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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998
REGISTRATION NO. 333-65619
333-65619-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONSUMERS ENERGY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-0442310
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
212 WEST MICHIGAN AVENUE
JACKSON, MICHIGAN 49201
517-788-0550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ALAN M. WRIGHT
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
CONSUMERS ENERGY COMPANY
212 WEST MICHIGAN AVENUE
JACKSON, MICHIGAN 49201
517-788-0351
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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WITH COPIES TO:
MICHAEL D. VAN HEMERT, ESQ.
ASSISTANT GENERAL COUNSEL
CMS ENERGY CORPORATION
FAIRLANE PLAZA SOUTH, SUITE 1100
330 TOWN CENTER DRIVE
DEARBORN, MICHIGAN 48126
(313) 436-9605
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS RATINGS:
STANDARD & POOR'S: "AAA"
MOODY'S: "AAA"
$150,000,000
LOGO
% Senior Secured Insured Quarterly Notes
Due October 1, 2028
(IQ Notes(SM)*)
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The notes bear interest at the rate of % per year. Interest on the notes is
payable quarterly on January 1, April 1, July 1 and October 1 of each year,
beginning January 1, 1999. The notes will mature on October 1, 2028. We can
redeem the notes on or after October 1, 2003. We will also redeem the notes,
subject to certain conditions, at the option of the representative of any
deceased noteholder.
We will issue first mortgage bonds to secure the notes. On the date that we have
retired all the first mortgage bonds, the notes will become unsecured and rank
equally with all of our other unsecured senior indebtedness.
AMBAC Logo
The payment of principal and interest on the notes will be insured by a
financial guaranty insurance policy issued by Ambac Assurance Corporation. The
notes will be available for purchase in denominations of $1,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Edward D. Jones & Co., L.P. has agreed to purchase the notes at % of their
principal amount ($ aggregate proceeds to Consumers Energy Company,
before deducting our expenses, which we estimate to be $ ), subject to
the terms of our purchase agreement. Edward D. Jones & Co., L.P. plans to sell
the notes from time to time, in negotiated transactions or otherwise, at prices
based on either the prevailing market or negotiated prices.
We expect that the notes will be ready for delivery in book-entry form only
through The Depository Trust Company ("DTC"), on or about October [ ], 1998.
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*IQ Notes is a service mark of Edward D. Jones & Co., L.P.
EDWARD D. JONES & CO., L.P.
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The date of this Prospectus is October [ ], 1998
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WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; Seven World Trade Center, 13th Floor,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60601. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms and their copy charges. You may also
inspect our SEC reports and other information at the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering the
notes. For further information on Consumers and the notes, you should refer to
our registration statement and its exhibits. This prospectus summarizes material
provisions of contracts and other documents that we refer you to. Since the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about Consumers, including, among other things:
- - our anticipated growth strategies;
- - our intention to develop new services, energy sources and facilities;
- - anticipated trends in our energy-related businesses;
- - future expenditures for capital projects; and
- - our ability to continue to control costs and maintain quality.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not, and the underwriters have not, authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not, and the underwriters are not, making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus, as well as information we
previously filed with the SEC and incorporated by reference, is accurate as of
the date on the front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed since that date.
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PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to you.
You should read the entire prospectus, including the financial data and related
notes, before making an investment decision. The terms "Consumers", "our" and
"we" as used in this prospectus refer to "Consumers Energy Company" and its
subsidiaries and predecessors as a combined entity, except where it is made
clear that such term means only the parent company.
CONSUMERS ENERGY COMPANY
We are a public utility that provides gas or electricity to almost six million
of the nine and a half million residents in Michigan's Lower Peninsula. Our
service areas include automotive, metal, chemical, food and wood products and a
diversified group of other industries. At December 31, 1997, we provided service
to 1.6 million electric customers and 1.5 million gas customers. Our
consolidated operating revenues in 1997 were $3,769 million. 67% of our
operating revenue was generated from our electric utility business, 32% from our
gas utility business and 1% from our non-utility business.
We generate, purchase, transmit and distribute electricity in 61 of the 68
counties in the Lower Peninsula. We generate electricity through 5 fossil-fueled
plants, 1 nuclear plant, 1 pumped storage hydroelectric facility, 7 gas
combustion turbine plants and 13 hydroelectric plants. Together, as of December
31, 1997, these facilities gave us the capacity to generate 6,255 megawatts
("MW") of electricity. In 1997, we also purchased 1,648 MW of net capacity from
independent power producers. Our peak power demand during 1997 was 7,315 MW in
July.
We purchase, transport, store and distribute gas in 54 of the 68 counties in the
Lower Peninsula. We distribute and transmit gas through 22,825 miles of
distribution mains and 1,057 miles of transmission lines. We own and operate six
compressor stations that have a total of 133,560 installed horsepower.
We are subject to regulation by various federal, state and local agencies
including the Michigan Public Service Commission, the Federal Energy Regulatory
Commission and the Nuclear Regulatory Commission. These agencies regulate
various aspects of our business including the retail utility rates we charge,
certain tariffs that affect our pricing, our accounting practices and our
ability to acquire, construct, operate or dispose of certain gas and electric
assets and facilities, including nuclear power plants.
RECENT DEVELOPMENTS
On October 2, 1998, we began to solicit bids to acquire our rights to 1240 MW of
contract capacity and associated energy under our Power Purchase Agreement with
Midland Cogeneration Venture Limited Partnership. We have reserved the right at
any time, in our sole discretion, to terminate the auction process or to reject
any or all bids. We will not consummate the transaction unless we believe
important customer benefits will flow from the transaction.
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THE OFFERING
Notes Offered............................. Senior Secured Insured Quarterly Notes due
October 1, 2028
Aggregate Principal Amount................ $150,000,000
Interest Rate............................. [ ]%
Date of Maturity.......................... October 1, 2028.
Interest Payment Date..................... January 1, April 1, July 1 and October 1 of
each year, beginning January 1, 1999.
Record Date for Interest Payments......... The 15th calendar day of the month preceding
the month in which an Interest Payment Date
occurs.
Ranking................................... The notes will be secured by first mortgage
bonds. On the date that we have retired all
the first mortgage bonds, the notes will
become unsecured and rank equally with all
of our other unsecured senior indebtedness.
Redemption of the Notes:
Option of the Company..................... We will have the option to redeem the notes
(in whole or in part), from time to time on
or after October 1, 2003. If we redeem the
notes, we will pay 100% of the principal
amount plus the accrued interest through the
redemption date.
Redemption of the Notes:
Option of a Deceased Noteholder's
Representative.......................... We will also redeem the notes at the option
of the representative of any deceased
noteholder. We will pay 100% of the
principal amount, plus accrued interest,
subject to the following condition: the
maximum principal amount we will redeem is
$25,000 per deceased owner and $3,000,000 in
the aggregate for all deceased owners during
the initial period from the date of this
prospectus until October 1, 1999 and during
each twelve-month period thereafter.
Insurance................................. The payment of the principal and interest on
the notes will be insured by a financial
guaranty insurance policy issued by Ambac
Assurance Corporation that will be issued at
the same time the notes are delivered.
Form of Note.............................. One global security, held in the name of
DTC.
Settlement and Payment.................... Same-day immediately available funds.
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Rating.................................... The notes will be rated "AAA" by Standard &
Poor's Ratings Group and "AAA" by Moody's
Investors Services, Inc.
Ratio of Earnings to Fixed Charges........ Our ratio of earnings to fixed charges for
the twelve months ended June 30, 1998 is
3.26. For each of the years ended December
31, 1993 through 1997 they are as follows:
2.46; 2.81; 2.82; 3.27; and 3.31.
Use of Proceeds........................... We estimate that the net proceeds of the
offering will be approximately $150 million
before deducting expenses. We intend to use
these proceeds from the offering of the
notes to repay certain indebtedness
outstanding under a credit facility, and for
general corporate purposes, including paying
down short-term debt.
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CONSUMERS ENERGY COMPANY
Consumers, incorporated in Michigan in 1968, is the successor to a
corporation organized in Maine in 1910 that did business in Michigan from 1915
to 1968. Consumers was named Consumers Power Company from 1910 to the first
quarter of 1997, when Consumers changed its name to Consumers Energy Company.
Consumers is the principal subsidiary of CMS Energy Corporation, a Michigan
corporation ("CMS Energy"). CMS Energy, through other subsidiaries, is also
engaged in several domestic and international energy-related businesses
including: oil and gas exploration and production; acquisition, development and
operation of independent power production facilities; storage, transmission and
processing of natural gas; energy marketing, services and trading; and
international energy distribution.
Consumers is a public utility serving gas or electricity to almost six
million of Michigan's nine and a half million residents in all 68 counties in
Michigan's Lower Peninsula. Consumers' service areas include automotive, metal,
chemical, food and wood products and a diversified group of other industries.
Consumers' electric operations include the generation, purchase, transmission
and distribution of electricity in 61 of the 68 counties in the Lower Peninsula
of Michigan. Consumers' gas operations include the purchase, transportation,
storage and distribution of gas serving 54 of the 68 counties in the Lower
Peninsula of Michigan. At December 31, 1997, Consumers provided service to 1.6
million electric customers and 1.5 million gas customers.
Consumers' 1997 consolidated operating revenue of $3,769 million was
derived 67% ($2,515 million) from its electric utility business, 32% ($1,204
million) from its gas utility business and 1% ($50 million) from its non-utility
business.
Consumers' electric generating system consists of five fossil-fueled
plants, one nuclear plant, one pumped storage hydroelectric facility, seven gas
combustion turbine plants and thirteen hydroelectric plants. Consumers-owned
system generating capacity (including the pumped storage hydroelectric facility,
of which Consumers has a 51% ownership) was 6,255 MW as of December 31, 1997. In
1997, Consumers purchased 1,648 MW of net capacity from independent power
producers. Consumers' peak power demand for 1997 was 7,315 MW in July 1997.
Consumers' gas distribution and transmission system consists of 22,825
miles of distribution mains and 1,057 miles of transmission lines throughout the
Lower Peninsula of Michigan. Consumers owns and operates six compressor stations
with a total of 133,560 installed horsepower.
Consumers is subject to regulation by various federal, state and local
agencies including the Michigan Public Service Commission ("MPSC"), the Federal
Energy Regulatory Commission ("FERC") and the Nuclear Regulatory Commission
("NRC"). The MPSC regulates public utilities in Michigan with respect to retail
utility rates, accounting, services, certain facilities and various other
matters. The FERC has jurisdiction over certain aspects of Consumers' gas
business relating, among other things, to the acquisition, operation and
disposal of assets and facilities and to service provided and rates charged by
Michigan Gas Storage Company, a subsidiary of Consumers. Under certain
circumstances, the FERC also has the power to modify gas tariffs of interstate
pipeline companies. Certain aspects of Consumers' gas business also are subject
to regulation by the FERC including a blanket transportation tariff pursuant to
which Consumers can transport gas in interstate commerce. Certain aspects of
Consumers' electric operations also are subject to regulation by the FERC,
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including compliance with the FERC's accounting rules and other regulations
applicable to "public utilities" and "licensees," the transmission of electric
energy in interstate commerce and the rates and charges for the sale of electric
energy at wholesale, the consummation of certain mergers, the sale of certain
facilities, the construction, operation and maintenance of hydroelectric
projects and the issuance of securities, as provided by the Federal Power Act.
Consumers is subject to NRC jurisdiction with respect to the design,
construction, operation and decommissioning of its nuclear power plants.
The foregoing information concerning Consumers does not purport to be
comprehensive. For additional information concerning Consumers' business and
affairs, including its capital requirements and external financing plans,
pending legal and regulatory proceedings and descriptions of certain laws and
regulations to which it is subject, prospective purchasers should refer to the
Incorporated Documents. See Incorporation by Reference: Information we file with
the SEC.
RECENT DEVELOPMENTS
On October 2, 1998, Consumers initiated a process for the solicitation of
bids to acquire Consumers' rights to 1240 MW of contract capacity and associated
energy ("PPA Rights") under its Power Purchase Agreement ("PPA") with Midland
Cogeneration Venture Limited Partnership ("MCV"). The term of the PPA is for 35
years, which commenced on the date of commercial operation of the MCV's
generating facilities in March 1990. The PPA Rights are being offered in one
1240 MW block or in two 620 MW pieces, for the period from the effective date in
1999 through either September 2007 or March 2025.
Consumers has reserved the right at any time, in its sole discretion, to
terminate the auction process or to reject any or all bids. Consumers will not
consummate a transaction unless important customer benefits flow from that
transaction. Any such transaction would be subject to the approval of Consumers'
Board of Directors and obtaining satisfactory ratemaking and accounting
treatment from the MPSC and the FERC with respect to the definitive agreements,
including any necessary approval of the transfer of PPA Rights by FERC.
In an order issued October 12, 1998, the MPSC delayed consideration of the
auction until the definitive agreements with the winning bidder(s) are presented
to the MPSC but stated that Consumers' approach offers legitimate way to utilize
independent market forces to determine the above-market or stranded portion of
Consumers' obligations under the PPA with the MCV.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain financial information of Consumers
and its consolidated subsidiaries and is qualified in its entirety by, and
should be read in conjunction with, the detailed information and Consumers
consolidated financial statements and notes thereto included in the Incorporated
Documents. See "Incorporation by Reference: Information We File with the SEC."
TWELVE
MONTHS
ENDED/AT YEAR ENDED/AT DECEMBER 31,
JUNE 30, ----------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS)
Operating revenue........... $3,696 $3,769 $3,770 $3,511 $3,356 $3,243
Net income.................. 342 321 296 255 226 198
Net income available to
common stockholder........ 305 284 260 227 202 187
Total assets................ 7,076 6,949 7,025 6,954 6,809 6,551
Long-term debt, excluding
current maturities........ 2,159 1,369 1,900 1,922 1,953 1,839
Non-current portion of
capital leases............ 77 74 100 104 108 106
Total preferred stock....... 238 238 356 356 356 163
Total trust preferred
securities................ 220 220 100 -- -- --
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the twelve months ended June
30, 1998 and for each of the years ended December 31, 1993 through 1997 are as
follows:
TWELVE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------
1998 1997 1996 1995 1994 1993
-------- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges.................... 3.26 3.31 3.27 2.82 2.81 2.46
For the purpose of computing such ratio, earnings represent net income
before income taxes, net interest charges and estimated interest portion of
lease rentals.
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CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
Consumers Energy Company ("Consumers" or the "Company") at June 30, 1998 and as
adjusted to reflect the sale of the % Senior Secured Insured Quarterly Notes
due October 1, 2028 (the "Notes") offered hereby and the application of the
estimated net proceeds from such sale. See "Use of Proceeds." The table should
be read in conjunction with Consumers' consolidated financial statements and
notes thereto included in the documents described under "Incorporation by
Reference: Information We File with the SEC" (the "Incorporated Documents").
AT JUNE 30, 1998
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AS
ACTUAL ADJUSTED
------ --------
(UNAUDITED)
(IN MILLIONS)
Common stockholder's equity................................. $1,748 $1,748
Preferred stock............................................. 238 238
Consumers-obligated mandatorily redeemable Trust Preferred
Securities of:
Consumers Power Company Financing I(a).................... 100 100
Consumers Energy Company Financing II(a).................. 120 120
Long-term debt (excluding current maturities)(b)............ 2,159 2,259
Non-current portion of capital leases....................... 77 77
------ ------
Total capitalization........................................ 4,442 4,542
Current portion of long-term debt and capital leases(b)..... 94 94
------ ------
Total capitalization and current portion of long-term debt
and capital leases........................................ $4,536 $4,636
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(a) The primary asset of Consumers Power Company Financing I is $103
million principal amount of 8.36% subordinated deferrable interest
notes due 2015 from the Consumers. The primary asset of Consumers
Energy Company Financing II is $124 million principal amount of 8.20%
subordinated deferrable interest notes due 2027 from Consumers.
(b) Adjusted amount reflects issuance of $150 million of the Notes and the
proceeds being used for general corporate purposes and for payment of
long-term debt as described in "Use of Proceeds."
USE OF PROCEEDS
Fifty million dollars of the net proceeds from the sale of the Notes
offered hereby will be used by Consumers to repay a portion of the indebtedness
outstanding under the $225 million Term Loan Agreement, dated as of May 7, 1998,
by and among Consumers, the banks named therein, the other lenders from time to
time who may become parties thereto, and Barclays Bank PLC, as Administrative
Agent (the "Credit Facility"). The term of the Credit Facility
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is until May 7, 2003. The weighted average interest rate under the Credit
Facility is 6.10%. The amounts borrowed under the Credit Facility were used to
repay indebtedness outstanding under a $400 million term loan agreement which
Consumers had entered into on November 1, 1994. The remaining approximately $100
million of net proceeds from the sale of the Notes will be used by Consumers for
general corporate purposes, including paying down short-term debt.
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DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued pursuant to an Indenture, dated as of February
1, 1998, as supplemented (collectively, the "Indenture"), between Consumers and
The Chase Manhattan Bank, as trustee (the "Trustee"). At October 1, 1998, four
series of Senior Notes (as defined below) in an aggregate principal amount of
$925 million were outstanding under the Indenture. The following summaries of
certain provisions of the Indenture do not purport to be complete, make use of
defined terms (some but not all of which are defined herein) and are subject to,
and qualified in their entirety by, all of the provisions of the Indenture,
which is incorporated herein by this reference and which is available upon
request to the Trustee. Unless otherwise indicated, references to Section
numbers under this caption are references to the Section numbers of the
Indenture. In addition, capitalized terms used in this section and not otherwise
defined herein shall have the meaning given to them in the Indenture.
Until the Release Date (as defined below), all of the senior notes
outstanding under the Indenture (the "Senior Notes") will be secured by one or
more series of Consumers' First Mortgage Bonds (as defined below) issued and
delivered by Consumers to the Trustee. See "-- Security; Release Date" below. ON
THE RELEASE DATE, THE SENIOR NOTES (INCLUDING THE NOTES) WILL CEASE TO BE
SECURED BY FIRST MORTGAGE BONDS, WILL BECOME UNSECURED GENERAL OBLIGATIONS OF
CONSUMERS AND WILL RANK ON A PARITY WITH OTHER UNSECURED INDEBTEDNESS OF
CONSUMERS. The Indenture provides that, in addition to the Notes offered hereby,
additional Senior Notes may be issued thereunder, without limitation as to
aggregate principal amount, provided that, prior to the Release Date, the
principal amount of Senior Notes that may be issued and outstanding cannot
exceed the principal amount of Senior Note Mortgage Bonds (as defined herein)
then held by the Trustee. See "Description of First Mortgage Bonds -- Issuance
of Additional First Mortgage Bonds."
There is no requirement under the Indenture that future issues of debt
securities of Consumers be issued exclusively under the Indenture, and Consumers
will be free to employ other indentures (including, prior to the Release Date,
the Mortgage (as defined below)) or documentation, containing provisions
different from those included in the Indenture or applicable to one or more
issues of Senior Notes (including the Notes), in connection with future issues
of such other debt securities.
INTEREST
Each Note shall bear interest at % (the "Securities Rate") from the date
of original issuance, payable quarterly in arrears on January 1, April 1, July 1
and October 1 of each year and on the date of maturity to the person in whose
name such Note is registered at the close of business on the fifteenth calendar
day of the month preceding the month in which the respective Interest Payment
Date occurs. The initial Interest Payment Date is January 1, 1999. The amount of
interest payable will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Notes is not a Business Day (as defined below), then payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay).
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SPECIAL INSURANCE PROVISIONS OF THE INDENTURE
Notwithstanding any other provision of the Indenture, so long as Ambac
Assurance Corporation (the "Insurer") is not in default under the financial
guaranty insurance policy that insures the payment of the principal of and
interest on the Notes when due (the "Policy"), the Insurer shall be entitled to
control and direct the enforcement of all rights and remedies with respect to
the Notes upon the occurrence and continuation of an Event of Default (as
defined herein). The Trustee shall within one business day notify the Insurer of
any Nonpayment (as defined in the Policy) and such notice shall specify the
amount of the Nonpayment. The Trustee shall make a claim for Nonpayment under
the Policy prior to exercising any other rights under the Indenture; provided,
however, if the Insurer defaults under the Policy, the Trustee may assert any
and all rights it has under the Indenture.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Notes, in whole or in part,
at par without premium, from time to time, on or after October 1, 2003, upon not
less than 30 nor more than 60 days' notice, at a redemption price equal to 100%
of the principal amount to be redeemed plus any accrued and unpaid interest to
the Redemption Date (the "Redemption Price").
If notice of redemption is given as aforesaid, the Notes so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
together with any accrued interest thereon, and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. If any Note called for
redemption shall not be paid upon surrender thereof for redemption, the
principal shall, until paid, bear interest from the Redemption Date at the
Securities Rate.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), the Company or its
affiliates may, at any time and from time to time, purchase outstanding Notes by
tender, in the open market or by private agreement.
LIMITED RIGHT OF REDEMPTION UPON DEATH OF BENEFICIAL OWNER
Unless the Notes have been declared due and payable prior to their maturity
by reason of an Event of Default, a person authorized to represent the estate of
the deceased Beneficial Owner (as defined herein) or from a surviving joint
tenant(s) or tenants(s) by the entirety (each a "Representative") of a deceased
Beneficial Owner has the right to request redemption at par of all or part of
such interest, expressed in integral multiples of $1,000 principal amount, in
the Notes for payment prior to maturity, and the Company will redeem the same
subject to the limitations that the Company will not be obligated to redeem
during the period from the original issuance of the Notes through and including
October 1, 1999 (the "Initial Period"), and during any twelve-month period which
ends on and includes each October 1 thereafter (each such twelve-month period
being hereinafter referred to as a "Subsequent Period") (i) on behalf of a
deceased Beneficial Owner any interest in the Notes which exceeds an aggregate
principal amount of $25,000 or (ii) interests in the Notes in an aggregate
principal amount exceeding $3,000,000. A "Beneficial Owner" is a person who has
the right to sell, transfer or otherwise dispose of an interest in a Note and
the right to receive the proceeds therefrom, as well as the principal and
interest payable to the holder thereof. A
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request for redemption may be initiated by the Representative of a deceased
Beneficial Owner at any time and in any principal amount in integral multiples
of $1,000. Representatives of deceased Beneficial Owners must make arrangements
with the Participant through whom such interest is owned in order that timely
presentation of redemption requests can be made by the Participant to the
Trustee. If the Company, although not obligated to do so, chooses to redeem
interests of a deceased Beneficial Owner in the Notes in the Initial Period or
in any Subsequent Period in excess of the $25,000 limitation, such redemption,
to the extent that it exceeds the $25,000 limitation for any deceased Beneficial
Owner, shall not be included in the computation of the $3,000,000 aggregate
limitation for such Initial Period or such Subsequent Period, as the case may
be, or for any succeeding Subsequent Period. Any Note (or portion thereof)
tendered pursuant to a redemption request may be withdrawn by a written request
by the Representative received by the Trustee at least 10 days prior to its
repayment.
Subject to the $25,000 and the $3,000,000 limitations, the Company will,
after the death of any Beneficial Owner, redeem the interest of the Beneficial
Owner in the Notes on the next Interest Payment Date following receipt by the
Trustee of a redemption request received at least 20 days in advance of the next
Interest Payment Date. If, during the Initial Period or any Subsequent Period,
redemption requests exceed the aggregate principal amount of interests in Notes
required to be redeemed, then such excess redemption requests will be applied to
successive Subsequent Periods, regardless of the number of Subsequent Periods
required to redeem such interests. All redemption requests will be redeemed in
the order in which the Trustee receives the redemption request. To obtain
repayment pursuant to a redemption request, the Representative must provide to
the Participant (i) a written request for repayment signed by the
Representative, and such signature must be guaranteed by a member firm of a
registered national securities exchange or of the NASD or a commercial bank or
trust company having an office or correspondent in the United States, (ii)
appropriate evidence satisfactory to the Company and the Trustee that (A) the
Representative has authority to act on behalf of the deceased Beneficial Owner,
(B) the death of such Beneficial Owner has occurred and (C) the deceased was the
owner of a beneficial interest in such Note at the time of death, (iii) if
applicable, a properly executed assignment or endorsement, and (iv) if the
beneficial interest in such Notes is held by a nominee of the deceased
Beneficial Owner, a certificate satisfactory to the Trustee from such nominee
attesting to the deceased's ownership of a beneficial interest in such Note. The
Participant will provide these documents to the Trustee. All questions as to the
eligibility or validity of any exercise of redemption on behalf of a deceased
Beneficial Owner will be determined by the Company, in its sole discretion,
which determinations will be final and binding on all parties.
Interests in the Notes held in tenancy by the entirety, joint tenancy or by
tenants in common will be deemed to be held by a single Beneficial Owner, and
the death of a tenant in common, tenant by the entirety or joint tenant will be
deemed the death of a Beneficial Owner. The death of a person who, during such
person's lifetime, was entitled to substantially all of the rights of a
Beneficial Owner of an interest in the Notes will be deemed the death of the
Beneficial Owner, regardless of the recordation of such interest on the records
of the Participant, if such rights can be established to the satisfaction of the
Participant and the Company.
In the case of a redemption request which is presented on behalf of a
deceased Beneficial Owner and which has not been fulfilled at the time the
Company gives notice of its election to redeem the Notes, the interests in the
Notes which are the subject of such redemption request
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shall not be eligible for redemption pursuant to the Company's option to redeem
but shall remain subject to redemption pursuant to such redemption request.
Because of the limitations of the Company's requirement to redeem, no
Beneficial Owner can have any assurance that its interest in the Notes will be
paid prior to maturity.
REGISTRATION, TRANSFER AND EXCHANGE
The Notes will initially be issued in the form of one or more Global Notes,
in registered form, without coupons, in denominations of $1,000 or an integral
multiple thereof as described under "Book-Entry Only Issuance -- The Depository
Trust Company." The Global Notes will be registered in the name of a nominee of
DTC. Except as set forth herein under "Book-Entry Only Issuance -- The
Depository Trust Company," owners of beneficial interests in a Global Note will
not be entitled to have Notes registered in their names, will not receive or be
entitled to receive physical delivery of any such Note and will not be
considered the registered holder thereof under the Indenture.
Senior Notes of any series will be exchangeable for other Senior Notes of
the same series of any authorized denominations and of a like aggregate
principal amount and tenor. (Section 2.06)
Senior Notes may be presented for exchange or registration of transfer
(duly endorsed or accompanied by a duly executed written instrument of
transfer), at the office of the Trustee maintained in the Borough of Manhattan,
The City of New York, for such purpose with respect to any series of Senior
Notes, without service charge but upon payment of any taxes and other
governmental charges as described in the Indenture. Such transfer or exchange
will be effected upon Consumers and the Trustee being satisfied with the
documents of title and indemnity of the person making the request. (Sections
2.06, 2.07 and 6.02)
In the event of any redemption of Senior Notes of any series, the Trustee
will not be required to exchange or register a transfer of any Senior Notes of
such series selected, called or being called for redemption except, in the case
of any Senior Note to be redeemed in part, the portion thereof not to be so
redeemed. (Section 2.06)
PAYMENT AND PAYING AGENTS
Payments of principal of, and interest and/or premium, if any, on Notes
issued in the form of Global Notes shall be made by wire transfer of immediately
available funds to the account specified by the registered holder of such Global
Note, which shall initially be a nominee of DTC. Interest on Notes (other than
interest at maturity) that are in the form of certificated notes ("Certificated
Notes") will be paid by check mailed to the person entitled thereto at such
person's address as it appears in the register for the Notes maintained by the
Trustee; however, a holder of Senior Notes of one or more series under the
Indenture in the aggregate principal amount of $10 million or more having the
same interest payment dates will be entitled to receive payments of interest on
such series by wire transfer of immediately available funds to a bank within the
continental United States if appropriate wire transfer instructions have been
received by the Trustee on or prior to the applicable Regular Record Date. The
principal of, and interest at maturity and premium, if any, on Notes in the form
of Certificated Notes will be payable in immediately available funds at the
office of the Trustee or at the authorized office of any paying agent. (Section
2.12)
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If and to the extent that Consumers fails to make timely payment of
interest on any Note, that interest shall cease to be payable to the persons who
were the holders of such Notes at the applicable Regular Record Date, and shall
instead become payable to the holder of such Note at the close of business on a
special record date established by the Trustee, which special record date shall
be not more than 15 or fewer than 10 days prior to the date of the proposed
payment. (Section 2.11)
All monies paid by Consumers to the Trustee for the payment of principal
of, interest and/or premium, if any, on any Note which remain unclaimed at the
end of two years after such principal, interest or premium shall have become due
and payable will be repaid to Consumers, subject to applicable abandoned
property laws, and the holder of such Note will thereafter look only to
Consumers for payment thereof. (Section 5.04)
In any case where the date of maturity of the principal of or any premium
or interest on any Note or the date fixed for redemption of any Note is not a
Business Day, then payment of such principal or any premium or interest need not
be made on such date but may be made on the next succeeding Business Day with
the same force and effect as if made on the date of maturity or the date fixed
for redemption, and, in the case of timely payment thereof, no interest shall
accrue for the period from and after such interest payment date or the date on
which the principal or premium of the Note is stated to be payable to such next
succeeding Business Day. (Section 15.06) "Business Day" means each Monday,
Tuesday, Wednesday, Thursday and Friday that is not a day on which banks or
trust companies in the Borough of Manhattan, The City of New York, or in any
other city where the corporate trust office of the Trustee may be located, are
obligated or authorized by law or executive order to close.
SECURITY; RELEASE DATE
Until the Release Date, the Senior Notes (including the Notes) will be
secured by one or more series of Consumers' First Mortgage Bonds ("Senior Note
Mortgage Bonds") issued and delivered by Consumers to the Trustee (see
"Description of First Mortgage Bonds"). Upon the issuance of a series of Senior
Notes (including the Notes) prior to the Release Date, Consumers will
simultaneously issue and deliver to the Trustee, as security for all Senior
Notes, a series of Senior Note Mortgage Bonds that will have the same stated
maturity date and corresponding redemption provisions, and will be in the same
aggregate principal amount as the series of the Senior Notes (including the
Notes) being issued. Any series of Senior Note Mortgage Bonds may, but need not,
bear interest. The series of Senior Note Mortgage Bonds to be issued to the
Trustee concurrently with the issuance of the Notes will bear interest at the
same rate as is borne by the Notes. Any payment by Consumers to the Trustee of
principal of, interest and/or premium, if any, on a series of Senior Note
Mortgage Bonds will be applied by the Trustee to satisfy Consumers' obligations
with respect to principal of, interest and/or premium, if any, on the Senior
Notes. (Sections 2.12(c), 4.10 and 4.11)
THE RELEASE DATE WILL BE THE DATE THAT ALL FIRST MORTGAGE BONDS ("FIRST
MORTGAGE BONDS") OF CONSUMERS ISSUED AND OUTSTANDING UNDER THE MORTGAGE, OTHER
THAN SENIOR NOTE MORTGAGE BONDS, HAVE BEEN RETIRED (AT, BEFORE OR AFTER THE
MATURITY THEREOF) THROUGH PAYMENT, REDEMPTION OR OTHERWISE. ON THE RELEASE DATE,
THE TRUSTEE WILL DELIVER TO CONSUMERS FOR CANCELLATION ALL SENIOR NOTE MORTGAGE
BONDS AND NOT LATER THAN 30 DAYS THEREAFTER, WILL PROVIDE NOTICE TO ALL HOLDERS
OF SENIOR NOTES (INCLUDING THE NOTES) OF THE OCCURRENCE OF THE RELEASE DATE. AS
A RESULT, ON THE RELEASE DATE, THE SENIOR NOTE MORTGAGE BONDS SHALL CEASE TO
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SECURE THE SENIOR NOTES (INCLUDING THE NOTES), AND THE SENIOR NOTES (INCLUDING
THE NOTES) WILL BECOME UNSECURED GENERAL OBLIGATIONS OF CONSUMERS. (Section
4.11.) Each series of Senior Note Mortgage Bonds will be a series of First
Mortgage Bonds of Consumers, all of which are secured by a lien on certain
property owned by Consumers. See "Description of First Mortgage
Bonds -- Priority and Security." Upon the payment or cancellation of any
outstanding Senior Notes, the Trustee shall surrender to the Company for
cancellation an equal principal amount of the related series of Senior Note
Mortgage Bonds. Consumers shall not permit, at any time prior to the Release
Date, the aggregate principal amount of Senior Note Mortgage Bonds held by the
Trustee to be less than the aggregate principal amount of Senior Notes
outstanding. (Section 4.08.) Following the Release Date, Consumers will cause
the Mortgage to be discharged and will not issue any additional First Mortgage
Bonds under the Mortgage. (Section 4.11.) While Consumers will be precluded
after the Release Date from issuing additional First Mortgage Bonds, it will not
be precluded under the Indenture or Notes from issuing or assuming other secured
debt, or incurring liens on its property, except to the extent indicated below
under "-- Certain Covenants of Consumers -- Limitation on Liens."
EVENTS OF DEFAULT
The following constitute events of default under the Indenture: (a) default
in the payment of principal of and premium, if any, on any Senior Note when due
and payable; (b) default in the payment of interest on any Senior Note when due
which continues for 60 days; (c) default in the performance or breach of any
other covenant or agreement of Consumers in the Senior Notes or in the Indenture
and the continuation thereof for 90 days after written notice thereof to
Consumers by the Trustee or the holders of at least 33% in aggregate principal
amount of the outstanding Senior Notes; (d) prior to the Release Date, the
occurrence of a default as defined in the Mortgage; provided, however, that the
waiver or cure of such default and the rescission and annulment of the
consequences thereof under the Mortgage shall constitute a waiver of the
corresponding event of default under the Indenture and a rescission and
annulment of the consequences thereof under the Indenture; and (e) certain
events of bankruptcy, insolvency, reorganization, assignment or receivership of
Consumers. (Section 8.01)
If an event of default occurs and is continuing, either the Trustee or the
holders of a majority in aggregate principal amount of the outstanding Senior
Notes may declare the principal amount of all Senior Notes to be due and payable
immediately. Upon such acceleration of the Senior Notes, the Senior Note
Mortgage Bonds shall be immediately redeemed upon demand of the Trustee (and
surrender thereof to the Mortgage Trustee) at a redemption price of 100% of the
principal amount thereof, together with interest to the redemption date. See
"Description of First Mortgage Bonds -- Redemption Provisions." At any time
after an acceleration of the Senior Notes has been declared but before a
judgment or decree for the payment of the principal amount of the Senior Notes
has been obtained (and provided the acceleration of all First Mortgage Bonds has
not occurred), if Consumers pays or deposits with the Trustee a sum sufficient
to pay all matured installments of interest and the principal and any premium
which has become due otherwise than by acceleration and all defaults shall have
been cured or waived, then such payment or deposit will cause an automatic
rescission and annulment of the acceleration of the Senior Notes. (Section 8.01)
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The Indenture provides that the Trustee generally will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of Senior Notes unless such holders
have offered to the Trustee reasonable security or indemnity. (Section 9.02.)
Subject to such provisions for indemnity and certain other limitations contained
in the Indenture, the holders of a majority in principal amount of the
outstanding Senior Notes generally will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or of exercising any trust or power conferred on the Trustee. The
holders of a majority in principal amount of the outstanding Senior Notes
generally will have the right to waive any past default or event of default
(other than a payment default) on behalf of all holders of Senior Notes.
(Section 8.07.) The Indenture provides that no holder of Senior Notes may
institute any action against Consumers under the Indenture unless such holder
previously shall have given to the Trustee written notice of default and
continuance thereof and unless the holders of not less than a majority in
aggregate principal amount of Senior Notes then outstanding affected by such
event of default shall have requested the Trustee to institute such action and
shall have offered the Trustee reasonable indemnity, and the Trustee shall not
have instituted such action within 60 days of such request. Furthermore, no
holder of Senior Notes will be entitled to institute any such action if and to
the extent that such action would disturb or prejudice the rights of other
holders of Senior Notes. Notwithstanding that the right of a holder of Senior
Notes to institute a proceeding with respect to the Indenture is subject to
certain conditions precedent, each holder of a Senior Note has the right, which
is absolute and unconditional, to receive payment of the principal of, and
interest and/or premium, if any, on such Senior Note when due and to institute
suit for the enforcement of any such payment, and such rights may not be
impaired without the consent of such holder of Senior Notes. (Section 8.04.) The
Indenture provides that the Trustee, within 90 days after the occurrence of a
default with respect to the Senior Notes, is required to give the holders of the
Senior Notes notice of any such default known to the Trustee, unless cured or
waived, but, except in the case of default in the payment of principal of, and
interest and/or premium, if any, on any Senior Notes, the Trustee may withhold
such notice if it determines in good faith that it is in the interest of such
holders to do so. (Section 8.08.) Consumers is required to deliver to the
Trustee each year a certificate as to whether or not, to the knowledge of the
officers signing such certificate, Consumers is in compliance with the
conditions and covenants under the Indenture. (Section 6.06)
MODIFICATION
Modification and amendment of the Indenture may be effected by Consumers
and the Trustee with the consent of the holders of a majority in principal
amount of the outstanding Senior Notes affected thereby, provided that no such
modification or amendment may, without the consent of the holder of each
outstanding Senior Note affected thereby, (a) change the maturity date of any
Senior Note; (b) reduce the rate (or change the method of calculation thereof)
or extend the time of payment of interest on any Senior Note; (c) reduce the
principal amount of, or premium payable on, any Senior Note; (d) change the coin
or currency of any payment of principal of, and interest and/or premium on any
Senior Note; (e) change the date on which any Senior Note may be redeemed or
repaid at the option of the holder thereof or adversely affect the rights of a
holder to institute suit for the enforcement of any payment on or with respect
to any Senior Note; (f) impair the interest of the Trustee in the Senior Note
Mortgage Bonds held by it or, prior to the Release Date,
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reduce the principal amount of any series of Senior Note Mortgage Bonds securing
the Senior Notes to an amount less than the principal amount of the related
series of Senior Notes or alter the payment provisions of such Senior Note
Mortgage Bonds in a manner adverse to the holders of the Senior Notes; or (g)
modify the foregoing requirements or reduce the percentage of outstanding Senior
Notes necessary to modify or amend the Indenture or to waive any past default to
less than a majority. (Section 13.02.) Modification and amendment of the
Indenture may be effected by Consumers and the Trustee without the consent of
the holders in certain cases, including (a) to add to the covenants of Consumers
for the benefit of the holders or to surrender a right conferred on Consumers in
the Indenture; (b) to add further security for the Senior Notes; (c) to add
provisions enabling Consumers to be released with respect to one or more series
of outstanding Senior Notes from its obligations under the covenants described
under "-- Certain Covenants of Consumers -- Limitation on Liens" and
"-- Limitation on Sale and Lease-Back Transactions" and "-- Consolidation,
Merger and Sale or Disposition of Assets" below, upon satisfaction of conditions
with respect to such series of Senior Notes which are the same as those
described below under "-- Defeasance and Discharge" (except that the opinion of
tax counsel referred to therein need not be based upon an External Tax
Pronouncement (as defined in the Indenture)); (d) to supply omissions, cure
ambiguities or correct defects which actions, in each case, are not prejudicial
to the interests of the holders in any material respect; or (e) to make any
other change that is not prejudicial to the holders of Senior Notes in any
material respect. (Section 13.01)
A supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture (or any supplemental indenture) which has expressly
been included solely for the benefit of one or more series of Senior Notes, or
which modifies the rights of the holders of Senior Notes of such series with
respect to such covenant or provision, will be deemed not to affect the rights
under the Indenture of the holders of Senior Notes of any other series. (Section
13.02)
DEFEASANCE AND DISCHARGE
The Indenture provides that Consumers will be discharged from any and all
obligations in respect to the Senior Notes and the Indenture (except for certain
obligations such as obligations to register the transfer or exchange of Senior
Notes, replace stolen, lost or mutilated Senior Notes and maintain paying
agencies) if, among other things, Consumers irrevocably deposits with the
Trustee, in trust for the benefit of holders of Senior Notes, money or certain
United States government obligations, or any combination thereof, which through
the payment of interest thereon and principal thereof in accordance with their
terms will provide money in an amount sufficient, without reinvestment, to make
all payments of principal of, and any premium and interest on, the Senior Notes
on the dates such payments are due in accordance with the terms of the Indenture
and the Senior Notes; provided that, unless all of the Senior Notes are to be
due within 90 days of such deposit by redemption or otherwise, Consumers shall
also have delivered to the Trustee an opinion of counsel to the effect that the
holders of the Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance or discharge of the
Indenture. Thereafter, the holders of Senior Notes must look only to such
deposit for payment of the principal of, and interest and any premium on, the
Senior Notes. (Section 5.01)
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CONSOLIDATION, MERGER AND SALE OR DISPOSITION OF ASSETS
Consumers will not consolidate with or merge into any other corporation or
sell or otherwise dispose of its properties as or substantially as an entirety
unless (i) the successor or transferee corporation shall be a corporation
organized and existing under the laws of the United States of America, any State
thereof, or the District of Columbia, (ii) the successor or transferee
corporation assumes by supplemental indenture the due and punctual payment of
the principal of and premium and interest on all the Senior Notes and the
performance of every covenant of the Indenture to be performed or observed by
Consumers and (iii) if prior to the Release Date, the successor or transferee
corporation assumes Consumers' obligations under the Mortgage (as defined below)
with respect to the Senior Note Mortgage Bonds. (Section 12.01.) Upon any such
consolidation, merger, sale, transfer or other disposition of the properties of
Consumers substantially as an entirety, the successor corporation formed by such
consolidation or into which Consumers is merged or to which such transfer is
made shall succeed to, and be substituted for, and may exercise every right and
power of, Consumers under the Indenture with the same effect as if such
successor corporation had been named as Consumers therein and Consumers will be
released from all obligations under the Indenture. (Section 12.02.) For purposes
of the Indenture, the conveyance or other transfer by Consumers of (a) all or
any portion of its facilities for the generation of electric energy, (b) all of
its facilities for the transmission of electric energy or (c) all of its
facilities for the distribution of natural gas, in each case considered alone or
in any combination with properties described in any other clause, shall in no
event be deemed to constitute a conveyance or other transfer of all the
properties of Consumers, as or substantially as an entirety. (Section 12.01)
CERTAIN COVENANTS OF CONSUMERS
Limitation on Liens
The Indenture provides that, so long as any such Senior Notes are
outstanding, Consumers may not issue, assume, guarantee or permit to exist after
the Release Date any Debt (as defined below) that is secured by any mortgage,
security interest, pledge or lien ("Lien") of or upon any Operating Property of
Consumers, whether owned at the date of the Indenture or thereafter acquired,
without in any such case effectively securing the Senior Notes (together with,
if Consumers shall so determine, any other indebtedness of Consumers ranking
equally with the Senior Notes) equally and ratably with such Debt (but only so
long as such Debt is so secured).
The foregoing restriction will not apply to: (1) Liens on any Operating
Property existing at the time of its acquisition (which Liens may also extend to
subsequent repairs, alterations and improvements to such Operating Property);
(2) Liens on Operating Property of a corporation existing at the time such
corporation is merged into or consolidated with, or such corporation disposes of
its properties (or those of a division) as or substantially as an entirety to,
Consumers; (3) Liens on Operating Property to secure the cost of acquisition,
construction, development or substantial repair, alteration or improvement of
property or to secure indebtedness incurred to provide funds for any such
purpose or for reimbursement of funds previously expended for any such purpose,
provided such Liens are created or assumed contemporaneously with, or within 18
months after, such acquisition or the completion of substantial repair or
alteration, construction, development or substantial improvement; (4) Liens in
favor of any State or any department, agency or instrumentality or political
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subdivision of any State, or for the benefit of holders of securities issued by
any such entity (or providers of credit enhancement with respect to such
securities), to secure any Debt (including, without limitation, obligations of
Consumers with respect to industrial development, pollution control or similar
revenue bonds) incurred for the purpose of financing all or any part of the
purchase price or the cost of substantially repairing or altering, constructing,
developing or substantially improving Operating Property of Consumers; or (5)
any extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any Lien referred to in clauses (1)
through (4), provided, however, that the principal amount of Debt secured
thereby and not otherwise authorized by said clauses (1) to (4), inclusive,
shall not exceed the principal amount of Debt, plus any premium or fee payable
in connection with any such extension, renewal or replacement, so secured at the
time of such extension, renewal or replacement. However, the foregoing
restriction will not apply to the issuance, assumption or guarantee by Consumers
of Debt secured by a Lien which would otherwise be subject to the foregoing
restriction up to an aggregate amount which, together with all other secured
Debt of Consumers (not including secured Debt permitted under any of the
foregoing exceptions) and the Value (as defined below) of Sale and Lease-Back
Transactions (as defined below) existing at such time (other than Sale and
Lease-Back Transactions the proceeds of which have been applied to the
retirement of certain indebtedness, Sale and Lease-Back Transactions in which
the property involved would have been permitted to be subjected to a Lien under
any of the foregoing exceptions in clauses (1) to (5) and Sale and Lease-Back
Transactions that are permitted by the first sentence of "Limitation on Sale and
Lease-Back Transactions" below), does not exceed the greater of 15% of Net
Tangible Assets or 15% of Capitalization. (Section 6.07).
Limitation on Sale and Lease-Back Transactions
The Indenture provides that so long as such Senior Notes are outstanding,
Consumers may not enter into or permit to exist after the Release Date any Sale
and Lease-Back Transaction with respect to any Operating Property (except for
transactions involving leases for a term, including renewals, of not more than
48 months), if the purchaser's commitment is obtained more than 18 months after
the later of the completion of the acquisition, construction or development of
such Operating Property or the placing in operation of such Operating Property
or of such Operating Property as constructed or developed or substantially
repaired, altered or improved. This restriction will not apply if (a) Consumers
would be entitled pursuant to any of the provisions described in clauses (1) to
(5) of the first sentence of the second paragraph under "Limitation on Liens"
above to issue, assume, guarantee or permit to exist Debt secured by a Lien on
such Operating Property without equally and ratably securing the Senior Notes,
(b) after giving effect to such Sale and Lease-Back Transaction, Consumers could
incur pursuant to the provisions described in the second sentence of the second
paragraph under "Limitation on Liens," at least $1.00 of additional Debt secured
by Liens (other than Liens permitted by clause (a)), or (c) Consumers applies
within 180 days an amount equal to, in the case of a sale or transfer for cash,
the net proceeds (not exceeding the net book value), and, otherwise, an amount
equal to the fair value (as determined by its Board of Directors) of the
Operating Property so leased to the retirement of Senior Notes or other Debt of
Consumers ranking equally with, the Senior Notes, subject to reduction for
Senior Notes and such Debt retired during such 180-day period otherwise than
pursuant to mandatory sinking fund or prepayment provisions and payments at
stated maturity. (Section 6.08).
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Certain Definitions
"Capitalization" means the total of all the following items appearing on,
or included in, the consolidated balance sheet of Consumers: (i) liabilities for
indebtedness maturing more than twelve (12) months from the date of
determination; and (ii) common stock, preferred stock, Hybrid Preferred
Securities (as defined in the Indenture), premium on capital stock, capital
surplus, capital in excess of par value, and retained earnings (however the
foregoing may be designated), less, to the extent not otherwise deducted, the
cost of shares of capital stock of Consumers held in its treasury.
"Debt" means any outstanding debt for money borrowed evidenced by notes,
debentures, bonds or other securities, or guarantees of any thereof.
"Net Tangible Assets" means the amount shown as total assets on the
consolidated balance sheet of Consumers, less the following: (i) intangible
assets including, but without limitation, such items as goodwill, trademarks,
trade names, patents, and unamortized debt discount and expense and (ii)
appropriate adjustments, if any, on account of minority interests. Net Tangible
Assets shall be determined in accordance with generally accepted accounting
principles ("GAAP") and practices applicable to the type of business in which
Consumers is engaged and that are approved by the independent accountants
regularly retained by Consumers, and may be determined as of a date not more
than sixty (60) days prior to the happening of the event for which such
determination is being made.
"Operating Property" means (i) any interest in real property owned by
Consumers and (ii) any asset owned by Consumers that is depreciable in
accordance with GAAP, excluding, in either case, any interest of Consumers as
lessee under any lease (except for a lease that results from a Sale and
Lease-Back Transaction) which has been or would be capitalized on the books of
the lessee in accordance with GAAP.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing to Consumers of any Operating Property (except for
leases for a term, including any renewals thereof, of not more than 48 months),
which Operating Property has been or is to be sold or transferred by Consumers
to such person; provided, however, Sale and Lease-Back Transaction does not
include any arrangement first entered into prior to the date of the Indenture.
"Value" means, with respect to a Sale and Lease-Back Transaction, as of any
particular time, the amount equal to the greater of (i) the net proceeds to
Consumers from the sale or transfer of the property leased pursuant to such Sale
and Lease-Back Transaction or (ii) the net book value of such property, as
determined in accordance with GAAP by Consumers at the time of entering into
such Sale and Lease-Back Transaction, in either case multiplied by a fraction,
the numerator of which shall be equal to the number of full years of the term of
the lease that is part of such Sale and Lease-Back Transaction remaining at the
time of determination and the denominator of which shall be equal to the number
of full years of such term, without regard, in any case, to any renewal or
extension options contained in such lease.
VOTING OF SENIOR NOTE MORTGAGE BONDS HELD BY TRUSTEE
The Trustee, as the holder of Senior Note Mortgage Bonds, will attend any
meeting of bondholders under the Mortgage, or, at its option, will deliver its
proxy in connection therewith as it relates to matters with respect to which it
is entitled to vote or consent. So long
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as no Event of Default as defined in the Indenture has occurred and is
continuing, the Trustee will vote or consent:
(a) in favor of amendments or modifications of the Mortgage of
substantially the same tenor and effect as follows:
(i) to eliminate the maintenance and replacement fund and to recover
amounts of net property additions previously applied in satisfaction
thereof so that the same would become available as a basis for the
issuance of First Mortgage Bonds;
(ii) to eliminate sinking funds or improvement funds ("S&I Funds") and
to recover amounts of net property additions previously applied in
satisfaction thereof so that the same would become available as a basis
for the issuance of First Mortgage Bonds;
(iii) to eliminate the restriction on the payment of dividends on common
stock and to eliminate the requirements in connection with the periodic
examination of the mortgaged and pledged property by an independent
engineer;
(iv) to permit First Mortgage Bonds to be issued under the Mortgage in a
principal amount equal to 70% of unfunded net property additions instead
of 60%, to permit S&I Fund requirements (to the extent not otherwise
eliminated) under the Mortgage to be satisfied by the application of net
property additions in an amount equal to 70% of such additions instead
of 60%, and to permit the acquisition of property subject to certain
liens prior to the lien of the Mortgage if the principal amount of
indebtedness secured by such liens does not exceed 70% of the cost of
such property instead of 60%;
(v) to eliminate requirements that Consumers deliver a net earnings
certificate for any purpose under the Mortgage;
(vi) to raise the minimum dollar amount of insurance proceeds on account
of loss or damage that must be payable to the Trustee from $50,000 to an
amount equal to the greater of (A) $5,000,000 and (B) three per centum
(3%) of the aggregate principal amount of First Mortgage Bonds
outstanding;
(vii) to increase the amount of the fair value of property which may be
sold or disposed of free from the lien of the Mortgage, without any
release or consent by the Trustee, from not more than $25,000 in any
calendar year to not more than an amount equal to the greater of (A)
$5,000,000 and (B) three per centum (3%) of the aggregate principal
amount of First Mortgage Bonds then outstanding;
(viii) to permit certain mortgaged and pledged property to be released
from the lien of the Mortgage if, in addition to certain other
conditions, the Trustee receives purchase money obligations of not more
than 70% of the fair value of such property instead of 60% and to
eliminate the further requirement for the release of such property that
the aggregate principal amount of purchase money obligations held by the
Trustee not exceed 20% of the principal amount of First Mortgage Bonds
outstanding;
(ix) to eliminate the restriction prohibiting the Mortgage Trustee from
applying cash held by it pursuant to the Mortgage to the purchase of
bonds not otherwise
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redeemable at a price exceeding 110% of the principal of such bonds,
plus accrued interest; and
(b) with respect to any other amendments or modifications of the Mortgage,
as follows: the Trustee shall vote all Senior Note Mortgage Bonds then held
by it, or consent with respect thereto, proportionately with the vote or
consent of the holders of all other first mortgage bonds outstanding under
the Mortgage, the holders of which are eligible to vote or consent;
provided, however, that the Trustee shall not so vote in favor of, or so
consent to, any amendment or modification of the Mortgage which, if it were
an amendment or modification of the Indenture, would require the consent of
Holders of Senior Notes as described under "Modification," without the
prior consent of Holders of Senior Notes which would be required for such
an amendment or modification of the Indenture. (Section 4.03)
RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time upon written notice to Consumers
specifying the day upon which the resignation is to take effect and such
resignation will take effect immediately upon the later of the appointment of a
successor Trustee and such specified day. (Section 9.10)
The Trustee may be removed at any time by an instrument or concurrent
instruments in writing filed with the Trustee and signed by the holders, or
their attorneys-in-fact, of at least a majority in principal amount of the then
outstanding Senior Notes. In addition, so long as no Event of Default or event
which, with the giving of notice or lapse of time or both, would become an Event
of Default has occurred and is continuing, Consumers may remove the Trustee upon
notice to the holder of each Senior Note outstanding and the Trustee, and
appointment of a successor Trustee. (Section 9.10)
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is both the Trustee under the Indenture and the
Mortgage Trustee under the Mortgage. Consumers and its affiliates maintain
depository and other normal banking relationships with The Chase Manhattan Bank.
The Chase Manhattan Bank is also a lender to Consumers and its affiliates. The
Indenture provides that Consumers' obligations to compensate the Trustee and
reimburse the Trustee for expenses, disbursements and advances will constitute
indebtedness which will be secured by a lien generally prior to that of the
Senior Notes upon all property and funds held or collected by the Trustee as
such.
GOVERNING LAW
The Indenture and each Senior Note will be governed by Michigan Law.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as the initial securities depositary for the Notes. The Notes
will be issued only as fully registered securities registered in the name of
Cede & Co., DTC's nominee. One or more fully registered global Notes
certificates will be issued, representing in the aggregate the total principal
amount of Notes, and will be deposited with DTC (collectively, the "Global
Notes").
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DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the 1934 Act. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participant's accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the SEC.
Purchases of Notes within the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of Notes (such purchaser, or the
person to whom such purchaser conveys his or her ownership interest, a
"Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Notes. Transfers of ownership interests in
the Notes are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Notes, except in the
event that use of the book-entry system for the Notes is discontinued, the
Company determines that Beneficial Owners may exchange their ownership interests
for such certificates or there shall have occurred an Event of Default.
DTC has no knowledge of the actual Beneficial Owners of the Notes. DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Notes are
being redeemed, DTC will reduce the amount of the interest of each Direct
Participant in the Notes in accordance with its procedures.
Although voting with respect to the Notes is limited, in those cases where
a vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Notes. Under its usual procedures, DTC would mail an Omnibus Proxy to
the Company as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to
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those Direct Participants to whose accounts the Notes are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Payments on the Notes will be made to DTC. DTC's practice is to credit
Direct Participants' accounts on the Interest Payment Date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such Interest Payment Date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers registered in "street name," and will be the
responsibility of such Participant and not of DTC or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment to DTC is the responsibility of the Company, disbursement of such
payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Note will not be entitled to receive physical delivery of Notes. Accordingly,
each Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Notes. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a Global Note.
DTC may discontinue providing its services as security depositary with
respect to the Notes at any time by giving reasonable notice to the Company.
Under such circumstances, in the event that a successor securities depositary is
not obtained, Notes certificates will be printed and delivered to the holders of
record. Additionally, the Company may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary) with respect to the
Notes. In that event, certificates for the Notes will be printed and delivered
to the holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof. The Company has no
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
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DESCRIPTION OF FIRST MORTGAGE BONDS
GENERAL
The Senior Note Mortgage Bonds are to be issued under an Indenture dated as
of September 1, 1945, between Consumers and The Chase Manhattan Bank, as trustee
(the "Mortgage Trustee"), as amended and supplemented by various supplemental
indentures and as supplemented by a Supplemental Indenture dated as of October
, 1998 providing for the series of Senior Note Mortgage Bonds relating to the
Notes (the "Mortgage"). In connection with the change of the state of
incorporation from Maine to Michigan in 1968, Consumers succeeded to and was
substituted for the Maine corporation under the Mortgage. At September 30, 1998,
four series of First Mortgage Bonds in an aggregate principal amount of
approximately $674 million were outstanding under the Mortgage, excluding four
series of First Mortgage Bonds in an aggregate principal amount of $925 million
to secure outstanding Senior Notes and one series of First Mortgage Bonds in an
aggregate principal amount of $30 million to secure outstanding pollution
control revenue bonds. The statements herein concerning the Senior Note Mortgage
Bonds and the Mortgage are an outline and do not purport to be complete and are
subject to, and qualified in their entirety by, all of the provisions of the
Mortgage, which is incorporated herein by this reference. They make use of
defined terms and are qualified in their entirety by express reference to the
cited sections and articles of the Mortgage a copy of which will be available
upon request to the Trustee.
The Senior Note Mortgage Bonds relating to the Notes ("Senior IQ Mortgage
Bonds") will be issued as security for Consumers' obligations under the
Indenture and will be immediately delivered to and registered in the name of the
Trustee. The Senior Note Mortgage Bonds will be issued as security for the Notes
and will secure the Notes until the Release Date. For purposes of the Indenture,
the Senior IQ Note Mortgage Bonds shall be deemed to be the "related series" of
Senior Note Mortgage Bonds in respect of the Notes. The Indenture provides that
the Trustee shall not transfer any Senior Note Mortgage Bonds except to a
successor trustee, to Consumers (as provided in the Indenture) or in compliance
with a court order in connection with a bankruptcy or reorganization proceeding
of Consumers. The Trustee shall generally vote the Senior Note Mortgage Bonds
proportionately with what it believes to be the vote of all other First Mortgage
Bonds then outstanding except in connection with certain amendments or
modifications of the Mortgage, as described under "Description of the Notes --
Voting of Senior Note Mortgage Bonds Held by Trustee."
The Senior IQ Mortgage Bonds will correspond to the Notes in respect of
principal amount, interest rate, maturity date and redemption provisions. Upon
payment of the principal or premium, if any, or interest on the Notes, Senior IQ
Mortgage Bonds in a principal amount equal to the principal amount of such Notes
will, to the extent of such payment of principal, premium or interest, be deemed
fully paid and the obligation of Consumers to make such payment shall be
discharged. The Mortgage Trustee may conclusively assume that the obligation to
make payments on the Senior IQ Mortgage Bonds has been discharged unless it has
received a written notice from the Trustee stating that timely payment on the
Notes has not been made.
REDEMPTION PROVISIONS
The Senior IQ Mortgage Bonds will be redeemed on the respective dates and
in the respective principal amounts which correspond to the redemption dates
for, and the principal
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amounts to be redeemed of, the Notes. The Senior IQ Mortgage Bonds are not
redeemable by operation of the improvement fund or the maintenance or
replacement provisions of the Mortgage, or with the proceeds of released
property.
In the event of an Event of Default under the Indenture and acceleration of
the Notes, the Senior IQ Mortgage Bonds will be immediately redeemable in whole,
upon demand of the Trustee, at a redemption price of 100% of the principal
amount thereof, together with accrued interest to the redemption date. See
"Description of the Notes -- Events of Default."
PRIORITY AND SECURITY
The Senior Mortgage Bonds will rank pari passu as to security with bonds of
other series now outstanding or hereafter issued under the Mortgage, which is a
direct first lien on substantially all of Consumers' property and franchises
(other than certain property expressly excluded from the lien thereof (such as
cash, bonds, stock and certain other securities, contracts, accounts and bills
receivables, judgments and other evidences of indebtedness, stock in trade,
materials or supplies manufactured or acquired for the purpose of sale and/or
resale in the usual course of business or consumable in the operation of any of
the properties of Consumers, natural gas, oil and minerals, motor vehicles and
certain real property listed in Schedule A to the Mortgage)), and subject to
excepted encumbrances (and certain other limitations) as defined and described
in the Mortgage and subject to the provisions of MCL 324.20138. MCL 324.20138
provides that under certain circumstances, the State of Michigan's lien against
property on which it has incurred costs related to any response activity that is
subordinate to prior recorded liens can become superior to such prior liens
pursuant to court order. The Mortgage permits, with certain limitations
specified in Section 7.05, the acquisition of property subject to prior liens
and, under certain conditions specified in Section 7.14, permits the issuance of
additional indebtedness under such prior liens to the extent of 60% of net
property additions made by Consumers to the property subject to such prior
liens. (Granting Clauses, Article I.)
IMPROVEMENT FUND REQUIREMENT
The supplemental indentures under which certain series of outstanding bonds
have been issued provide for annual improvement fund payments, in cash and/or
bonds, in the amount of an "improvement fund requirement" (which generally is 1%
of the principal amount of such bonds, less certain bonds retired), which may
also be satisfied with, and cash withdrawn to the extent of, 60% of unfunded net
property additions. The Senior IQ Mortgage Bonds will not have the benefit of
any sinking or improvement fund.
MAINTENANCE AND REPLACEMENT REQUIREMENT
The supplemental indentures under which all series of outstanding bonds
prior to the Sixty-seventh Supplemental Indenture have been issued have
incorporated certain covenants contained in Section 7.07 of the Mortgage. Such
covenants, in addition to a general covenant with respect to maintenance of the
mortgaged property, require Consumers as of the end of each calendar year to
have applied certain amounts for maintenance, renewals and replacements of the
mortgaged and pledged property. The supplemental indenture relating to the
Senior IQ Mortgage Bonds does not incorporate Section 7.07 of the Mortgage.
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ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Additional bonds may be issued under the Mortgage to the extent of 60% of
unfunded net property additions or against the deposit of an equal amount of
cash, if, for any period of twelve consecutive months within the fifteen
preceding calendar months the net earnings of Consumers (before income or excess
profit taxes) shall have been at least twice the interest requirement for one
year on all bonds outstanding and to be issued and on indebtedness of prior or
equal rank. Additional bonds may also be issued to refund bonds theretofore
outstanding under the Mortgage. Deposited cash may be applied to the retirement
of bonds or be withdrawn in an amount equal to the principal amount of bonds
which may be issued on the basis of unfunded net property additions. (Articles
I, IV, V and VI.) As of June 30, 1998, unfunded net property additions were $2.8
billion, and Consumers could issue $1.7 billion of additional bonds on the basis
of such property additions. In addition, at June 30, 1998, Consumers could issue
$731 million of additional bonds on the basis of bonds previously retired.
The Senior IQ Mortgage Bonds are to be issued upon the basis of retired
bonds.
RELEASE AND SUBSTITUTION OF PROPERTY
The Mortgage provides that, subject to various limitations, property may be
released from the lien thereof when sold or exchanged, or contracted to be sold
or exchanged, upon the basis of cash deposited with the Mortgage Trustee, bonds
or purchase money obligations delivered to the Mortgage Trustee, prior lien
bonds delivered to the Mortgage Trustee or reduced or assumed by the purchaser,
property additions acquired in exchange for the property released, or upon a
showing that unfunded net property additions exist. The Mortgage also permits
the withdrawal of cash upon a showing that unfunded net property additions exist
or against the deposit of bonds or the application thereof to the retirement of
bonds. (Articles VI, VII and X.)
LIMITATIONS ON DIVIDENDS
The supplemental indenture relating to the Senior IQ Mortgage Bonds does
not restrict Consumers' ability to pay dividends on its Common Stock. However,
supplemental indentures relating to certain series of outstanding bonds prohibit
the payment of common dividends except out of retained earnings which have
accumulated since September 30, 1945 less the amount, if any, that actual
charges to income or retained earnings since December 31, 1945 for repairs,
maintenance and depreciation of certain of the property subject to the Indenture
are less than the maintenance and replacement requirements applicable pursuant
to Section 7.07 of the Indenture for the equivalent period.
MODIFICATION OF MORTGAGE
The Mortgage, the rights and obligations of Consumers and the rights of the
bondholders may be modified by Consumers with the consent of the holders of 75%
in principal amount of the bonds and of not less than 60% of the principal
amount of each series affected. In general, however, no modification of the
terms of payment of principal or interest and no modification affecting the lien
or reducing the percentage required for modification is effective against any
bondholder without the bondholder's consent. (Article XVII.) Consumers has
reserved the right without any consent or other action by the holders of bonds
of any series created after September 15, 1993 (including the Senior IQ Mortgage
Bonds) or by the holder of any
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Senior Note or Exchange Note, to amend the Mortgage in order to substitute a
majority in principal amount of bonds outstanding under the Mortgage for the 75%
requirement set forth above (and then only in respect of such series of
outstanding bonds as shall be affected by the proposed action) and to eliminate
the requirement for a series-by-series consent requirement.
CONCERNING THE MORTGAGE TRUSTEE
As of July 16, 1984, Citibank, N.A. resigned as Trustee under the Mortgage
and was replaced by Manufacturers Hanover Trust Company. As of June 19, 1992
Chemical Bank became successor Mortgage Trustee, and as of July 15, 1996 The
Chase Manhattan Bank became successor Mortgage Trustee.
The Chase Manhattan Bank is also the Trustee under the Indenture. Consumers
and its affiliates maintain depository and other normal banking relationships
with The Chase Manhattan Bank. The Chase Manhattan Bank is also a lender to
Consumers and its affiliates. The Mortgage provides that Consumers' obligations
to compensate the Mortgage Trustee and reimburse the Trustee for expenses,
disbursements and advances will constitute indebtedness which will be secured by
a lien generally prior to that of the Senior Note Mortgage Bonds upon all
property and funds held or collected by the Mortgage Trustee as such.
The Mortgage Trustee or the holders of 20% in aggregate principal amount of
the bonds may declare the principal due on default, but the holders of a
majority in aggregate principal amount may annul such declaration and waive the
default if the default has been cured. (Section 11.05.) Subject to certain
limitations, the holders of a majority in aggregate principal amount may
generally direct the time, method and place of conducting any proceeding for the
enforcement of the Mortgage. (Sections 11.01 and 11.12.) No bondholder has the
right to institute any proceedings for the enforcement of the Mortgage unless
such holder shall have given the Mortgage Trustee written notice of a default,
the holders of 20% of outstanding bonds shall have tendered to the Mortgage
Trustee reasonable security or indemnity against costs, expenses and liabilities
and requested the Mortgage Trustee to take action, the Mortgage Trustee shall
have declined to take action or failed to do so within sixty days and no
inconsistent directions shall have been given by the holders of a majority in
aggregate principal amount of the bonds. (Section 11.14.) The Mortgage Trustee
is not required to advance or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties if there is
reasonable ground for believing that repayment is not reasonably assured to it.
(Section 16.03.)
DEFAULTS
By Section 11.01 of the Mortgage, the following are defined as "defaults":
failure to pay principal when due; failure to pay interest for sixty days;
failure to pay any installment of any sinking or other purchase fund for ninety
days; certain events in bankruptcy, insolvency or reorganization; failure to
perform any other covenant for ninety days following written demand by the
Mortgage Trustee for Consumers to cure such failure. Consumers has covenanted to
pay interest on any overdue principal and (to the extent permitted by law) on
overdue installments of interest, if any, on the bonds under the Mortgage at the
rate of 6% per annum. The Mortgage does not contain a provision requiring any
periodic evidence to be furnished as to the absence of default or as to
compliance with the terms thereof. However, Consumers is required by law to
furnish annually to the Trustee a certificate as to compliance with all
conditions and covenants under the Mortgage.
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AMBAC ASSURANCE CORPORATION
The information set forth in this section has been provided by Ambac
Assurance Corporation (the "Insurer"). No representation is made by the Company
or the Underwriter as to the accuracy or completeness of any such information.
THE POLICY
The Insurer will issue a financial guaranty insurance policy relating to
the Notes (the "Policy"). The following summary of the terms of the Policy does
not purport to be complete and is qualified in its entirety by reference to the
Policy.
The Insurer has made a commitment to issue the Policy effective as of the
date of issuance of the Notes. Under the terms of the Policy, the Insurer will
pay to the United States Trust Company of New York, in New York, New York, or
any successor thereto (the "Insurance Trustee") that portion of the principal of
and interest on the Notes which shall become Due for Payment but shall be unpaid
by reason of Nonpayment (as such terms are defined in the Policy) by the
Company. The Insurer will make such payments to the Insurance Trustee on the
later of the date on which such principal and interest becomes Due for Payment
or within one business day following the date on which the Insurer shall have
received notice of Nonpayment from the Trustee. The insurance will extend for
the term of the Notes and, once issued, cannot be canceled by the Insurer.
The Policy will insure payment only on the stated date of maturity, in the
case of principal, and on Interest Payment Dates, in the case of interest. In
the event of any acceleration of the principal of the Notes which occurs prior
to the Release Date, the Insurer will continue to pay interest on the Interest
Payment Dates as would have been made had there not been an acceleration until
such time, if at all, as the Insurer has received payment pursuant to the
remedies under the Mortgage Indenture ("Mortgage Indenture Proceeds"). Any and
all Mortgage Indenture Proceeds received by the Insurer shall immediately be
paid over to the Noteholders of record at the time the Mortgage Indenture
Proceeds are received by the Insurer. In the event of any acceleration of the
principal of the Notes which occurs after the Release Date, the insured payments
will be made at such times and in such amounts as would have been made had there
not been an acceleration.
In the event the Trustee has received notice that any payment of principal
of or interest on a Note which has become Due for Payment and which is made to a
holder by or on behalf of the Company has been deemed a preferential transfer
and therefore recovered from its registered owner pursuant to the United States
Bankruptcy Code in accordance with a final, nonappealable order of a court of
competent jurisdiction, such registered owner will be entitled to payment from
the Insurer to the extent of such recovery if sufficient funds are not otherwise
available.
The Policy does NOT insure any risk other than Nonpayment, as defined in
the Policy. Specifically, the Policy does NOT cover:
1. payment on acceleration, as a result of a call for redemption (including
any redemption in connection with a Beneficial Owner's Redemption Request)
or as a result of any other advancement of maturity.
2. payment of any redemption, prepayment or acceleration premium.
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3. nonpayment of principal or interest caused by the insolvency or
negligence of the Trustee.
If it becomes necessary to call upon the Policy, payment of principal
requires surrender of Notes to the Insurance Trustee together with an
appropriate instrument of assignment so as to permit ownership of such Notes to
be registered in the name of the Insurer to the extent of the payment under the
Policy. Payment of interest pursuant to the Policy requires proof of holder
entitlement to interest payments and an appropriate assignment of the holder's
right to payment to the Insurer. Each holder of Notes will be responsible for
preparing and submitting to the Insurance Trustee such required documentation,
and the Policy does not provide for payment of any interest to a holder in
respect of any period of time between a scheduled payment date under the Notes
and the date of actual disbursement of related insurance benefits by the
Insurance Trustee.
Upon payment of the insurance benefits, in the case of the payment of
principal, whether at maturity or acceleration, the Insurer will become the
owner of the Notes and shall be entitled to all the rights as a noteholder
thereunder, and in the case of payment of interest, the Insurer will be fully
subrogated to the rights of the holders of the Notes under the Indenture to the
extent of the insurance payments made by the Insurer.
The insurance provided by the Policy is not covered by the
property/casualty insurance security fund specified by the insurance laws of the
State of New York.
THE INSURER
The Insurer is a Wisconsin-domiciled stock insurance corporation regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Commonwealth
of Puerto Rico and Guam. The Insurer primarily insures newly issued municipal
and structured finance obligations. The Insurer is a wholly-owned subsidiary of
Ambac Financial Group, Inc. (formerly AMBAC Inc.) (the "Parent"), a 100%
publicly-held company. Moody's Investor Services, Inc. ("Moody's"), Standard &
Poor's Ratings Services ("S&P") have each assigned a triple-A financial strength
rating to the Insurer. Fitch IBCA has assigned a rating of "AAA" to the
claims-paying ability of the Insurer.
The Parent is subject to the informational requirements of the 1934 Act,
and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the public reference section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, the aforementioned material may also be inspected at the offices of
the New York Stock Exchange, Inc. (at the "NYSE") at 20 Broad Street, New York,
New York 10005. The Parent's Common Stock is listed on the NYSE.
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The following documents filed by the Parent with the SEC (File No. 1-10777)
are incorporated by reference herein:
(1) The Parent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and filed on March 31, 1998;
(2) The Parent's Current Report on Form 8-K dated March 27, 1998 and filed
on March 27, 1998;
(3) The Parent's Amendment to its Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997 and filed on March 31, 1998;
(4) The Parent's Quarterly Report on Form 10-Q for the fiscal quarterly
period ended March 31, 1998 and filed on May 15, 1998; and
(5) The Parent's Quarterly Report on Form 10-Q for the fiscal quarterly
period ended June 30, 1998 and filed on August 14, 1998.
All documents subsequently filed by the Parent pursuant to the requirements
of the 1934 Act after the date of this Prospectus will be available in the same
manner as described in the second preceding paragraph.
Any statement contained in a document incorporated herein by reference
shall be modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
All financial statements of the Insurer and its subsidiaries included in
documents filed by the Parent with the SEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Notes shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the respective
dates of filing such documents.
The following table sets forth the capitalization of the Insurer as of
December 31, 1995, December 31, 1996, December 31, 1997 and June 30, 1998, in
conformity with generally accepted accounting principles.
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AMBAC ASSURANCE CORPORATION
CONSOLIDATED CAPITALIZATION TABLE
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997 1998
------------ ------------ ------------ --------
(DOLLARS IN MILLIONS) (UNAUDITED)
Unearned premiums........... $ 906 $ 995 $1,184 $1,228
Other liabilities........... 295 259 562 657
------ ------ ------ ------
Total liabilities........... 1,201 1,254 1,746 1,885
------ ------ ------ ------
Stockholder's equity:
Common stock.............. 82 82 82 82
Additional paid-in
capital................ 481 515 521 526
Accumulated other
comprehensive income... 87 66 118 124
Retained earnings......... 907 992 1,180 1,290
------ ------ ------ ------
Total stockholder's
equity.................... 1,557 1,655 1,901 2,022
------ ------ ------ ------
Total liabilities and
stockholder's equity...... $2,758 $2,909 $3,647 $3,907
====== ====== ====== ======
- -------------------------
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "accumulated other comprehensive income" in accordance
with the Statement of Financial Accounting Standards No 130 "Reporting
Comprehensive Income" adopted by the Insurer effective January 1, 1998. As
this new standard only requires additional information in the financial
statements, it does not affect the Insurer's financial position or results
of operations.
For additional financial information concerning the Insurer, see the
audited and unaudited financial statements of the Insurer incorporated by
reference herein. Copies of the financial statements of the Insurer incorporated
by reference and copies of the Insurer's annual statement for the year ended
December 31, 1997 prepared in accordance with statutory accounting standards are
available, without charge from the Insurer, at One State Street Plaza, 17th
Floor, New York, New York 10004 and its telephone number is (212) 668-0340.
The Insurer makes no representation regarding the Notes or the advisability
of investing in the Notes and makes no representation regarding, nor has it
participated in the preparation of, this Prospectus other than the information
supplied by the Insurer and presented under the heading "Ambac Assurance
Corporation" and in the financial statements incorporated herein by reference.
33
35
RATINGS
It is anticipated that S&P and Moody's will assign the Notes the ratings
set forth on the cover page hereof conditioned upon the issuance and delivery by
the Insurer at the time of delivery of the Notes of the Policy, insuring the
timely payment of the principal of and interest on the Notes. Such ratings
reflect only the views of such rating agencies, and an explanation of the
significance of such ratings may be obtained only from such rating agencies at
the following addresses: Moody's Investors Service, Inc., 99 Church Street, New
York, New York 10007; and Standard & Poor's, 25 Broadway, New York, New York
10004. There is no assurance that such ratings will remain in effect for any
period of time or that they will not be revised downward or withdrawn entirely
by the rating agencies if, in their judgment, circumstances warrant. The Insurer
does not guarantee the market price of the Notes nor does it guarantee that the
ratings on the Notes will not be revised or withdrawn. Neither the Company nor
the Underwriter has undertaken any responsibility to oppose any proposed
downward revision or withdrawal of a rating on the Notes. Any such downward
revision or withdrawal of such ratings may have an adverse effect on the market
price of the Notes.
At present, each of such rating agencies maintains four categories of
investment grade ratings. They are for S&P -- AAA, AA, A and BBB and for Moody's
- -- aa, Aa, A and Baa. S&P defines "AAA" as the highest rating assigned to a debt
obligation. Moody's defines "Aaa" as representing the best quality debt
obligation carrying the smallest degree of investment risk.
34
36
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement relating
to the offering of Notes (the "Underwriting Agreement"), between the Company and
Edward D. Jones & Co., L.P. (the "Underwriter"), a form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase from the Company, the entire principal amount of the Notes.
The Underwriter has advised the Company that it proposes to offer the Notes
from time to time for sale in one or more negotiated transactions or otherwise,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Underwriter may effect
such transactions by selling the Notes to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and/or the purchasers of the Notes for whom
they may act as agent. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Notes may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of the Notes by them may be deemed to be underwriting discounts or commissions,
under the 1933 Act.
The Company has agreed, during the period of 10 days from the date on which
the Notes are purchased by the Underwriters, not to sell, offer to sell, grant
any option for the sale of, or otherwise dispose of any Notes, any security
convertible into or exchangeable into or exercisable for Notes or any debt
securities substantially similar to the Notes (except for the Notes issued
pursuant to the Underwriting Agreement and any offering of Senior Note Mortgage
Bonds), without the prior written consent of the Underwriter.
Prior to this Offering, there has been no public market for the Notes. The
Underwriter has advised the Company that it intends to make a market in the
Notes. The Underwriter will have no obligation to make a market in the Notes,
however, and may cease market making activities, if commenced, at any time.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the 1933 Act and to contribute to
payments the Underwriter may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Company by Michael D. VanHemert, Assistant General Counsel for CMS Energy.
Certain legal matters relating to the Notes will be passed upon for any
underwriters, dealers or agents by Skadden, Arps, Slate, Meagher & Flom LLP. As
of June 30, 1998, an attorney currently employed by Skadden, Arps, Slate,
Meagher & Flom LLP, and formerly employed by CMS Energy, owned approximately
50,326 shares of CMS Energy Common Stock, $.01 par value ("CMS Energy Common
Stock"), 2,000 shares of CMS Energy Class G Common Stock, no par value, options
to acquire approximately 142,000 shares of CMS Energy Common Stock, 10 shares of
Consumers $4.50 Series Preferred Stock, $100 par value, and $50,000 aggregate
principal amount of certain debt securities issued by CMS Energy. As of June 30,
1998, Mr. VanHemert beneficially owned approximately 2,785 shares of CMS Energy
Common Stock.
35
37
EXPERTS
The consolidated financial statements and schedules of Consumers as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 incorporated by reference in this Offering Memorandum, have
been audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.),
independent public accountants, as indicated in their reports with respect
thereto.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31 and June 30, 1998 and 1997, Arthur Andersen LLP
has applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports thereon state that
they did not audit and they did not express an opinion on that interim
consolidated financial information. Accordingly, the degree of reliance on their
reports on that information should be restricted in light of the limited nature
of the review procedures applied. In addition, the accountants are not subject
to the liability provisions of Section 11 of the Securities Act, for their
reports on the unaudited interim consolidated financial information because
these reports are not "reports" or part of a registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements of the Insurer, Ambac Assurance
Corporation, as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997, are incorporated by reference herein and in
the registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
36
38
INCORPORATION BY REFERENCE:
INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- - incorporated documents are considered part of the prospectus;
- - we can disclose important information to you by referring you to those
documents; and
- - information that we file with the SEC will automatically update and supersede
certain information in this prospectus.
We incorporate by reference the documents listed below which were filed with the
SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- - our Annual Report on Form 10-K for the year ended December 31, 1997;
- - our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31
and June 30, 1998; and
- - our Current Report on Form 8-K, dated October 2, 1998.
We also incorporate by reference each of the following documents that we will
file with the SEC after the date of this prospectus but before the end of the
notes offering:
- - reports filed under Sections 13(a) and (c) of the Exchange Act;
- - definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- - any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding exhibits), at
no cost, by contacting us at the following address:
Consumers Energy Company
Attention: Chief Financial Officer
212 West Michigan Avenue
Jackson, Michigan 49201
517-788-0550
37
39
---------------------------------------------------------------
---------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE SENIOR SECURED INSURED QUARTERLY NOTES IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information........... 2
Forward-Looking Statements.................... 2
Prospectus Summary............................ 3
Consumers Energy Company...................... 6
Selected Consolidated Financial Data.......... 8
Ratio of Earnings to Fixed Charges............ 8
Capitalization................................ 9
Use of Proceeds............................... 9
Description of the Notes...................... 11
Description of First Mortgage Bonds........... 26
Ambac Assurance Corporation................... 30
Ratings....................................... 34
Underwriting.................................. 35
Legal Matters................................. 35
Experts....................................... 36
Incorporation by Reference.................... 37
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
$150,000,000
LOGO
[ ]% SENIOR SECURED INSURED QUARTERLY
NOTES DUE OCTOBER 1, 2028
(IQ NOTES(SM))
--------------------
PROSPECTUS
--------------------
EDWARD D. JONES & CO., L.P.
OCTOBER [ ], 1998
---------------------------------------------------------------
---------------------------------------------------------------
40
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
AMOUNT
------
Securities and Exchange Commission filing fee............... $ 44,250
*Trustees expenses.......................................... 18,000
*Printing and engraving..................................... 80,000
*Services of counsel........................................ 50,000
*Services of independent public accountants, Arthur Anderson
LLP....................................................... 10,000
*Rating Agency Fees......................................... 80,000
*Blue Sky fees and expenses................................. 20,000
*Miscellaneous.............................................. 5,000
--------
*Total.................................................... $307,250
========
- -------------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following resolution was adopted by the Board of Directors of Consumers
on May 6, 1987:
RESOLVED: That effective March 1, 1987 the Company shall indemnify to the
full extent permitted by law every person (including the estate, heirs and
legal representatives of such person in the event of the decease,
incompetency, insolvency or bankruptcy of such person) who is or was a
director, officer, partner, trustee, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
partner, trustee, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against all liability, costs,
expenses, including attorneys' fees, judgments, penalties, fines and
amounts paid in settlement, incurred by or imposed upon the person in
connection with or resulting from any claim or any threatened, pending or
completed action, suit or proceeding whether civil, criminal,
administrative, investigative or of whatever nature, arising from the
person's service or capacity as, or by reason of the fact that the person
is or was, a director, officer, partner, trustee, employee or agent of the
Company or is or was serving at the request of the Company as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Such right of
indemnification shall not be deemed exclusive of any other rights to which
the person may be entitled under statute, bylaw, agreement, vote of
shareholders or otherwise.
Article XIII, Section 1 of Consumers' Bylaws provides:
The Company may purchase and maintain liability insurance, to the full
extent permitted by law, on behalf of any person who is or was a director,
officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
II-1
41
enterprise against any liability asserted against such person and incurred
by such person in any such capacity.
Article V of Consumers Restated Articles of Incorporation, as amended
reads:
A director shall not be personally liable to the Company or its
shareholders for monetary damages for breach of duty as a director except
(i) for a breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for a violation
of Section 551(1) of the Michigan Business Corporation Act, and (iv) any
transaction from which the director derived an improper personal benefit.
No amendment to or repeal of this Article V, and no modification to its
provisions by law, shall apply to, or have any effect upon, the liability
or alleged liability of any director of the Company for or with respect to
any acts or omissions of such director occurring prior to such amendment,
repeal or modification.
Article VI of Consumers Restated Articles of Incorporation, as amended
reads:
Each director and each officer of the Company shall be indemnified by the
Company to the fullest extent permitted by law against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with the defense of any proceeding in which he or she was or is a party or
is threatened to be made a party by reason of being or having been a
director or an officer of the Company. Such right of indemnification is not
exclusive of any other rights to which such director or officer may be
entitled under any now or thereafter existing statute, any other provision
of these Articles, bylaw, agreement, vote of shareholders or otherwise. If
the Business Corporation Act of the State of Michigan is amended after
approval by the shareholders of this Article VI to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Company shall be eliminated or
limited to the fullest extent permitted by the Business Corporation Act of
the State of Michigan, as so amended. Any repeal or modification of this
Article VI by the shareholders of the Company shall not adversely affect
any right or protection of a director of the Company existing at the time
of such repeal or modification.
Sections 561 through 571 of the Michigan Business Corporation Act provides
Consumers with the power to indemnify directors, officers, employees and agents
against certain expenses and payments, and to purchase and maintain insurance on
behalf of directors, officers, employees and agents.
Officers and directors are covered within specified monetary limits by
insurance against certain losses arising from claims made by reason of their
being directors or officers of Consumers or of Consumers' subsidiaries and
Consumers' officers and directors are indemnified against such losses by reason
of their being or having been directors of officers of another corporation,
partnership, joint venture, trust or other enterprise at Consumers' request. In
addition, Consumers has indemnified each of its present directors by contracts
that contain affirmative provisions essentially similar to those in sections 561
through 571 of the Michigan Business Corporation Act cited above.
II-2
42
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
1 -- Form of Underwriting Agreement.
*3(a) -- Certificate of Amendment to the Articles of Incorporation of
Consumers dated March 10, 1997 and Restated Articles of
Incorporation of Consumers. (Designated in Consumers' Form
10-K for the year ended December 31, 1996, File No. 1-5611,
as Exhibit 3(c).)
*3(b) -- By-Laws of Consumers. (Designated in Consumers' Form 10-K
for the year ended December 31, 1996, File No. 1-5611 as
Exhibit 3(d).)
*4(a) -- Indenture dated as of February 1, 1998 between Consumers
Energy Company and The Chase Manhattan Bank, as Trustee.
(Designated in Consumers' Form 10-K for the year ended
December 31, 1997, File No. 1-5611, as Exhibit (4)(c).)
-- First Supplemental Indenture dated as of May 1, 1998 between
Consumers Energy Company and The Chase Manhattan Bank, as
Trustee (Designated in Consumers= Form 10-Q for the quarter
ended March 31, 1998, File No. 1-5611, as Exhibit (4)(a).)
*4(b) -- Second Supplemental Indenture dated as of June 15, 1998
between Consumers Energy Company and The Chase Manhattan
Bank, as Trustee. (Designated in Consumers Energy Company's
Registration Statement on Form S-4 dated July 13, 1998, File
No. 333-58943, as Exhibit 4(b).)
4(c) -- Third Supplemental Indenture dated as of October , 1998
between Consumers Energy Company and The Chase Manhattan
Bank, as Trustee.
*4(d) -- Indenture dated as of September 1, 1945, between Consumers
Energy Company and Chemical Bank (successor to Manufacturers
Hanover Trust Company, as Trustee, including therein
indentures supplemental thereto through the Forty-third
supplemental Indenture dated as of May 1, 1979. (Designated
in Consumers Energy Company's Registration Statement No.
2-65973 as Exhibit (b)(1)-(4).)
Indentures Supplemental thereto:
CONSUMERS
ENERGY COMPANY
SUP IND/DATED AS OF FILE REFERENCE EXHIBITS
------------------- -------------- --------
67th 11/15/89 (4)(d)
Reg. No. 33-31866
68th 06/15/93 (4)(d)
Reg. No. 33-41126
69th 09/15/93 (4)
Form 8-K dated September 21, 1993,
File No. 1-5611
70th 02/01/98 (4)
Form 10-K for year ended
December 31, 1997, File No. 1-5611
71st 03/01/98 (4)
Form 10-K for year ended
December 31, 1997, File No. 1-5611
72nd 05/01/98 (4)(b)
Form 10-Q for period ended
March 31, 1998, File No. 1-5611
73rd 06/15/98 (4)(d)
Reg. No. 333-58943
4(e) Form of 74th 10/ /98
II-3
43
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4(f) -- Form of Financial Guaranty Insurance Policy issued by Ambac
Assurance Corporation
4(g) -- Instruments defining the rights of security holders,
including indentures. Consumers Energy Company hereby agrees
to furnish to the Commission upon request a copy of any
instrument covering securities the amount of which does not
exceed 10% of the total assets of Consumers Energy Company
and its subsidiaries on a consolidated basis.
*5 -- Opinion of Michael D. Van Hemert, Assistant General Counsel
for CMS Energy.
*12 -- Statement re: computation of Ratios of Earnings to Fixed
Charges. (Designated in Consumers Energy Company's
Registration Statement on Form S-4 dated September 22, 1998,
File No. 333-63969, as Exhibit 12.)
*15 -- Letter re: unaudited interim financial information.
*23(a) -- Consent of Michael D. Van Hemert, Assistant General Counsel
for CMS Energy (included in Exhibit 5 above).
*23(c) -- Consent of Arthur Andersen LLP.
*24 -- Powers of Attorney of Directors whose names are signed to
this registration statement pursuant to such powers.
*25 -- Statement of Eligibility and Qualification of The Chase
Manhattan Bank (Designated in Consumers Energy Company's
Registration Statement on Form S-4 dated July 13, 1998, File
No. 333-58943, as Exhibit 25).
- -------------------------
* Previously filed
Exhibits listed above which have been filed with the Securities and
Exchange Commission are incorporated herein by reference with the same effect as
if filed with this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in this registration statement shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 20 above,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that as claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of
II-4
44
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and be governed by the final adjudication of such issue.
(3) That (1) for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
45
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to its Registration Statement on Form S-3
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Jackson, and State of Michigan, on the 16th day of October 1998.
CONSUMERS ENERGY COMPANY
By: /s/ AM WRIGHT
-----------------------------------
Alan M. Wright
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to its Registration Statement on Form S-3 has been signed below by the
following persons in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
(i) Principal executive officer:
/s/ VICTOR J. FRYLING President October 16, 1998
- ---------------------------------------------
Victor J. Fryling
(ii) Principal financial officer:
/s/ AM WRIGHT Senior Vice President and October 16, 1998
- --------------------------------------------- Chief Financial Officer
Alan M. Wright
(iii) Controller or principal accounting officer:
/s/ DENNIS DAPRA Vice President and October 16, 1998
- --------------------------------------------- Controller
Dennis DaPra
* Director October 16, 1998
- ---------------------------------------------
(William T. McCormick, Jr.)
* Director October 16, 1998
- ---------------------------------------------
(John M. Deutch)
* Director October 16, 1998
- ---------------------------------------------
(James J. Duderstadt)
* Director October 16, 1998
- ---------------------------------------------
(Kathleen R. Flaherty)
* Director October 16, 1998
- ---------------------------------------------
(Victor J. Fryling)
II-6
46
NAME TITLE DATE
---- ----- ----
* Director October 16, 1998
- ---------------------------------------------
(Earl D. Holton)
* Director October 16, 1998
- ---------------------------------------------
(William U. Parfet)
* Director October 16, 1998
- ---------------------------------------------
(Percy A. Pierre)
* Director October 16, 1998
- ---------------------------------------------
(Kenneth L. Way)
* Director October 16, 1998
- ---------------------------------------------
(Kenneth Whipple)
* Director October 16, 1998
- ---------------------------------------------
(John B. Yasinsky)
*By: /s/ AM WRIGHT
---------------------------------------
Alan M. Wright
Attorney in-fact
II-7
47
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
1 -- Form of Underwriting Agreement.
*3(a) -- Certificate of Amendment to the Articles of Incorporation of
Consumers dated March 10, 1997 and Restated Articles of
Incorporation of Consumers. (Designated in Consumers' Form
10-K for the year ended December 31, 1996, File No. 1-5611,
as Exhibit 3(c).)
*3(b) -- By-Laws of Consumers. (Designated in Consumers' Form 10-K
for the year ended December 31, 1996, File No. 1-5611 as
Exhibit 3(d).)
*4(a) -- Indenture dated as of February 1, 1998 between Consumers
Energy Company and The Chase Manhattan Bank, as Trustee.
(Designated in Consumers' Form 10-K for the year ended
December 31, 1997, File No. 1-5611, as Exhibit (4)(c).)
-- First Supplemental Indenture dated as of May 1, 1998 between
Consumers Energy Company and The Chase Manhattan Bank, as
Trustee (Designated in Consumers' Form 10-Q for the quarter
ended March 31, 1998, File No. 1-5611, as Exhibit (4)(a).)
*4(b) -- Second Supplemental Indenture dated as of June 15, 1998
between Consumers Energy Company and The Chase Manhattan
Bank, as Trustee. (Designated in Consumers Energy Company's
Registration Statement on Form S-4 dated July 13, 1998, File
No. 333-58943, as Exhibit 4(b).)
4(c) -- Third Supplemental Indenture dated as of October , 1998
between Consumers Energy Company and The Chase Manhattan
Bank, as Trustee.
*4(d) -- Indenture dated as of September 1, 1945, between Consumers
Energy Company and Chemical Bank (successor to Manufacturers
Hanover Trust Company, as Trustee, including therein
indentures supplemental thereto through the Forty-third
supplemental Indenture dated as of May 1, 1979. (Designated
in Consumers Energy Company's Registration Statement No.
2-65973 as Exhibit (b)(1)-(4).)
Indentures Supplemental thereto:
CONSUMERS
ENERGY COMPANY
SUP IND/DATED AS OF FILE REFERENCE EXHIBITS
------------------- -------------- --------
67th 11/15/89 (4)(d)
Reg. No. 33-31866
68th 06/15/93 (4)(d)
Reg. No. 33-41126
69th 09/15/93 (4)
Form 8-K dated September 21, 1993,
File No. 1-5611
70th 02/01/98 (4)
Form 10-K for year ended
December 31, 1997, File No. 1-5611
71st 03/01/98 (4)
Form 10-K for year ended
December 31, 1997, File No. 1-5611
72nd 05/01/98 (4)(b)
Form 10-Q for period ended
March 31, 1998, File No. 1-5611
73rd 06/15/98 (4)(d)
Reg. No. 333-58943
4(e) Form of 74th 10/ /98
48
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4(f) -- Form of Financial Guaranty Insurance Policy issued by Ambac
Assurance Corporation.
4(g) -- Instruments defining the rights of security holders,
including indentures. Consumers Energy Company hereby agrees
to furnish to the Commission upon request a copy of any
instrument covering securities the amount of which does not
exceed 10% of the total assets of Consumers Energy Company
and its subsidiaries on a consolidated basis.
*5 -- Opinion of Michael D. Van Hemert, Assistant General Counsel
for CMS Energy.
*12 -- Statement re: computation of Ratios of Earnings to Fixed
Charges. (Designated in Consumers Energy Company's
Registration Statement on Form S-4 dated September 22, 1998,
File No. 333-63969, as Exhibit 12.)
*15 -- Letter re: unaudited interim financial information.
*23(a) -- Consent of Michael D. Van Hemert, Assistant General Counsel
for CMS Energy (included in Exhibit 5 above).
*23(c) -- Consent of Arthur Andersen LLP.
*24 -- Powers of Attorney of Directors whose names are signed to
this registration statement pursuant to such powers.
*25 -- Statement of Eligibility and Qualification of The Chase
Manhattan Bank (Designated in Consumers Energy Company's
Registration Statement on Form S-4 dated July 13, 1998, File
No. 333-58943, as Exhibit 25).
- -------------------------
* Previously filed
Exhibits listed above which have been filed with the Securities and
Exchange Commission are incorporated herein by reference with the same effect as
if filed with this Registration Statement.