certain debt securities
issued by CMS Energy. As of March 31, 1999, Mr. Van Hemert beneficially owned
approximately 2,889 shares of CMS Energy Common Stock.
EXPERTS
The consolidated financial statements and schedule 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 supplement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31, 1999 and 1998 Arthur Andersen LLP has applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate reports thereon state that they did
not audit and they did not express an opinion on that interim consolidated
financial information. Accordingly, the degree of reliance on their report on
that information should be restricted in light of the limited nature of the
review procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act, for their reports on
the unaudited interim consolidated financial information because those reports
are not a "report" or "part" of the registration statement prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Securities
Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
prospectus supplement in reliance upon the authority of that firm as experts in
giving those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
S-37
<PAGE> 38
CMS ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA PRO FORMA ACQUISITION
------------------------------------------- --------------------------
RESTRUCTURING ELIMINATION OF
CMS ENERGY PANHANDLE AND DUKE ENERGY ACQUISITION FINANCING
HISTORICAL HISTORICAL REALIGNMENT ACTIVITIES ADJUSTMENTS TRANSACTIONS
---------- ---------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue...... $1,538 $133 $-- $ (3)(b) $(2)(g) $ --
Operating expenses
Operations and
maintenance........ 1,077 43 (1)(a) 4(c)
Depreciation and
amortization....... 150 14 (1)(a) (1)(d) 2(h)
Property and other
taxes.............. 66 7 -- --
------ ---- -- ---- --- ----
1,293 64 (2) 3 2 --
------ ---- -- ---- --- ----
Pretax operating
income............... 245 69 2 (6) (4) --
Other income
(deductions)......... 1 5
Fixed charges.......... 111 19 2 (13)(e) 23(j)
------ ---- -- ---- --- ----
Income before income
taxes................ 135 55 -- 7 (4) (23)
Income taxes........... 37 21 -- 2(f) (1)(i) (8)(k)
------ ---- -- ---- --- ----
Consolidated net
income............... $ 98 $ 34 $-- $ 5 $(3) $(15)
====== ==== == ==== === ====
Basic earnings per
average common share
CMS Energy........... $ .82
======
Class G.............. $ 1.19
======
Diluted earnings per
average common share
CMS Energy........... $ .80
======
Class G.............. $ 1.19
======
Average common shares
outstanding CMS
Energy............... 108 13(l)
====== ====
Class G.............. 8 --
====== ====
<CAPTION>
PRO FORMA ACQUISITION
-------------------------
INTERCOMPANY CMS ENERGY
ELIMINATIONS PRO FORMA
------------ ----------
<S> <C> <C>
Operating revenue...... $ (4)(n) $1,650
(12)(m)
Operating expenses
Operations and
maintenance........ (2)(n) 1,109
(12)(m)
Depreciation and
amortization....... (1)(n) 163
Property and other
taxes.............. 73
---- ------
(15) 1,345
---- ------
Pretax operating
income............... (1) 305
Other income
(deductions)......... 6
Fixed charges.......... 142
---- ------
Income before income
taxes................ (1) 169
Income taxes........... (1) 50
---- ------
Consolidated net
income............... $ -- $ 119
==== ======
Basic earnings per
average common share
CMS Energy........... $ .90
======
Class G.............. $ 1.19
======
Diluted earnings per
average common share
CMS Energy........... $ .88
======
Class G.............. $ 1.19
======
Average common shares
outstanding CMS
Energy............... 121
======
Class G.............. 8
======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Income Statement.
F-1
<PAGE> 39
CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
RESTRUCTURING AND REALIGNMENT:
(a) To reflect the results of operations of Panhandle Storage Company and
Trunkline LNG Company, both acquired by CMS Energy, and the transfer of
Panhandle's interest in Northern Border Partners LP and certain
non-operating assets to other subsidiaries of Duke Energy under the
provisions of the Stock Purchase Agreement dated as of October 31, 1998,
between CMS Energy and subsidiaries of Duke Energy (the "STOCK PURCHASE
AGREEMENT").
ELIMINATION OF DUKE ENERGY ACTIVITIES:
(b) To reflect the elimination of rental income earned by Panhandle on an office
building, which was transferred to Duke Energy under the provisions of the
Stock Purchase Agreement.
(c) To reflect the elimination of pension income recognized by Panhandle on the
overfunded pension plans of Duke Energy. Under the provisions of the Stock
Purchase Agreement, Duke Energy transferred to CMS Energy an amount of
pension assets equivalent to the Panhandle Companies' liabilities assumed by
CMS Energy.
(d) To reflect the elimination of depreciation associated with an office
building and certain other assets, which were transferred to Duke Energy
under the provisions of the Stock Purchase Agreement.
(e) To reflect a reduction in interest expense relating to the settlement of
certain short-term notes payable to Duke Energy under the provisions of the
Stock Purchase Agreement.
(f) To reflect the income tax expense effects of the pro forma adjustments (b)
through (e) at an estimated rate of 35%.
ACQUISITION ADJUSTMENTS:
(g) To reflect the elimination of non-cash amortization of deferred credits
associated with a Trunkline LNG Company rate settlement.
(h) To reflect depreciation expense on the fair value of property, plant and
equipment prospectively depreciated over a revised estimated average
remaining life of 40 years. Also reflects amortization expense over a
40-year period of the estimated goodwill recognized in the Acquisition.
(i) To reflect the income tax expense effects of pro forma adjustment (g) and
(h) at an estimated rate of 35%.
FINANCING TRANSACTIONS:
(j) To reflect the increase of interest expense relating to the issuance of $800
million of CMS Holding Notes with a weighted average interest rate of 6.8%
and $500 million of CMS Energy senior debt with a coupon of 7.5%. An
increase of 1/8% in interest rates would have the impact of increasing total
pro forma interest expense by approximately $.4 million for the three months
ended March 31, 1999.
(k) To reflect the income tax expense effects of pro forma adjustment (j) at an
estimated rate of 35%.
(l) Represents an estimated per share offering price of $45.
INTERCOMPANY ELIMINATIONS:
(m) To reflect the elimination of intercompany transactions between CMS Energy
and the Panhandle Companies.
(n) To eliminate three days of activity subsequent to the acquisition which is
included in CMS Energy historical amounts.
F-2
<PAGE> 40
CMS ENERGY CORPORATION
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
------------------------
We may offer up to $375,000,000 aggregate principal amount of our unsecured
senior debt securities and our unsecured subordinated debt securities consisting
of debentures, notes and other unsecured evidence of indebtedness, or any
combination of these securities. For each type of the securities, the amount,
price and terms will be determined at or prior to the time of sale.
We will provide the specific terms of these securities in an accompanying
prospectus supplement or supplements. You should read this prospectus and the
accompanying prospectus supplement carefully before you invest.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus may not be used to consummate sales of these securities unless
accompanied by a prospectus supplement.
------------------------
The date of this prospectus is April 20, 1999
<PAGE> 41
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH THEY RELATE OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR
INCORPORATED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF SUCH INFORMATION.
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 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 registration
statement. 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 registration statement, except for any
information superseded by information in this registration statement. This
registration statement 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>
<S> <C>
SEC FILINGS (FILE NO. 1-9513) PERIOD/DATE
- - Registration Statement on Form 8-B/A November 21, 1996
- - Annual Report on Form 10-K Year ended December 31, 1998
- - Current Reports on Form 8-K Filed January 20, 1999 and April 6, 1999
</TABLE>
The documents we have filed with the SEC after the date of this
registration statement and prior to the termination of the offering made by this
prospectus are also incorporated by reference into this registration statement.
You may request a copy of these filings 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.
2
<PAGE> 42
CMS ENERGY CORPORATION
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. Consumers' rates and certain
other aspects of its business are subject to the jurisdiction of the Michigan
Public Service Commission and the Federal Energy Regulatory Commission.
Consumers' nuclear operations are subject to the jurisdiction of the Nuclear
Regulatory Commission.
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
principal executive office address is Fairlane Plaza South, Suite 1100, 330 Town
Center Drive, Dearborn, Michigan 48126. Our telephone number is (313) 436-9200.
The information we have provided about ourselves above is not
comprehensive. For further information about us and our subsidiaries including
our capital requirements, business plans, external financing plans and legal and
regulatory affairs, please refer to the documents incorporated by reference into
this prospectus. See "Where to Find More Information" above.
USE OF PROCEEDS
As will be more specifically set forth in the applicable prospectus
supplement, we will use the net proceeds received from the sale of the unsecured
senior or subordinated debt securities offered for our general corporate
purposes, including capital expenditures, investment in subsidiaries, working
capital and repayment of debt.
3
<PAGE> 43
RATIO OF EARNINGS TO FIXED CHARGES
Our ratios of earnings to fixed charges for each of the years ended
December 31, 1994 through 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................... 1.59 1.78 1.96 1.90 2.07
</TABLE>
For the purpose of computing such ratios, earnings represent net income
before income taxes, net interest charges and the estimated interest portion of
lease rentals.
4
<PAGE> 44
DESCRIPTION OF DEBT SECURITIES
The debt securities offered by this prospectus will be unsecured
obligations of CMS Energy and will be either senior or subordinated debt. Senior
debt will be issued under a senior debt indenture and subordinated debt will be
issued under a subordinated debt indenture. The senior debt indenture and the
subordinated debt indenture are sometimes referred to in this prospectus
individually as an "indenture" and collectively as the "indentures."
The following briefly summarizes the material provisions of the indentures
and the debt securities. You should read the more detailed provisions of the
applicable indenture, including the defined terms, for provisions that may be
important to you. You should also read the particular terms of a series of debt
securities, which will be described in more detail in the applicable prospectus
supplement. Copies of the indentures may be obtained from CMS Energy or the
applicable trustee.
Unless otherwise provided in the applicable prospectus supplement, the
trustee under the senior debt indenture will be NBD Bank and the trustee under
the subordinated debt indenture will be The Bank of New York.
GENERAL
The indentures provide that unsecured senior or subordinated debt
securities of CMS Energy may be issued in one or more series, with different
terms, in each case as authorized from time to time by CMS Energy.
Federal income tax consequences and other special considerations applicable
to any debt securities issued by CMS Energy at a discount will be described in
the applicable prospectus supplement.
Because CMS Energy is a holding company, the claims of creditors of CMS
Energy's subsidiaries will have a priority over CMS Energy's equity rights and
the rights of CMS Energy's creditors, including the holders of debt securities,
to participate in the assets of the subsidiary upon the subsidiary's
liquidation.
The applicable prospectus supplement relating to any series of debt
securities will describe the following terms, where applicable:
- the title of the debt securities;
- whether the debt securities will be senior or subordinated debt;
- the total principal amount of the debt securities;
- the percentage of the principal amount at which the debt securities will
be sold and, if applicable, the method of determining the price;
- the maturity date or dates;
- the interest rate or the method of computing the interest rate;
- the date or dates from which any interest will accrue, or how such date
or dates will be determined, and the interest payment date or dates and
any related record dates;
- the location where payments on the debt securities will be made;
- the terms and conditions on which the debt securities may be redeemed at
the option of CMS Energy;
- any obligation of CMS Energy to redeem, purchase or repay the debt
securities at the option of a holder upon the happening of any event and
the terms and conditions of redemption, purchase or repayment;
- any provisions for the discharge of CMS Energy's obligations relating to
the debt securities by deposit of funds or United States government
obligations;
5
<PAGE> 45
- whether the debt securities are to trade in book-entry form and the terms
and any conditions for exchanging the global security in whole or in part
for paper certificates;
- any material provisions of the applicable indenture described in this
prospectus that do not apply to the debt securities;
- any additional amounts with respect to the debt securities that CMS
Energy will pay to a non-United States person because of any tax,
assessment or governmental charge withheld or deducted and, if so, any
option of CMS Energy to redeem the debt securities rather than paying
these additional amounts; and
- any other specific terms of the debt securities.
CONCERNING THE TRUSTEES
Each of NBD Bank, the trustee under the senior debt indenture, and The Bank
of New York, the trustee under the subordinated debt indenture, is one of a
number of banks with which CMS Energy and its subsidiaries maintain ordinary
banking relationships, including credit facilities.
Exchange and Transfer. Debt securities may be presented for exchange and
registered debt securities may be presented for registration of transfer at the
offices and subject to the restrictions set forth therein and in the applicable
prospectus supplement without service charge, but upon payment of any taxes or
other governmental charges due in connection therewith, subject to any
limitations contained in the applicable indenture. Debt securities in bearer
form and the coupons appertaining thereto, if any, will be transferable by
delivery.
Payment. Distributions on the debt securities in registered form will be
made at the office or agency of the applicable trustee in the Borough of
Manhattan, the City of New York or its other designated office. However, at the
option of CMS Energy, payment of any interest may be made by check or by wire
transfer. Payment of any interest due on debt securities in registered form will
be made to the persons in whose name the debt securities are registered at the
close of business on the record date for such interest payments. Payments made
in any other manner will be specified in the prospectus supplement.
Events of Default. Each indenture provides that events of default regarding
any series of debt securities will be:
- failure to pay required interest on any debt security of such series for
30 days;
- failure to pay principal other than a scheduled installment payment or
premium, if any, on any debt security of such series when due;
- failure to make any required scheduled installment payment for 30 days on
debt securities of such series;
- failure to perform for 90 days after notice any other covenant in the
relevant indenture other than a covenant included in the relevant
indenture solely for the benefit of a series of debt securities other
than such series;
- certain events of bankruptcy or insolvency, whether voluntary or not; or
- entry of final judgments against CMS Energy or Consumers for more than
$25,000,000 which remain undischarged or unbonded for 60 days or a
default resulting in the acceleration of indebtedness of CMS Energy or
Consumers more than $25,000,000, and the acceleration has not been
rescinded or annulled within 10 days after written notice of such default
as provided in the applicable indenture; and
Additional events of default may be prescribed for the benefit of the
holders of a particular series of debt securities and will be described in the
prospectus supplement relating to those debt securities.
6
<PAGE> 46
If an event of default regarding debt securities of any series issued under
the indentures should occur and be continuing, either the trustee or the holders
of 25% in the principal amount of outstanding debt securities of such series may
declare each debt security of that series due and payable.
Holders of a majority in principal amount of the outstanding debt
securities of any series will be entitled to control certain actions of the
trustee under the indentures and to waive past defaults regarding such series.
The trustee generally will not be requested, ordered or directed by any of the
holders of debt securities, unless one or more of such holders shall have
offered to the trustee reasonable security or indemnity.
Before any holder of any series of debt securities may institute action for
any remedy, except payment on such holder's debt security when due, the holders
of not less than 25% in principal amount of the debt securities of that series
outstanding must request the trustee to take action. Holders must also offer and
give the satisfactory security and indemnity against liabilities incurred by the
trustee for taking such action.
CMS Energy is required to annually furnish the relevant trustee a statement
as to CMS Energy's compliance with all conditions and covenants under the
applicable indenture. Each indenture provides that the relevant trustee may
withhold notice to the holders of the debt securities of any series of any
default affecting such series, except payment on holders' debt securities when
due, if it considers withholding notice to be in the interests of the holders of
the debt securities of such series.
Consolidation, Merger or Sale of Assets. Each indenture provides that CMS
Energy may consolidate with or merge into, or sell, lease or convey its property
as an entirety or substantially as an entirety to, any other corporation if the
new corporation assumes the obligations of CMS Energy under the debt securities
and the indentures and is organized and existing under the laws of the United
States of America, any U.S. state or the District of Columbia.
Modification of the Indenture. Each indenture permits CMS Energy and the
relevant trustee to enter into supplemental indentures without the consent of
the holders of the debt securities to establish the form and terms of any series
of securities under the indentures.
Each indenture also permits CMS Energy and the relevant trustee, with the
consent of the holders of at least a majority in total principal amount of the
debt securities of all series then outstanding and affected (voting as one
class), to change in any manner the provisions of the applicable indenture or
modify in any manner the rights of the holders of the debt securities of each
such affected series. CMS Energy and the relevant trustee may not, without the
consent of the holder of each debt security affected, enter into any
supplemental indenture to:
- change the time of payment of the principal;
- reduce the principal amount of such debt security;
- reduce the rate or change the time of payment of interest on such debt
security;
- reduce the amount payable on any securities issued originally at a
discount upon acceleration or provable in bankruptcy; or
- impair the right to institute suit for the enforcement of any payment on
any debt security when due.
In addition, no such modification may reduce the percentage in principal
amount of the 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 applicable indenture.
Prior to the acceleration of the maturity of any debt security, the
holders, voting as one class, of a majority in total principal amount of the
debt securities with respect to which a default or event of default shall have
occurred and be continuing may on behalf of the holders of all such affected
debt securities waive any past default or event of default and its consequences,
except a default or an event of default in
7
<PAGE> 47
respect of a covenant or provision of the applicable indenture or of any debt
security which cannot be modified or amended without the consent of the holder
of each debt security affected.
Defeasance, Covenant Defeasance and Discharge. Each indenture provides
that, at the option of CMS Energy:
- CMS Energy will be discharged from all obligations in respect of the debt
securities of a particular series then outstanding (except for certain
obligations to register the transfer of or exchange the debt securities
of such series, to replace stolen, lost or mutilated debt securities of
such series, to maintain paying agencies and to maintain the trust
described below); or
- CMS Energy need not comply with certain restrictive covenants of the
relevant indenture (including those described under "Consolidation,
Merger or Sale of Assets") if CMS Energy in each case irrevocably
deposits in trust with the relevant 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 distributions on the debt securities of such series on the
stated maturity of such debt securities in accordance with the terms
thereof.
To exercise this option, CMS Energy is required to deliver to the relevant
trustee an opinion of independent counsel to the effect that:
- the exercise of such option would not cause the holders of the 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 (1) of the preceding
paragraph, 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 applicable indenture there has been a change in the
applicable federal income tax law.
In the event:
- CMS Energy exercises its option to effect a covenant defeasance with
respect to the debt securities of any series as described above,
- the 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,
- the amount of money and securities on deposit with the relevant trustee
would be insufficient to pay amounts due on the 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 each indenture with respect to
all debt securities then outstanding (except for certain obligations to register
the transfer of or exchange such debt securities, to replace stolen, lost or
mutilated debt securities, to maintain paying agencies and to maintain the trust
described below) by irrevocably depositing in trust with the relevant trustee
money, and/or securities backed by the full faith and credit of the United
States which, through the payment of the debt securities 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 debt securities on the stated
maturities thereof, provided that such debt securities are by their terms due
and payable, or are to be called for redemption, within one year.
8
<PAGE> 48
For United States federal income tax purposes any deposit contemplated in
the preceding paragraph would be treated as an exchange of the debt securities
outstanding for other property. Accordingly, holders of 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. Each indenture and the 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.
SENIOR DEBT SECURITIES
The senior debt securities will be issued under the senior debt indenture
and will rank on an equal basis with all other unsecured debt of CMS Energy
except subordinated debt.
SUBORDINATED DEBT SECURITIES
Subordination. The subordinated debt securities will be issued under the
subordinated debt indenture and will rank subordinated and junior in right of
payment, to the extent set forth in the subordinated debt indenture, to all
"Senior Indebtedness" (as defined below) of CMS Energy.
If CMS Energy defaults in the payment of any distributions on any Senior
Indebtedness when it becomes due and payable after any applicable grace period,
then, unless and until the default is cured or waived or ceases to exist, CMS
Energy cannot make a payment on account of or redeem or otherwise acquire the
subordinated debt securities. The subordinated debt indenture provisions
described in this paragraph, however, do not prevent CMS Energy from making
sinking fund payments in subordinated debt securities acquired prior to the
maturity of Senior Indebtedness or, in the case of default, prior to such
default and notice thereof. If there is any insolvency, bankruptcy, liquidation
or other similar proceeding relating to CMS Energy, its creditors or its
property, then all Senior Indebtedness must be paid in full before any payment
may be made to any holders of subordinated debt securities. Holders of
subordinated debt securities must return and deliver any payments received by
them, other than in a plan of reorganization or through a defeasance trust as
described above, directly to the holders of Senior Indebtedness until all Senior
Indebtedness is paid in full.
"Senior Indebtedness" means distributions on the following, whether
outstanding on the date of execution of the subordinated debt indenture or
thereafter incurred, created or assumed:
- indebtedness of CMS Energy for money borrowed by CMS Energy or evidenced
by debentures (other than the subordinated debt securities), notes,
bankers' acceptances or other corporate debt securities or similar
instruments issued by CMS Energy;
- obligations of CMS Energy with respect to letters of credit;
- all indebtedness of others of the type referred to in the two preceding
clauses assumed by or guaranteed in any manner by CMS Energy or in effect
guaranteed by CMS Energy; or
- renewals, extensions or refundings of any of the indebtedness referred to
in the preceding three clauses unless, in the case of any particular
indebtedness, renewal, extension or refunding, under the express
provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the subordinated debt
securities.
9
<PAGE> 49
The subordinated debt indenture does not limit the total amount of Senior
Indebtedness that may be issued. As of December 31, 1998, Senior Indebtedness of
CMS Energy totaled approximately $2.766 billion.
LEGAL OPINIONS
Opinions as to the legality of certain of the debt securities will be
rendered for CMS Energy by Michael D. Van Hemert, Esq., Assistant General
Counsel for CMS Energy. Certain legal matters with respect to debt securities
will be passed upon by counsel for any underwriters, dealers or agents, each of
whom will be named in the related prospectus supplement.
EXPERTS
The consolidated financial statements and schedule of CMS Energy as of
December 31, 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 extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
PLAN OF DISTRIBUTION
CMS Energy may sell the debt securities:
- through the solicitation of proposals of underwriters or dealers to
purchase the debt securities;
- through underwriters or dealers on a negotiated basis;
- directly to a limited number of purchasers or to a single purchaser; or
- through agents.
The prospectus supplement with respect to any debt securities will set
forth the terms of such offering, including the name or names of any
underwriters, dealers or agents; the purchase price of the debt securities and
the proceeds to CMS Energy from such sale; any underwriting discounts and
commissions and other items constituting underwriters' compensation; any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers and any securities exchange on which such debt securities may be
listed. Any initial public offering price, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale, the debt securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The debt
securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of debt securities will be named in the
prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such prospectus supplement. Unless otherwise set forth in the
prospectus supplement relating thereto, the obligations of the underwriters to
purchase the debt securities will be subject to certain conditions precedent,
and the underwriters will be obligated to purchase all the debt securities if
any are purchased.
10
<PAGE> 50
If dealers are utilized in the sale of debt securities, CMS Energy will
sell such debt securities to the dealers as principals. The dealers may then
resell such debt securities to the public at varying prices to be determined by
such dealers at the time of resale. The names of the dealers and the terms of
the transaction will be set forth in the prospectus supplement relating thereto.
The debt securities may be sold directly by CMS Energy or through agents
designated by CMS Energy from time to time. Any agent involved in the offer or
sale of the debt securities in respect to which this prospectus is delivered
will be named, and any commissions payable by CMS Energy to such agent will be
set forth, in the prospectus supplement relating thereto. Unless otherwise
indicated in the prospectus supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
The debt securities may be sold directly by CMS Energy to institutional
investors or others, who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any resale thereof. The terms of any such
sales will be described in the prospectus supplement relating thereto.
Agents, dealers and underwriters may be entitled under agreements with CMS
Energy to indemnification by CMS Energy against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, dealers or underwriters may be required to make
in respect thereof. Agents, dealers and underwriters may be customers of, engage
in transactions with, or perform services for CMS Energy in the ordinary course
of business.
The debt securities may or may not be listed on a national securities
exchange. Reference is made to the prospectus supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
debt securities.
11
