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Rule 424(b)(5)
Registration Statement No. 333-51932
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 8, 2001
2,000,000 SHARES
[CMS ENERGY LOGO]
COMMON STOCK
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We have entered into a sales agreement with RCG Equity Finance, a division
of Ramius Securities, LLC ("RCG Equity Finance"), relating to the shares of
common stock offered by this prospectus supplement and the accompanying
prospectus. In accordance with the terms of the sales agreement, we may offer
and sell up to 2,000,000 shares of our common stock from time to time through
RCG Equity Finance, as our sales manager. Sales of the shares, if any, will be
made on an at the market basis, by means of ordinary brokers' transactions on
the New York Stock Exchange. Shares of our common stock are listed on the New
York Stock Exchange under the symbol "CMS." On August 24, 2001, the last
reported sales price of our common stock on the New York Stock Exchange was
$24.19 per share.
RCG Equity Finance will be entitled to a commission equal to 2% of the
gross sales price per share for any shares sold under the sales agreement.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
S-4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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[RCG EQUITY FINANCE LOGO
The date of this prospectus supplement is August 27, 2001.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
FORWARD-LOOKING STATEMENTS.................................. S-2
CMS ENERGY CORPORATION...................................... S-3
RISK FACTORS................................................ S-4
FORWARD-LOOKING INFORMATION................................. S-8
USE OF PROCEEDS............................................. S-9
SUPPLEMENTAL DESCRIPTION OF CAPITAL STOCK................... S-9
TRANSFER AGENT.............................................. S-13
PLAN OF DISTRIBUTION........................................ S-13
LEGAL OPINIONS.............................................. S-14
EXPERTS..................................................... S-14
PROSPECTUS
WHERE TO FIND MORE INFORMATION.............................. 2
CMS ENERGY CORPORATION...................................... 3
CMS ENERGY TRUSTS........................................... 4
USE OF PROCEEDS............................................. 5
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............... 5
DESCRIPTION OF SECURITIES................................... 6
EFFECT OF OBLIGATIONS UNDER THE DEBT SECURITIES AND THE
GUARANTEES................................................ 21
LEGAL OPINIONS.............................................. 25
EXPERTS..................................................... 26
PLAN OF DISTRIBUTION........................................ 26
UNAUDITED PRO FORMA FINANCIAL INFORMATION................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS PROSPECTUS SUPPLEMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS PROSPECTUS SUPPLEMENT.
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FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain or
incorporate by reference forward-looking statements. The factors identified
under "Risk Factors" are important factors, but not necessarily all the
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 forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, we caution that while such
assumptions or bases are believed to be reasonable and are made in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, we,
our subsidiaries, or our management, express an expectation or belief as to
future results, this expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "project," and "anticipate" or
similar expressions identify forward-looking statements.
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CMS ENERGY CORPORATION
CMS Energy is 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 or electricity to almost six million
of the approximately 9.9 million residents in Michigan's lower peninsula.
Enterprises, through its subsidiaries, is engaged in several energy businesses
in the United States and in approximately 20 countries on five continents. Our
assets and services are broad and include: electric and natural gas utility
operations; independent power production; natural gas transmission, storage and
processing; oil and gas exploration and production; international energy
distribution; and marketing, services and trading.
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RISK FACTORS
In considering whether to purchase our common stock, you should carefully
consider all the information we have included or incorporated by reference in
this prospectus supplement and the accompanying prospectus. In particular, you
should carefully consider the risk factors described below. In addition, please
read "Forward-Looking Information" on page S-8 of this prospectus supplement,
where we describe additional uncertainties associated with our business and the
forward-looking statements in this prospectus supplement and the accompanying
prospectus.
RISKS RELATING TO CMS ENERGY
We have substantial indebtedness that could limit our financial flexibility
As of June 30, 2001, on a consolidated basis, we and our subsidiaries had
approximately $8.4 billion in total indebtedness and mandatorily redeemable
trust preferred securities. We may incur additional indebtedness in the future.
The level of our indebtedness could have several important effects on our future
operations, including, among others:
- a significant portion of our cash flow from operations will be dedicated
to the payment of principal and interest on our indebtedness and will not
be available for other purposes;
- covenants contained in our existing debt arrangements require us to meet
certain financial tests, which may affect our flexibility in planning
for, and reacting to, changes in our business;
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be
limited;
- we may be at a competitive disadvantage to our competitors that are less
leveraged; and
- our vulnerability to adverse economic and industry conditions may
increase.
Our ability to meet our debt service obligations and to reduce our total
indebtedness will be dependent upon our future performance, which will be
subject to general economic conditions, industry cycles and financial, business
and other factors affecting our operations, many of which are beyond our
control. We cannot assure you that our business will continue to generate
sufficient cash flow from operations to service our indebtedness. If we are
unable to generate sufficient cash flow from operations, we may be required to
sell assets, to refinance all or a portion of our indebtedness or to obtain
additional financings. We cannot assure you that any such refinancing will be
possible or that additional financing will be available on commercially
acceptable terms or at all.
Covenants contained in our existing debt arrangements and guarantees limit,
among other things, the incurrence of indebtedness by CMS Energy and its
subsidiaries and require maintenance of a minimum net worth and fixed-charge
coverage ratio and a maximum debt-to-capitalization ratio. There can be no
assurance that the requirements of our existing debt arrangements or other
indebtedness will be met in the future. Failure to comply with such covenants
may result in a default with respect to the related debt and could lead to
acceleration of such debt or any instruments evidencing indebtedness that
contain cross-acceleration or cross-default provisions. In such a case, there
can be no assurance that we would be able to refinance or otherwise repay such
indebtedness.
As a holding company, we are subject to restrictions on our ability to pay
dividends
We are a legal entity separate and distinct from our various subsidiaries.
As a holding company with no significant operations of our own, the principal
sources of our funds are receiving dividends or other distributions from our
operating subsidiaries (in particular, Consumers), borrowing funds and selling
equity. The ability of Consumers and our other subsidiaries to pay dividends or
make distributions to us, and, accordingly, our ability to pay dividends on our
capital stock will depend on the earnings, financial requirements, contractual
restrictions of our subsidiaries, in particular Consumers, and other factors.
Our subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay
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any amounts on our capital or to make any funds available therefore, whether by
dividends, loans or other payments.
Restrictions contained in Consumers' mortgage bond indenture and preferred
stock provisions and other legal restrictions limit Consumers' ability to pay
dividends or acquire its own stock from us. Based upon its Restated Articles of
Incorporation, which is Consumers' most restrictive provision, as of June 30,
2001, Consumers would be able to pay an aggregate of $408 million in dividends
to us. In the four years ending December 31, 2001, Consumers paid out 74% of its
earnings in cash dividends to us. Enterprises is also limited in the amount of
dividends it is able to pay pursuant to the Revolving Credit Facility.
If we do not receive adequate distributions from our subsidiaries and
jointly owned enterprises, there can be no assurance that we will be able to
make any dividend payments on our capital stock.
The extended outage at our Palisades nuclear facility could adversely affect
our earnings
On June 20, 2001, the reactor at Palisades, a nuclear power plant owned by
Consumers, was shut down so technicians could inspect a steam leak on a control
rod drive assembly. Consumers expanded its inspection to include all similar
control rod drive system piping, and is still in the process of completing the
expanded inspection. As of early August 2001, Consumers had identified some
additional flaws. At the completion of the inspection process, Consumers will
implement the appropriate repairs or replacements. The plant is not expected to
return to service until the fourth quarter of 2001. Until it completes the
inspection and determines a definitive plan for repair or replacement, however,
Consumers cannot make any assurances as to factors that may affect the date on
which the plant will return to service. The incremental cost of replacement
power and maintenance is currently estimated to be approximately $.40 per share
of common stock if the Palisades' restart date occurs in mid-November 2001, with
further incremental costs of approximately $.06 to $.07 per share for each month
thereafter.
We face increased competition, which could reduce our market shares and profit
margins
Regulatory changes and other developments have resulted and will continue
to result in increased competition in our domestic energy businesses. Generally,
increased competition threatens our market shares in certain segments of our
business and can reduce our profit margins.
Increased competition and direct access in the electric
industry. Consumers has in the last several years experienced and expects to
continue to experience a significant increase in competition for generation
services with the introduction of retail direct access in the state of Michigan.
Under Michigan's Customer Choice and Electric Reliability Act (the, "Customer
Choice Act"), all electric customers will have the choice of electric generation
suppliers by January 1, 2002.
Increased competition in the gas pipeline industry. A significant portion
of our domestic revenue and cash flow comes from our interstate pipeline
business. The Federal Energy Regulatory Commission ("FERC") policy allows the
issuance of certificates authorizing the construction of new interstate
pipelines that 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
Midwestern United States from Canada. These pipelines will be able to compete
with our subsidiary Panhandle Eastern Pipe Line Company's pipelines. Increased
competition could reduce the volumes of gas transported by Panhandle to their
existing markets or cause them to lower rates in order to meet competition. This
could lower the financial results of our subsidiary, Panhandle East Pipeline
Company.
New electric restructuring legislation could adversely affect our business
Federal and state regulation of the electric utility has changed
dramatically in the last two decades and could continue to change over the next
several years. These changes could adversely affect our business, financial
condition and profitability.
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In June 2000, the Michigan Legislature enacted the Customer Choice Act that
became effective June 5, 2000. The Customer Choice Act first reduced residential
rates by 5%, then froze them as of the June 2000 effective date of this new
legislation through December 31, 2005. All other electric rates are frozen
through December 31, 2003 without first being reduced. After that date, electric
rates are subject to a rate cap. The length of the rate cap varies depending
upon whether the customer is a residential, commercial or industrial customer,
among other determinations. Ultimately, the rate cap could extend until December
31, 2013 depending upon whether Consumers and two other utilities jointly
complete expansion of available transmission capability in the state of Michigan
of at least 2,000 MW and do not exceed the market control test established by
the legislation (a requirement with which Consumers is currently in compliance).
Under circumstances specified in the Customer Choice Act certain costs can be
deferred for future recovery after the expiration of the rate cap period.
However, the rate cap could result in Consumers being unable to collect customer
rates sufficient to fully recover its cost of doing business. Some of these
costs may be wholly or partially beyond Consumers' power to control. In
particular, to the extent Consumers may need to purchase power from wholesale
suppliers at market-based prices during the period when retail rates are frozen
or capped, it may be difficult to purchase power at prices that can be recovered
in rates. As a result, it is not certain that Consumers' profit margins in its
electric utility business will be maintained over the long run.
The Customer Choice Act and existing MPSC restructuring orders provide for
the recovery of stranded costs associated with customers purchasing power from
other sources. The Customer Choice Act also permits the MPSC to annually review
Consumers' stranded cost recovery charges implemented for the preceding 12
months, and adjust the stranded costs recovery charge (a true-up adjustment), by
way of supplemental surcharges or credits, to allow the netting of stranded
costs. In an order issued in October 2000, the MPSC initiated a proceeding to
implement the provisions of the Customer Choice Act regarding the calculation of
stranded costs. Consumers is uncertain how the MPSC will ultimately calculate
the amount of stranded costs and the true-up adjustments, and the manner in
which the annual stranded cost true-up operates.
The Customer Choice Act also allows for securitization of stranded costs,
which fit the definition under the Customer Choice Act of "qualified costs" for
securitization purposes, in order to offset the earnings impact of the 5%
residential rate reduction mandated by the legislation. In July 2000, in
accordance with the Customer Choice Act, Consumers filed an application with the
MPSC, and a supplement thereto, seeking approval to issue securitization bonds.
The MPSC issued a financing order and a final financing order in October 2000
and January 2001, respectively, authorizing securitization of approximately $470
million in qualified costs plus the expenses of securitization. Cost savings
from securitization depend upon the level of debt or equity securities
ultimately retired, the amortization schedule for the securitized qualified
costs and the interest rates of the retired debt securities and the
securitization bonds. These savings will only be determined once the
securitization bonds are issued and will offset substantially all of the revenue
impact of the 5% residential rate reduction, $51 million on an annual basis,
that Consumers was required to implement by the Customer Choice Act. In January
2001, Consumers accepted the MPSC's final financing order. The Attorney General
of Michigan appealed the financing orders. In July 2001, the Michigan Court of
Appeals issued an unanimous opinion that affirmed the MPSC order. Although
Consumers cannot make any assurances, Consumers does not believe the Attorney
General will appeal the decision of the Michigan Court of Appeals to the
Michigan Supreme Court. Ultimately, sale of securitization bonds will be
required to offset substantially all of the CMS Energy revenue impact of the
rate reduction over the term of the bonds.
We have made substantial international investments
Our international investments in approximately 20 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. Although we maintain insurance for various risk exposures including
political risk from possible nationalization, expropriation or inability to
convert currency, we are exposed to some risks that include local political and
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economic factors over which we have no control, such as changes in foreign
governmental and regulatory policies (including changes in industrial regulation
and control and changes in taxation), changing political conditions and
international monetary fluctuations. 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.
Financial risk during development phase. In developing new projects,
significant time and expense is required to prepare proposals or competitive
bids, obtain the numerous required permits, licenses and approvals, negotiate
the necessary agreements with governmental and private parties, and obtain
financing. Money spent for these purposes is at risk until all these elements
are successfully finalized. 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.
Expropriation and violation of agreements by third parties. 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. These kinds
of changes could result in a partial or total loss of our investment.
Foreign currency risk. The local foreign currency may be devalued or the
conversion of the currency may be restricted or prohibited or other actions,
such as increases in taxes, royalties or import duties, may be taken that
adversely affect the value and the recovery of our investment.
We could incur significant capital expenditures to comply with environmental
standards
Consumers is subject to costly and increasingly stringent environmental
regulations. Consumers expects that the cost of future environmental compliance,
especially compliance with clean air laws, will be significant.
In 1997, the EPA introduced new regulations regarding nitrogen oxide and
particulate-related emissions that were the subject of litigation. The United
States Supreme Court recently found that the EPA has power to revise the
standards but found that the EPA implementation plan was not lawful. In 1998,
the EPA Administrator issued final regulations requiring the State of Michigan
to further limit nitrogen oxide emissions. The EPA has also issued additional
final regulations regarding nitrogen oxide emissions that require certain
generators, including some of Consumers' electric generating facilities, to
achieve the same emissions rate as that required by the 1998 plan. These
regulations will require Consumers to make significant capital expenditures. The
estimated cost to Consumers would be between $470 million and $560 million,
calculated in year 2001 dollars. Consumers anticipates that it will incur these
capital expenditures between 2000 and 2004.
At some point after 2004, if the mercury and small particulate standards
become effective, Consumers may need an additional amount of between $300
million and $520 million of capital expenditures to comply with those standards.
Beginning January 2004, an annual return of and on these capital
expenditures above depreciation levels are expected to be recoverable, subject
to an MPSC prudency hearing, in future rates.
These and other required environmental expenditures may have a material
adverse effect upon our financial condition and results of operation.
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FORWARD-LOOKING INFORMATION
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
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;
- currency fluctuations and exchange controls;
- factors affecting utility and diversified energy operations such as
unusual weather conditions, catastrophic weather-related damage,
unscheduled generation outages, maintenance or repairs, unanticipated
changes to fossil fuel, nuclear fuel or gas supply costs or availability
due to higher demand, shortages, transportation problems or other
developments;
- environmental incidents;
- electric transmission or gas pipeline system constraints;
- international, national, regional and local economic, competitive and
regulatory conditions and developments;
- adverse regulatory or legal decisions, including environmental laws and
regulations;
- pace of implementation and provisions for deregulation of the natural gas
industry, whether by legislative or regulatory action;
- implementation of the Michigan electric industry restructuring
legislation, including the sale of securitization bonds;
- federal regulation of electric sales and transmission of electricity that
grants independent power producers, electricity marketers and other
utilities "direct access" to the interstate electric transmission systems
owned by electric utilities, creating opportunities for competitors to
market electricity to our wholesale customers;
- energy markets, including the timing and extent of unanticipated changes
in commodity prices for oil, coal, natural gas, natural gas liquids,
electricity and certain related products due to higher demand, shortages,
transportation problems or other developments;
- the timing and success of business development efforts;
- potential disruption, expropriation or interruption of facilities or
operations due to accidents or political events and the ability to get or
maintain insurance coverage for events;
- nuclear power plant performance, decommissioning, policies, procedures,
incidents and regulation, including the availability of spent nuclear
fuel storage;
- technological developments in energy production, delivery and usage;
- financial or regulatory accounting principles or policies;
- cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- limitations on our ability to control the development or operation of
projects in which our subsidiaries have minority interest; and
- other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
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These and other factors are discussed more completely in our public filings
with the SEC, including our annual report on Form 10-K for the year ended
December 31, 2000, and our Forms 10-Q for the quarters ended March 31, 2001 and
June 30, 2001.
USE OF PROCEEDS
We will use the net proceeds from the sale of the common stock for our
general corporate purposes including repayment of debt, capital expenditures,
investment in subsidiaries, and working capital.
SUPPLEMENTAL DESCRIPTION OF CAPITAL STOCK
The following information concerning the shares supplements, and should be
read in conjunction with, the statements under "Description of
Securities -- Capital Stock" in the accompanying base prospectus.
GENERAL
As of August 27, 2001, we had 125,000 shares of Series A Mandatorily
Convertible Preferred Stock, 132,605,167 shares of CMS Energy common stock
(before giving effect to this offering), par value $0.01 per share, and no
shares of Class G common stock, no par value, issued and outstanding.
RESTRICTIONS AND LIMITATIONS ON ABILITY TO PAY DIVIDENDS
Reference is made to "Description of Securities -- Common Stock -- Dividend
Rights and Policy; Restrictions on Dividends" and "-- Primary Source of Funds of
CMS Energy; Restrictions on Sources of Dividends" in the accompanying base
prospectus for information about our dividend policies and other matters
relating to dividends on our common stock, including restrictions and
limitations on our ability to pay such dividends. In addition to the
restrictions and limitations on payment of dividends described in the
accompanying base prospectus, CMS Energy is subject to the following contractual
restrictions on its ability to pay dividends:
Revolving Credit Facility
Under the terms of our Revolving Credit Facility, we have agreed that we
will not, and will not permit certain of our subsidiaries, directly or
indirectly, to:
- declare or pay any dividend, payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any
shares of any class of our capital stock or the capital stock of
subsidiaries; or
- purchase, redeem, retire or otherwise acquire for value any such capital
stock (each, a "restricted payment");
unless (1) there is no event of default under the Revolving Credit Facility, or
event that with the lapse of time or giving of notice would constitute an event
of default, that has occurred and is continuing, or would occur as a result of
the restricted payment, and (2) after giving effect to any restricted payment
described above, the aggregate amount of all restricted payments made since
September 30, 1993 does not exceed the sum of:
- $120 million;
- 100% of our consolidated net income from September 30, 1993 to the end of
the most recent fiscal quarter ending at least 45 days prior to the date
of the restricted payment (or, in the case of a deficit, minus 100% of
the deficit); and
- the aggregate net proceeds we have received for any issuance, sale of, or
contribution with respect to, our capital stock subsequent to September
30, 1993.
At June 30, 2001, we could pay cash dividends of $2.439 billion pursuant to
this restriction.
Senior Debt Indenture
Under the terms of an Indenture dated as of September 15, 1992, as amended
and supplemented, between us and Bank One (formerly NBD Bank), as Trustee,
pursuant to which we have issued our 7 3/8%
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Unsecured Notes Due 2000, 8 1/8% Unsecured Notes Due 2002, 6.75% Senior Notes
Due 2004, 7 5/8% Unsecured Notes Due 2004, X-TRAS(SM) Pass-Through Trust I
Certificates Due 2005, 9.875% Senior Notes Due 2007, 8.9% Senior Notes Due 2008,
7.5% Senior Notes Due 2009, 8 3/8% Senior Notes Due 2013, and 8.50% Senior Notes
Due 2011, so long as any of the notes issued thereunder are outstanding and
until those notes are rated BBB- or above (or an equivalent rating) by Standard
& Poor's and one other rating agency, at which time we will be permanently
released from the provisions of this limitation, we have agreed that we will
not, and will not permit any of our restricted subsidiaries, directly or
indirectly, to:
- declare or pay any dividend or make any distribution on our capital stock
to the direct or indirect holders of our capital stock (except dividends
or distributions payable solely in our non-convertible capital stock (as
defined in the Indenture) or in options, warrants or other rights to
purchase such non-convertible capital stock and except dividends or other
distributions payable to us or one of our subsidiaries);
- purchase, redeem or otherwise acquire or retire for value any of our
capital stock; or
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to the scheduled maturity or scheduled repayment thereof,
any of our subordinated indebtedness (each, a "restricted payment");
if at the time of any restricted payment described above (1) an event of default
under the Indenture (or event that with the lapse of time or giving of notice
would constitute an event of default) has occurred and is continuing, or would
occur as a result of the restricted payment, or (2) after giving effect to any
restricted payment described above, the aggregate amount of all restricted
payments made since May 6, 1997 would exceed the sum of:
- $100 million;
- 100% of our 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
the restricted payment (or, in the case of a deficit, minus 100% of the
deficit); and
- the aggregate net proceeds we have received for any issuance or sale of,
or contribution with respect to, our capital stock subsequent to May 6,
1997.
At June 30, 2001, we could pay cash dividends of $1.474 billion pursuant to
this restriction.
General Term Note Indenture
Similarly, the Indenture, dated as of January 15, 1994, as amended and
supplemented, between us and The Chase Manhattan Bank, as Trustee, pursuant to
which we have issued our General Term Notes, Series A, Series B, Series C,
Series D, Series E and Series F, provides that so long as any general term notes
issued thereunder 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 we will be permanently released from the provisions of this
limitation, we have agreed that we will not, and will not permit any of our
restricted subsidiaries, directly or indirectly, to:
- declare or pay any dividend or make any distribution on our capital stock
to the direct or indirect holders of our capital stock (except dividends
or distributions payable solely in our non-convertible capital stock (as
defined in the Indenture) or in options, warrants or other rights to
purchase such non-convertible capital stock and except dividends or other
distributions payable to us or one of our subsidiaries);
- purchase, redeem or otherwise acquire or retire for value any of our
capital stock; or
- purchase, repurchase, redeem, or otherwise acquire or retire for value,
prior to the scheduled maturity or scheduled repayment thereof, any of
our subordinated indebtedness (each, a "restricted payment");
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if at the time of any restricted payment described above (1) an event of default
under the Indenture (or event that with the lapse of time or giving of notice
would constitute an event of default) has occurred and is continuing, or would
occur as a result of the restricted payment, or (2) after giving effect to any
restricted payment described above, the aggregate amount of all restricted
payments made since September 30, 1993 would exceed the sum of:
- $120 million;
- 100% of our consolidated net income from September 30, 1993 to the end of
the most recent fiscal quarter ending at least 45 days prior to the date
of the restricted payment (or, in the case of a deficit, minus 100% of
the deficit); and
- or contribution with respect to, our capital stock subsequent to
September 30, 1993.
At June 30, 2001, we could pay cash dividends of $2.439 billion pursuant to
this restriction.
The provisions described above do not prohibit (1) dividends or other
distributions in respect of capital stock issued in connection with the
acquisition of any business or assets by us where the payment of such dividends
or distributions are payable solely from the net earnings of such business or
assets, (2) any purchase or redemption of capital stock made by exchange for, or
out of the proceeds of the substantially concurrent sale of, our capital stock
(other than certain redeemable stock or exchangeable stock), (3) dividends paid
within 60 days after the date of declaration thereof if at the date of
declaration such dividends would have complied with the limitations described
above or (4) payments pursuant to the tax sharing agreement among us and our
subsidiaries.
Trust Preferred Securities
In June 1997, a CMS Energy affiliated trust issued $172.5 million of 7 3/4%
Convertible Trust Preferred Securities. The preferred securities are convertible
at the option of the holder into shares of CMS Energy common stock at an initial
conversion rate of 1.2255 shares of CMS Energy common stock for each preferred
security (equivalent to a purchase price of $40.80 per share of CMS Energy
common stock), subject to certain adjustments. On or after July 16, 2001, we
may, at our option, cause the conversion rights of the holders of the preferred
securities to expire upon certain conditions.
In July 1999, a CMS Energy affiliated trust issued $300.875 million of
8.75% Adjustable Convertible Trust Securities. Each unit, with a stated amount
of $41.50, of adjustable convertible trust securities obligates the holder to
purchase from us not more than 1.2121 and not less than 0.7830 shares of CMS
Energy common stock based on the average trading price of that common stock
during a 20-day period ending before July 1, 2002.
In August 2000, a CMS Energy affiliated trust issued $220 million of 7 1/4%
Premium Equity Participating Security Units. Each unit of premium equity
participating securities obligates the holder to purchase from us, no later than
August 13, 2003, for a price of $25, the following number of shares of CMS
Energy common stock:
- if the average closing price of our common stock over the 20-trading day
period ending on the third trading day prior to August 18, 2003 equals or
exceeds $30.403, .8223 shares;
- if the average closing price of our common stock over the same period is
less than $30.403 but greater than $13.218, a number of shares having a
value, based on the 20-trading day average closing price, equal to $25;
and
- if the average closing price of our common stock over the same period is
less than or equal to $13.218, 1.8913 shares.
Under the terms of the Indenture, dated June 1, 1997, between us and The
Bank of New York, as trustee, as amended and supplemented, and the guarantee
agreements dated June 20, 1997, July 8, 1999, August 22, 2000 between us and The
Bank of New York relating to the preferred securities of CMS Energy Trust I, CMS
Energy Trust II and CMS Energy Trust III pursuant to which the preferred
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securities and the related 7 3/4% Convertible Subordinated Debentures due 2027,
the 8.750% Junior Subordinated Deferrable Interest Debentures due 2004, and the
7 1/4% Subordinated Deferrable Note due 2004 respectively, were issued, we have
agreed that we will not, and will not cause any of our subsidiaries to, declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of our capital stock, if at such time:
- an event has occurred, of which we have actual knowledge, that with the
giving of notice or the lapse of time, or both, would constitute an event
of default and in respect of which we have not taken reasonable steps to
cure;
- we are in default with respect to the payment of any obligations under
the Guarantee Agreement; or
- we have given notice of our selection of an extension period as provided
in the subordinated debt indenture with respect to the subordinated
debentures and have not rescinded such notice, or such extension period
(or any extension thereof) is continuing.
Dividend Restrictions Under Michigan Law
Michigan law prohibits payment of a dividend if, after giving it effect, a
corporation would not be able to pay its debts as they become due in the usual
course of business, or its total assets would be less than the sum of its total
liabilities plus, unless the articles of incorporation provide otherwise, the
amount that would be needed, if the corporation were to be dissolved at the time
of the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution (including the rights of holders of preferred stock, if any).
Under the provisions of the Michigan Business Corporation Act, at June 30,
2001, assets available for the payment of dividends were $2.682 billion.
Consumers' Dividend Restrictions
Consumers' ability to pay dividends to CMS Energy is restricted by
Consumers' Restated Articles of Incorporation and certain agreements to which it
is a party, as described under "Description of Securities -- Primary Source of
Funds of CMS Energy; Restrictions on Sources of Dividends" in the accompanying
base prospectus.
Under the provisions of the Michigan Business Corporation Act, at June 30,
2001, Consumers' net assets available for payment of dividends were $1.913
billion. Under its Restated Articles of Incorporation, the most restrictive
dividend limitation, Consumers would be able to pay $408 million in dividends.
In February 2001 and May 2001, Consumers paid a $66 million and $30 million
common dividend, respectively. In July 2001, Consumers declared a $39 million
common dividend payable in August 2001.
Enterprises' Dividend Restrictions
The ability of CMS Energy to pay (i) dividends on its capital stock and
(ii) its indebtedness depends and will depend in part upon timely receipt of
sufficient dividends or other distributions from Enterprises. Enterprises'
ability to pay dividends to CMS Energy is restricted by Enterprises' articles of
incorporation.
The articles of incorporation prohibit the payment of cash dividends on its
common stock if Enterprises is in arrears on preferred stock dividend payments.
It further provides that no dividends can be paid on the Enterprises common
stock except (i) out of surplus of Enterprises available for distribution to
stock over which the preferred stock has preference, or (ii) if, at the time of
declaration or payment of a distribution, there is not remaining capital and
surplus (after subtracting for dividends and distributions), in an amount at
least equal to 60 percent of the redemption price then in effect per share on
all then outstanding shares of the Enterprises preferred stock and other
preference stock of Enterprises.
In addition, the Michigan Business Corporation Act prohibits payment of a
dividend if, after giving it effect (i) Enterprises would not be able to pay its
debts as they become due in the usual course of
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business, or (ii) its total assets would be less than the sum of its total
liabilities plus (unless the articles permit otherwise) the amount that would be
needed if Enterprises were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution.
Enterprises is also limited in the amount of dividends it is able to pay
pursuant to the Revolving Credit Facility.
TRANSFER AGENT
CMS Energy common stock is transferable at the offices of Consumers Energy
Company, 212 W. Michigan Avenue, Jackson, MI 49201. The transfer agent and
registrar for CMS Energy common stock is CMS Energy.
PLAN OF DISTRIBUTION
We have entered into a sales agreement with RCG Equity Finance under which
we may issue and sell up to 2,000,000 shares of common stock from time to time
through RCG Equity Finance, as a sales manager. The form of the sales agreement
is an exhibit to the Post Effective Amendment No. 1 to the Form S-3 Registration
Statement under the Securities Act of 1933 filed by us with the Commission on
August 3, 2001 and is incorporated by reference into this prospectus. The sales,
if any, of common stock made under the sales agreement will be made on an at the
market basis only by means of ordinary brokers' transactions on the New York
Stock Exchange.
RCG Equity Finance will sell the shares of common stock subject to the
sales agreement on a daily basis or as otherwise agreed upon by our company and
RCG Equity Finance. RCG Equity Finance will act as sales manager on a best
efforts basis. We will designate the maximum amount of shares of common stock to
be sold by RCG Equity Finance on a daily basis or otherwise as we and RCG Equity
Finance agree. Subject to the terms and conditions of the sales agreement, RCG
Equity Finance will use its best efforts to sell all of the designated shares of
common stock. We will instruct RCG Equity Finance not to sell shares of common
stock if the sales cannot be effected at or above the price designated by our
company in any such instruction. Our company or RCG Equity Finance may suspend
the offering of shares of common stock upon proper notice and subject to other
conditions.
RCG Equity Finance will provide written confirmation to our company
following the close of trading on the New York Stock Exchange each day in which
shares of common stock are sold under the sales agreement. Each confirmation
will include the number of shares sold on that day, the net proceeds to our
company, the compensation payable by our company to RCG Equity Finance in
connection with the sales, the total number of shares sold and the gross sales
price of the shares sold.
The compensation to RCG Equity Finance for sales of common stock will equal
a fixed commission rate of 2% of the gross sales price of any shares sold
pursuant to the sales agreement. The remaining sales proceeds, after deducting
any transaction fees imposed by any governmental or self-regulatory organization
in connection with the sales, will equal our net proceeds for the sale of the
shares.
Settlement for sales of common stock will occur on the third business day
following the date on which any sales are made in return for payment of the net
proceeds to us. There is no arrangement for funds to be received in an escrow,
trust or similar arrangement.
In connection with the sale of the common stock on our behalf, RCG Equity
Finance may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, and the compensation of RCG Equity Finance may be deemed
to be underwriting commissions or discounts. We have agreed to indemnify RCG
Equity Finance against liabilities under the Securities Act, or contribute to
payments that RCG Equity Finance may be required to make in that respect. RCG
Equity Finance may engage in transactions with, or perform other services for,
our company in the ordinary course of business.
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The offering of common stock pursuant to the sales agreement will terminate
upon the earlier of (1) the sale of all shares of common stock subject to the
agreement or (2) termination of the sales agreement. The sales agreement may be
terminated by either our company or by RCG Equity Finance in their sole
discretion at any time.
LEGAL OPINIONS
Opinions as to the legality of the common stock will be rendered for CMS
Energy by Michael D. Van Hemert, Assistant General Counsel for CMS Energy.
Certain legal matters with respect to the sales agreement will be passed upon
for the sales manager by Skadden, Arps, Slate, Meagher & Flom LLP New York, New
York. As of August 27, 2001, an attorney currently employed by Skadden, Arps,
Slate, Meagher & Flom LLP, and formerly employed by CMS, owned approximately
51,734 shares of CMS 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. As of August 27, 2001, Mr. Van Hemert beneficially
owned approximately 6,000 shares of CMS common stock. Skadden, Arps, Slate,
Meagher & Flom LLP has represented from time to time the Company and its
affiliates.
EXPERTS
The consolidated financial statements and schedule of CMS Energy as of
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000 incorporated by reference in this prospectus supplement and
the accompanying prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31 and June 30, 2001 and 2000 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 Section 7 and 11
of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
prospectus supplement and the accompanying prospectus in reliance upon the
authority of that firm as experts in giving those reports to the extent that
said firm has audited said consolidated financial statements and consented to
the use of their reports thereon.
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CMS ENERGY CORPORATION
CMS ENERGY COMMON STOCK
SENIOR DEBENTURES
SUBORDINATED DEBENTURES
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
GUARANTEES
AND
CMS ENERGY TRUST IV
CMS ENERGY TRUST V
TRUST PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
CMS ENERGY CORPORATION
OFFERING PRICE: $2,000,000,000
---------------------
We may offer, from time to time:
- shares of CMS Energy Common Stock,
- unsecured senior or subordinated debt securities consisting of
debentures, convertible debentures, notes and other unsecured evidence of
indebtedness,
- stock purchase contracts to purchase CMS Energy Common Stock,
- stock purchase units, each representing ownership of a stock purchase
contract and unsecured senior or subordinated debt securities or trust
preferred securities or debt obligations of third parties, including U.S.
Treasury Securities, securing the holder's obligation to purchase the CMS
Energy Common Stock under the stock purchase contract, or any combination
of the above, and
- Guarantees of CMS Energy with respect to Trust Preferred Securities of
CMS Energy Trusts IV and V.
For each type of securities listed above, the amount, price and terms will
be determined at or prior to the time of sale.
CMS Energy Trust IV and CMS Energy Trust V, which are Delaware business
trusts, may offer trust preferred securities. The trust preferred securities
represent preferred undivided beneficial interests in the assets of CMS Energy
Trust IV and CMS Energy Trust V in amounts, at prices and on terms to 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 or supplements carefully before you invest.
CMS Energy Common Stock is traded on the New York Stock Exchange under the
symbol "CMS". CMS Energy Common Stock sold pursuant to a prospectus supplement
or supplements accompanying this prospectus will also be listed for trading on
the New York Stock Exchange, subject to official notice of issuance.
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.
We intend to sell these securities through underwriters, dealers, agents or
directly to a limited number of purchasers. The names of, and any securities to
be purchased by or through, these parties, the compensation of these parties and
other special terms in connection with the offering and sale of these securities
will be provided in the related prospectus supplement or supplements.
This prospectus may not be used to consummate sales of any of these
securities unless accompanied by a prospectus supplement.
The date of this prospectus is August 8, 2001
16
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND ANY INFORMATION
OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CMS ENERGY OR ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH THEY RELATE OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and current reports, as well as other
information, with the Securities and Exchange Commission. You 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. You 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 on the internet at the SEC's web site
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 have not included separate financial statements of the Trusts. We and
the Trusts do not consider that such financial statements would be material to
holders of Trust Preferred Securities because each Trust is a newly organized
special purpose entity, has no operating history and no independent operations.
The Trusts are not currently involved in and don't anticipate being involved in
any activity other than as described under "CMS Energy Trusts". Further, we
believe that financial statements of the Trusts are not material to the holders
of the Trust Preferred Securities since we will guarantee the Trust Preferred
Securities. Holders of the Trust Preferred Securities, with respect to the
payment of distributions and amounts upon liquidation, dissolution and
winding-up, are at least in the same position vis-a-vis the assets of CMS Energy
as a preferred stockholder of CMS Energy. We beneficially own all of the
undivided beneficial interests in the assets of the Trusts (other than the
beneficial interests represented by the Trust Preferred Securities). See "CMS
Energy Trusts," "Description of Securities -- Trust Preferred Securities" and
"Description of Securities -- The Guarantees." In future filings under the
Exchange Act, there will be an audited footnote to our annual financial
statements stating that the Trusts are wholly-owned by CMS Energy, that the sole
assets of the Trusts are the Senior Debentures or the Subordinated Debentures of
CMS Energy having a specified aggregate principal amount, and, considered
together, the back-up undertakings, including the Guarantees, constitute a full
and unconditional guarantee by CMS Energy of the Trusts' obligations under the
Trust Preferred Securities issued by the Trusts.
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We are "incorporating by reference" information into this registration
statement. This means that we are disclosing important information to you when
we refer you to another document that we filed separately with the SEC.
Information incorporated by reference is considered to be part of this
prospectus, unless the information is updated by information in this prospectus.
This prospectus incorporates by reference the documents listed below. We
encourage you to read these additional documents because these documents contain
important information about us and our finances.
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, 2000.
- Quarterly Reports on Form 10-Q....... Quarter ended March 31, 2001.
- Current Reports on Form 8-K.......... February 23, 2001, May 17, 2001.
June 22, 2001, July 12, 2001, August 1,
2001
The documents we have filed with the SEC after the date of this prospectus
and prior to the termination of the offering made by this prospectus are also
incorporated by reference into this prospectus. Any statement contained in such
document will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or any
other subsequently filed document modifies or supersedes such statement.
This prospectus, which is part of the offering registration statement, does
not contain all of the information found in the offering registration statement
including various exhibits and schedules. We are incorporating by reference the
offering registration statement.
We will provide, upon your oral or written request, a copy of any or all of
the information that has been incorporated by reference into the prospectus but
not delivered with the prospectus.
You may request copies of these filings, including the registration
statement, at no cost, by writing or telephoning CMS Energy at the following
address:
CMS Energy Corporation
Attn: Office of the Secretary
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
Telephone: (313) 436-9200
You should rely only on the information contained in or incorporated by
reference in this Prospectus. We have not authorized anyone to provide you with
information that is different from this information.
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 and
CMS Enterprises. Consumers is a public utility that provides natural gas or
electricity to almost 6 million of the approximately 9.5 million residents in
Michigan's lower peninsula. Enterprises, through subsidiaries, is engaged in
several domestic and international diversified 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.
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CMS ENERGY TRUSTS
CMS Energy Trust IV and CMS Energy Trust V are statutory business trusts
formed under the Delaware Business Trust Act (the "Trust Act") (each, a "Trust"
and collectively, the "Trusts") pursuant to: (i) a trust agreement executed by
CMS Energy, as sponsor, and the trustees of the Trusts (the "CMS Trustees"); and
(ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware. At the time of public issuance of Trust Preferred Securities,
each trust agreement will be amended and restated in its entirety (as so amended
and restated, the "Trust Agreement") and will be qualified as an indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). CMS
Energy will directly or indirectly acquire common securities of each Trust (the
"Common Securities" and, together with the Trust Preferred Securities, the
"Trust Securities") in an aggregate liquidation amount equal to approximately 3%
of the total capital of the Trust. Each Trust exists for the exclusive purposes
of:
- issuing the Trust Preferred Securities and Common Securities representing
undivided beneficial interests in the assets of the Trust;
- investing the gross proceeds of the Trust Securities in the Senior
Debentures or Subordinated Debentures; and
- engaging in only those other activities necessary or incidental thereto.
Each Trust has a term of approximately 30 years, but may terminate
earlier as provided in the Trust Agreement.
The undivided common beneficial interests in the Trust will be owned by CMS
Energy. The proceeds from the offering of the Trust Preferred Securities and the
sale of the Common Securities may be contributed by the Trust to purchase from
CMS Energy Senior Debentures or Subordinated Debentures in an aggregate
principal amount equal to the aggregate liquidation preference of the Trust
Securities, bearing interest at an annual rate equal to the annual distribution
rate of such Trust Securities and having certain redemption terms which
correspond to the redemption terms for the Trust Securities. The Senior
Debentures will rank on an equal basis with all other unsecured debt of CMS
Energy except subordinated debt. The Subordinated Debentures will rank
subordinate in right of payment to all of CMS Energy's Senior Indebtedness (as
defined herein). Distributions on the Trust Securities may not be made unless
the Trust receives corresponding interest payments on the Senior Debentures or
the Subordinated Debentures from CMS Energy. CMS Energy will irrevocably
guarantee, on a senior or subordinated basis, as applicable, and to the extent
set forth therein, with respect to each of the Trust Securities, the payment of
distributions, the redemption price, including all accrued or deferred and
unpaid distributions, and payment on liquidation, but only to the extent of
funds on hand. Each Guarantee will be unsecured and will be either equal to or
subordinate to, as applicable, all Senior Indebtedness, of CMS Energy. Upon the
occurrence of certain events (subject to the conditions to be described in an
accompanying prospectus supplement) the Trust may be liquidated and the holders
of the Trust Securities could receive Senior Debentures or Subordinated
Debentures in lieu of any liquidating cash distribution.
Pursuant to the Trust Agreement, the number of CMS Trustees will initially
be three. Two of the CMS Trustees (the "Administrative Trustees") will be
persons who are employees or officers of or who are affiliated with CMS Energy.
The third trustee will be a financial institution that is unaffiliated with CMS
Energy, which trustee will serve as property trustee under the Trust Agreement
and as indenture trustee for the purposes of compliance with the provisions of
the Trust Indenture Act (the "Property Trustee"). Initially, either The Bank of
New York, a New York banking corporation, or Bank One Trust Company, National
Association, a national banking association, will be the Property Trustee until
removed or replaced by the holder of the Common Securities. For the purpose of
compliance with the provisions of the Trust Indenture Act, The Bank of New York
or Bank One Trust Company, National Association will also act as trustee (each a
"Guarantee Trustee" and collectively the "Guarantee Trustees"). The Bank of New
York (Delaware) will act as the Delaware Trustee for the purposes of the Trust
Act, until removed or replaced by the holder of the Common Securities. See
"Description of Securities -- The Guarantees."
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Each Property Trustee will hold title to the applicable Debt Securities for
the benefit of the holders of the Trust Securities and each Property Trustee
will have the power to exercise all rights, powers and privileges under the
applicable indentures (as defined herein) as the holder of the Debt Securities.
In addition, each Property Trustee will maintain exclusive control of a
segregated non-interest bearing bank account (the "Property Account") to hold
all payments made in respect of the Debt Securities for the benefit of the
holders of the Trust Securities. Each Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustees will hold the Guarantees for the benefit of the holders of
the Trust Securities. CMS Energy, as the direct or indirect holder of all the
Common Securities, will have the right to appoint, remove or replace any CMS
Trustee and to increase or decrease the number of CMS Trustees; provided, that
the number of CMS Trustees shall be at least three, a majority of which shall be
Administrative Trustees. CMS Energy will pay all fees and expenses related to
the Trusts and the offering of the Trust Securities.
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Trust Agreement, the Trust Act and the Trust Indenture Act.
The trustee in the State of Delaware is The Bank of New York (Delaware),
White Clay Center, Route 273, Newark, Delaware 19711.
The principal place of business of each Trust shall be c/o CMS Energy
Corporation, Fairlane Plaza South, 330 Town Center Drive, Suite 1100, Dearborn,
Michigan 48126-2712.
USE OF PROCEEDS
The proceeds received by each of the Trusts from the sale of its Trust
Preferred Securities or the Common Securities will be invested in the Senior
Debentures or the Subordinated Debentures. As will be more specifically set
forth in the applicable prospectus supplement, we will use such borrowed amounts
and the net proceeds from the sale of CMS Energy Common Stock, Stock Purchase
Contracts, Stock Purchase Units and any Senior Debentures or Subordinated
Debentures offered hereby for our general corporate purposes, including capital
expenditures, investment in subsidiaries, working capital and repayment of debt.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges and the ratio of earnings to fixed
charges and preferred stock dividends for each of the years ended December 31,
1996 through 2000 and the three months ended March 31, 2001 are as follows:
THREE
MONTHS
ENDED
MARCH 31,
------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges........ 1.77 1.58 --(a) 1.38 1.59 1.78 1.96
Ratio of earnings to fixed charges and
preferred stock dividends............... 1.65 1.54 --(a) 1.28 1.43 1.59 1.75
---------------
(a) For the year ended December 31, 2000, fixed charges exceeded earnings by
$124 million. Earnings as defined include a $329 million pretax impairment
loss on the Loy Yang investment. The ratio of earnings to fixed charges and
preferred securities dividends and distributions would have been 1.26 and
the ratio of earnings to fixed charges would have been 1.32, excluding this
amount.
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For the purpose of computing such ratios, earnings represent net income
before income taxes, net interest charges and the estimated interest portion of
lease rentals.
DESCRIPTION OF SECURITIES
INTRODUCTION
Specific terms of the shares of Common Stock, par value $.01 per share
("CMS Energy Common Stock"), unsecured senior debt securities (the "Senior
Debentures") and unsecured subordinated debt securities (the "Subordinated
Debentures") (individually a "Debt Security" and collectively the "Debt
Securities") consisting of debentures, convertible debentures, notes and other
unsecured evidence of indebtedness, Stock Purchase Contracts (the "Stock
Purchase Contracts") to purchase CMS Energy Common Stock, Stock Purchase Units
(the "Stock Purchase Units"), each representing ownership of a Stock Purchase
Contract and Debt Securities, or Trust Preferred Securities or debt obligations
of third parties, including U.S. Treasury Securities, securing the holder's
obligation to purchase the CMS Energy Common Stock under the Stock Purchase
Contract, or any combination of the foregoing, irrevocable guarantees
(individually a "Guarantee" and collectively "Guarantees") of CMS Energy, on a
senior or subordinated basis as applicable, and to the extent set forth therein,
with respect to each of the Trust Securities, the payment of distributions, the
redemption price, including all accrued or deferred and unpaid distributions,
and payment on liquidation, but only to the extent of fund on hand, and trust
preferred securities (the "Trust Preferred Securities") representing preferred
undivided beneficial interests in the assets of the Trust, in respect of which
this prospectus is being delivered (collectively, the "Offered Securities"),
will be set forth in an accompanying prospectus supplement or supplements,
together with the terms of the offering of the Offered Securities, the initial
price thereof and the net proceeds from the sale thereof. The prospectus
supplement will set forth with regard to the particular Offered Securities,
without limitation, the following: (i) in the case of Debt Securities, the
designation, aggregate principal amount, denomination, maturity, premium, if
any, any exchange, conversion, redemption or sinking fund provisions, interest
rate (which may be fixed or variable), the time or method of calculating
interest payments, the right of CMS Energy, if any, to defer payment or interest
on the Debt Securities and the maximum length of such deferral, put options, if
any, public offering price, ranking, any listing on a securities exchange and
other specific terms of the offering; (ii) in the case of CMS Energy Common
Stock, the designation, number of shares, public offering price and other
specific terms of the Offering, from the sale thereof; (iii) in the case of
Trust Preferred Securities, the designation, number of shares, liquidation
preference per security, initial public offering price, any listing on a
securities exchange, dividend rate (or method of calculation thereof), dates on
which dividends shall be payable and dates from which dividends shall accrue,
any voting rights, any redemption, exchange, conversion or sinking fund
provisions and any other rights, preferences, privileges, limitations or
restrictions relating to a specific series of the Trust Preferred Securities
including a description of the Guarantee (as defined herein), as the case may
be; and (iv) in the case of Stock Purchase Units, the specific terms of the
Stock Purchase Contracts and any Debt Securities, Trust Preferred Securities, or
debt obligations of third parties securing the holders obligation to purchase
CMS Energy Common Stock under the Stock Purchase Contracts, and the terms of the
offering and sale thereof.
CAPITAL STOCK
The following summary of certain rights of the holders of CMS Energy
capital stock does not purport to be complete and is qualified in its entirety
by express reference to the Restated Articles of Incorporation of CMS Energy
(the "Articles of Incorporation") and the By-Laws of CMS Energy, copies of which
are filed as exhibits to the Registration Statement of which this prospectus is
a part, and by express reference to the Registration Statement on Form 8-B/A,
which is incorporated into this prospectus by reference. See "Where to Find More
Information" herein.
The authorized capital stock of CMS Energy consists of 250 million shares
of CMS Energy Common Stock, 60 million shares of Class G Common Stock, no par
value ("Class G Common Stock") and
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10 million shares of CMS Energy Preferred Stock, $.01 par value ("Preferred
Stock"). The CMS Energy Common Stock and the Class G Common Stock are sometimes
together referred to herein as the "Common Stock." Currently there is no Class G
Common Stock issued and outstanding.
COMMON STOCK
When issued and outstanding, the Class G Common Stock is intended to
reflect the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers and Michigan Gas Storage, a
subsidiary of Consumers (such businesses, collectively, have been attributed to
the "Consumers Gas Group"). The CMS Energy Common Stock is intended to reflect
the performance of all businesses of CMS Energy and its subsidiaries, including
the businesses of the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to any outstanding shares of Class G Common
Stock.
DIVIDEND RIGHTS AND POLICY; RESTRICTIONS ON DIVIDENDS
Dividends on the CMS Energy Common Stock are paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
CMS Energy, including the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to any outstanding shares of the Class G Common
Stock, and other factors. Dividends are payable out of the assets of CMS Energy
legally available therefore, including the Available Class G Dividend Amount (as
defined in the Articles of Incorporation).
When issued and outstanding, dividends on the Class G Common Stock are paid
at the discretion of the Board of Directors based primarily upon the earnings
and financial condition of the Consumers Gas Group, and, to a lesser extent, CMS
Energy as a whole. Dividends are payable out of the lesser of (i) the assets of
CMS Energy legally available therefore and (ii) the Available Class G Dividend
Amount. Although the Available Class G Dividend Amount is intended to reflect
the amount available for dividends to holders of any outstanding Class G Common
Stock, it is also legally available for dividends to holders of CMS Energy
Common Stock.
CMS Energy, in the sole discretion of its Board of Directors could pay
dividends exclusively to the holders of CMS Energy Common Stock, exclusively to
the holders of any outstanding Class G Common Stock, or to the holders of both
of such classes in equal or unequal amounts.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. As a holding company with no significant
operations of its own, the principal sources of its funds are dependent
primarily upon the earnings of its subsidiaries (in particular, Consumers),
borrowings and sales of equity. CMS Energy's ability to pay dividends, including
dividends on CMS Energy Common Stock and any outstanding Class G Common Stock,
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. Accordingly, the ability of CMS Energy to pay dividends on its capital
stock will depend on the earnings, financial requirements, contractual
restrictions of the subsidiaries of CMS Energy, in particular, Consumers, and
other factors. CMS Energy's subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts on
the capital stock of CMS Energy or to make any funds available therefor, whether
by dividends, loans or other payments.
Dividends on capital stock of CMS Energy are limited by Michigan law to
legally available assets of CMS Energy. Distributions on Common Stock may be
subject to the rights of the holders, if any, of the CMS Energy Preferred Stock
including the currently issued and outstanding Series A Mandatorily Convertible
Preferred Stock. As long as the Series A Mandatorily Convertible Preferred Stock
is outstanding, CMS Energy may not pay dividends on its Common Stock unless
certain conditions are met including, but not limited to, dividends on the
Series A Preferred Stock being paid. See "Preferred Stock -- Dividends".
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There are restrictions on CMS Energy's ability to pay dividends contained
in certain revolving credit agreements as and the indenture dated as of
September 15, 1992, as amended and supplemented, between CMS Energy and NBD
Bank, as Trustee, and the indenture dated as of January 15, 1994, as amended and
supplemented, between CMS Energy and The Chase Manhattan Bank, as Trustee. A
discussion of specific restrictions on CMS Energy's ability to pay dividends
will be set forth in an accompanying prospectus supplement pursuant to which
convertible Senior Debentures, Subordinated Debentures, convertible Trust
Preferred Securities, Stock Purchase Contracts, Stock Purchase Units, or CMS
Energy Common Stock are offered.
Voting Rights
The holders of CMS Energy Common Stock vote with the holders of outstanding
Class G Common Stock as a single class, except on matters that would be required
by law or the Articles of Incorporation to be voted on by class. Each holder of
Common Stock is entitled to one vote for each share of Common Stock held by such
holder on each matter voted upon by the shareholders. Such right to vote is not
cumulative. A majority of the votes cast by the holders of shares entitled to
vote thereon is sufficient for the adoption of any question presented, except
that certain provisions of the Articles of Incorporation relating to special
shareholder meetings, the removal, indemnification and liability of the Board of
Directors and the requirements for amending these provisions may not be amended,
altered, changed or repealed unless such amendment, alteration, change or repeal
is approved by the affirmative vote of at least 75% of the outstanding shares
entitled to vote thereon.
Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class, would
be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other corporation if such merger or
consolidation would adversely affect the powers or special rights of such class
of stock, and to authorize any amendment to the Articles of Incorporation that
would increase or decrease the aggregate number of authorized shares of such
class (except pursuant to Section 303 of the Michigan Business Corporation Act,
which, under certain circumstances, would enable the Board of Directors to
increase the number of authorized shares to satisfy the exchange features of the
Common Stock described below) or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely. The
Articles of Incorporation also provide that unless the vote or consent of a
greater number of shares shall then be required by law, the vote or consent of
the holders of a majority of all the shares of either class of Common Stock then
outstanding, voting as a separate class, will be necessary for authorizing,
effecting or validating the merger or consolidation of CMS Energy into or with
any other entity if such merger or consolidation would adversely affect the
powers or special rights of such class of Common Stock, either directly by
amendment to the Articles of Incorporation or indirectly by requiring the
holders of such class to accept or retain, in such merger or consolidation,
anything other than (i) shares of such class or (ii) shares of the surviving or
resulting corporation, having, in either case, powers and special rights
identical to those of such class prior to such merger or consolidation. The
effect of these provisions may be to permit the holders of a majority of the
outstanding shares of either class of Common Stock to block any such merger or
amendment that would adversely affect the powers or special rights of holders of
such class of Common Stock.
Preemptive Rights
The Articles of Incorporation provide that holders of Common Stock will
have no preemptive rights to subscribe for or purchase any additional shares of
the capital stock of CMS Energy of any class now or hereafter authorized, or
Preferred Stock, bonds, debentures, or other obligations or rights or options
convertible into or exchangeable for or entitling the holder or owner to
subscribe for or purchase any shares of capital stock, or any rights to exchange
shares issued for shares to be issued.
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Liquidation Rights
In the event of the dissolution, liquidation or winding up of CMS Energy,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of CMS Energy and after there shall have been paid
or set apart for the holders of Preferred Stock the full preferential amounts
(including any accumulated and unpaid dividends) to which they are entitled, the
holders of CMS Energy Common Stock and any future holders of issued and
outstanding shares of Class G Common Stock shall be entitled to receive, on a
per share basis, the same portion of all of the assets of CMS Energy remaining
for distribution to the holders of Common Stock, regardless of whether or not
any of such assets were attributed to the Consumers Gas Group. Neither the
merger or consolidation of CMS Energy into or with any other corporation, nor
the merger or consolidation of any other corporation into or with CMS Energy nor
any sale, transfer or lease of all or any part of the assets of CMS Energy,
shall be deemed to be a dissolution, liquidation or winding up for the purposes
of this provision.
Because CMS Energy has subsidiaries that have debt obligations and other
liabilities of their own, CMS Energy's rights and the rights of its creditors
and its stockholders to participate in the distribution of assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
prior claims of the subsidiary's creditors, except to the extent that CMS Energy
may itself be a creditor with recognized claims against the subsidiary.
Subdivision or Combination
If CMS Energy subdivides (by stock split, stock dividend or otherwise) or
combines (by reverse stock split or otherwise), the voting and liquidation
rights of shares of CMS Energy Common Stock relative to outstanding shares of
Class G Common Stock will be appropriately adjusted so as to avoid any dilution
in aggregate voting or liquidation rights of either class of Common Stock. For
example, in case CMS Energy were to effect a two-for-one split of Class G Common
Stock, the per share liquidation rights of CMS Energy Common Stock would be
multiplied by two in order to avoid dilution in the aggregate liquidation rights
of holders of CMS Energy Common Stock and each post-split share of Class G
Common Stock would have one-half of a vote on matters voted upon by the
Shareholders.
Exchanges
The Articles of Incorporation do not provide for either the mandatory or
optional exchange or redemption of CMS Energy Common Stock but do provide that
Class G Common Stock may be exchanged for CMS Energy Common Stock as described
in the Registration Statement on Form 8-B/A incorporated by reference herein. If
Class G Shares are issued and outstanding in the future, CMS Energy cannot
predict the impact of the potential for such exchanges on the market prices of
CMS Energy Common Stock.
CMS Energy may exchange future issued and outstanding shares of Class G
Common Stock for a proportionate number of shares of a subsidiary that holds all
the assets and liabilities attributed to the Consumers Gas Group, and no other
assets and liabilities. If CMS Energy transfers all or substantially all of the
properties and assets attributed to the Consumers Gas Group, CMS Energy is
required, subject to certain exceptions and conditions, to exchange each
outstanding share of Class G Common Stock for a number of shares of CMS Energy
Common Stock having a Fair Market Value (defined in the Articles of
Incorporation) equal to 110% of the Fair Market Value of one share of Class G
Common Stock.
In the event any shares of Class G Common Stock are issued and outstanding,
CMS Energy may, in the sole discretion of the Board of Directors, at any time,
exchange each outstanding share of Class G Common Stock for a number of shares
of CMS Energy Common Stock having a Fair Market Value equal to 115% of the Fair
Market Value of one share of Class G Common Stock.
CMS Energy cannot predict the impact of the potential for such exchanges on
the market prices of the CMS Energy Common Stock.
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Transfer Agent and Registrar
CMS Energy Common Stock is transferable at Consumers Energy Company, 212 W.
Michigan Avenue, Jackson, MI 49201. CMS Energy is the registrar and transfer
agent for CMS Energy Common Stock.
PREFERRED STOCK
The authorized Preferred Stock may be issued without the approval of the
holders of Common Stock in one or more series, from time to time, with each such
series to have such designation, powers, preferences and relative,
participating, optional or other special rights, voting rights, if any, and
qualifications, limitations or restrictions thereof, as shall be stated in a
resolution providing for the issue of any such series adopted by CMS Energy's
Board of Directors. The Articles of Incorporation provide that holders of
Preferred Stock will not have any preemptive rights to subscribe for or purchase
any additional shares of the capital stock of CMS Energy of any class now or
hereafter authorized, or any Preferred Stock, bonds, debentures or other
obligations or rights or options convertible into or exchangeable for or
entitling the holder or owner to subscribe for or purchase any shares of capital
stock. The future issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of CMS Energy.
Series A Mandatorily Convertible Preferred Stock
The Articles of Incorporation establish one series of preferred stock
designated as "Series A Mandatorily Convertible Preferred Stock" consisting of
125,000 shares with a liquidation preference of $1,000 per share. The Series A
Preferred Stock ranks prior to any series of our Common Stock as to the payment
of dividends and distribution of assets upon dissolution, liquidation or winding
up of CMS Energy, and is convertible into shares of Common Stock. The holders of
the Series A Preferred Stock have no preemptive rights.
Dividends
Holders of Series A Preferred Stock are not entitled to receive dividends
prior to the rate reset date. The rate reset date is the earlier of the date
when remarketing of the Series A Preferred Stock begins or the date that there
is a failure to remarket the Series A Preferred Stock because it is legally
impossible. After such date, dividends on the Series A Preferred Stock are
payable quarterly in cash at the reset dividend rate. The reset dividend rate
per annum for each dividend period beginning on the rate reset date will
generally be equal to $1,000 times the sum of (1) 7.0% plus (2) the annual
dividend yield of a share of our Common Stock.
Dividends on the Series A Preferred Stock are cumulative and accrue to the
holders of Series A Preferred Stock whether or not they are declared and,
whether or not our earnings or financial condition are sufficient to pay such
dividends in whole or in part.
As long as any Series A Preferred Stock is outstanding, we may not pay
dividends or distributions on, or purchase, redeem or otherwise acquire, subject
to certain exceptions, shares of our Common Stock unless (1) full dividends on
the Series A Preferred Stock have been paid or set aside for payment, (2) all
required amounts for purchase or retirement of, or sinking funds for,
outstanding shares of Series A Preferred Stock have been paid or set aside and
(3) we are not in default of any of our obligations to redeem the Series A
Preferred Stock.
Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or
winding up our affairs, holders of Series A Preferred Stock will be entitled to
be paid in full in cash the amount of $1,000 per share as well as all accrued
dividends to the date of the distribution or payment, whether or not earned or
declared. However, this payment right is subject to the rights of any senior
stock or parity stock that is outstanding
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at that time. If, upon any liquidation, dissolution or winding up of our
affairs, Series A Preferred Stock holders and parity stock holders are not paid
in full then they shall share the amount paid out in proportion to the full
amounts they would have been entitled to.
Voting Rights
The holders of the Series A Preferred Stock are not entitled to vote,
except as set forth below or as expressly required by applicable law.
So long as any shares of Series A Preferred Stock are outstanding, the
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock will be required for any
amendment of our Articles of Incorporation which will adversely affect the
powers, preferences, privileges or rights of the Series A Preferred Stock. In
addition, the affirmative vote or consent of the holders of a least a majority
of the outstanding shares of Series A Preferred Stock will be required to
authorize, issue or increase the authorized amount of any stock of any class or
series or any security convertible into stock of any class or series ranking
prior to the Series A Preferred Stock, or to authorize our merger or
consolidation with or into another corporation or a statutory share exchange
with another corporation, subject to certain exceptions.
Redemption
At any time following a redemption event and prior to a rate reset date, we
will have the right to redeem all outstanding shares of Series A Preferred Stock
at a price of $1,000 per share, plus accrued and unpaid dividends. A redemption
event means the occurrence of any of the following:
- our consolidation or merger with or into another entity, or a statutory
exchange of securities with another entity, unless in connection with
such transaction, our outstanding shares of Common Stock immediately
preceding the transaction are converted into, exchanged for or otherwise
represent at least a majority of the outstanding common stock of the
surviving or resulting entity; or
- the sale or conveyance of all or substantially all of our assets to
another entity, other than our subsidiary.
Mandatory Conversion
Unless previously converted at the option of the holder as described in the
next paragraph, on the third anniversary of the rate reset date, each
outstanding share of Series A Preferred Stock will automatically convert into a
number of shares of our common stock at the "CMS mandatory conversion rate" plus
accrued and unpaid dividends. The CMS mandatory conversion rate equals the
following number of shares of our Common Stock per share of Series A Preferred
Stock, subject to adjustment:
- if the average trading price of a share of our Common Stock for the
20-trading day period immediately prior to the conversion date equals or
exceeds the product of the reset price and 1.10 (the "CMS threshold
appreciation price"), the quotient of $1,000 divided by the CMS threshold
appreciation price;
- if the average trading price of a share of our Common Stock for the
20-trading day period immediately prior to the conversion date is less
than the CMS threshold appreciation price but is greater than the reset
price, the quotient of $1,000 divided by the average trading price of a
share of our Common Stock for the 20-trading day period immediately prior
to the conversion date; and
- if the average trading price of a share of our Common Stock for the
20-trading day period immediately prior to the conversion date is less
than or equal to the reset price, the quotient of $1,000 divided by the
reset price.
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Conversion at the Option of the Holder
At any time before the third anniversary of the rate reset date, each
outstanding share of Series A Preferred Stock is convertible at the option of
the holder into 24.779 shares of our Common Stock, subject to certain
anti-dilution adjustments and adjustment on the rate reset date.
PRIMARY SOURCE OF FUNDS OF CMS ENERGY; RESTRICTIONS ON SOURCES OF DIVIDENDS
The ability of CMS Energy to pay (i) dividends on its capital stock and
(ii) its indebtedness, including the Debt Securities, depends and will depend
substantially upon timely receipt of sufficient dividends or other distributions
from its subsidiaries, in particular Consumers. Consumers' ability to pay
dividends on its common stock depends upon its revenues, earnings and other
factors. Consumers' revenues and earnings will depend substantially upon rates
authorized by the MPSC.
Consumers' ability to pay dividends is restricted by its First Mortgage
Bond Indenture (the "Mortgage Indenture") and its Articles of Incorporation
("Articles"). The Mortgage Indenture provides that Consumers can only pay
dividends on its common stock out of retained earnings accumulated subsequent to
September 30, 1945, provided that upon such payment, there shall remain of such
retained earnings an amount equivalent to any deficiency in maintenance and
replacement expenditures as compared with maintenance and replacement
requirements since December 31, 1945. Because of restrictions in its Articles
and Mortgage Indenture, Consumers was prohibited from paying dividends on its
common stock from June 1991 to December 31, 1992. However, as of December 31,
1992, Consumers effected a quasi-reorganization in which Consumers' accumulated
deficit of $574 million was eliminated against other paid-in capital. With the
accumulated deficit eliminated, Consumers satisfied the requirements under its
Mortgage Indenture and resumed paying dividends on its common stock in May 1993.
Consumers' Articles also provide two restrictions on its payment of
dividends on its common stock. First, prior to the payment of any common stock
dividend, Consumers must reserve retained earnings after giving effect to such
dividend payment of at least (i) $7.50 per share on all then outstanding shares
of its preferred stock, (ii) in respect to its Class A Preferred Stock, 7.5% of
the aggregate amount established by its Board of Directors to be payable on the
shares of each series thereof in the event of involuntary liquidation of
Consumers, and (iii) $7.50 per share on all then outstanding shares of all other
stock over which its preferred stock and Class A Preferred Stock do not have
preference as to the payment of dividends and as to assets. Second, dividend
payments during the 12 month period ending with the month the proposed payment
is to be paid are limited to: (i) 50% of net income available for the payment of
dividends during the base period (hereinafter defined) if the ratio of common
stock and surplus to total capitalization and surplus for 12 consecutive
calendar months within the 14 calendar months immediately preceding the proposed
dividend payment (the "base period"), adjusted to reflect the proposed dividend,
is less than 20%; and (ii) 75% of net income available for the payment of
dividends during the base period if the ratio of common stock and surplus to
total capitalization and surplus for the base period, adjusted to reflect the
proposed dividend, is at least 20% but less than 25%.
In addition, Consumers' Indenture dated January 1, 1996, between Consumers
and Bank of New York as Trustee ("Indenture"), and certain Preferred Securities
Guarantees by Consumers dated January 23, 1996, September 11, 1997 and October
25, 1999 (collectively the "Consumers Preferred Securities Guarantees"), in
connection with which the 8.36% Trust Preferred Securities of Consumers Power
Company Financing I, the 8.20% Trust Securities of Consumers Energy Financing
II, the 9.25% Trust Originated Preferred Securities of Consumers Energy
Financing III and the 9% Trust Preferred Securities of Consumers Energy Company
Financing IV (collectively the "Consumers Trust Preferred Securities") were
issued, provide that Consumers shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase or make a liquidation
payment with respect to, any of its capital stock if: (i) there shall have
occurred any event that would constitute an event of default under the Indenture
or the trust agreements pursuant to which the Consumers Trust Preferred
Securities were issued, (ii) a default with respect to its payment of any
obligations under the Consumers Preferred
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Securities Guarantees or certain Consumers common stock guarantees, or (iii) it
gives notice of its election to extend the interest payment period on the
subordinated notes issued under the Indenture, at any time for up to 20
consecutive quarters provided, however, Consumers may declare and pay stock
dividends where the dividend stock is the same stock as that on which the
dividend is being paid.
Consumers' Articles also prohibit the payment of cash dividends on its
common stock if Consumers is in arrears on preferred stock dividend payments.
In addition, Michigan law prohibits payment of a dividend if, after giving
it effect, Consumers would not be able to pay its debts as they become due in
the usual course of business, or its total assets would be less than the sum of
its total liabilities plus, unless the articles permit otherwise, the amount
that would be needed, if Consumers were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Currently, it is Consumers' policy to pay annual dividends equal
to 80% of its annual consolidated net income. Consumers' Board of Directors
reserves the right to change this policy at any time.
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
Debentures will be issued under a senior debt indenture and Subordinated
Debentures 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 Bank One Trust Company, National
Associations and the trustee under the subordinated debt indenture will be The
Bank of New York.
GENERAL
The indentures provide that 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;
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- 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;
- 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 Bank One Trust Company, National Association, 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.
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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 of 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.
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.
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.
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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 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 principal and interest on the Debt Securities of such
series on the stated maturities 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
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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 above, 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.
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 DEBENTURES
The Senior Debentures 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 DEBENTURES
The Subordinated Debentures 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 Debentures. The subordinated debt indenture provisions described in
this paragraph, however, do not prevent CMS Energy from making sinking fund
payments in Subordinated Debentures acquired prior to the maturity of Senior
Indebtedness or, in the case of default, prior to such default and notice
thereof. 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 Debentures. Holders of Subordinated Debentures 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.
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"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 Debentures), 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.
The subordinated debt indenture does not limit the total amount of Senior
Indebtedness that may be issued. As of March 31, 2001, Senior Indebtedness of
CMS Energy totaled approximately $8.1 billion.
CERTAIN COVENANTS
If Debt Securities are issued to a Trust or a trustee of such Trust in
connection with the issuance of Trust Preferred Securities by such Trust, CMS
Energy will covenant that it will not, and it will not cause any of its
subsidiaries to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
CMS Energy's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of CMS Energy that
rank pari passu (in the case of Subordinated Debentures) with or junior (in the
case of Senior and Subordinated Debentures) to that Debt Security (other than
(a) any dividend, redemption, liquidation, interest, principal or guarantee
payment by CMS Energy where the payment is made by way of securities (including
capital stock) that rank pari passu with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is being
made, (b) payments under the Guarantees, (c) purchases of CMS Energy Common
Stock related to the issuance of CMS Energy Common Stock under any of CMS
Energy's benefit plans for its directors, officers or employees, (d) as a result
of a reclassification of CMS Energy's capital stock or the exchange or
conversion of one series or class of CMS Energy's capital stock for another
series or class of CMS Energy's capital stock and (e) the purchase of fractional
interests in shares of CMS Energy's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged) if at such time (i) there shall have occurred any event of which CMS
Energy has actual knowledge that (a) with the giving of notice or the lapse of
time, or both, would constitute an event of default under the indentures and (b)
in respect of which CMS Energy shall not have taken reasonable steps to cure,
(ii) CMS Energy shall be in default with respect to its payment of any
obligations under the Guarantees or (iii) CMS Energy shall have given notice of
its selection of an Extension Period as provided in the indentures with respect
to the Debt Securities and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing. CMS Energy will
also covenant (i) for so long as Trust Preferred Securities are outstanding, not
to convert the Debt Securities except pursuant to a notice of conversion
delivered to the Conversion Agent (as defined in the indentures) by a holder of
Trust Preferred Securities, (ii) to maintain directly or indirectly 100%
ownership of the Common Securities, provided that certain successor which are
permitted pursuant to the indentures may succeed to CMS Energy's ownership of
the Common Securities, (iii) not to voluntarily terminate, wind-up or liquidate
such Trust, except (a) in connection with a distribution of the Debt Securities
to the holders of the Trust Preferred Securities in liquidation of such Trust or
(b) in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement, (iv) to maintain the reservation for issuance
of the number of shares of CMS Energy
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Common Stock that would be required from time to time upon the conversion of all
the Debt Securities then outstanding, (v) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause such
Trust to remain classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes and (vi) to
deliver shares of CMS Energy Common Stock upon an election by the holders of the
Trust Preferred Securities to convert such Trust Preferred Securities into CMS
Energy Common Stock.
As part of the Guarantees, CMS Energy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Trust Preferred Securities into or for CMS Energy Common Stock, Senior
Debentures or Subordinated Debentures.
CONVERSION RIGHTS
If the prospectus supplement provides, the Holders of Debt Securities may
convert such Debt Securities into CMS Energy Common Stock, as defined herein
(see "Description of Securities -- Common Stock"), at the option of the Holders
at the principal amount thereof, or of such portion thereof, at any time during
the period specified in the prospectus supplement, at the conversion price or
conversion rate specified in the prospectus supplement; except that, with
respect to any Debt Securities (or portion thereof) called for redemption, such
conversion right shall terminate at the close of business on the fifteenth day
prior to the date fixed for redemption of such Debt Security, unless CMS Energy
shall default in payment of the amount due upon redemption thereof.
The conversion privilege and conversion price or conversion rate will be
adjusted in certain events, including if CMS Energy:
- pays a dividend or makes a distribution in shares of CMS Energy Common
Stock;
- subdivides its outstanding shares of CMS Energy Common Stock into a
greater number of shares;
- combines its outstanding shares of CMS Energy Common Stock into a smaller
number of shares;
- pays a dividend or makes a distribution on its CMS Energy Common Stock
other than in shares of its CMS Energy Common Stock;
- issues by reclassification of its shares of CMS Energy Common Stock any
shares of its capital stock;
- issues any rights or warrants to all holders of shares of its CMS Energy
Common Stock entitling them (for a period expiring within 45 days, or
such other period as may be specified in the prospectus supplement) to
purchase shares of CMS Energy Common Stock (or Convertible Securities as
defined in the indentures) at a price per share less than the Average
Market Price (as defined in the indentures) per share for such CMS Energy
Common Stock; or
- distributes to all holders of shares of its CMS Energy Common Stock any
assets or Debt Securities or any rights or warrants to purchase
securities, provided that no adjustment shall be made under the last two
bullet points above if the adjusted conversion price would be higher
than, or the adjusted conversion rate would be less than, the conversion
price or conversion rate, as the case may be, in effect prior to such
adjustment.
CMS Energy may reduce the conversion price or increase the conversion rate,
temporarily or otherwise, by any amount but in no event shall such adjusted
conversion price or conversion rate result in shares of CMS Energy Common Stock
being issuable upon conversion of the Debt Securities if converted at the time
of such adjustment at an effective conversion price per share less than the par
value of the CMS Energy Common Stock at the time such adjustment is made. No
adjustments in the conversion price or conversion rate need be made unless the
adjustment would require an increase or decrease of at least one percent (1%) in
the initial conversion price or conversion rate. Any adjustment which is not
made shall be carried forward and taken into account in any subsequent
adjustment. The foregoing conversion provisions may be modified to the extent
set forth in the prospectus supplement.
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TRUST PREFERRED SECURITIES
General
Each Trust may issue, from time to time, Trust Preferred Securities having
terms described in the applicable prospectus supplement. The Trust Agreement of
each Trust will authorize the establishment of no more than one series of Trust
Preferred Securities, having such terms, including distributions, redemption,
voting, liquidation rights and such other preferred, deferred or other special
rights or such rights or restrictions as shall be set forth therein or otherwise
established by the relevant Trust Trustees. Reference is made to the prospectus
supplement relating to the Trust Preferred Securities for specific terms,
including:
- the distinctive designation and the number of Trust Preferred Securities
to be offered which will represent undivided beneficial interests in the
assets of the Trust;
- the annual distribution rate and the dates or date upon which such
distributions will be paid, provided, however distributions on the Trust
Preferred Securities will be paid quarterly in arrears to holders of
Trust Preferred Securities as of a record date on which the Trust
Preferred Securities are outstanding;
- whether holders' can convert the Trust Preferred Securities into shares
of CMS Energy Common Stock;
- whether distributions on Trust Preferred Securities would be deferred
during any deferral of interest payments on the Debt Securities,
provided, however that no such deferral, including extensions, if any,
may exceed 20 consecutive quarters nor extend beyond the stated maturity
date of the Debt Securities, and at the end of any such deferrals, CMS
Energy shall make all interest payments then accrued or deferred and
unpaid (including any compounded interest);
- the amount of any liquidation preference;
- the obligation, if any, of the Trust to redeem Trust Preferred Securities
through the exercise of CMS Energy of an option on the corresponding Debt
Securities and the price or prices at which, the period or periods within
which and the terms and conditions upon which Trust Preferred Securities
shall be purchased or redeemed, in whole or in part, pursuant to such
obligation;
- the period or periods within which and the terms and conditions, if any,
including the price or prices or the rate or rates of conversion or
exchange and the terms and conditions of any adjustments thereof, upon
which the Trust Preferred Securities shall be convertible or exchangeable
at the option of the holder of the Trust Preferred Securities or other
property or cash;
- the voting rights, if any, of the Trust Preferred Securities in addition
to those required by law and in the Trust Agreement, or set forth under a
Guarantee (as defined below);
- the additional payments, if any, which the Trust will pay as a
distribution as necessary so that the net amounts reserved by the Trust
and distributable to the holders of the Trust Preferred Securities, after
all taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) have been paid will not be less than the
amount that would have been reserved and distributed by the Trust, and
the amount the holders of the Trust Preferred Securities would have
reserved, had no such taxes, duties, assessments or governmental charges
been imposed;
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- the terms and conditions, if any, upon which the Debt Securities may be
distributed to holders of Trust Preferred Securities; and
- any other relative rights, powers, preferences, privileges, limitations
or restrictions of the Trust Preferred Securities not inconsistent with
the Trust Agreement or applicable law. All Trust Preferred Securities
offered hereby will be irrevocably guaranteed by CMS Energy, on a senior
or subordinated basis, as applicable, and to the extent set forth below
under "The Guarantees." Any applicable federal income tax considerations
applicable to any offering of the Trust Preferred Securities will be
described in the prospectus supplement relating thereto. The aggregate
number of Trust Preferred Securities which the Trust shall have authority
to issue will be pursuant to the terms of the Trust Agreement.
EFFECT OF OBLIGATIONS UNDER THE DEBT SECURITIES
AND THE GUARANTEES
As set forth in the Trust Agreement, the sole purpose of the Trust is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of each of the Trusts, and to invest the proceeds from such issuance and
sale to acquire directly the Debt Securities from CMS Energy.
As long as payments of interest and other payments are made when due on the
Debt Securities, such payments will be sufficient to cover distributions and
payments due on the Trust Securities because of the following factors:
- the aggregate principal amount of Debt Securities will be equal to the
sums of the aggregate stated liquidation amount of the Trust Securities;
- the interest rate and the interest and other payment dates on the Debt
Securities will match the distribution rate and distribution and other
payment dates for the Trust Securities;
- CMS Energy shall pay all, and the Trust shall not be obligated to pay,
directly or indirectly, all costs, expenses, debt and obligations of the
Trust (other than with respect to the Trust Securities); and
- the Trust Agreement further provides that CMS Energy Trustees shall not
take or cause or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefore are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by CMS Energy as and to the extent set
forth under "The Guarantees" below. If CMS Energy does not make interest
payments on the Debt Securities purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Trust Preferred
Securities. The Guarantees do not apply to any payment of distributions unless
and until the Trust has sufficient funds for the payment of distributions and
other payments on the Trust Preferred Securities only if and to the extent that
CMS Energy has made a payment of interest or principal on the Debt Securities
held by the Trust as its sole asset. The Guarantees, when taken together with
CMS Energy's obligations under the Debt Securities and the Indenture and its
obligations under the Trust Agreement, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust securities), provide a full and unconditional guarantee of amounts on the
Trust Preferred Securities.
If CMS Energy fails to make interest or other payments on the Debt
Securities when due (taking account of any extension period), the Trust
Agreement provides a mechanism whereby the holders of the Trust Preferred
Securities may direct a Property Trustee to enforce its rights under the Debt
Securities. If a Property Trustee fails to enforce its rights under the Debt
Securities, a holder of Trust Preferred Securities may institute a legal
proceeding against CMS Energy to enforce a Property Trustee's rights under the
Debt Securities without first instituting any legal proceeding against a
Property Trustee or any
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other person or entity. Notwithstanding the foregoing, if an event of default
has occurred and is continuing under the Trust Agreement, and such event is
attributable to the failure of CMS Energy to pay interest or principal on the
Debt Securities on the date such interest or principal is otherwise payable (or
in the case of redemption on the redemption date), then a holder of Trust
Preferred Securities may institute legal proceedings directly against CMS Energy
to obtain payment. If CMS Energy fails to make payments under the Guarantees,
the Guarantees provide a mechanism whereby the holders of the Trust Preferred
Securities may direct a Guarantee Trustee to enforce its rights thereunder. Any
holder of Trust Preferred Securities may institute a legal proceeding directly
against CMS Energy to enforce a Guarantee Trustee's rights under a Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee, or any other person or entity.
THE GUARANTEES
Set forth below is a summary of information concerning the Guarantees which
will be executed and delivered by CMS Energy for the benefit of the holders,
from time to time, of the Trust Preferred Securities. Each Guarantee will be
qualified as an indenture under the Trust Indenture Act of 1939. Either The Bank
of New York, or Bank One Trust Company, National Association, each an
independent trustee, will act as indenture trustee under the Guarantees for the
purpose of compliance with the provisions of the Trust Indenture Act of 1939.
This summary does not purport to be complete and is subject in all respects to
the provisions of, and is qualified in its entirety by reference to, the
Guarantees, which is filed as an exhibit to the Registration Statement of which
this prospectus forms a part.
General
CMS Energy will irrevocably agree to pay in full, on a senior or
subordinated basis, as applicable, to the extent set forth herein, the Guarantee
Payments (as defined below) to the holders of the Trust Preferred Securities, as
and when due, regardless of any defense, right of set-off or counterclaim that
the Trust may have or assert other than the defense of payment. The following
payments with respect to the Trust Preferred Securities, to the extent not paid
by or on behalf of the Trust (the "Guarantee Payments"), will be subject to a
Guarantee: (i) any accumulated and unpaid distributions required to be paid on
the Trust Preferred Securities, to the extent that the Trust has funds on hand
available therefor at such time; (ii) the redemption price with respect to any
Trust Preferred Securities called for redemption to the extent that the Trust
has funds on hand available therefor at such time; or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Trust (unless the Debt
Securities are distributed to holders of the Trust Preferred Securities), the
lesser of (a) the liquidation distribution, to the extent that the Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Trust remaining available for distribution to holders of Trust Preferred
Securities. CMS Energy's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts of CMS Energy to the holders of the
Trust Preferred Securities or by causing the Trust to pay such amount to such
holders.
Such Guarantees will be irrevocable guarantees, on a senior or subordinated
basis, as applicable, of the Trust's obligations under the Trust Preferred
Securities, but will apply only to the extent that the Trust has funds
sufficient to make such payments, and are not guarantees of collection. If CMS
Energy does not make interest payments on the Debt Securities held by the Trust,
the Trust will not be able to pay distributions on the Trust Preferred
Securities and will not have funds legally available therefor.
CMS Energy has, through the Guarantees, the Trust Agreements, the Senior
Debentures, the Subordinated Debentures, the indentures and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of the Trust's obligations under the Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the Trust Preferred
Securities.
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CMS Energy has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities to
the same extent as the Guarantees, except that upon the occurrence and during
the continuation of a Trust Agreement Event of Default, holders of Trust
Preferred Securities shall have priority over holders of Common Securities with
respect to distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF CMS ENERGY
CMS Energy will covenant in each Guarantee that if and so long as (i) the
Trust is the holder of all the Debt Securities, (ii) a Tax Event (as defined in
the Guarantee) in respect of the Trust has occurred and is continuing and (iii)
CMS Energy has elected, and has not revoked such election, to pay Additional
Sums (as defined in the Guarantee) in respect of the Trust Preferred Securities
and Common Securities, CMS Energy will pay to the Trust such Additional Sums.
CMS Energy will also covenant that it will not, and it will not cause any of its
subsidiaries to (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of CMS
Energy's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of CMS Energy that
rank pari passu (in the case of Subordinated Debentures with or junior in the
case of the Senior and Subordinated Debentures) to the Debt Securities (other
than (a) any dividend, redemption, liquidation, interest, principal or guarantee
payment by CMS Energy where the payment is made by way of securities (including
capital stock) that rank pari passu with or junior to the securities on which
such dividend, redemption, interest, principal or guarantee payment is being
made, (b) payments under the Guarantees, (c) purchases of CMS Energy Common
Stock related to the issuance of CMS Energy Common Stock under any of CMS
Energy's benefit plans for its directors, officers or employees, (d) as a result
of a reclassification of CMS Energy's capital stock or the exchange or
conversion of one series or class of CMS Energy's capital stock for another
series or class of CMS Energy's capital stock and (e) the purchase of fractional
interests in shares of CMS Energy's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged) if at such time (i) there shall have occurred any event of which CMS
Energy has actual knowledge that (a) with the giving of notice or the lapse of
time, or both, would constitute an event of default and (b) in respect of which
CMS Energy shall not have taken reasonable steps to cure, (ii) CMS Energy shall
be in default with respect to its payment of any obligations under the Guarantee
or (iii) CMS Energy shall have given notice of its selection of an Extension
Period as provided in the indentures with respect to the Debt Securities and
shall not have rescinded such notice, or such Extension Period, or any extension
thereof, shall be continuing. CMS Energy also will covenant to (i) for so long
as Trust Preferred Securities are outstanding, not convert Debt Securities
except pursuant to a notice of conversion delivered to the Conversion Agent by a
holder of Trust Preferred Securities, (ii) maintain directly or indirectly 100%
ownership of the Common Securities, provided that certain successors which are
permitted pursuant to the indentures may succeed to CMS Energy's ownership of
the Common Securities, (iii) not voluntarily terminate, wind-up or liquidate the
Trust, except (a) in connection with a distribution of the Debt Securities to
the holders of the Trust Preferred Securities in liquidation of the Trust or (b)
in connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement, (iv) maintain the reservation for issuance of the number of
shares of CMS Energy Common Stock that would be required from time to time upon
the conversion of all the Debt Securities then outstanding, (v) use its
reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause the Trust to remain classified as a grantor trust and not as
an association taxable as a corporation for United States federal income tax
purposes and (vi) deliver shares of CMS Energy Common Stock upon a n election by
the holders of the Trust Preferred Securities to convert such Trust Preferred
Securities into CMS Energy Common Stock.
As part of the Guarantees, CMS Energy will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Trust Preferred Securities into or for CMS Energy Common Stock, Senior
Debentures or Subordinated Debentures.
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AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantees may not be amended without the prior approval
of the holders of not less than a majority in aggregate liquidation amount of
such outstanding Trust Preferred Securities. All guarantees and agreements
contained in the Guarantees shall bind the successors, assigns, receivers,
trustees and representatives of CMS Energy and shall inure to the benefit of the
holders of the Trust Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEES
The Guarantees will terminate and be of no further force and effect upon
full payment of the redemption price of the Trust Preferred Securities, upon
full payment of the amounts payable upon liquidation of the Trust, upon the
distribution, if any, of CMS Energy Common Stock to the holders of Trust
Preferred Securities in respect of the conversion of all such holders' Trust
Preferred Securities into CMS Energy Common Stock or upon distribution of the
Debt Securities to the holders of the Trust Preferred Securities in exchange for
all of the Trust Preferred Securities. The Guarantees will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Trust Preferred Securities must restore payment of any sums paid under such
Trust Preferred Securities or the Guarantees.
EVENTS OF DEFAULT
An event of default under a Guarantee will occur upon the failure of CMS
Energy to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to a Guarantee Trustee in respect of a
Guarantee or to direct the exercise of any trust or power conferred upon a
Guarantee Trustee under the Guarantees.
If a Guarantee Trustee fails to enforce a Guarantee, any holder of the
Trust Preferred Securities may institute a legal proceeding directly against CMS
Energy to enforce its rights under such Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. In addition, any record holder of Trust Preferred Securities shall have
the right, which is absolute and unconditional, to proceed directly against CMS
Energy to obtain Guarantee Payments, without first waiting to determine if the
Guarantee Trustee has enforced a Guarantee or instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. CMS
Energy has waived any right or remedy to require that any action be brought just
against the Trust, or any other person or entity before proceeding directly
against CMS Energy.
CMS Energy, as guarantor, is required to file annually with each Guarantee
Trustee a certificate as to whether or not CMS Energy is in compliance with all
the conditions and covenants applicable to it under the Guarantees.
STATUS OF THE GUARANTEES
The Guarantees will constitute unsecured obligations of CMS Energy and will
rank equal to or subordinate and junior in right of payment to all other
liabilities of CMS Energy, as applicable. The Guarantees will rank pari passu
with or senior to, as applicable, any guarantee now or hereafter entered into by
CMS Energy in respect of any preferred or preference stock of any affiliate of
CMS Energy.
The Guarantees will constitute a guarantee of payment and not of collection
which means that the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The
Guarantees will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantees will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or upon
distribution of the Debt Securities to the holders of the Trust Preferred
Securities. The
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Guarantees do not place a limitation on the amount of additional indebtedness
that may be incurred by CMS Energy or any of its subsidiaries.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
CMS Energy may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from CMS Energy, and CMS Energy to sell to the
holders, a specified number of shares of CMS Energy Common Stock at a future
date or dates. The price per share of CMS Energy Common Stock may be fixed at
the time the Stock Purchase Contracts are issued or may be determined by
reference to a specific formula set forth in the Stock Purchase Contracts. The
Stock Purchase Contracts may be issued separately or as part of Stock Purchase
Units consisting of a Stock Purchase Contract and Senior Debentures,
Subordinated Debentures, Trust Preferred Securities or debt obligations of third
parties, including U.S. Treasury securities, securing the holders' obligations
to purchase the Common Stock under the Stock Purchase Contracts. The Stock
Purchase Contracts may require CMS Energy to make periodic payments to the
holders of the Stock Purchase Units or visa versa, and such payments may be
unsecured or refunded on some basis. The Stock Purchase Contracts may require
holders to secure their obligations thereunder in a specified manner.
The applicable prospectus supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the prospectus
supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
LEGAL OPINIONS
Opinions as to the legality of certain of the Offered Securities will be
rendered for CMS Energy by Michael D. Van Hemert, Esq., Assistant General
Counsel for CMS Energy. Certain matters of Delaware law relating to the validity
of the Trust Preferred Securities will be passed upon on behalf of the Trusts by
Skadden, Arps, Slate, Meagher & Flom LLP, special Delaware counsel to the
Trusts. Certain United States Federal income taxation matters may be passed upon
for CMS Energy and the Trust by either Theodore Voqel, tax counsel for CMS
Energy, or by special tax counsel to CMS Energy and of the Trust, who will be
named in the prospectus supplement. Certain legal matters with respect to
Offered Securities will be passed upon by counsel for any underwriters, dealers
or agents, each of whom will be named in the related prospectus supplement.
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EXPERTS
The consolidated financial statements and schedules of CMS Energy as of
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000 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.
With respect to the unaudited interim consolidated financial information
for the period ended March 31, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report thereon states that they did not
audit and they did not express an opinion on that interim consolidated financial
information. Accordingly, the degree of reliance on their report on that
information should be restricted in light of the limited nature of the review
procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act, for their reports on
the unaudited interim consolidated financial information. This limitation of
Section 11 responsibility is because those reports are not a "report" or "part"
of the registration statement prepared or certified by the accountants within
the meaning of Section 7 and 11 of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
PLAN OF DISTRIBUTION
CMS Energy and/or the Trusts may sell the Offered Securities: (i) through
the solicitation of proposals of underwriters or dealers to purchase the Offered
Securities; (ii) through underwriters or dealers on a negotiated basis; (iii)
directly to a limited number of purchasers or to a single purchaser; or (iv)
through agents. The prospectus supplement with respect to any Offered Securities
will set forth the terms of such offering, including the name or names of any
underwriters, dealers or agents; the purchase price of the Offered Securities
and the proceeds to CMS Energy and/or the Trust from such sale; any underwriting
discounts and commissions and other items constituting underwriters'
compensation; any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchange on which
such Offered Securities may be listed. Any initial public offering price,
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the prospectus supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover of such prospectus supplement. Unless otherwise set forth
in the prospectus supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased.
CMS Energy and/or the Trusts may sell Offered Securities to dealers as
principals. The dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
prospectus supplement relating thereto.
CMS Energy and/or the Trusts may sell Offered Securities directly or
through agents designated by CMS Energy and/or the Trusts from time to time. Any
of CMS Energy's and/or the Trusts' at the
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market offerings of equity securities will be made through RCG Equity Finance, a
division of Ramius Securities, LLC as the sales agents. Any agent involved in
the offer or sale of the Offered Securities in respect to which this prospectus
is delivered, other than at the market offerings of equity securities, will be
named in a prospectus supplement relating thereto. Any commissions payable by
CMS Energy and/or the Trusts to any agent will be set forth in the prospectus
supplement relating thereto. Unless otherwise indicated in the prospectus
supplement, any such agent will be acting on a best efforts basis for the period
of its appointment.
The Offered Securities may be sold directly by CMS Energy and/or the Trust
to institutional investors or others, who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale thereof. The
terms of any such sales will be described in the prospectus supplement relating
thereto.
The CMS Energy Common Stock may be offered other than through the
facilities of a national securities exchange and other than to or through a
market maker other than on an exchange.
Agents, dealers and underwriters may be entitled under agreements with CMS
Energy and/or the Trust to indemnification by CMS Energy and/or the Trust
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for CMS Energy and/or the Trust in the ordinary course of business.
The Offered Securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for CMS Energy and/or the Trusts. Any
remarketing firm will be identified and the terms of its agreement, if any, with
its compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Offered Securities remarketed
thereby. Remarketing firms may be entitled under agreements which may be entered
into with CMS Energy and/or the Trusts to indemnification or contribution by CMS
Energy and/or the Trusts against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions or perform services for CMS Energy and its subsidiaries in the
ordinary course of business.
The Offered Securities may or may not be listed on a national securities
exchange. Reference is made to the prospectus supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
Offered Securities.
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CMS ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PANHANDLE COMPANIES
PRE-ACQUISITION PRO FORMA
----------------------------------------
ELIMINATION
RESTRUCTURING OF DUKE
CMS ENERGY PANHANDLE AND ENERGY
HISTORICAL HISTORICAL REALIGNMENT ACTIVITIES
---------- ---------- ------------- -----------
Operating revenue................ $6,103 $133 $ (3)(b)
Operating expenses
Operations and maintenance....... 4,370 43 (1)(a) 4(c)
Depreciation and amortization.... 595 14 (1)(a) (1)(d)
Property and other taxes......... 254 7 -- --
------ ---- -- ----
5,219 64 (2) 3
------ ---- -- ----
Pretax operating income.......... 884 69 2 (6)
Other income (deductions)........ 49 5
Fixed charges.................... 592 19 2 (13)(e)
Income before income taxes....... 341 55 -- 7
Income taxes..................... 64 21 -- 2(f)
------ ---- -- ----
Consolidated net income.......... $ 277 $ 34 $ 5
====== ==== == ====
Basic earnings per average common
share
CMS Energy...................... $ 2.18(o)
======
Class G......................... $ 4.21(o)
======
Diluted earnings per average
common share
CMS Energy...................... $ 2.17(o)
======
Class G......................... $ 4.21(o)
======
Average common shares outstanding
CMS Energy...................... 110
======
Class G......................... 9(o)
======
PRO FORMA ACQUISITION
------------------------------------------------------
ACQUISITION FINANCING INTERCOMPANY CMS ENERGY
ADJUSTMENTS TRANSACTIONS ELIMINATIONS PRO FORMA
----------- ------------ ------------ ----------
Operating revenue................ $(2)(g) $ -- $ (4)(n) $6,216
(11)(m)
Operating expenses
Operations and maintenance....... (2)(n) 4,403
(11)(m)
Depreciation and amortization.... 2(h) (1)(n) 608
Property and other taxes......... 261
--- ---- ---- ------
2 -- (14) 5,272
--- ---- ---- ------
Pretax operating income.......... (4) -- (1) 944
Other income (deductions)........ 54
Fixed charges.................... 48(j) 639
(9)(k)
Income before income taxes....... (4) (39) (1) 359
Income taxes..................... (1)(i) (13)(l) (1) 72
--- ---- ---- ------
Consolidated net income.......... $(3) $(26) $ -- $ 287
=== ==== ==== ======
Basic earnings per average common
share
CMS Energy...................... $ 2.27(o)
======
Class G......................... $ 4.21(o)
======
Diluted earnings per average
common share
CMS Energy...................... $ 2.26(o)
======
Class G......................... $ 4.21(o)
======
Average common shares outstanding
CMS Energy...................... 110
======
Class G......................... 9(o)
======
See accompanying notes to Unaudited Pro Forma Combined Income Statement.
F-1
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CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
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.
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 deprecation 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 Panhandle senior notes with a weighted average interest rate of
6.8% and $1.1 billion of CMS Energy senior notes and trust preferred securities
with a weighted average interest rate of 7.5%.
(k) To reflect the elimination of interest expense incurred in connection
with the utilization of bridge financing facilities.
(l) To reflect the income tax expense effects of pro forma adjustment (j)
and (k) at an estimated rate of 35%.
INTERCOMPANY ELIMINATIONS:
(m) To reflect the elimination of intercompany transactions between CMS
Energy and the Panhandle Companies.
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CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(n) To eliminate three days of activity subsequent to the acquisition which
is included in CMS Energy historical amounts.
OTHER:
(o) Reflects Class G common stock as outstanding from January 1, 1999 to
October 25, 1999. Reflects the reallocation of net income and earnings per share
as a result of the premium on exchange of Class G common stock. As a result, CMS
Energy's basic and diluted earnings per share were reduced $0.26 and $0.25,
respectively, and Class G's basic and diluted earnings per share were increased
$3.31.
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45
CMS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
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